As filed with the Securities and Exchange Commission on February 22, 2024.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Reddit, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | 7374 | 45-2546501 |
(State or other jurisdiction of
incorporation or organization) | (Primary Standard Industrial
Classification Code Number) | (I.R.S. Employer Identification Number) |
303 2nd Street, South Tower, 5th Floor
San Francisco, California 94107
(415) 494-8016
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Steven Huffman
Chief Executive Officer and President
Reddit, Inc.
303 2nd Street, South Tower, 5th Floor
San Francisco, California 94107
(415) 494-8016
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Anthony J. Richmond
Richard A. Kline
Sarah B. Axtell
Latham & Watkins LLP
140 Scott Drive
Menlo Park, California 94025
(650) 328-4600 | Benjamin Lee Chief Legal Officer Milana McCullagh VP, Legal Reddit, Inc. 303 2nd Street, South Tower, 5th Floor San Francisco, California 94107 (415) 494-8016 | Alan F. Denenberg Emily Roberts Elizabeth LeBow Davis Polk & Wardwell LLP 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☐ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and neither we nor the selling stockholders are soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
Preliminary Prospectus (Subject to Completion)
Issued , 2024
Shares
Reddit, Inc.
Class A Common Stock
Reddit, Inc. is offering shares of its Class A common stock and the selling stockholders identified in this prospectus are offering an aggregate of shares of Class A common stock. This is our initial public offering and no public market currently exists for shares of our Class A common stock. We will not receive any proceeds from the sale of shares of common stock by any of the selling stockholders. We anticipate that the initial public offering price per share of our Class A common stock will be between $ and $ .
We have applied to list our Class A common stock on the New York Stock Exchange under the symbol “RDDT.”
We 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 rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of Class A common stock. Each share of Class C common stock is entitled to no votes. The holders of our outstanding Class B common stock will hold approximately % of the voting power of our outstanding capital stock after the completion of this offering, with our directors and executive officers and their affiliates holding approximately %, after giving effect to the voting agreement to be entered into between Advance Magazine Publishers Inc., our principal stockholder, and Steven Huffman, our Chief Executive Officer and President and a member of our board of directors, and assuming no exercise of the underwriters’ option to purchase additional shares to cover over-allotments.
We are an “emerging growth company” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for this and future filings.
Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 22 to read about factors you should consider before deciding to invest in our Class A common stock. PRICE $ A SHARE
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| Price to Public | | Underwriting Discounts and Commissions(1) | | Proceeds to Reddit(2) | | Proceeds to Selling Stockholders(2) |
| Per Share | $ | | $ | | $ | | $ |
| Total | $ | | $ | | $ | | $ |
________________
(1)See “Underwriters” for a description of the compensation payable to the underwriters.
(2)Before expenses.
At our request, the underwriters have reserved up to shares of our Class A common stock, or % of the shares offered in this offering, for sale at the initial public offering price through a directed share program to (i) eligible users and moderators on our platform, (ii) certain members of our board of directors, and (iii) friends and family members of certain of our employees and directors. See “Underwriters—Directed Share Program.”
We have granted the underwriters the right to purchase up to an additional shares of our Class A common stock from us to cover over-allotments, if any, at the initial public offering price less the underwriting discount.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares against payment on , 2024.
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| MORGAN STANLEY | | GOLDMAN SACHS & CO. LLC* | | J.P. MORGAN* | | BOFA SECURITIES |
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| CITIGROUP | | DEUTSCHE BANK SECURITIES | | MUFG |
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CITIZENS JMP | | NEEDHAM & COMPANY | | PIPER SANDLER | | RAYMOND JAMES |
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| ACADEMY SECURITIES | | LOOP CAPITAL MARKETS | | RAMIREZ & CO., INC. | | ROTH CAPITAL PARTNERS | | TELSEY ADVISORY GROUP |
________________
*In alphabetical order
Prospectus dated , 2024
TABLE OF CONTENTS
As used in this prospectus, unless the context otherwise requires, references to “Reddit,” the “company,” “we,” “us,” “our,” and similar terms refer to Reddit, Inc. and, where appropriate, its subsidiaries, taken as a whole.
“REDDIT,” the Reddit logos, and other trade names, trademarks, or service marks of Reddit appearing in this prospectus are the property of Reddit. Other trade names, trademarks, or service marks appearing in this prospectus are the property of their respective holders. Solely for convenience, trade names, trademarks, and service marks referred to in this prospectus appear without the ®, ™, and SM symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trade names, trademarks, and service marks.
Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.
References to www.reddit.com or particular subreddits accessible via www.reddit.com in this prospectus are inactive textual references only, and the information contained on, or that can be accessed through, such web addresses does not constitute part of this prospectus.
Neither we, the selling stockholders, nor the underwriters have authorized anyone to provide you any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we, the selling stockholders, nor the underwriters take responsibility for, or provide any assurance as to the reliability of, any other information others may give you. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. We, the selling stockholders, and the underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not 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 any sale of the shares of our Class A common stock. Our business, results of operations, financial condition, and prospects may have changed since that date.
For Investors Outside the United States: Neither we, the selling stockholders, nor the underwriters have done anything that would permit this offering or the possession or distribution of this prospectus or any free writing prospectus in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outside the United States.
Through and including , 2024 (the 25th day after the date of this prospectus), all dealers that buy, sell, or trade shares of our Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscription.
LETTER FROM OUR CO-FOUNDER
I think of August 13, 2005 as the day Reddit really came to life. We had been online for a couple of months, but until then there had never been enough posts from users on any day to fill the front page. That morning, to my surprise, I opened Reddit to discover the home page was overflowing with posts from real users for the first time.
Reddit has been teeming with activity ever since. More than 76 million people, on average, visited every day in December 2023. They come to Reddit to participate in a vibrant community, a constantly evolving place where anyone, anywhere, can connect with like-minded people and dive into any topic. The conversation ranges from the sublime to the ridiculous, the trivial to the existential, the comic to the serious. Whatever people are into or going through, it is on Reddit. I am particularly proud of the role Reddit plays in providing support to people during pivotal life moments when turning to friends and family may not be an option. Somebody might visit r/ Parenting for help when they’re having trouble with a child, or go to r/ lgbt for advice about coming out, or they might turn to r/ stopdrinking for help quitting drinking, as I did more than four years ago.
The communities of Reddit help people at a scale that I never imagined might be possible. To help Reddit live up to the opportunity this presents is why I came back here as CEO in 2015, why our team works with such dedication, and why our users spend so much time and energy building authentic, trusted, and passionate communities. One of the founding principles of Reddit was that it be a real place cultivated by real people instead of a fake place manicured by editors and other gatekeepers. Reddit is not a social media platform optimized for self-display; it is a community that rewards candor and honest advice. This is why millions of people trust Reddit for everything from relationship guidance to in-depth product recommendations (and add “reddit” by name to their searches for virtually anything). We have confidence in the magic of human-curated organization, creativity, and generosity. Reddit enables these human virtues, which means we can mostly stay out of the way.
Another important quality of Reddit is that we let users choose whether to reveal their identities or to stay anonymous. We believe it is more respectful and safer not to force users to combine their real-world and online identities. Reddit allows people to be themselves, to be vulnerable and honest in a way that is difficult or sometimes impossible in the real world or other places online. Looking around, it’s easy to be disheartened about people and the state of the world, but on Reddit I have experienced the opposite: people naturally create community, and they are smarter, funnier, and more helpful and caring than I think we often give them credit for.
And this is not because our users are some special subset of humanity. They’re just people. But when people are in the right context, they can do incredible things. Time and again, Reddit communities have provided exactly that context and been a tremendous force for good: they have created and catalyzed global movements, including campaigning for net neutrality in 2015, starting the March for Science in 2017, or standing up for retail investors, as r/wallstreetbets did in 2021. They have also provided witness and galvanized worldwide response in times of crisis, such as r/worldnews’ coverage of the war in Ukraine and the generous outpouring of assistance coordinated by Redditors themselves.
As a way of capturing the richness, scale, diversity, and infinite possibilities for discovery encompassed by Reddit, I often compare it to a growing city. Today, our city has more than 100,000 unique neighborhoods, which we call subreddits, and each has its own slang, vibe, sense of humor, and both written and unwritten rules. We did not create these communities. Reddit’s users did. Our role is to develop and maintain a common infrastructure that helps keep the city secure and thriving, with space to grow. Sometimes, people break the rules, do harmful things, and force us to devise new rules—just as in physical cities. But our core commitment remains unchanged: to make Reddit as healthy, accessible, and enjoyable as possible.
We are going public to advance our mission and become a stronger company. We hope going public will provide meaningful benefits to our community as well. Our users have a deep sense of ownership over the communities they create on Reddit. This sense of ownership often extends to all of Reddit. We see this in our users’ passion for their communities, their desire for Reddit to be as amazing as possible, and in their disapproval when we let them down. We want this sense of ownership to be reflected in real ownership—for our users to be our owners. Becoming a public company makes this possible. With this in mind, we are excited to invite the users and moderators who have contributed to Reddit to buy shares in our IPO, alongside our investors. Of course, we would
love our investors to be users as well. Additionally, being public lets us raise capital and offer liquidity to our employees who have worked tirelessly to build Reddit. It also comes with additional disclosure obligations, which aligns with our values around transparency. Finally, to help further support the positive impact of our communities and invest in new opportunities that align with our mission, we have reserved about 1% of our common stock to fund community-related programs.
I have never been more excited about Reddit’s future than I am right now. We have many opportunities to grow both the platform and the business, the latter through advertising, monetizing commerce on the platform, and licensing data. Our work to make Reddit faster, easier to use, easier to moderate and govern, and simpler to navigate and find relevant communities is driving growth today and will continue to be our focus into the future.
Advertising is our first business, and advertisers of all sizes have discovered that Reddit is a great place to find high-intent customers that they aren’t able to reach elsewhere. Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business.
The growth opportunity in our user economy is just as exciting. We see a spirit of entrepreneurship among Redditors, who are constantly pushing the boundaries of what Reddit can be used for. To support their creativity, we are developing new ways to earn money on Reddit. We have enabled artistic users to earn millions creating avatars. Our Contributor Program lets users directly reward one another. The developer platform will expand what a subreddit can be and what it can be used for. We have learned that whenever we create a new canvas for expression on Reddit, users adopt it in surprising ways and expand Reddit in directions we never anticipated. Today, subreddits are mostly communities for content and conversation, and they will evolve into places where Redditors can generate revenue for themselves. Already, users have created marketplaces like r/ PhotoshopRequest to edit photos, r/ Watchexchange to sell watches, and r/ artcommissions to commission art.
Finally, Reddit’s vast and unmatched archive of real, timely, and relevant human conversation on literally any topic is an invaluable dataset for a variety of purposes, including search, AI training, and research. Reddit is one of the internet’s largest corpuses of authentic and constantly updated human-generated experience. Reddit data constantly grows and regenerates as users converse. As the world becomes increasingly data-driven, we offer solutions that are human- and experience-focused. We expect our data advantage and intellectual property to continue to be a key element in the training of future LLMs.
I want to thank everyone who has contributed to making Reddit the extraordinary place it is today: our employees, users, and the moderators behind it all. We have many opportunities and much to do. We will do our best to fulfill our mission to bring community, belonging, and empowerment to the world and to do so in harmony with our values.
Thank you,
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus carefully, including “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” and our audited consolidated financial statements and related notes included elsewhere in this prospectus before making an investment decision.
Our Mission
Our mission is to bring community, belonging, and empowerment to everyone in the world.
We built Reddit with the belief that communities unlock the power of human creativity and create a sense of belonging and empowerment for their members. Our over 100,000 active communities have channeled the power of human creativity to grow Reddit since our founding. We believe the world needs community more than ever, and that this represents our greatest opportunity to further enrich the lives of everyone in the world.
Overview: The Power of Reddit’s Communities
Reddit is a global, digital city where anyone in the world can join a community to learn from one another, engage in authentic conversations, explore passions, research new hobbies, exchange goods and services, create new communities and experiences, share a few laughs, and find belonging. People are diverse and have multiple interests. Just like in a city, where citizens are part of multiple subcommunities, on Reddit, users often belong to multiple communities. At Reddit, users can dive into anything, and if a community does not already exist around a particular topic, they can create one. In December 2023, more than 500 million visitors(1), and in the three months ended December 31, 2023, an average of 73.1 million daily active uniques (“DAUq”), around the world came together on Reddit – continuously adding to our longstanding and constantly evolving human archive of information. They come together to share the rhythm of their daily discoveries, ask questions and receive advice, research before making a purchase decision, hear reactions to recent events, and thrive as a community. Built on shared interests, passion, and trust, Reddit has a community for everyone.
Communities on Reddit are organized based on specific interests and are called subreddits. Within subreddits, Redditors engage in active and in-depth conversations by sharing experiences, submitting links, uploading images and videos, and replying to one another in comment threads on any topic. Subreddits are denoted by an “r/” before their names: r/ explainlikeimfive helps people learn anything with child-friendly explanations; r/ lgbt helps people find their identity; and r/ BeyondTheBump helps people transition from pregnancy to parenthood. Redditors invest time to shape their communities, share their experiences, send support and supplies when someone is down on their luck, and even code scripts and develop tools to advance their communities.
Similar to how cities are made from cement and steel, but are really built by their citizens, Reddit is made from code and algorithms, but is really built by our users. It is a place where human ingenuity and creativity thrive. We empower users to participate and to shape Reddit by sharing content, upvoting or downvoting, and commenting. In addition, Redditors themselves not only create and build communities, but they also moderate these communities as volunteers to help keep them safe, vibrant, and true to themselves. Like cities, we design tools that give communities what they need to make their communities their own and evolve over time, rebuilding and reshaping by adapting to new technologies and reflecting new cultural trends. Newly created subreddits create a sense of belonging for their members, spurring the creation of more new subreddits to continue the cycle. In this way, Reddit’s community ecosystem grows and expands with the interests and passions of our users, keeping Reddit on trend and resilient to fading fads.
(1) Each visitor is a user whom we can identify with a unique identifier who has visited a page on the Reddit website or opened a Reddit application at least once during the month. We use unique identifiers to deduplicate multiple visits from the same visitor. Our monthly visitor number involves a similar calculation process as our weekly active unique (“WAUq”) metric and daily active unique (“DAUq”) metric, except over a longer period of time.
Reddit’s community ecosystem is organically built upon shared interests, passions, and trust rather than friends, celebrities, and their followers. This distinction results in a unique sense of belonging, privacy, and authenticity for our users. We do not require that users disclose their identities, freeing them from having to perform and the associated pressures to always appear perfect. As a result, users come to Reddit for fundamentally distinct purposes, with each adding incremental value to our entire community. Redditors are free to be vulnerable or ask questions they would not be able to ask anywhere else.
Powerful Advertising Engine Built Around Context and User Interest
These qualities not only make the experience more enjoyable for users, they also make Reddit a unique platform for advertisers due to our intentional, authentic, trusted nature and our strength in contextual and interest-based advertising. For advertisers, we provide access to a unique and highly engaged audience where our trusted, passionate communities drive recommendations on brands and buying decisions. Whether users come to Reddit through a third-party search engine or if they initiate their search on Reddit, our users often have high intent – they are looking for answers or recommendations that they can trust, and these users can benefit from the conversations and contextual ads that are displayed on Reddit. According to a 2023 survey we commissioned of 4,000 U.S. Redditors aged 18 and older (the “Vertical Path to Purchase Survey”), 75% of respondents said they believe Reddit is a trustworthy place to inform their decision to buy a new product across specified consumer product categories.
A Valuable Source of Conversational Data and Knowledge
Over time, Reddit has evolved to become one of the internet’s largest corpuses of information, with over one billion posts and over 16 billion comments through December 31, 2023, and was among the top ten most-visited sites in the United States in December 2023, according to Similarweb. Our content is particularly important for artificial intelligence (“AI”) – it is a foundational part of how many of the leading large language models (“LLMs”) have been trained. Furthermore, we use internally built and trained models to improve many aspects of Reddit, including user onboarding, content translation, and moderation and safety. Our massive corpus of conversational data and knowledge is what makes us unique, and we believe its value will continue to grow over time as our user-generated data continues to grow.
Entrepreneurial User Economy
Commerce is another area of growth that has emerged organically on Reddit. In fact, new community-based marketplaces have already sprung up specifically for commercial purposes, such as r/ PhotoShopRequest, where users can request photoshop services for payment, or r/ RandomActsofCards, where users request and send cards to each other and spread a little bit of joy around the world. We want to develop this user-powered economy on Reddit by providing our users and creators with the requisite tools and incentives to drive continued creation, improvements, and commerce. In turn, we believe these initiatives will open additional monetization channels for us.
Our high gross margin and capital-efficient business model is simple and scalable and allows us to invest deliberately in our global opportunity. Our revenue for the years ended December 31, 2022 and 2023 was $666.7 million and $804.0 million, respectively, representing growth of 21%. Our gross margin for the years ended December 31, 2022 and 2023 was 84% and 86%, respectively. During these periods, we continued to invest in growing our business. Our net loss for the years ended December 31, 2022 and 2023 was $(158.6) million and $(90.8) million, respectively. Our Adjusted EBITDA for the years ended December 31, 2022 and 2023 was $(108.4) million and $(69.3) million, respectively. For more information and for a reconciliation of Adjusted EBITDA to net income (loss), see “Selected Consolidated Financial Data—Adjusted EBITDA.”
Why Users Come to Reddit
The internet has given people the tools to redefine how we live. We have search engines to find content and social networks to share and follow each other. Our community of communities sets itself apart with its unique combination of characteristics and is designed to provide users with a trusted place to be authentic to themselves in sharing and discovering while maintaining their privacy.
Open, Growing Archive of Human Knowledge (2005– )
Over the last 18 years, Reddit has become one of the internet’s largest open archives of human experiences. With over one billion posts and over 16 billion comments organized into communities, Reddit content provides authentic, human perspectives across almost any topic imaginable. Our constantly updated user-generated content provides a vast collection of human experiences, answers, and conversations and provides a source of fresh ideas. Reddit’s influence and relevance organically grows, and Reddit quickly responds to new topics based on real experiences. Topical communities such as r/ travel, r/ vanderpumprules, r/ MachineLearning, r/ cricket, r/ boxoffice, and r/ TaylorSwift have had meaningful breakouts as the headlines have evolved. As a result of Reddit’s scale and longevity, our content library is a broad memory of human interest, organically expanding and deepening into more topics. At times, Reddit may be the only place to find the information users are looking for, and users searching for information often come to Reddit and discover conversations taking place there.
Centered on Interests, with Unmatched Breadth and Depth of Human Knowledge
Time spent on Reddit is guided by personal intention and interests. Breadth of communities and depth of engagement means that Redditors benefit from a trove of knowledge organized by topic that we believe is unmatched by any other internet platform. Reddit is home to over 100,000 active subreddits, with over 500 subreddits that each have at least one million subscribers, which cover a wide variety of topics—r/ wholesomememes, r/ philosophy, r/ Pets, r/ InteriorDesign, r/ NBA, and r/ worldnews, to name a few—and can be creative, humorous, informative, inspirational, absurd, serious, or contemplative. We generally find that the longer Redditors have been on Reddit, the more engaged they become. As of December 2023, when someone first makes an account, the average active minutes for logged-in users on Reddit starts at approximately 20 minutes per day, but increases to over 35 minutes a day for those who have been on Reddit for over five years and even over 45 minutes a day for those who have been on Reddit for over seven years. According to a 2023 survey we commissioned of almost 800 U.S. Redditors (the “User Perceptions Survey”), 95% of respondents said there is a community for everyone on Reddit, 85% said Reddit is where they learn about the topics they love the most, and 83% recognized conversations on Reddit as more on-topic than anywhere else on social media, each result being higher than what respondents say for other major social media platforms.
People-powered Curation for Authentic Interactions and Trusted Content
Our differentiated community approach underlies the interactions on our platform: Reddit is centered around human creativity and belonging. The content found in Reddit communities is curated by people, creating a highly relevant content experience that attracts users to our platform. Every post and comment on Reddit, regardless of the author, starts with one upvote, and must earn its visibility through community members upvoting it and boosting it to the subreddit’s front page. Unlike traditional social media, voting (both up and down) is completely anonymous, encouraging broader Redditor participation. This unique upvoting and downvoting system not only curates the quality and relevance of content, but also determines the prominence of a certain piece of content. According to the User Perceptions Survey, 76% of respondents pay more attention to things they see on Reddit than the things they see on other social media platforms. In a separate survey we commissioned of almost 500 U.S. Redditors, 76% of respondents agreed that “people post things that are honest and truthful,” which was higher than each of Facebook, Instagram, Snapchat, TikTok, X, and YouTube. We believe community-driven promotion of content leads to greater trust of the content on Reddit.
Authentic and Trusted Recommendations
Reddit’s community-powered recommendations are a foundational part of why so many users visit Reddit on a daily basis. In a world where consumers are increasingly inundated with curated messaging and product placement, Reddit stands out as a refreshing alternative, offering authentic human recommendations that people can actually trust. We see that trust reflected in the high velocity of people coming to Reddit to find great content and trusted recommendations. In 2023, every second an average of two users asked for a recommendation, each yielding an average of 14 personalized responses. According to a 2023 survey we commissioned of Redditors across the United States, the United Kingdom (the “UK”), Australia, Canada, and Germany aged 18 and over, 94% of 4,500 respondents reported that they engaged with recommendation content on Reddit in the last year, and 73% of 1,845
respondents said they are likely to follow the guidance of recommendations they receive on Reddit when considering an important purchase.
Flexible Canvas for Self- and Community-expression
Every subreddit is a flexible canvas for communities to express themselves through a customizable experience. We give communities the ability to choose the format for conversations in their communities—text, image, video, opinion polls, chatrooms—which enables them to create dynamic and engaging experiences. We give moderators the creative tools to design the look and feel of communities, and we give developers an open application programming interface (“API”) to build bots and create features that shape their communities, meaning what a community envisions for itself drives its unique development.
Conversations flow across Reddit through cross-posting, where a post from one community can be shared into another community to spur new conversation with a different audience.
Layered Moderation, Community Management, and Safety Supports Trust
We are committed to continuously enhancing our policies and processes to promote the safety of users and moderators, and the health of our platform. Our approach is akin to a democratic city, wherein everyone has the ability to vote and self-organize, follow a set of common rules, and establish community-specific norms. This approach gives Redditors a voice and agency in the process and also means that any content that gains traction on Reddit has been reviewed in context by humans.
Communities self-organize and create subreddit-level rules that are tailored to their unique circumstances, and volunteer moderators within the community enforce those rules. Moderators have context as leaders and members of their communities to define and enforce the rules to create a harmonious community experience. The result is that each community has its own unique environment in which Redditors can express their genuine perspective and share real experiences while discouraging bad behavior. We backstop this bottoms-up organic moderation engine with our site-wide Content Policy, a set of overarching rules and policies that govern all content on Reddit. Our Content Policy is intended to be protective, not intrusive. It helps protect against harassment, bullying, and violence – especially hate based on identity or vulnerability.
Our Strategy for Growing Users and Engagement
Our strategy is to support the growth and engagement of our communities. We aim to become Redditors’ first choice when they are exploring their passions, looking for entertainment, or keeping tabs on culture and news. We intend to grow users and engagement through the following initiatives:
•Grow Awareness of Reddit. We plan to expand the ways people become aware of Reddit through various strategies depending on the type of use case and user, including search engine optimization and partnerships. We have also invested in improving our off-platform presence, by making it easier to share and embed Reddit content on other surfaces and websites.
•Grow Engagement. We had an average of 73.1 million DAUq and 267.5 million WAUq in the three months ended December 31, 2023. We believe that there is a significant opportunity to convert many of the users who come to Reddit on a weekly or monthly basis to become daily users. We plan to continue to grow engagement by focusing on:
◦Improving Discovery and User Experience. We want to make it easier for new and existing Redditors to discover relevant communities and content. To that end, we are applying machine learning to improve the classification of our content and interest-based recommendations. For example, we are deploying internally built models to improve the experiences of Redditors by increasing the likelihood that their posts will qualify for a particular subreddit. In addition, we want the basic features of Reddit to be easier to use and more accessible, including posting into communities, finding and creating new communities, and moderating these communities.
◦Elevating Conversations and Video. We believe that our investments and efforts to grow engagement and the richness of our communities through more video, and more vibrant conversations will continue to convert our massive monthly reach into more daily users. In December 2023, we experienced approximately 35% growth in the number of videos watched for 10 seconds or more and an approximately 16% increase in daily active video viewers compared to December 2022. We also recognize that conversations are the heart of Reddit, with 27% of almost 3,200 Redditors surveyed across the United States, the UK, France, Germany, Mexico, and India identifying “reading comments” as their top task to complete. In addition, we are focused on reducing the time it takes for users to access conversations, as well as providing them with better guidance on community rules when they comment to reduce moderated actions.
◦Modernizing Search. While we are still in the early innings, search is already a key action taken on Reddit with an average of over 35 million daily search queries directly on Reddit in December 2023. We recognize the importance of search, and have made significant investments to make searches more relevant and drive deeper engagement. We have observed 30% higher week-one retention (which measures the percentage of users who return to Reddit eight to 14 days after first accessing Reddit) in users with any search activity compared to all users from October 2023 to December 2023.
◦Customized Content Recommendations. We utilize AI to recommend relevant posts and communities, utilizing factors such as search queries, post topics, and engagement with similar users to enhance both the search and discovery experience. We believe our investments in AI have improved new user onboarding and driven engagement with existing users. For example, we re-trained our New Home Feed ranking with significantly more data and user signals. In the three months ended December 31, 2023 compared to the three months ended June 30, 2023, we observed an increase of over 30% in “Good Visits,” defined as a user consuming a post for more than 30 seconds.
•Grow Our International User Base. During the three months ended December 31, 2023, approximately 50% of Redditors visited the platform from outside of the United States. In the three months ended December 31, 2023, over 90% of all Reddit posts were made in English. We see a massive opportunity to grow in geographies outside of the United States and in languages beyond English. We are beginning the work of translating our corpus of conversational data using translation models to multiple different languages to increase our international growth. In particular, we are focused on growing Redditors in the UK, France, Spain, Germany, Brazil, and India. Our strategy to land in these markets and then grow is centered around offering users culturally relevant and location-specific content. We also intend to use the Community Tab, machine-translated content, and highly relevant push notifications to help international users find and engage regularly with locally relevant and trending content. We have captured increased international momentum, with an average of 36.7 million international DAUq for the three months ended December 31, 2023, representing 21% growth year over year.
Why Advertisers Come to Reddit
Reddit is the place where people, entities of public interest, and businesses come together to engage in human-to-human conversations relevant to their interests. Across our diverse communities, people seek and share information in context about products and services, often with high purchase intent. We have made investments and acquisitions that have enabled us to be a leader in contextual and interest-based advertising. Advertisers of all sizes rely on Reddit to find high-intent customers that they are not able to reach on traditional social media platforms.
Advertisers come to Reddit for distinctive benefits:
•Contextual and Interest-based Advertising. Reddit’s advertising platform enables marketers to find relevant audiences on the Reddit platform using our interest graph and to reach users in contextually relevant communities and content, using conversational and engaging formats. According to the User Perceptions Survey, 85% of respondents said Reddit is where they learn about the topics they love most. For example, an advertiser with a camping product can reach people who love outdoor activities across Reddit. This is interest-based advertising. Similarly, the same advertiser can reach people who are in a conversation in
r/ camping or r/ Outdoors exploring what gear they should buy. These people may see an ad for camping gear, in context, within that conversation. That is contextual advertising. Reddit’s unique community structure and interest-driven model acts as a strong signal for advertisers. According to the same survey, 61% of respondents said that they believe that ads on Reddit are more relevant than on other sites, and 61% of respondents stated that they pay more attention to ads on Reddit than on other sites.
•Ability to Connect with a High-Intent Audience Seeking Recommendations on the Path to Purchase. Many people come to Reddit, directly or through search, to find trusted recommendations across every phase of the purchase funnel. According to the Vertical Path to Purchase Survey, 75% of respondents said they believe Reddit is a trustworthy place to inform their decision to buy a new product across specified consumer product categories. The conversational nature of the platform allows users to discover new products and services at the start of their purchasing journey. These conversations create a unique opportunity for advertisers to engage Redditors who are considering brands and products. According to the Vertical Path to Purchase Survey, 61% of Redditors in the market for a new product or service across a variety of categories said they would “purchase a product/brand if I saw an ad about it on Reddit.” According to the same survey, 73% of Redditors surveyed agree that they “can make a faster purchase decision based on experiences shared by other Redditors.” This successful experience is why 90% of monthly Redditors surveyed said they plan to use Reddit the “same or more” in the year ahead when it comes to researching their purchases, according to a 2023 survey of almost 2,000 Redditors across the United States, the UK, Australia, Canada, and Germany aged 18 and over.
•Unduplicated, Authentic, and Attentive Audience in an Attractive Demographic. In December 2023, the average active minutes on Reddit per logged-in user in the United States was between 25 and 30 minutes per day, and there was an average of 73.1 million DAUq during the three months ended December 31, 2023. During this period, approximately 50% of DAUq were from the United States, and the remainder were from the rest of the world. According to Comscore data about Redditors in the United States aged 18 and over, for the three months ended December 31, 2023, 41% were between the ages of 18 to 34, 50% were male, and 64% had a household annual income of $75,000 or more. Many Redditors are not active on traditional social media platforms; according to Comscore data for the three months ended December 31, 2023, of people who visited Reddit in the United States, 32% were not active on Facebook, 37% were not active on Instagram, 73% were not active on Snapchat, 41% were not active on TikTok, and 53% were not active on X.
•Gain Access to a Platform with Data Signals that is Built to Respect Privacy. The performance of our advertising model is based on first-party data from user-directed activities on the platform, such as the communities that users visit or subscribe to for email digests and the context they are engaging in. The foundation of our ad performance is based on context and interest instead of tracking users based on personally identifiable information. This is unique in the digital advertising marketplace; our lack of reliance on third-party data makes our offering more resilient to the loss of signal that other platforms rely upon as well as forthcoming changes to the internet ecosystem.
•Action-Oriented Outcomes that Drive Attractive, Measurable Return on Investment. Advertisers can bid in our auctions in a way that aligns with their objectives. They can bid to pay for the people they reach in video views or impressions. Alternatively, they can bid for specific actions that are focused on objectives like mid-stream clicks and downstream conversions or app downloads. Our rich contextual and interest-based audience and marketplace efficiency drives incremental value for its advertisers.
•Multiple Layers of Brand Safety and Customizable Controls. Beyond our multiple layers of moderation and safety across platform content, we also offer advertiser-level controls. Our Content Policy establishes the type of content that is not allowed across all communities, with community rules determining content within each community. In addition, our brand safety approach includes proactive solutions focused on creating a safe environment for any business on Reddit by showing ads in communities and alongside content that has been reviewed and deemed appropriate for advertising.
The Future of Our Platform and Monetization Strategies
Advertising
Reddit is a unique place on the internet, and we believe that we have many avenues to increase value to advertisers through our interest- and community-based platform. We continue to expand our ad platform capabilities to enable more ways for customers to invest to grow their business on Reddit. We are still in the early phases of our opportunity and plan to pursue the following eight levers to expand our monetization and average revenue per unique(2):
1.More Context and Interest. We plan to continue to add additional contextual and interest-based signals and intelligence into our advertiser platform. We believe this will help advertisers find more relevant audiences on Reddit. This includes existing placements in the home feed and in conversations, as well as potential future opportunities (e.g., ads in comment threads and on search pages; video ads).
2.Deliver ROI with Marketplace Optimizations. We are in the early stages of using machine learning and prediction models to better match supply and demand and deliver return on investment (“ROI”) for our advertisers. We are currently focused on using our powerful prediction models to work across objectives, placements, and formats – helping to better predict conversion rates of an ad (e.g., installs; purchases).
3.Advertiser Diversity and Depth. We plan to increase the types, sizes, and geographies of advertisers we reach and expand annual partnerships for longer-term visibility. We aim to grow our advertisers from endemic advertisers in verticals where we have the largest number of active communities, like technology and communications; business, legal, and finance; and media and entertainment, to newer verticals such as automotive; retail; consumer packaged goods; pharmaceuticals; and food and beverage. We are focused on
(2) Average revenue per unique (“ARPU”) is defined as quarterly revenue in a given geography divided by the average DAUq in that geography.
geographic markets where we have teams, channel partners, or vendors to help manage small- and mid-size businesses globally.
4.Demonstrate ROI. By improving the measurement of our ads, we can provide better data to show our advertisers the ROI of their presence on Reddit. We plan to improve measurement with levers such as more tools for conversion tracking (including a conversion API), on-property-brand and conversion-lift testing, and more measurement pixel, toolkit adoption, and data capture.
5.AI-Powered Audience Reach and Bidding. We are using machine learning models for contextual keyword audience reach and interest-based audience reach, ranking ads based on brand suitability and machine learning-predicted user engagement. Additionally, machine learning-powered “auto-bidding” (e.g., Maximum Clicks and Maximum Conversions) helps advertisers maximize campaign objectives and ROI while avoiding extensive manual testing.
6.Expanded Formats and Offerings. We plan to continue to develop new ad positions based on evolving consumer behaviors on the platform (e.g., video and search usage growth). We plan to expand our ad formats in ways that allow advertisers to creatively talk to communities and share more information (e.g., product-level creative; games).
7.Automation/Scale Service Model. Through easier onboarding, setup, campaign management, and optimization, we expect to scale our service model through diverse service channels matched to client needs – from managed service models, to hybrid, to enabling advertisers to activate with little to no sales team assistance (i.e., unmanaged). This simplifies core manual optimization tasks needed for more outcomes and better performance.
8.Acquire More Advertisers. With more automation in the future, we believe that we can become even more accessible to a larger portion of small- and medium-sized businesses enabled by partnerships and accelerated demand generation. We are also deepening our relationships with large agencies through solutions that enable enterprise operations across large clients.
Data Licensing
Reddit is one of the internet’s largest corpuses of authentic and constantly updated human-generated experience. In an increasingly data-driven world, we recognize that this information is increasingly important for a multitude of different uses and applications. We believe the internet should work for consumers and they should be able to find the information they need or experiences they want. And, organizations need to prioritize sources of real-time human perspectives—from a company looking for feedback on a new consumer product to investors trying to capture market sentiments or signals—and Reddit provides a differentiated solution. Reddit data and information constantly grows and regenerates as users come and interact with their communities and each other in genuine and authentic ways. We expect our growing data advantage and intellectual property to continue to be a key element in the training of future LLMs.
We are in the early stages of allowing third parties to license access to search, analyze, and display historical and real-time data from our platform:
•Data API Access. Customers can pay to access real-time data streams of anonymous, public discussion on Reddit via data APIs once they exceed certain rate limits. These data APIs are able to provide real-time access to evolving and dynamic topics, such as sports, movies, news, fashion, and the latest trends, unlocking customer use cases such as building third-party applications, behavioral analysis, and algorithmic trading.
•Model Training. Reddit data is a foundational piece to the construction of current AI technology and many LLMs. We believe that Reddit’s massive corpus of conversational data and knowledge will continue to play a role in training and improving LLMs. As our content refreshes and grows daily, we expect models will want to reflect these new ideas and update their training using Reddit data.
User Economy
Commerce has already emerged on our platform organically as a result of our interest- and community-based approach. Artisans sell their creations, collectors sell beloved items, developers sell entertainment via originally developed video games. This activity has been taking place in communities dedicated to creativity, memorabilia, and fandoms for many years. We intend to support the Reddit user economy by providing our users and creators with the requisite tools and incentives to drive continued creation, improvements, and commerce. In turn, we believe this will open additional monetization channels for Reddit:
1.Developer Platform. We believe that providing developers with additional tools and increased monetization opportunities will further unlock human creativity on Reddit and incentivize continued improvements to the overall user experience and utility of the platform. We believe our developer platform has the potential to become a driver for community-powered innovation and deepen relationships between users and communities; empower users to continuously create, improve, and grow; and ultimately strengthen our community of communities at scale.
2.Contributor Program. As creators, builders, and developers generate value on our platform, we intend to empower these groups to participate in their value creation by receiving monetary benefits from Reddit and other community members. Increasingly, talented individuals are turning to online communities to share their creations with fans, peer creators, and enthusiasts. We are focused on increasing the types of ways that users can recognize contributors with real-world money to incentivize and reward quality content creation. As such, we believe we have an opportunity to supercharge and incentivize content creation, drive further engagement, and allow us to grow new revenue streams beyond advertising.
3.Community Marketplace. Reddit is home to many vibrant user-to-user marketplaces (like r/ PhotoshopRequest, r/ Watchexchange, and r/ SneakerMarket) that enable real-life commerce of digital and physical goods. As of December 31, 2023, we had cumulatively seen over 60,000 photoshop requests and 20,000 watches sold on r/ PhotoshopRequest and r/ Watchexchange, respectively. We also have a Collectible Avatars Creator Program, which empowers users to create, own, and monetize their artistic creations, and for which we receive a portion of the primary sales and royalty fees. Since launching in July 2022, over 30 million connected wallets have been activated.
Our Market Opportunity
We have a long and successful history of evolving with the internet, and are continuing to develop new market opportunities:
Advertising
People come to Reddit in many ways, and the core of our monetization is through advertising solutions based on user engagement. By 2027, we estimate our total addressable market globally from advertising, excluding China and Russia, to be $1.4 trillion.
Our market opportunity is based on the digital advertising market excluding China and Russia, and consists of desktop and mobile web, display, video, and social direct response ads, in addition to search advertising. Using estimates from S&P Global Market Intelligence’s Global Advertising Expenditure Forecasts, we believe this market is $1.0 trillion today, excluding China and Russia, and is expected to grow at a CAGR of 8% to $1.4 trillion in 2027. Additionally, as we continue to build out our search capabilities, we believe we can more fully address the $750 billion opportunity in search advertising that S&P Global Market Intelligence estimates the market to be in 2027.
Data Licensing
Given the value of Reddit’s data in sentiment analysis and trend identification, we believe that there is an emerging opportunity in data licensing. As LLMs continue to grow, we believe that Reddit will be core to the capabilities of organizations that use data as well as the next generation of generative AI and LLM platforms. Using estimates from International Data Corporation’s (“IDC”) Artificial Intelligence Tracker, the broader AI market,
excluding China and Russia, is expected to grow at a CAGR of 20% to $1.0 trillion in 2027. We believe the importance of data to all types of analytics and AI, from training to testing and refining models, positions us well to tap into this strong market.
User Economy
Commerce is already at the core of many communities today. As we introduce new ways to enable developers to add additional functionality to their communities, we believe there will be further development of economic features on Reddit (e.g., games). We see informal exchanges today of digital goods, services, and even physical goods. We recognize the opportunity that commerce presents and we have continued to invest in the future of Reddit’s user economy. Using estimates from IDC’s Consumer Market Model and focusing on six core geographies (United States, Canada, Australia, Western Europe, India, and Latin America), we believe this market size is $1.3 trillion today, and it is expected to grow at a CAGR of 12% to $2.1 trillion in 2027. We believe that over time, we can generate revenue based on the volume of commerce that is conducted on Reddit.
Risks Associated with Our Business
Our business is subject to a number of risks of which you should be aware before making a decision to invest in our Class A common stock. These risks are more fully described in “Risk Factors” immediately following this prospectus summary. These risks include, among others, the following:
•If we fail to increase or retain our user base, and in particular, our DAUq, or if user engagement declines, our business, results of operations, financial condition, and prospects will be harmed.
•If Redditors do not continue to contribute content or their contributions are not valuable or appealing to other Redditors, we may experience a decline in the number of Redditors accessing our products and services and in user engagement, which could result in the loss of advertisers and may harm our reputation, business, results of operations, financial condition, and prospects.
•Our business depends on a strong brand and reputation, and if we are unable to maintain and enhance our brand and reputation, our ability to expand our user and advertiser bases will be impaired and our business, results of operations, financial condition, and prospects could be harmed.
•Changes in internet search engine algorithms and dynamics could have a negative impact on traffic for our website and, ultimately, our business, results of operations, financial condition, and prospects.
•We have a history of net losses and we may not be able to achieve or maintain profitability in the future.
•Our results of operations may fluctuate from quarter to quarter, which makes them difficult to predict.
•We are in the early stages of monetizing our business and there is no assurance we will be able to scale our business for future growth.
•We generate substantially all of our revenue from advertising. The failure to attract new advertisers, the loss of advertisers, or the reduction of or failure by advertisers to maintain or increase their advertising budgets would adversely affect our business.
•We may not succeed in further expanding and monetizing our platform internationally and may be subject to increased international business and economic risks.
•We are exploring business opportunities in licensing data, but we are in the early stages and the market is new and evolving rapidly.
•Our business, results of operations, financial condition, and prospects may be harmed by our failure to timely and effectively scale and adapt our existing technology and infrastructure.
•We anticipate that our ongoing efforts related to data privacy, safety, security, and content review will identify instances of misuse of user data or other undesirable activity by third parties on our platform.
•If our security measures are breached, or if our products and services are subject to attacks involving our systems or data, some of which contain personal information, or that degrade or deny the ability of users to access our products and services, our products and services may be perceived as not being secure, Redditors and advertisers may curtail or stop using our products and services, and our reputation, business, results of operations, financial condition, and prospects could be harmed.
•Redditor growth and engagement depends upon effective interoperation with operating systems, networks, devices, web browsers, online application stores, regulations, and standards that we do not control. Changes in our products or to those operating systems, networks, devices, web browsers, online application stores, regulations, or standards may harm Redditor retention, growth, and engagement, which could harm our business, results of operations, financial condition, and prospects.
•Our business is subject to increasingly complex and evolving laws, rules, regulations, industry standards, and other legal obligations regarding content, consumer protection, competition, privacy, and other matters. Failure to comply with such laws, rules, regulations, industry standards, and other legal obligations could harm our business.
•Interest in our Class A common stock from retail and other individual investors, for reasons unrelated to our underlying business or macro or industry fundamentals, could result in increased volatility in the market price of our Class A common stock.
•The multi-class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the listing of our Class A common stock on the NYSE, including our directors, executive officers, and 5% stockholders, and their respective affiliates, who will hold in the aggregate % of the voting power of our capital stock following the offering. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any major corporate transaction requiring stockholder approval, including change of control transactions.
•We intend to enter into a governance agreement that grants our principal stockholder certain rights with respect to the control and management of our business, which may prevent us from taking actions that may be beneficial to us and our other stockholders.
•Redditors’ participation in this offering could result in increased volatility in the market price of our Class A common stock.
Corporate Information
We were incorporated as a Delaware corporation in May 2011. Our principal executive offices are located at 303 2nd Street, South Tower, 5th Floor, San Francisco, California 94107, and our telephone number is (415) 494-8016. Our corporate website address is www.redditinc.com. Information contained on, or that can be accessed through, www.redditinc.com, www.reddit.com, or our mobile applications do not constitute part of this prospectus, and the inclusion of our website address and references to any subreddits in this prospectus are inactive textual references only.
Channels for Disclosure of Information
Investors, the media, and others should note that, after the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission, the investor relations page on our website, press releases, public conference calls, webcasts, and on the subreddits r/ RDDT and r/ reddit, available at www.reddit.com/r/RDDT and www.reddit.com/r/reddit, respectively. The information disclosed by the foregoing channels could be deemed to be material information. As such, following this offering, we encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels.
Implications of Being an Emerging Growth Company
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the completion of this offering; (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion; (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:
•we will present in this prospectus only two years of audited annual financial statements, plus any required unaudited financial statements, and related management’s discussion and analysis of financial condition and results of operations;
•we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our independent registered public accounting firm on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
•we will provide less extensive disclosure about our executive compensation arrangements; and
•we will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies through December 31, 2022. As a result, our financial statements for the year ended December 31, 2022 may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Beginning January 1, 2023, we have elected to irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, we will comply with new or revised accounting standards at the time when adoption of such standards is required for public companies that are non-emerging growth companies.
THE OFFERING
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| Class A common stock offered by us | shares |
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Class A common stock offered by the selling stockholders | shares |
Over-allotment option to purchase additional shares of Class A common stock from us | shares |
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| Class A common stock to be outstanding immediately after this offering | shares (or shares if the underwriters exercise their over-allotment option in full) |
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| Class B common stock to be outstanding immediately after this offering | shares |
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| Class C common stock to be outstanding immediately after this offering | None |
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| Class A, Class B, and Class C common stock to be outstanding immediately after this offering | shares (or shares if the underwriters exercise their over-allotment option in full) |
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| Use of proceeds | We estimate that we will receive net proceeds from this offering of approximately $ (or $ if the underwriters exercise their over-allotment option in full), based upon an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures. We may also use a portion of the net proceeds to in-license, acquire, or invest in complementary technologies, assets, or intellectual property. We periodically evaluate strategic opportunities; however, we have no current commitments for any material acquisitions or investments at this time. We intend to use approximately $ of the net proceeds to satisfy tax withholding and remittance obligations related to the RSU Net Settlement (as defined below) and for certain other RSUs and PRSUs (each as defined below) that will begin to vest after the completion of this offering. We will have broad discretion in the way that we use the net proceeds of this offering. See “Use of Proceeds” for more information. We will not receive any proceeds from the sale of Class A common stock in this offering by the selling stockholders. |
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| Voting rights | Shares of our Class A common stock are entitled to one vote per share. Shares of our Class B common stock are entitled to 10 votes per share. Shares of our Class C common stock are entitled to no votes per share. |
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| Holders of our Class A and Class B common stock will generally vote together as a single class, unless otherwise required by law, our amended and restated certificate of incorporation, or our amended and restated bylaws. The holders of our outstanding Class B common stock will hold approximately % of the voting power of our outstanding capital stock after the completion of this offering, with our directors and executive officers and their affiliates holding approximately %, after giving effect to the voting agreement to be entered into between Advance Magazine Publishers Inc. (“Advance”), our principal stockholder, and Steven Huffman, our Chief Executive Officer and President and a member of our board of directors, and assuming no exercise by the underwriters of their option to purchase additional shares to cover over-allotments. Accordingly, such holders will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction, subject to the rights granted to Advance in the governance agreement that we intend to enter into with Advance and Mr. Huffman in connection with this offering. See “Principal and Selling Stockholders,” “Description of Capital Stock,” and “Certain Relationships and Related-Party Transactions—Governance Agreement” for more information. |
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| Directed share program | As a community platform, Reddit is committed to providing users and moderators with an opportunity to participate in this offering. At our request, and reflecting our desire to set aside a significant number of shares for certain of our users and moderators, the underwriters have reserved up to shares of our Class A common stock, or % of the shares offered in this offering, for sale at the initial public offering price through a directed share program to: •eligible Reddit users and moderators; •certain members of our board of directors; and •friends and family members of certain of our employees and directors. Users and moderators who created an account on or before January 1, 2024 are potentially eligible for the directed share program. Eligible participants must reside in the United States and be at least 18 years of age. Further, eligible users and moderators must be in good standing on our platform and cannot be a current or former Reddit employee. |
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| We will invite users and moderators to participate in the directed share program in six phased priority tiers. We will assign each eligible participant to a tier based on that participant’s contributions to Reddit. User contributions will be measured in karma (a user’s reputation score that reflects their community contributions). Moderator contributions will be measured by membership and moderator actions on our platform. If demand for the directed share program in an earlier tier exceeds capacity, eligible users and moderators will have the option to join a waitlist. An invitation to participate in the directed share program does not guarantee that the participant will receive an allocation of shares. Accordingly, we cannot provide any assurance that any eligible participant will receive an invitation or an allocation in the directed share program. Shares purchased through the directed share program will not be subject to the terms of the lock-up agreement or market standoff restrictions. The number of shares of Class A common stock available for sale to the general public will be reduced to the extent that such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. will administer our directed share program. |
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| Risk factors | See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding whether to invest in our Class A common stock. |
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Proposed New York Stock Exchange symbol | “RDDT” |
In this prospectus, the number of shares of our common stock to be outstanding after this offering is based on shares of our Class A common stock and shares of our Class B common stock outstanding as of December 31, 2023, in each case, after giving effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement (each as defined below), and no shares of Class C common stock outstanding.
The number of shares of our common stock to be outstanding after this offering does not include:
• shares of our Class A common stock issuable upon the exercise of outstanding stock options as of December 31, 2023, having a weighted-average exercise price of $ per share (after giving effect to the Option Exercise);
• shares of our Class B common stock issuable upon the exercise of outstanding stock options as of December 31, 2023, having a weighted-average exercise price of $ per share (after giving effect to the Option Exercise);
•15,198,345 RSUs for shares of our Class A common stock subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was not yet satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering (we expect that satisfaction of the service-based and/or performance-based vesting conditions of certain of these RSUs through , 2024 will result in the net issuance of shares of Class A common stock, after
withholding an aggregate of shares of Class A common stock to satisfy associated estimated tax withholding and remittance obligations in connection with the RSU Net Settlement);
•747,628 RSUs for shares of our Class B common stock subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was not yet satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering (we expect that satisfaction of the service-based and/or performance-based vesting conditions of certain of these RSUs through , 2024 will result in the net issuance of shares of Class B common stock, after withholding an aggregate of shares of Class B common stock to satisfy associated estimated tax withholding and remittance obligations in connection with the RSU Net Settlement);
•1,636,151 RSUs for shares of our Class A common stock subject to service-based vesting conditions granted subsequent to December 31, 2023;
•20,000 performance-based RSUs (“PRSUs”) outstanding as of December 31, 2023, covering shares of our Class A common stock that will vest if our market capitalization exceeds $25.0 billion as of the tenth trading day following completion of this offering; provided, however, that if such market capitalization valuation is not met, such shares will be forfeited in full (see “Executive and Director Compensation—Narrative to the Summary Compensation Table” for more information);
•662,447 PRSUs outstanding as of December 31, 2023, covering shares of our Class B common stock that are issuable upon satisfaction of performance-based or market-based vesting conditions for which the performance-based or market-based vesting condition was not yet satisfied as of December 31, 2023, which will vest if our market capitalization exceeds $5.0 billion (see “Executive and Director Compensation—Outstanding Equity Awards at Year-End” and “Capitalization—Vesting of Outstanding CEO Equity Award at Certain Trading Prices” for more information);
• shares of our Class A common stock reserved for future issuance under our 2024 Incentive Award Plan (the “2024 Plan”), which will become effective on the date immediately prior to the date our registration statement relating to this offering becomes effective, including new shares and the number of shares (i) that remain available for grant of future awards under our 2017 Equity Incentive and Grant Plan (as amended, the “2017 Plan”) at the time the 2024 Plan becomes effective, which shares will cease to be available for issuance under the 2017 Plan at such time and (ii) underlying outstanding stock-based compensation awards granted under the 2017 Plan, our 2012 Stock Option and Grant Plan, the Spiketrap Inc. Amended and Restated 2019 Equity Incentive Plan, the Dubsmash Inc. 2018 Stock Plan, or the Spell, Inc. 2017 Stock Plan (such awards outstanding under such plans, the “Prior Plan Awards”) that expire, or are cancelled, forfeited, reacquired, or withheld;
• shares of our Class A common stock reserved for future issuance under our Employee Stock Purchase Plan (the “ESPP”), which will become effective on the date immediately prior to the date our registration statement relating to this offering becomes effective; and
•1,337,205 shares of our Class A common stock reserved for issuance to fund and support our community impact initiatives and other charitable activities.
The 2024 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See “Executive and Director Compensation—Equity Incentive Plans” for more information.
Except as otherwise indicated, all information in this prospectus assumes or gives effect to:
•the adoption, filing, and effectiveness of our amended and restated certificate of incorporation immediately prior to the completion of this offering;
•the conversion of all outstanding shares of our convertible Series F-1 preferred stock outstanding into 5,104,017 shares of our Class A common stock immediately prior to the completion of this offering and the
conversion of all outstanding shares of our convertible Series A, Series A-1, Series B, Series C, Series D, Series D-1, Series E, and Series F preferred stock outstanding into 67,917,432 shares of our Class B common stock immediately prior to the completion of this offering (the “Preferred Stock Conversion”);
•the conversion of shares of our Class B common stock into shares of our Class A common stock by certain holders of our Class B common stock, including shares that are being converted in connection with the sale of shares of our Class A common stock by certain selling stockholders in this offering as described in “Principal and Selling Stockholders” (the “Class B Conversion”);
•the cash exercise of stock options to purchase shares of our Class A common stock and shares of our Class B common stock in connection with this offering by certain selling stockholders, with a weighted-average exercise price of $ and $ per share, respectively, for total gross proceeds to us of approximately $ , by certain selling stockholders in connection with the sale of all or a portion of such shares by such selling stockholders in this offering, as described in “Principal and Selling Stockholders” (the “Option Exercise”);
•the net issuance of shares of our Class A common stock and shares of our Class B common stock in connection with the vesting and settlement of certain RSUs outstanding as of , 2024, for which the service-based and/or performance-based vesting condition was satisfied as of , 2024 and the liquidity-based vesting condition will be satisfied in connection with this offering, after giving effect to the withholding of shares of Class A Common Stock and shares of Class B Common Stock, respectively, to satisfy the estimated tax withholding and remittance obligations (based on an assumed % tax withholding rate) (the “RSU Net Settlement”);
•no exercise of outstanding stock options or settlement of outstanding RSUs or PRSUs after December 31, 2023, except for the Option Exercise and the RSU Net Settlement, each as described above; and
•no exercise of the underwriters’ over-allotment option to purchase additional shares from us.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth our summary consolidated financial data. The summary consolidated statements of operations data for the years ended December 31, 2022 and 2023 and the summary consolidated balance sheet data as of December 31, 2022 and 2023 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.
You should read the following summary consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. The summary consolidated financial data in this section are not intended to replace, and are qualified in their entirety by, the consolidated financial statements and related notes.
| | | | | | | | | | | | | | | | | | |
| | | | Year ended December 31, |
| | | | | | 2022 | | 2023 |
| | | | | | |
| | | | | | (in thousands, except share and per share amounts) |
| Consolidated Statements of Operations Data: | | | | | | | | |
| Revenue | | | | | | $ | 666,701 | | | $ | 804,029 | |
| Costs and expenses: | | | | | | | | |
| Cost of revenue | | | | | | 104,799 | | | 111,011 | |
| Research and development | | | | | | 365,164 | | | 438,346 | |
| Sales and marketing | | | | | | 225,078 | | | 230,175 | |
| General and administrative | | | | | | 143,822 | | | 164,658 | |
| Total costs and expenses | | | | | | 838,863 | | | 944,190 | |
| Income (loss) from operations | | | | | | (172,162) | | | (140,161) | |
| Other income (expense), net | | | | | | 14,234 | | | 53,138 | |
| Income (loss) before income taxes | | | | | | (157,928) | | | (87,023) | |
| Income tax expense (benefit) | | | | | | 622 | | | 3,801 | |
| Net income (loss) | | | | | | $ | (158,550) | | | $ | (90,824) | |
Net income (loss) per share attributable to Class A and Class B common stock, basic and diluted(1) | | | | | | $ | (2.77) | | | $ | (1.54) | |
| Weighted-average shares of Class A and Class B common stock used to compute net income (loss) per share, basic and diluted | | | | | | 57,251,112 | | 59,138,086 |
| Unaudited pro forma net income (loss) per share attributable to Class A and Class B common stock, basic and diluted | | | | | | | | |
| Unaudited pro forma weighted-average shares of common stock used to compute pro forma net income (loss) per share attributable to Class A and Class B common stock, basic and diluted | | | | | | | | |
| Other Financial Information: | | | | | | | | |
Adjusted EBITDA(2) | | | | | | $ | (108,393) | | | $ | (69,275) | |
| Net cash provided by (used in) operating activities | | | | | | $ | (94,021) | | | $ | (75,114) | |
Free Cash Flow(3) | | | | | | $ | (100,254) | | | $ | (84,838) | |
________________
(1)See Note 4—Net Income (Loss) per Share of the notes to our consolidated financial statements included elsewhere in this prospectus for a description of how we compute basic and diluted net income (loss) per share attributable to Class A and Class B common stock. The rights, including the liquidation and dividend rights, of Class A and Class B common stock are substantially identical other than voting rights. Accordingly, the Class A and Class B common stock share in our net income (loss).
(2)See “—Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
(3)See “—Free Cash Flow” below for more information and for a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2023 |
| December 31, 2022 | | Actual | | Pro forma(1) | | Pro forma as adjusted(2)(3) |
| | | | | (unaudited) |
| (in thousands) |
| Consolidated Balance Sheet Data: | | | | | | | |
| Cash, cash equivalents, and marketable securities | $ | 1,266,544 | | | $ | 1,213,122 | | | $ | | $ |
| Working capital | 1,377,470 | | | 1,346,117 | | | — | | | — | |
| Total assets | 1,599,711 | | | 1,596,467 | | | — | | | — | |
| Total liabilities | 125,283 | | | 155,897 | | | — | | | — | |
| Convertible preferred stock | 1,853,492 | | | 1,853,492 | | | — | | | — | |
| Additional paid-in capital | 250,460 | | | 302,820 | | | — | | | — | |
| Accumulated deficit | (625,738) | | | (716,562) | | | — | | | — | |
| Total stockholders’ equity (deficit) | (379,064) | | | (412,922) | | | — | | | — | |
________________
(1)The pro forma column above reflects (i) the Preferred Stock Conversion; (ii) the Class B Conversion; (iii) the Option Exercise; (iv) the RSU Net Settlement; (v) the increase in accrued expenses and other current liabilities and an equivalent decrease in additional paid-in capital of $ in connection with the estimated tax withholding and remittance obligations related to the RSU Net Settlement; (vi) stock-based compensation expense of approximately $493.7 million associated with RSUs subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering, as further described in Note 14—Stock-Based Compensation of the notes to our consolidated financial statements; and (vii) the filing and effectiveness of our amended and restated certificate of incorporation, which will be in effect immediately prior to the completion of this offering. The pro forma adjustment related to stock-based compensation expense of approximately $493.7 million has been reflected as an increase to additional paid-in capital and accumulated deficit.
(2)The pro forma as adjusted column above gives effect to (i) the pro forma adjustments set forth above, (ii) our receipt of estimated net proceeds from the sale of shares of Class A common stock that we are offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (iii) the receipt by us of gross proceeds of approximately $ in connection with the Option Exercise, and (iv) the use of a portion of the net proceeds from this offering, together with existing cash and cash equivalents, if necessary, to satisfy the estimated tax withholding and remittance obligations related to the RSU Net Settlement.
(3)Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share of our Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) each of our pro forma as adjusted cash, cash equivalents, and marketable securities by approximately $ , and each of our pro forma as adjusted total stockholders’ equity and total capitalization by approximately $ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares of Class A common stock offered by us would increase (decrease) each of our pro forma as adjusted cash, cash equivalents, and marketable securities, total stockholders’ equity, and total capitalization by approximately $ , assuming the assumed initial public offering price of $ per share of our Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to supplement our consolidated financial statements, which are presented in accordance with U.S. GAAP, to evaluate our core operating performance. These non-GAAP financial measures include Adjusted EBITDA and Free Cash Flow. We use these non-GAAP financial measures to facilitate reviews of our operational performance and as a basis for strategic planning. By excluding certain items that are non-recurring or not reflective of the performance of our normal course of business, we believe that Adjusted EBITDA and Free Cash Flow provide meaningful supplemental information regarding our performance. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow investors to supplement their understanding of our financial trends and evaluate our ongoing and future performance in the same manner as management. However, there are a number of limitations related to the use of non-GAAP financial measures as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP measures. These non-GAAP measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with U.S. GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) excluding interest (income) expense, net, income tax expense (benefit), depreciation and amortization, stock-based compensation expense and related taxes, other (income) expense, net, and certain other non-recurring or non-cash items impacting net income (loss) that we do not consider indicative of our ongoing business performance. Other (income) expense, net consists primarily of realized gains and losses on sales of marketable securities, foreign currency transaction gains and losses, and other income and expense that are not indicative of our core operating performance. To evaluate our core operating results, we exclude other (income) expense, net from Adjusted EBITDA. We consider the exclusion of certain non-recurring or non-cash items in calculating Adjusted EBITDA to provide a useful measure for investors and others to evaluate our operating results in the same manner as management.
The following table presents a reconciliation of our net income (loss), the most directly comparable financial measure presented in accordance with U.S. GAAP, to Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | |
| | | | Year ended December 31, |
| | | | | | 2022 | | 2023 |
| | | | | (in thousands) |
| Reconciliation of Adjusted EBITDA: | | | | | | | | |
| Net income (loss) | | | | | | $ | (158,550) | | | $ | (90,824) | |
| Add (deduct): | | | | | | | | |
| Interest (income) expense, net | | | | | | (15,681) | | | (53,281) | |
| Income tax expense (benefit) | | | | | | 622 | | | 3,801 | |
Depreciation and amortization(1) | | | | | | 8,000 | | | 13,702 | |
Stock-based compensation expense and related taxes(2) | | | | | | 55,768 | | | 49,086 | |
Restructuring costs(3) | | | | | | — | | | 8,098 | |
| Other (income) expense, net | | | | | | 1,448 | | | 143 | |
| Adjusted EBITDA | | | | | | $ | (108,393) | | | $ | (69,275) | |
________________
(1)Includes depreciation and amortization as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Year ended December 31, |
| | | | | | 2022 | | 2023 |
| | | | | | |
| | | | | | (in thousands) |
| Cost of revenue | | | | | | $ | 714 | | | $ | 152 | |
| Research and development | | | | | | 4,687 | | | 8,001 | |
| Sales and marketing | | | | | | 1,768 | | | 4,340 | |
| General and administrative | | | | | | 831 | | | 1,209 | |
| Depreciation and amortization | | | | | | $ | 8,000 | | | $ | 13,702 | |
(2)Includes stock-based compensation expense and related taxes as follows:
| | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | | | 2022 | | 2023 |
| | | | | |
| | | | | (in thousands) |
| Cost of revenue | | | | | $ | 133 | | | $ | 101 | |
| Research and development | | | | | 35,917 | | | 24,334 | |
| Sales and marketing | | | | | 7,678 | | | 5,678 | |
| General and administrative | | | | | 12,040 | | | 18,973 | |
| Stock-based compensation expense and related taxes | | | | | $ | 55,768 | | | $ | 49,086 | |
In connection with secondary sales of our common stock, stock-based compensation expense for the year ended December 31, 2023 included $5.7 million for the amount paid in excess of the estimated fair value of the common stock as of the date of the transactions.
(3)During the year ended December 31, 2023, we incurred restructuring costs of $8.1 million, primarily composed of severance and benefits expense, in connection with reductions in our workforce. These charges are non-recurring and are not reflective of underlying trends in our business.
Free Cash Flow
Free Cash Flow represents net cash provided by (used in) operating activities less purchases of property and equipment. We believe that Free Cash Flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. Additionally, we believe that Free Cash Flow is an important measure since we use third-party infrastructure partners to host our services and therefore we do not incur significant capital expenditures to support revenue generating activities.
The following table presents a reconciliation of net cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with U.S. GAAP, to Free Cash Flow:
| | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | | | 2022 | | 2023 |
| | | | | (in thousands) |
| Reconciliation of Free Cash Flow: | | | | | | | |
| Net cash provided by (used in) operating activities | | | | | $ | (94,021) | | | $ | (75,114) | |
| Less: | | | | | | | |
| Purchases of property and equipment | | | | | (6,233) | | | (9,724) | |
| Free Cash Flow | | | | | $ | (100,254) | | | $ | (84,838) | |
RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below as well as the other information in this prospectus, including our consolidated financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our Class A common stock. The occurrence of any of the events or developments described below could adversely affect our business, results of operations, financial condition, reputation, and prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also impair our business, results of operations, financial condition, and prospects.
Risks Related to Our Business
If we fail to increase or retain our user base, and in particular, our DAUq, or if user engagement declines, our business, results of operations, financial condition, and prospects will be harmed.
The size of our user base and their level of engagement are critical to our success. Our financial performance has been, and will continue to be, significantly determined by our success in growing our user base so that we add Redditors, and those Redditors become more active users—more specifically, daily active uniques (“DAUq”). We define a user whom we can identify with a unique identifier who has visited a page on the Reddit website, www.reddit.com, or opened a Reddit application at least once during a 24-hour period as a DAUq. DAUq is a user metric utilized by our management team. While it may be used to gauge usage of our platform, it may not correlate to revenue. We also measure weekly active uniques (“WAUq”) to help us understand the reach of our platform. We may not be successful in our strategies to convert monthly users or WAUq into more DAUq.
If our platform is not perceived to be high-quality, relevant, reliable, trustworthy, or innovative, we may not be able to attract or retain Redditors or otherwise maintain or increase the frequency and duration of their engagement. In addition, in order to grow, we need to penetrate additional demographics. We may not be able to increase the number of Redditors in other demographics, and as a result, our user base may not grow.
Additionally, the absolute number of our DAUq and our DAUq growth rate has decreased in the past and may fluctuate or decrease in one or more markets from time to time due to various factors, especially after periods of high growth, such as we have experienced recently. For example, although we saw increased growth in our user base during the COVID-19 pandemic, we experienced lower levels of DAUq growth and declining DAUq as the effects of the COVID-19 pandemic subsided. DAUq has also declined in the past in periods following usage peaks surrounding certain worldwide events, such as the onset of the conflict between Russia and Ukraine in the three months ended March 31, 2022, and cultural trends, including video game releases, such as Elden Ring in the three months ended March 31, 2022, and traffic related to r/wallstreetbets in the three months ended March 31, 2021. These usage peaks are driven by external factors that are outside of our control. Accordingly, such growth may not be repeatable and we may experience declines in DAUq in the future in similar circumstances. DAUq has also been volatile during community responses to domestic and international social unrest as well as in response to actions by us. We saw increased growth in our user base in the three months ended December 31, 2023, which may have been driven in part by performance improvements in our product and possibly by migration of usage from certain third-party applications in response to changes in our application program interface (“API”) terms and policies. Such growth may not be sustainable. Also, in December 2023, logged-out users comprised 75% of the incremental users added since July 2023, and logged-out users typically come to Reddit via search engines, spend less time on the site, and do not monetize at the same rate as logged-in users. Furthermore, we anticipate that our DAUq growth rate will slow over time as the absolute number of our DAUq increases. To the extent our DAUq growth rate slows or becomes negative, our success will increasingly depend on our ability to increase levels of engagement and monetization on our platform, including the level at which users visiting us from search traffic become more frequent users of our platform. A number of factors could harm Redditor growth and engagement, including if:
•Redditors engage with other products, services, or activities as an alternative to ours;
•our competitors incorporate features into their products that are substantially similar to ours or improve upon such features when including them in their products;
•we fail to introduce new and improved products or services or we introduce new or improved products or services that negatively affect Redditor engagement;
•we are unable to convert DAUq who come to our platform through internet search engines to sign-up and log in;
•Redditors feel that their Reddit experience is diminished as a result of our decisions with respect to the frequency, prominence, and size of ads that we display, or the quality of the ads displayed;
•influential Redditors or certain demographics of Redditors conclude that an alternative product or service better meets their needs;
•we are unable to convince new Redditors of the value and usefulness of our products and services;
•technical or other problems prevent us from delivering our products or services in a rapid and reliable manner or otherwise negatively affect Redditors’ experience with our platform;
•Redditors have difficulty installing, updating, or otherwise accessing our products on mobile devices or prefer to utilize third-party applications that have shut down or no longer integrate with our platform;
•there are disruptions to the normal operation of our communities, including as a result of actions or inactions by our volunteer moderators;
•Redditors are unable to locate content that is interesting, useful, relevant, reliable, high-quality, or trustworthy to them, or otherwise find content available on our platform offensive, inappropriate, hostile, or otherwise objectionable;
•there are Redditor concerns related to privacy and communication, safety, security, or other factors or changes to our platform or policies are not well received by Redditors;
•we are unable to combat harmful or inappropriate usage of our platform;
•there are adverse changes in our products or services that are mandated by, or that we elect to make to address, legislation, regulatory authorities, or litigation, including settlements;
•we fail to keep pace with evolving online, market, and industry trends; or
•we are the subject of adverse media reports or other negative publicity.
We believe that sustained meaningful active Redditor growth is dependent on improving our products and services to demonstrate our value proposition to a larger audience, which we believe may take a considerable amount of time. If we are unable to increase our DAUq, or its growth rate, or if this metric declines, our products and services could be less attractive to potential new users, as well as to advertisers, which would harm our business, results of operations, financial condition, and prospects.
If Redditors do not continue to contribute content or their contributions are not valuable or appealing to other Redditors, we may experience a decline in the number of Redditors accessing our products and services and in user engagement, which could result in the loss of advertisers and may harm our reputation, business, results of operations, financial condition, and prospects.
Our success depends on our ability to provide users of our products and services with valuable content, which in turn depends on the content contributed by Redditors. We seek to foster a broad and engaged Redditor community. If Redditors do not continue to contribute content and otherwise engage with our platform, and we are unable to provide Redditors with valuable and timely content, our user base and their engagement may decline. A large portion of the content on our platform comes from a small number of Redditors contributing to communities (which
are also known as subreddits). If prolific Redditors do not continue to contribute content and otherwise engage with our platform, or decide to leave our platform and encourage other Redditors to follow them to a new platform, our user base and their engagement may decline. Our platform may also be used by third parties to disseminate abusive or other harmful content in violation of our terms and applicable law. We may not proactively discover or quickly respond to such content once alerted to it due to our scale and the limitations of existing technology and operational infrastructure. If we are unable to successfully prevent or detect and timely address abusive or other harmful behavior on our platform, our user base and their engagement may decline. Additionally, in keeping with our mission to bring belonging to everyone in the world, our site-wide content policy is designed to be protective, but not intrusive. If Redditors perceive the content available on Reddit to be offensive, inappropriate, hostile, or otherwise objectionable, we may experience a decline in user activity generally, or among certain demographics. We generate substantially all of our revenue from the sale of advertising services. If we experience a decline in the number of Redditors, or a decrease in Redditor growth rate or engagement, including as a result of lack of valuable or appealing content, or the loss of influential Redditors or subreddits, advertisers may not view our products and services as attractive for their marketing expenditures, and may reduce their spending with us, which would harm our reputation, business, results of operations, financial condition, and prospects.
Our business depends on a strong brand and reputation, and if we are unable to maintain and enhance our brand and reputation, our ability to expand our user and advertiser bases will be impaired and our business, results of operations, financial condition, and prospects could be harmed.
We believe that our brand identity and reputation, including that our service is an empowering environment, has significantly contributed to the success of our business. We also believe that maintaining and enhancing the “Reddit” brand and reputation is critical to retaining and growing our user and advertiser bases. We anticipate that maintaining and enhancing our brand and reputation will depend largely on our continued ability to provide high-quality, relevant, reliable, trustworthy, and innovative products, which may require substantial investment and may not be successful. We may need to introduce new products or updates to existing products that require Redditors to agree to new terms of service that Redditors do not like, which may negatively affect our brand and reputation. Additionally, advertisements or actions of our advertisers may affect our brand and reputation if Redditors do not think the advertisements help them accomplish their objectives, view the advertisements as intrusive, annoying, or misleading, or have poor experiences with our advertisers.
Our brand and reputation may also be negatively affected by the content or actions of Redditors that are deemed to be offensive, inappropriate, hostile, or otherwise objectionable to other Redditors, by the actions of Redditors acting under false or inauthentic pretenses, by the use of our products or services to disseminate information that is deemed to be misleading, or by the use of our service for illicit, illegal, or objectionable ends. We also may fail to respond expeditiously or at all to the sharing of illegal, illicit, offensive, inappropriate, hostile, or otherwise objectionable content on our platform or to objectionable practices by advertisers, or to otherwise address Redditors’ concerns, which could erode confidence in our brand and damage our reputation. We expect that our ability to identify and respond to such content in a timely manner may decrease as the number of Redditors grows, as the amount of content on our platform increases, or as we expand our product and service offerings, such as an increase in video content. Any governmental or regulatory inquiry, investigation, or action, including based on the appearance of illegal, illicit, or objectionable content on our platform or the failure to comply with applicable laws, rules, and regulations, could damage our brand and reputation, regardless of the outcome.
We receive a high degree of media coverage globally. We have experienced, and expect to continue to experience, media, legislative, governmental, and regulatory scrutiny of our decisions. Unfavorable publicity and scrutiny involving us, including regarding our data privacy, intellectual property, content, or other practices, product changes, product quality, pricing increases, litigation, or regulatory action, or regarding the actions of our employees, Redditors, moderators, or advertisers, or other issues, may significantly harm our brand and reputation, and could adversely affect the size, demographics, engagement, and loyalty of our user base. For instance, in May and June 2023, we experienced negative publicity as a result of our API policy changes. In addition, unfavorable publicity and scrutiny of other companies in our industry, including controversies surrounding their product design choices, content-related decisions, or their data privacy practices, could also have a negative impact on our brand and reputation. These concerns, whether actual or unfounded, may also deter Redditors or advertisers from using our service.
In addition, we may fail to adequately address the needs of Redditors or our advertisers, which could erode confidence in our brand and damage our reputation. If we fail to promote and maintain the “Reddit” brand or preserve our reputation, or if we incur excessive expenses in this effort, our business, results of operations, financial condition, and prospects could be harmed.
Changes in internet search engine algorithms and dynamics could have a negative impact on traffic for our website and, ultimately, our business, results of operations, financial condition, and prospects.
Our success depends partly on our ability to attract online visitors to our website. We rely, in part, on internet search engines, such as Google, to generate traffic to our website, primarily through free or organic searches. Search engines frequently update and change the logic that determines the placement and display of the results of a user’s search, such that the purchased or algorithmic placement of links to our websites may be ranked lower in the search results or otherwise less visible in a user’s search. In addition, a search engine could, for competitive or other purposes, alter its search algorithms or results, causing our website to place lower in organic search query results. If a major search engine changes its algorithms in a manner that negatively affects the search engine ranking of our website or those of our partners, our business, results of operations, financial condition, and prospects could be adversely affected.
We have a history of net losses and we may not be able to achieve or maintain profitability in the future.
We have incurred net losses since our inception, and we may incur net losses in the future. We incurred net losses of $(158.6) million and $(90.8) million for the years ended December 31, 2022 and 2023, respectively. As of December 31, 2023, we had an accumulated deficit of $(716.6) million. We also expect our operating expenses to increase in future periods, and if our revenue growth does not increase to more than offset these anticipated increases in our operating expenses, our business, results of operations, financial condition, and prospects will be harmed, and we may not be able to achieve or maintain profitability. While we have recently undertaken cost reduction measures, we expect our costs and expenses to increase in future periods as we intend to continue to make significant investments to broaden our user base, develop and implement new products, market new and existing products and promote our brand, expand our technical infrastructure, and hire additional employees (with a related expected increase in payroll and stock-based compensation expense). Some of these investments may generate only limited revenue and reduce our operating margin. If our investments are not successful, our ability to increase revenue may be adversely affected. In addition to the expected costs to grow our business, we also expect to incur significant additional legal, accounting, and other expenses as a newly public company. If we fail to increase our revenue to exceed the increases in our operating expenses, we will not be able to achieve or maintain profitability in the future.
Our results of operations may fluctuate from quarter to quarter, which makes them difficult to predict.
Our quarterly results of operations have fluctuated in the past and will fluctuate in the future, based on the seasonality of our business as well as external factors impacting the global economy. For example, we have historically seen an increase in usage and advertiser spending in the fourth quarter, at least in part due to the holiday season, typically followed by a weaker first quarter. As a result, our past quarterly results of operations are not necessarily indicative of future performance. Our results of operations and financial condition in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:
•our ability to maintain and grow our DAUq, as well as users’ activity on Reddit;
•the level of demand for our products and services;
•the development and introduction or termination of new products, features, or services by us or our competitors;
•seasonal or other fluctuations in spending by our advertisers or in Redditor usage or engagement on our platform, including, but not limited to, around significant planned events such as the Super Bowl and unplanned ones like natural disasters or touted video game releases;
•our ability to attract and retain advertisers;
•our pricing models and our ability to maintain or improve revenue and operating margins;
•increases in marketing, sales, and other operating expenses that we may incur to grow and expand our operations and to remain competitive;
•our ability to successfully expand internationally and penetrate key demographics;
•the timing, cost of, and mix of new and existing marketing and promotional efforts;
•our ability to maintain operating margins, cash used in operating activities, and Free Cash Flow;
•system failures or actual or perceived data breaches or other security or privacy-related incidents, and the costs associated with such failures, breaches, and remediations;
•inaccessibility of our platform, or certain features within our platform, due to third-party action or inaction;
•increases in stock-based compensation expense;
•our ability to effectively incentivize our workforce;
•costs related to the acquisition of businesses, talent, technologies, or intellectual property, including potentially significant amortization costs;
•adverse litigation judgments, settlements, or other litigation- and dispute-related costs;
•changes in the legislative or regulatory environment, including with respect to privacy and data protection, consumer protection, and liability resulting from user-generated content, or enforcement by government regulators, including fines, orders, or consent decrees;
•fluctuations in the market values of our portfolio investments and interest rates or impairments of any assets on our balance sheet;
•changes in our effective tax rate;
•changes in accounting standards, policies, guidance, interpretations, or principles; and
•changes in domestic and global business or verticals or macroeconomic conditions.
Given our limited effective operating history as an independent company and the rapidly evolving markets in which we compete, our historical results of operations may not be useful to you in predicting our future results of operations. In addition, global economic concerns and geopolitical conditions continue to create uncertainty and unpredictability, have resulted, and may in the future result, in certain advertisers pausing campaigns or reducing their marketing budgets with us or in general, and add risk to our future outlook. An economic downturn or economic uncertainty in any particular region in which we do business or globally could cause reductions in our revenue, operating margins, and cash flows, increased price competition, and increased operating costs, each of which could adversely affect our business, results of operations, financial condition, and prospects.
We are in the early stages of monetizing our business and there is no assurance we will be able to scale our business for future growth.
We are in the early stages of our monetization efforts, and as such, we are still scaling our advertising revenue model. Our growth strategy depends on, among other things, attracting more advertisers, scaling our business with existing advertisers, and expanding our advertising services, as well as successfully identifying and capturing non-advertising sources of revenue. There is no assurance that this revenue model will be successful or that we will generate increased revenue.
To sustain or increase our advertising revenue, we must attract new advertisers, encourage existing advertisers to maintain or increase their advertising spend on our platform, expand the number of markets where we offer advertising, and increase the breadth and functionality of our advertising services, including new advertising formats and measurement tools. In order to obtain new advertisers and further our relationship with current advertisers, we must increase the amount of monetizable content on our platform, including by increasing the absolute number of DAUq who post and consume content, and our monetization model depends on this engagement. Not all DAUq monetize in the same manner or rate, so we also measure the average revenue per unique (“ARPU”) to help us understand the extent to which we are monetizing DAUq. Much of our DAUq growth to date has come from certain users, such as logged-out users or users located outside the United States, who may represent lower monetization opportunities. There is no assurance that our user growth or engagement strategy will continue to be successful or that we will increase the number of DAUq, ARPU, or the amount of monetizable content on our platform. Without such growth, we could see our supply of monetizable inventory stay constant or decrease, which may limit or hinder our ability to increase revenue.
As we continue to grow our advertiser base, our revenue depends on our ability to effectively serve enough advertisements that meet the objectives of our advertisers while maintaining a high-quality, relevant, reliable, trustworthy, and innovative user experience. If we are unable to do this on our platform due to either a decline in DAUq, or changes in our products or services or Redditor behavior that reduce our ability to display as many advertisements as our advertisers may request, our business, results of operations, financial condition, and prospects would be adversely affected. Our advertising business can be inventory constrained at times, and the attendant impact on the supply and pricing of our advertising inventory could affect the financial performance of our business. We could find ourselves unable to match customer advertising specifications with available inventory, leaving us unable to deliver the advertising inventory requested and receiving less revenue than otherwise expected. This also could put upward pressure on advertising prices and potentially impact the return advertisers get on their spend, which in turn could affect future advertiser spending. To scale the growth of our advertising services, we will have to successfully develop and target ad products tailored to the interests of our advertising customers and our user base, which may require additional user data. If we are unable to do this with the data, technology, and resources available to us, we may need to rely more heavily on alternative revenue sources to grow our business.
We will continue to identify and develop potential new revenue streams. We have explored and continue to explore different ways for Redditors to make money on Reddit, including the Reddit Contributor Program and Reddit Collectible Avatars, while also providing a source of revenue for Reddit as well. We are also exploring reasonable data licensing opportunities as another possible source of revenue where those opportunities do not conflict with our values and the rights of our Redditors and have only recently generated revenue from this opportunity. There are many aspects of these possible revenue sources which are novel and untested, which makes it challenging to evaluate the viability of any future revenue opportunities or to identify the risks and challenges we may encounter in seeking to execute on our strategies. There can be no assurance that we will be successful in generating meaningful revenue from any of these non-advertising sources. If we are unable to succeed in these monetization efforts or identify new revenue opportunities, our business, results of operations, financial condition, and prospects could be harmed.
We generate substantially all of our revenue from advertising. The failure to attract new advertisers, the loss of advertisers, or the reduction of or failure by advertisers to maintain or increase their advertising budgets would adversely affect our business.
Substantially all of our revenue is generated from third parties advertising on our platform. For the years ended December 31, 2022 and 2023, approximately 98% of our revenue was generated from third parties advertising on our platform. In addition, a substantial portion of our revenue is derived from a small number of advertisers, with our top ten largest customers accounting for approximately 28% and 26% of our revenue for the years ended December 31, 2022 and 2023, respectively. As is common in our industry, our advertisers do not have long-term advertising commitments with us. In addition, many of our advertisers purchase our advertising services through one of several large advertising agency holding companies. Our revenue could be harmed by the loss of, or a deterioration in our relationship with, any of our largest advertisers or with any advertising agencies or the holding companies that control them. Advertising agencies and potential new advertisers may view our advertising products and services as experimental and unproven, and we may need to devote additional time and resources to educate
them about our products and services. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to alternatives, including online, mobile, and traditional advertising platforms. Our advertising revenue could be adversely affected by a number of other factors, including:
•decreases in the absolute number of our DAUq or our DAUq growth rate, or in the amount of monetizable content that Redditors generate on our platform;
•decreases in Redditor interactions with us and with the ads on our platform;
•our advertisers’ inability to optimize their campaigns or measure the results of their campaigns;
•our inability to increase ARPU or otherwise monetize DAUq at the same or higher rate as DAUq growth, including if that growth occurs in markets that do not generate as much revenue as the United States;
•restrictions placed on, or the relevance of, ads outside of the United States;
•product or service changes we may make that change the size, frequency, or relative prominence of ads displayed on our platform or otherwise impact Redditor engagement with ads;
•disruptions of accessibility to our platform;
•our inability to increase advertiser demand and inventory;
•our inability to make ads on our platform more relevant and effective;
•our inability to effectively monetize our international user base or our logged-out audience;
•the degree to which Redditors access Reddit content through third-party applications that do not contain our ads;
•the impact of new technologies that could block or obscure the display of our ads;
•adverse legal developments relating to advertising or advertising effectiveness measurement tools, including legislative and regulatory developments, and developments in litigation;
•adverse media reports or other negative publicity involving us or other companies in our industry;
•our inability to create new products and services that sustain or increase the value of our advertising services to both our advertisers and Redditors; and
•the impact of macroeconomic conditions and conditions in the advertising industry in general.
The occurrence of any of these or other factors could result in a reduction in demand for our ads, which may reduce the prices we receive for our ads, either of which would negatively affect our business, results of operations, financial condition, and prospects.
Additionally, the ability and willingness of advertisers to spend on our platform has fluctuated with general market uncertainty. For example, we experienced a reduction in advertising demand and a related decline in pricing during the onset of the COVID-19 pandemic. Global economic concerns, including supply chain and labor disruptions, rising interest rates, inflation, and geopolitical conditions continue to create uncertainty and unpredictability, and have resulted, and may in the future result, in certain advertisers pausing campaigns or reducing their marketing budgets with us or in general. For example, since the three months ended December 31, 2022, we experienced declines in advertising spending in certain macro-challenged sectors, particularly technology, media and entertainment, and cryptocurrency, which was partially offset by greater diversification across other advertising verticals. We cannot ensure that our diversification efforts will continue to be successful and, given the
uncertainty in the advertising market, we expect our revenue growth rate to decline in the near term, especially in light of our strong growth in recent periods.
We may not succeed in further expanding and monetizing our platform internationally and may be subject to increased international business and economic risks.
We plan to continue expanding our business operations outside the United States and offering content and advertising to Redditors and advertisers in other languages and countries. We plan to continue to enter new international markets where we have limited or no experience in deploying our services or selling advertisements. In order to expand successfully, we need to offer content and products that are tailored to the interests of local Redditors and the needs of local advertisers, each of which requires significant investment of time and resources. We may launch our advertising platform in countries where we do not have sales staff in place, where market perception of our services and advertising platform may be low, or where our audience size in a given market may not meet advertiser expectations, all or any of which could limit our ability to monetize our platform in those countries. As we expand into new international markets, we may not yet understand the full scope of prospective users’ interests, demographics, and culture, or advertiser expectations, target audiences, and return on advertising spend, in those markets. This may cause us to expand into markets before we are able to offer a service and advertising platform that has been sufficiently localized for those markets or where those markets lack the necessary demand and infrastructure for long-term adoption of our services. For example, we may experience challenges adapting our content and search tools or establishing sufficient high-quality, relevant, reliable, trustworthy, and innovative content to deliver relevant localized experiences in new markets. This may cause us to limit our expansion or decrease our operations in international markets, including discontinuing advertising in those markets or not monetizing those markets at all, which could harm our reputation, business, results of operations, financial condition, and prospects. If we are unsuccessful in deploying, scaling, or managing our operations in international markets, our business, results of operations, financial condition, and prospects could be adversely affected.
We are subject to a variety of risks inherent in doing business internationally, and our exposure to these risks will increase as we continue to expand our operations, user base, and advertiser base globally. These risks include:
•operational and compliance challenges caused by distance, language, and cultural differences;
•challenges in adapting our content, products, and services to non-U.S. consumers’ preferences, languages, and customs, including enhanced difficulty in reviewing content on our platform and enforcing our community standards across different languages and countries;
•potential damage to our brand and reputation due to compliance with local laws, including laws that may restrict content or advertisement or requirements to provide user information, including confidential information to local authorities;
•challenges in adapting to the needs of non-U.S. advertisers in various countries and regions;
•selective or inconsistent government regulatory action or enforcement;
•political, social, or economic instability;
•higher levels of credit risk and payment fraud;
•enhanced difficulties of integrating any foreign acquisitions;
•reduced protection for intellectual property and other proprietary rights in certain countries;
•difficulties in staffing and managing global operations and the increased travel, infrastructure, and legal compliance costs associated with multiple international locations and subsidiaries;
•different regulations and practices with respect to employee/employer relationships, workers’ councils, and labor unions that make it more difficult to do business in certain international jurisdictions;
•increasing labor costs due to high wage inflation in certain international jurisdictions;
•compliance with statutory requirements relating to our equity;
•regulations that might add difficulties in repatriating cash earned outside of the United States and otherwise prevent us from freely moving cash;
•import and export controls and restrictions and changes in trade regulations, including sanctions;
•compliance with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act 2010, and similar laws in other jurisdictions;
•compliance with the European Union (“EU”) General Data Protection Regulation (the “EU GDPR”) and the United Kingdom (“UK”) General Data Protection Regulation (the “UK GDPR” and, together with the EU GDPR, the “GDPR”), which sits alongside the UK Data Protection Act 2018 to form the data privacy framework in the UK, and similar data privacy and data protection laws, rules, and regulations;
•different laws and regulations with respect to our potential liability for content published on our platform by third parties, which may require product, engineering, or operational changes that we are unable to provide on a timely or cost-effective basis, if at all;
•macroeconomic conditions, which have had, and may continue to have, an impact on the pace of our global expansion;
•compliance with multiple tax jurisdictions and management of tax impact of global operations; and
•other risks and uncertainties described in this prospectus.
Moreover, geopolitical tensions in certain countries may prevent us from operating in certain countries or increase our costs of operating in those countries. Redditors may also be restricted from accessing Reddit from certain countries, and some countries have intermittently restricted access to Reddit. For example, Reddit is not directly accessible in China. Other governments have sought in the past, and may in the future seek, to restrict access to or block our website or mobile applications, censor content available through our products, or impose other restrictions that affect the accessibility or usability of Reddit for an extended period of time or indefinitely. Some countries have enacted, and other countries may in the future enact, laws that allow websites to be blocked for hosting certain types of content. Additionally, if enforcement authorities demand access to our user data, failure to comply could lead to our inability to operate in such country or other punitive acts.
Given the breadth of interests represented on our platform, global events, such as the ongoing conflict between Russia and Ukraine or the recent escalation of conflict between Israel and the Palestinians, can have a profound impact on Reddit’s communities and moderators, even when the impact on our business, results of operations, and financial condition is limited. As an example, Reddit has no offices in either Russia or Ukraine, does not accept advertisements targeting Russia or that originate from any Russian-based entity, government, or private citizen, and has limited traffic and users in both countries given our early localization efforts. Nevertheless, the conflict has required our internal teams to shore up our site-wide defenses and provide support, resources, and specialized tooling to those impacted communities. While Reddit will continue to make our platform available for people to connect, support each other, access reliable information, and express their authentic opinions and feelings during difficult times, we cannot ensure that all of our efforts to support our communities will be successful.
If we fail to successfully expand internationally, our business, results of operations, financial condition, and prospects could be adversely affected.
If we do not develop successful new products and services or improve existing products and services, our business will suffer.
Our ability to retain, increase, and engage Redditors and increase our revenue depends heavily on our ability to continue to evolve our existing products and services and to create successful new products and services. We have
invested, and expect to continue to invest, in improvements to our platform, significant changes to our existing products and services, new and unproven products and services, including machine learning and artificial intelligence (“AI”), and other initiatives to generate revenue and increase our user base and user engagement. For example, with Reddit’s Contributor Program, Reddit is newly allowing users to earn money from their Reddit contributions to the platform and other Redditors.
Improvements to our platform, new products and services, and other initiatives may be costly, difficult to operate, and could divert management’s attention, and there is no guarantee that they will be positively received by Redditors or provide positive returns on our investment. For example, new ad formats, such as video ads, may be more engaging, and Redditors may consequently spend less time browsing or searching on our platform, which could adversely affect our revenue. Further, new products or services that we develop may, in certain cases, require regulatory approval prior to launch, result in increased litigation, or subject us to new or enhanced governmental or regulatory requirements or scrutiny. There is no guarantee that we will be able to obtain any required regulatory approval, and our efforts to comply with these laws and regulations could be costly and divert management’s time and effort and may still not guarantee compliance. These new products and updates may also fail to increase the engagement of Redditors and our advertisers or partners, and may even result in short- or long-term decreases in such engagement by disrupting existing Redditor, advertiser, or partner behavior or by introducing performance and quality issues. In addition, in some cases, we may have little or no prior experience related to developing the technologies underlying the new products and services. If our new or enhanced products or services fail to engage, or meet the expectations of, Redditors or our advertisers or developers, or if our business plans or new approaches to monetization are unsuccessful, we may fail to attract new users, retain existing Redditors, or generate sufficient revenue, operating margin, or other value to justify our investments, and our business, results of operations, financial condition, and prospects could be harmed.
Our business relies on an approach to content moderation that, while empowering community-led authenticity, can also result in content on the platform that can be unrelatable, offensive, and that may pose inherent risks.
Our business relies on a layered approach to content moderation. While our communities self-organize and set out rules that are tailored to the unique circumstances of their communities, we provide a set of overarching rules and policies that are intended to be protective, not intrusive. Our site-wide rules prohibit behavior such as harassment, bullying, and violence, including hate based on identity or vulnerability, but are not intended to be exhaustive of every potential situation that every community could encounter. Instead, we rely on our communities to self-organize and supplement our site-wide rules by devising their own rules that are tailored to the unique circumstances of their particular community. Between our rules and the rules devised by our communities, we may not be able to adequately anticipate and cover every situation where offensive, inappropriate, hostile, or otherwise objectionable content may arise.
There can also be significant good faith differences in opinion as to whether particular content violates our site-wide rules or the rules of a specific community. We and our moderators may inconsistently apply the rules, or make decisions regarding content with which other Redditors disagree. From time to time, we and the moderators may need to make difficult moderation decisions that are highly publicized or controversial, including those that result in the departure or disengagement of large numbers of Redditors.
Our approach to content moderation inherently subjects us to numerous risks, including that we may:
•fail to respond in a timely manner, or at all, to the sharing of illegal, illicit, abusive, harmful, or objectionable content on our platform;
•have difficulty identifying offensive, inappropriate, hostile, or otherwise objectionable content, and separating such content from that which is otherwise permissible on our platform; for example, where the content is mistagged or misreported or where there are defects in our automated systems;
•be more likely to be subject to claims relating to information or content that is published or made available on our platform, including enforcement actions with respect to such information or content. In particular, the nature of our business exposes us to claims related to defamation, dissemination of news hoaxes or misinformation, discrimination, harassment, intellectual property rights, rights of publicity and privacy,
personal injury torts, laws regulating hate speech or other types of content, online safety, sex trafficking, consumer protection, and breach of contract, among others;
•have an increased risk of reputational harm in the event that content or actions of some Redditors are deemed to be hostile or inappropriate, even if that content is permitted under our policies;
•be unable to retain a sufficient number of volunteer moderators, or ensure that our moderators will fairly and consistently enforce our rules, either of which could significantly degrade the community experience for other Redditors;
•have an increased risk of negative publicity based on our decisions, or the decisions of our moderators, with respect to permitted or prohibited content; and
•be unable to monetize a significant portion of the content available through our platform and the DAUq accessing such content, if we or our advertising partners deem it unsuitable.
Even where we or the moderators enforce our rules against an individual or group of individuals whom we have identified as violating our rules, we cannot ensure that such individuals do not continue to disrupt our platform. Banned individuals can attempt to evade enforcement by creating a new account. Banned communities may try to reestablish under a different subreddit name. Bad actors may try to repost removed content. While we continue to work on improving our detection capabilities regarding these types of enforcement evasion, we may be unable to prevent such individuals or communities from further disrupting our platform and producing content that violates our rules.
If users or potential users perceive the content available on Reddit to be offensive, inappropriate, hostile, or otherwise objectionable, or if they perceive such content to be representative of our community experience, our reputation would be harmed and we may experience a decline in user growth, retention, and engagement. In addition, some people may perceive our layered approach to content moderation to mean that Reddit condones offensive, inappropriate, hostile, or otherwise objectionable content that is not removed from our platform. Growth in these perceptions could harm our reputation or impair our ability to maintain good relationships with our advertisers or attract new advertisers, which may seriously harm our business. We face significant competition for advertising spend, and if advertising partners perceive our platform to be associated with content deemed to be offensive, inappropriate, hostile, or otherwise objectionable or otherwise problematic, our business, results of operations, financial condition, and prospects could be adversely affected.
We rely on an approach to content moderation that depends on Redditors who volunteer to be moderators of their communities. If we fail to retain a sufficient number of moderators who are willing to work in good faith within our policies or if we fail to properly manage our relationship with moderators, or if a sizable number of moderators choose to take actions that disrupt our services, our business, results of operations, financial condition, and prospects could be adversely affected.
Redditors who volunteer to be moderators of Reddit communities are an important part of our business’ ecosystem. Each community relies on one or more moderators who not only review content but also define and enforce community rules. Our business relies on moderators to engage in good faith and to manage their subreddits in a manner that meets the needs of the subreddit’s members. Our approach to content moderation depends on the activities of the moderators to protect the experiences of the members of their communities. Our approach requires that moderators be sufficiently active in their moderation activities, depending on the size and scale of their communities. For the larger communities, the need for moderators can be significant, requiring ever-increasing numbers of moderators willing to volunteer their time to effectively scale with the size of the community. In addition, the enforcement demands placed on moderators can increase dramatically on short notice if traffic to a particular subreddit increases due to current events or trends, for example, r/ wallstreetbets, or if a community is subject to coordinated spam or abuse campaigns, despite the availability of tools and the efforts of Reddit admin teams. As communities grow, it can become more and more challenging for communities to find qualified people willing to act as moderators.
Moreover, moderators within a community may disagree on the vision for, or direction of, the community, or may simply decide not to work together, resulting in a degraded community experience and subreddit disruption, instability, stagnation, or even dissolution. Moderators, even when acting in good faith, may have different values or viewpoints than what others view as socially acceptable or, worse, may be bad actors against whom we need to enforce our rules.
While we provide tools to our communities to manage their subreddits, our moderators also rely on their own and third-party tools. Any disruption to, or lack of availability of, these third-party tools could harm our moderators’ ability to review content and enforce community rules. Further, if we are unable to provide effective support for third-party moderation tools, or develop our own such tools, our moderators could decide to leave our platform and may encourage their communities to follow them to a new platform, which would adversely affect our business, results of operations, financial condition, and prospects.
Because moderators are volunteers, any moderator can decide to stop acting as a moderator and participate only as a community member, or to leave our platform entirely. Certain moderators, especially those who moderate large communities or a large number of communities, may be able to leverage their influence within those communities to change the dynamics of the discourse within the communities or to disrupt the normal operation of their communities or other communities on our platform. Moderators can also band together and, for various reasons, decide to shut down the normal operation of their communities in a manner that degrades the experiences of all Redditors in the affected communities and that can negatively impact Redditors who continue to use our service and reduce the amount of monetizable content generated by Redditors. For example, in response to certain changes to our API policies in June 2023, moderators of certain communities inhibited normal operations of the communities they operate, in many cases in violation of our site-wide rules. While these activities have not historically had a material impact on our business or results of operations, similar actions by moderators and/or their communities in the future could adversely affect our business, results of operations, financial condition, and prospects.
Our ability to generate revenue depends on the development and availability of tools to accurately measure the effectiveness of advertisements on our platform.
Most advertisers rely on tools that measure the effectiveness of their ad campaigns or that verify viewability of their ads on our platform in order to allocate their advertising spend among various formats and platforms. If we are unable to measure the effectiveness of advertising on our platform or we are unable to convince advertisers that our platform should be part of a larger advertising budget, our ability to increase the demand and pricing of our advertising products and maintain or scale our advertising revenue will be limited. Our tools may be less developed than those of other platforms with which we compete for advertising spend, in particular relative to those platforms that collect more personal information than we do. Therefore, our ability to develop and offer tools that accurately measure the effectiveness of a campaign or verify ad viewability on our platform will be critical to our ability to attract new advertisers and retain, and increase spend from, our existing advertisers.
Developing and improving these tools may require significant time and resources and additional investment, and in some cases we rely on third parties to provide data and technology needed to provide certain measurement or verification data to our advertisers. If we cannot continue to develop and improve our advertising tools in a timely fashion, those tools are not reliable, difficult to use, or otherwise unsatisfactory to our advertisers, or the measurement or verification results are inconsistent with advertiser goals, our advertising revenue could be adversely affected.
In addition, web and mobile browser developers, such as Apple, Microsoft, and Google, have implemented, and may continue to implement, changes in their browser or device operating systems that impair our ability to measure traffic in general and, in particular, the effectiveness of advertising on our platform. Such changes include limiting the use of first-party and third-party cookies, such as Apple’s launch of its Intelligent Tracking Prevention (“ITP”) feature in its Safari browser, and Google’s announced plans to stop supporting third-party cookies in its Google Chrome browser. They also include Apple’s App Tracking Transparency framework which imposes additional user permissions for certain types of user tracking. Even in situations where we do not engage in the type of user tracking that is the target of such changes, these restrictions nevertheless may make it more difficult for us to measure our traffic in general, and, in particular, impair or limit our advertising attribution and conversion capabilities. Such
restrictions, in combination with evolving legal and regulatory requirements, may impede our ability to attract and retain advertisers who rely on access to such data.
We rely heavily on our ability to collect and share data and metrics to help new and existing advertisers understand the performance of advertising campaigns. If advertisers do not perceive our metrics to be accurate representations of our user base and user engagement, or if we discover inaccuracies in our metrics, they may be less willing to allocate their budgets or resources to our platform, which could harm our business, results of operations, financial condition, and prospects. See “—We rely on internal company data, assumptions, and estimates to calculate certain of our key metrics, and real or perceived inaccuracies in such current or historical metrics may harm our reputation and negatively affect our business.”
We rely on external ecosystems, such as operating systems and application stores, to make our apps available to prospective users. If we are unable to adapt to product and policy changes in such ecosystems, or if we do not effectively operate with or receive favorable placements within such ecosystems, our usage could decline and our business, results of operations, financial condition, and prospects could be adversely affected.
We depend in part on operating systems, including mobile operating systems such as Android and iOS, and their respective application stores, such as Apple’s App Store and Google’s Play Store, to drive downloads of our apps. If such operating systems or application stores limit the availability of our apps, make changes that degrade the functionality of our apps, increase the cost of using our apps, impose terms of use unsatisfactory to us, or modify their search or ratings algorithms in ways that are detrimental to us, or if our competitors’ placement in such mobile operating systems’ application store is more prominent than the placement of our apps, our user growth could be adversely affected. Any changes in such operating systems and application stores that degrade the functionality of our apps or give preferential treatment to our competitors’ apps could adversely affect our platform’s usage across devices. For example, some operating systems have implemented or explored changes to the underlying application architecture, such as Apple’s App Tracking Transparency, or specialized infrastructure for advertisement-driven app installations, such as SKAdNetwork, which reduce our ability to target and measure advertising and, in turn, may negatively impact the size of the budgets that advertisers are willing to commit to us. Some marketplaces have explored changing their policies regarding what content is acceptable within an application. If we are unable to adapt to such changes, this could adversely affect our platform’s access to and usage within those ecosystems.
As new mobile devices and mobile platforms are released, there is no guarantee that certain mobile devices will continue to support our platform or effectively roll out updates to our apps. Additionally, in order to deliver high-quality apps, we need to ensure that our products and services are designed to work effectively with a range of mobile technologies, systems, networks, and standards. We may not be successful in developing or maintaining relationships with key participants in the mobile industry that enhance Redditors’ experience. If Redditors encounter any difficulty accessing or using our apps on their mobile devices or if we are unable to adapt to changes in popular mobile operating systems, our business, results of operations, financial condition, and prospects could be adversely affected.
We face intense competition for users with low switching costs and are subject to a rapidly evolving technological landscape. If we are unable to compete effectively for users, our business, results of operations, financial condition, and prospects could be adversely affected.
We compete to attract and retain Redditors’ attention on the basis of our content and Redditor experiences with our platform and face significant competition for prospective users, both domestically and internationally. We compete against many companies that provide content and communications services to online users, including Google, Meta (including Facebook, Instagram, Threads, and WhatsApp), YouTube, Wikipedia, Snap, X, Pinterest, TikTok, Roblox, Discord, and Twitch, and which offer a variety of internet- and mobile device-based products, services, and content. Many of these companies have greater financial resources and substantially larger user bases than Reddit. Furthermore, as we pursue opportunities to empower our user economy, we expect to face competition from existing online marketplaces, including Facebook Marketplace, Nextdoor, Craigslist, Poshmark, Etsy, and Roblox. As a result, our competitors may draw users towards their products or services and away from ours. This could decrease the growth or engagement of Redditors, which, in turn, would negatively affect our business. In addition, we face competition from large language models (“LLMs”), such as ChatGPT, Gemini, and Anthropic;
Redditors may choose to find information using LLMs, which in some cases may have been trained using Reddit data, instead of visiting Reddit directly. We believe that our ability to compete effectively for users depends upon many factors both within and beyond our control, including:
•the popularity, usefulness, ease of use, performance, and reliability of our products and services compared to those of our competitors;
•the amount, quality, relevance, searchability, and timeliness of content available on our platform;
•the continued adoption of our products and services internationally;
•our ability, including in comparison to that of our competitors, to develop new products and services and enhancements to existing products and services;
•our ability to effectively adopt new technologies, such as machine learning and AI, that our competitors may have more experience utilizing and leveraging in their products and services;
•changes mandated by, or that we elect to make to address, legislation, regulatory authorities, or litigation, including settlements;
•our ability to attract, retain, and motivate talented employees, particularly engineers, designers, and product managers; and
•our reputation and the brand strength relative to our competitors.
If we are not able to compete effectively for users, our business, results of operations, financial condition, and prospects would be adversely affected.
We face intense competition for advertising spend and are subject to a rapidly evolving technological landscape. If we are unable to compete effectively for advertising spend, our business, results of operations, financial condition, and prospects could be adversely affected.
We face significant competition for advertising spend. We anticipate that a substantial majority of our revenue will continue to be generated through ads on our platform, and we compete against online and mobile businesses, including those referenced above, and traditional media outlets, such as television, radio, and print, for advertising budgets. We also compete with advertising networks, exchanges, demand-side platforms, and other platforms for marketing budgets and in the development of the tools and systems for managing and optimizing advertising campaigns. In order to grow our revenue and improve our results of operations, we must increase our share of advertising spend relative to our competitors, many of which are larger companies that offer more traditional and widely accepted advertising products. In addition, some of our larger competitors have substantially broader product or service offerings and leverage their relationships based on other products or services, as well as collect more personal data than we do, to gain additional share of advertising budgets. We believe that our ability to compete effectively for advertiser spend depends upon many factors both within and beyond our control, including:
•the size, composition, and engagement of our user base relative to those of our competitors;
•the availability of compelling and monetizable content on our platform;
•our ad targeting and measurement capabilities, and those of our competitors;
•our marketing and selling efforts, and those of our competitors;
•the pricing of our advertising products and services relative to those of our competitors;
•the strength of our advertiser relationships and services compared to those of our competitors;
•the ability for advertisers to measure the effectiveness of their advertisements on our platform;
•the return our advertisers receive from our advertising services relative to those of our competitors; and
•our reputation and the strength of our brand relative to our competitors.
In addition, global economic concerns and geopolitical conditions continue to create uncertainty and unpredictability in the advertising market, which we expect to increase competition for advertising spend. Furthermore, in recent years, there have been significant acquisitions and consolidation by and among our actual and potential competitors. We anticipate this trend of consolidation will continue, which will present heightened competitive challenges for our business. If we are not able to compete effectively for advertiser spend, our business, results of operations, financial condition, and prospects would be adversely affected.
We have a limited operating history, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment.
We have a limited operating history in new and unproven markets that may not develop as expected. We began our operations in 2005, but were acquired by Condé Nast Publications in 2006. We did not begin operating as an independent, private company until we were spun out of Advance Magazine Publishers Inc. (“Advance”), Condé Nast’s parent company, in 2011. Additionally, we did not begin meaningful monetization efforts at Reddit until 2018, and we are currently exploring new strategies for monetization. Our limited operating history may make it difficult to evaluate our current business and our future prospects. We have encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing industries, including challenges in accurate financial planning and forecasting, the need for ongoing changes to our products and business strategy, and other risks and uncertainties described in these “Risk Factors” and elsewhere in this prospectus. If our assumptions regarding the risks and uncertainties that we use to plan our business are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer. Furthermore, there is no assurance that our rate of growth will continue, if at all.
Technologies have been developed that can block the display of our ads, which could harm our business, results of operations, financial condition, and prospects.
Technologies have been developed, and will likely continue to be developed, that can block the display of our ads. We generate substantially all of our revenue from advertising, and ad blocking technologies may prevent the display of certain of our ads, which could harm our business, revenue, and financial results. Existing ad blocking technologies that have not been effective on our service may become effective as we make certain product changes, and new ad blocking technologies may be developed. More Redditors may choose to use products that block or obscure the display of our ads if we are unable to successfully balance the amount of organic content and paid advertisements, or if Redditors’ attitudes toward advertisements become more negative. Further, regardless of their effectiveness, ad blockers may generate concern regarding the health of the digital advertising industry, which could reduce the value of digital advertising and adversely affect our business, results of operations, financial condition, and prospects.
We rely on internal company data, assumptions, and estimates to calculate certain of our key metrics, and real or perceived inaccuracies in such current or historical metrics may harm our reputation and negatively affect our business.
We regularly review metrics, including our DAUq metric, to evaluate growth trends, measure our performance, and make strategic decisions. We calculate our DAUq using internal company data. While this number is based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring DAUq. DAUq is intended to capture traffic where a Reddit page has been viewed or the Reddit app opened at least once and, notably, include both traffic from those who have logged in to a registered account as well as from those who have not logged in to—or do not have—a registered account. In general, it is more challenging to accurately count logged-out traffic, since counting accuracy is dependent on deduplicating traffic where we do not have a registered user identifier. While we use various techniques to detect whether the same user has performed multiple views, including cookies and traffic analysis, these techniques are not guaranteed to accurately deduplicate the traffic, especially for logged-out traffic. In addition, some visitors browse Reddit using an
“incognito” or “private browsing” mode. Given the privacy protections surrounding such traffic, we often do not have adequate information to accurately deduplicate such traffic.
Our DAUq metrics may also be impacted by our efforts to reduce the number of false, spam, and bot accounts in existence on our platform. We regularly deactivate false, spam, and bot accounts that violate our terms or policies, and exclude these users from the calculation of our DAUq metric; however, we will not succeed in identifying and removing all false, spam, and bot accounts, which means that our DAUq count could be overstated. We are continually seeking to improve our ability to estimate the total number of false, spam, and bot accounts and eliminate them from the calculation of our DAUq, although our quarterly average DAUq metric may continue to reflect such accounts if, in our view, the impact of their inclusion has an immaterial impact on our average DAUq for the given quarter. Moreover, a single person or organization may hold multiple accounts and may use more than one account to perform multiple views within a relevant period. We lack adequate information to effectively deduplicate such traffic from different registered accounts that may come from the same person or organization. As such, the calculation of our DAUq may not accurately reflect the actual number of people or organizations using our platform.
A portion of our historical DAUq metric counts views of pages that are hosted using Google’s Accelerated Mobile Page (“AMP”) framework. The accuracy of counting the DAUq attributable to this AMP traffic relies on the accuracy and completeness of information received from Google used to compute the DAUq metric. Unfortunately, the information provided by Google is not historically complete and consistent. To the extent that our historical or future metric includes views of pages hosted on third-party infrastructure, like Google’s AMP framework, the accuracy of our metrics will depend on the accuracy and consistency of the information received from any such third party.
The risks and challenges relating to our DAUq metric are also applicable to our WAUq metric, and while we may consider and possibly disclose other metrics in the future, such as a count of monthly visitors, there may be additional challenges with accurately counting such metrics. For example, deduplicating screenviews across an entire week, such as with our WAUq metric, or across an entire month exacerbates the deduplication challenges described above. In certain cases, we may need to rely on estimation techniques to improve the accuracy of such metrics. The accuracy of these techniques will depend on the methodologies chosen, resulting in a metric that may not accurately reflect the monthly traffic to our platform. Additionally, during the year ended December 31, 2021, we rolled out an internally developed mobile web platform to replace the majority of pages hosted using AMP, and in the three months ended March 30, 2023 we completed the migration away from AMP. As a result of these and any future changes, our DAUq metric is not directly comparable quarter over quarter or year over year, and may not be comparable period over period in the future.
We regularly review and continually seek to improve the accuracy of, and our ability to track, such data, but given the complexity of the systems involved and the rapidly changing nature of mobile devices and systems, we expect to continue to encounter challenges, particularly if we continue to expand in parts of the world where mobile data systems and connections are less stable. In addition, we may improve or change our methodologies for tracking these metrics over time, which could result in unexpected changes to our metrics, including the metrics we publicly disclose. As a result, while any future periods may benefit from such improvement or change, prior periods may not be as accurate or comparable, or we may need to adjust such prior periods. The methodologies used to measure these metrics require significant judgment and are also susceptible to algorithmic or other technical errors. In addition, our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we publicly disclose. If the internal systems and tools we use to track these metrics undercount or overcount performance or contain algorithmic or other technical errors, the data we report may not be accurate. Further, as our business develops, we may revise or cease reporting metrics if we determine that such metrics are no longer accurate or appropriate measures of our performance.
Errors or inaccuracies in our metrics or data could also result in incorrect business decisions and inefficiencies. For instance, if a significant understatement or overstatement of active users were to occur, we may expend resources to implement unnecessary business measures or fail to take required actions to attract a sufficient number of users to satisfy our growth strategies. In addition, our advertising partners rely on our metrics to inform ad spend. Inaccuracies or perceived inaccuracies in our metrics, may result in advertisers spending less with us, which could
negatively affect our revenue. We continually seek to address technical issues in our ability to record such data and improve our accuracy, but given the complexity of the systems involved and the rapidly changing nature of mobile devices and systems, we expect these issues to continue, particularly if we continue to expand in parts of the world where mobile data systems and connections are less stable. If our operational metrics are not accurate representations of our business, or if investors do not perceive these metrics to be accurate, or if we discover material inaccuracies with respect to these figures, our reputation may be significantly harmed, the market price of our Class A common stock could decline, we may be subject to stockholder litigation, and our business, results of operations, financial condition, and prospects could be adversely affected.
Disruptions or other business interruptions that affect the availability of our platform could adversely impact our operations and overall business.
Currently our cloud service infrastructure is run on our cloud services providers (“CSPs”), which are currently Amazon Web Services and Google Cloud Platform. We have experienced, and expect in the future that we may experience from time to time, interruptions, delays, or outages in service availability due to a variety of factors, including outages at our CSPs. Capacity constraints could arise from a number of causes such as technical failures, natural disasters, fraud, or data breaches or other security incidents or attacks. Our platform’s continuing and uninterrupted performance is critical to our success, and any disruption of, or interference with, our use of CSPs could impair our ability to deliver our solutions to our users, resulting in legal liability, user dissatisfaction, damage to our reputation, loss of users, and harm to our business. The level of service provided by our CSPs, or regular or prolonged interruptions in that service, could also impact the use of, and Redditors’ satisfaction with, our platform and could harm our business and reputation. Since our platform’s continuing and uninterrupted performance is important to our success, sustained or repeated system failures would reduce the attractiveness of our platform. In addition, hosting costs will increase as our user base grows, which could adversely affect our business, results of operations, financial condition, and prospects.
Furthermore, our CSPs have discretion to change and interpret their terms of service and other policies with respect to us, including on contract renewal, and those actions may be unfavorable to our business operations. Our CSPs may also take actions beyond our control that could seriously harm our business, including discontinuing or limiting our access to one or more cloud services, increasing pricing terms, terminating or seeking to terminate our contractual relationship altogether (which they may be able to do for their convenience), or altering how we are able to process data in a way that is unfavorable or costly to us. If our arrangements with either of our CSPs were terminated, we could experience interruptions on our platform and in our ability to make our content available to customers, as well as delays and additional expenses in arranging for alternative cloud infrastructure services. Such a transition may require technical changes to our platform, including, but not limited to, our cloud service infrastructure which was designed to run on our CSPs. Making such changes could be costly in terms of time and financial resources and could adversely affect our business, results of operations, financial condition, and prospects.
If we fail to detect attempts to manipulate our platform, including fraudulent activity within our advertising systems, Redditors and our advertisers could lose confidence in us, thereby damaging our reputation and deterring usage of our products and services.
We are exposed to a variety of forms of problematic activity across our platform, including sophisticated attempts by bad actors to manipulate our systems to generate traffic that may not represent genuine Redditor interest or intent. For example, an attacker may attempt to automate the activities of an account or multiple accounts using a “bot” so as to mimic authentic user activity, such as posting, commenting, voting, or clicking and engaging with advertisements. This sort of manipulation can result in the promotion of inauthentic, low-quality content that is false, misleading, illegal, or undesirable. It can degrade the quality of our services and can also undermine the operation of our monetization systems, including our advertising systems, resulting in incorrect counting and charging of advertising partners.
While we invest in efforts to detect and prevent inauthentic content or invalid traffic, including investments in proprietary technologies to detect and address content and vote manipulation, we may be unable to adequately detect and prevent such abuses. If we fail to detect and prevent such abuse, it could hurt our reputation for authentic engagement and reduce use of our platforms, harming our business, results of operations, financial condition, and
prospects. Advertisers may seek refunds for activity that they deem inauthentic. Even where we are able to detect fraudulent activity, this may result in a need to provide retroactive refunds for historical inauthentic activity, further harming our business, results of operations, financial condition, and prospects.
We are exploring business opportunities in licensing data for purposes including machine learning, business analysis, display and training generative AI models. We are in the early stages of our data licensing efforts, and the market for data is new and evolving rapidly. There is no assurance that we will be able to sustain revenues from these efforts.
We have been exploring business opportunities in licensing Reddit data for purposes that do not conflict with our values and the rights of Redditors. We are only in the early stages of these data licensing efforts and we may not be able to grow these efforts into a sustainable business.
The licensing of data for machine learning and AI training purposes is a novel business model without an established track record which makes it difficult to evaluate our future prospects and the risks and challenges we may encounter in seeking to execute on this opportunity. Although we have negotiated data agreements with a small number of partners that are medium-term in length, to date, substantially all of the contract value associated with our licensing revenue is derived from one of our partners, and these arrangements may not be renewed, or they may be renewed based on less favorable terms, such as using fewer services at lower pricing. Our data license agreements are subject to terms and conditions including API performance requirements, that we may be unable to meet. In addition, our existing data licensing agreements may be terminated, not renewed, or renewed on less favorable terms. The commercial market for large language models may not develop or may be limited by regulation or other factors, and accordingly the value of data for AI training purposes may be reduced over time, and we may also not be able to secure arrangements on similar terms, or at all, with any other licensees. While our data licensing arrangements include protections against abuse and misuse of Reddit data, we may be unable to adequately control the misbehavior of partners or adequately protect our reputation externally and with respect to our communities.
Moreover, some companies may decline to license Reddit data and use such data without license given its open nature, even if in violation of the legal terms governing our services. For example, some companies have constructed very large commercial language models using Reddit data without entering into a license agreement with us. While we plan to vigorously enforce against such entities, such enforcement activities could take years to resolve, result in substantial expense and divert management’s attention and other resources, and we may not ultimately be successful.
We are subject to certain risks as a mission-based company.
Our mission—to bring community, belonging, and empowerment to everyone in the world—and company values are a significant part of our business strategy and who we are as a company. We believe that Redditors value our commitment to our mission of open discourse. However, because we hold ourselves to such high standards, and because we believe Redditors and our moderators have high expectations of us, we may be more severely affected by negative reports or publicity if we fail, or are perceived to have failed, to live up to our mission. As a result, our brand and reputation may be negatively affected by actions we take that are viewed as contrary to that mission. In addition, adhering to our mission may negatively affect our reputation. For example, we received public scrutiny for failing to remove certain content related to the 2020 U.S. presidential election. In these or other circumstances, the damage to our reputation may be greater than to other companies that do not share similar values with us, and it may take us longer to recover from such an incident and gain back the trust of Redditors.
We may make decisions regarding our business and products in accordance with our mission and values that may reduce our short- or medium-term results of operations if we believe those decisions are consistent with our mission and will improve the aggregate Redditor experience. Although we expect that our commitment to our mission will, accordingly, improve our financial performance over the long term, these decisions may not be consistent with the expectations of investors and any longer-term benefits may not materialize within the time frame we expect or at all, which could harm our business, results of operations, financial condition, and prospects.
Our business is subject to the risks of earthquakes, fire, power outages, floods, and other natural disasters and catastrophic events, and to interruption by man-made problems such as war and terrorism.
A significant natural disaster or other catastrophic event, such as an earthquake, fire, flood, power outage, telecommunications failure, cyberattack, war, terrorist attack, sabotage, other intentional acts of vandalism or misconduct, geopolitical event, pandemic or other public health crisis, such as the COVID-19 pandemic, or other catastrophic occurrence could adversely affect our business, results of operations, financial condition, and prospects. For example, the COVID-19 pandemic led to certain business disruptions, including travel bans and restrictions, shelter-in-place orders, and the postponement or cancellation of major events, which affected the economy as a whole, and, although we saw increased growth in our user base during the COVID-19 pandemic, a future pandemic or similar health event could adversely affect our business, results of operations, financial condition, and prospects. We have offices and a significant number of employees in the San Francisco Bay Area, a region known for seismic activity. Furthermore, escalation of geopolitical tensions, including as a result of escalations in the ongoing conflict between Russia and Ukraine, or the recent escalation of conflict between Israel and the Palestinians, could have a broader impact that expands into other markets where we do business, which could adversely affect our business, vendors, partners, Redditors, or the economy as a whole. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems could result in lengthy interruptions in our services or disruptions in our activities or the activities of our vendors, partners, Redditors, or the economy as a whole. All of the aforementioned risks may be further increased if our disaster recovery plans prove to be inadequate. We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business that may result from interruptions in our ability to provide our products and services. Any such natural disaster or man-made problem could adversely impact our business, results of operations, financial condition, and prospects.
Risks Related to Human Capital and Culture
We cannot assure you that we will effectively manage our growth.
Our employee headcount and the scope and complexity of our business have increased significantly, with the number of full-time employees increasing from 1,383 as of December 31, 2021 to 1,942 as of December 31, 2022 and to 2,013 as of December 31, 2023. The growth and expansion of our business and products create significant challenges for our management, including managing multiple relationships with Redditors, advertisers, partners, and other third parties, and constrain operational and financial resources. If our operations or the number of third-party relationships continue to grow, our information-technology systems and our internal controls and procedures may not adequately support our operations. In addition, some members of our management do not have significant experience managing large global business operations, so our management may not be able to manage such growth effectively. To effectively manage our growth, we must continue to improve our operational, financial, and management processes and systems and effectively expand, train, and manage our employee base.
Further, although we expect to continue to grow our headcount in future periods, we may, from time to time, implement organizational changes to pursue greater efficiency and realign our business and strategic priorities. For example, during the six months ended June 30, 2023, we reduced our global employee headcount by approximately 10%, as part of a broader reprioritization to focus on our top initiatives. In connection with our reduction in workforce, in the six months ended June 30, 2023, we incurred charges of $8.1 million, primarily consisting of severance and related benefits expense. We may not experience the anticipated benefits, in whole or in part, of this strategic reprioritization, and the related organizational changes, including reductions in our workforce, could result in unintended consequences, such as decreased morale among remaining employees and reputational damage, which could make it more difficult for us to retain existing employees or hire new employees in the future, greater than anticipated costs, the loss of institutional knowledge and expertise, and increased difficulty managing the scale and complexity of our business. Further, if we do not effectively redistribute the duties and obligations of departed employees among our remaining employees, or if employees who were not affected by the reduction in our workforce seek alternative employment, we could incur unplanned additional expenses to ensure adequate resourcing and our productivity and business could be harmed.
Our business depends on attracting and retaining high-quality personnel in sales, services, engineering, marketing, finance, and support functions.
Our success depends in large part on our ability to attract and retain high-quality personnel representing diverse backgrounds, experiences, and skill sets in sales, services, engineering, marketing, finance, and support functions. Maintaining our brand and reputation, as well as a diverse and inclusive work environment that enables all our employees to thrive, is important to our ability to recruit and retain employees. Changes to U.S. immigration policies that restrain the flow of technical and professional talent may inhibit our ability to adequately staff our research and development efforts. Competition for qualified employees is intense in our industry, and the loss of even a few qualified employees, or an inability to attract, retain, and motivate additional highly skilled employees required for the planned expansion of our business could harm our results of operations and impair our ability to grow. To attract and retain key personnel, we use various measures, including an equity incentive program. These measures may not be enough to attract and retain the personnel we require to operate our business effectively. In addition, we have a number of current employees who hold equity in our company or whose equity awards are or will become substantially vested upon the completion of this offering. As a result, it may be difficult for us to continue to retain and motivate these employees, and the value of their holdings could affect their decisions about whether or not they continue to work for us. Our ability to attract, retain, and motivate employees may be adversely affected by declines in the market price of our Class A common stock. If we issue significant equity to attract employees or to retain our existing employees, we would incur substantial additional stock-based compensation expense and the ownership of our existing stockholders would be further diluted.
As our company grows and evolves, we may need to implement more complex organizational management structures, adapt our corporate culture and work environments, streamline our organization, or adjust the size and structure of our workforce again, as we did in 2023, to scale for the future and execute our long-term growth plan. These changes could have an adverse impact on our corporate culture and employee morale, which could, in turn, adversely affect our reputation as an employer and harm our ability to attract and retain high-quality personnel. If we fail to attract new personnel, or to retain and motivate our current personnel, our business, results of operations, financial condition, and prospects could be adversely affected.
We depend on our senior management team and other key employees, and the loss of one or more of these employees could adversely affect our business.
Our ability to efficiently execute our business strategy is dependent upon the continued service and performance of our senior management team and other key employees, particularly Steven Huffman, our co-founder, Chief Executive Officer, and President. Mr. Huffman is an at-will employee, which means that he could resign or could be terminated for any reason at any time. Mr. Huffman is critical to the management of our company and instrumental in the development of our technology and our strategic direction, and should he stop working for us for any reason, it is unlikely that we would be able to immediately find a suitable replacement.
The loss of key employees, including members of our senior management team, could disrupt our operations, adversely impact employee retention and morale, and seriously harm our business. Further, if our senior management team and other key employees fail to work together effectively and to execute our plans and strategies on a timely basis, our business could be harmed. We also do not currently maintain any key-person life insurance policies. Even if we were to obtain such policies, the loss of Mr. Huffman or other key employees, including members of our senior management team, could adversely affect our business, results of operations, financial condition, and prospects.
We believe that our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity, and teamwork fostered by our culture, and our business may be harmed.
We believe that our corporate culture has been a key contributor to our success. If we do not continue to develop our corporate culture as we grow and evolve, it could negatively impact our ability to foster the innovation, creativity, and teamwork that we believe is important to support our growth. As our organization grows and we are
required to implement more complex organizational structures, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture, which could negatively impact our future success and harm our business.
Risks Related to Cybersecurity, Information Systems, and Intellectual Property
Our business, results of operations, financial condition, and prospects may be harmed by our failure to timely and effectively scale and adapt our existing technology and infrastructure.
As Redditors generate more content, we may be required to expand and adapt our technology and infrastructure to continue to reliably store, serve, and analyze this content. It may become increasingly difficult to maintain and improve the performance of our products and services, especially during peak usage times, as our products and services become more complex and our traffic increases. In addition, because our cloud service infrastructure is run on CSPs, we cannot guarantee that we will be able to expand our infrastructure to meet demand in a timely manner, or on favorable economic terms. This is particularly challenging with regard to increasing international traffic demands. If Redditors are not able to access our platform or we are not able to make content available rapidly on our platform, Redditors may seek other channels to obtain the content, and may not return to Reddit or use Reddit as often in the future, or at all. This would negatively impact our ability to attract new users to Reddit and advertisers and the frequency with which people return to Reddit. We expect to continue to make investments to maintain and improve the capacity, capability, and reliability of our infrastructure. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and infrastructure to accommodate actual and anticipated changes in technology, our business, results of operations, financial condition, and prospects may be harmed.
We continue to scale the capacity of, and enhance the capability and reliability of, our infrastructure to support DAUq growth and increased activity on our platform. We expect that investments and expenses associated with our infrastructure will continue to grow, including operating costs, the cost to acquire additional servers and networking equipment to increase the capacity of our infrastructure, increased utilization of third-party cloud computing and associated costs thereof, and increased bandwidth costs. The improvement of our infrastructure requires a significant investment of our management’s time and our financial resources. If we fail to efficiently scale and manage our infrastructure, our business, results of operations, financial condition, and prospects would be adversely impacted.
If our security measures are breached, or if our products and services are subject to attacks involving our systems or data, some of which contain personal information, or that degrade or deny the ability of users to access our products and services, our products and services may be perceived as not being secure, Redditors and advertisers may curtail or stop using our products and services, and our reputation, business, results of operations, financial condition, and prospects could be harmed.
We receive, collect, store, maintain, transfer, submit, and otherwise process personal user, employee, advertiser, and other personal, confidential, or sensitive information, and data breaches and other data security incidents expose us to a risk of loss of, or unauthorized access to, this personal information, litigation, and potential liability. As such, we are an attractive target for data security attacks by third parties. Any actual or perceived failure to prevent or mitigate data security incidents or improper access to, or use, acquisition, disclosure, alteration, or destruction of, any such data could result in significant liability and a material loss of revenue resulting from the adverse impact on our reputation and brand, a diminished ability to retain existing, or attract new, customers, and disruption to our business. We rely on third-party service providers to host or otherwise process some of our data and that of our customers, and any failure by such third party, or any other entity in our collective supply chain, to prevent or mitigate data security breaches or improper access to, or use, acquisition, disclosure, alteration, or destruction of, such information could have similar adverse consequences for us.
We have experienced in the past, and may in the future experience, cybersecurity attacks (including denial of service, phishing, social engineering, ransomware, malware, and integrity attacks), computer viruses, software bugs, internet interruptions, disruptions, or losses, spam or other attacks, breach by intentional or negligent conduct, theft or fraud on the part of employees or other third parties, including state-sponsored organizations with significant financial and technological resources, terrorism, improper operation, data loss, coding or configuration errors, credential stuffing, human error, natural disasters, and other security breaches, and as a result, unauthorized parties
may impede or deny access to our platform or otherwise obtain access to our data or Redditors’ or advertisers’ data, including personal information. For example, in February 2023, we experienced a data security incident in which an attacker was able to obtain an employee’s login credentials to gain access to certain contact information, internal documents, source code, and other internal business information. We also regularly encounter attempts to create false or undesirable user accounts, purchase ads, or take other actions on our platform for purposes such as spamming, engaging in coordinated information manipulation, or other objectionable ends. Our efforts to address undesirable activity on our platform also increase the risk of retaliatory attack. While we take efforts to protect our systems and data, including taking steps to protect the integrity of our APIs, there can be no assurance that our safety and security measures (and those of our third-party providers) will prevent damage to, or interruption or breach of, our information systems, data, and operations. Our technology may fail to adequately secure the personal information and other data we maintain, and we cannot entirely eliminate the risk of improper or unauthorized access to, or disclosure of, personal information and other data, other data security events that impact the integrity or availability of personal information or our systems and operations, or the related costs we may incur to mitigate and remediate the consequences from such events. We may also assume liabilities for breaches experienced by the companies we acquire. Additionally, we cannot guarantee that our cybersecurity insurance coverage would be sufficient to cover all applicable losses. Any systems failure or compromise of our security that results in the unauthorized access to, or release of, Redditors’ or advertisers’ data or disruption of access to our platform could significantly limit the adoption of our products and services, as well as harm our reputation and brand and, therefore, our business.
In addition, our products operate in conjunction with, and we are dependent upon, third-party products and components across a broad ecosystem. There have been in the past, and may in the future be, significant attacks on certain of our third-party providers, such as the LastPass cybersecurity incidents in 2022. We cannot guarantee that our or our third-party providers’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of, or disruption to, our systems and networks or the systems and networks of third parties that support us and our services. If there is a security vulnerability, error, or other bug in one of these third-party products or components and if there is a security exploit targeting them, we could face increased costs, liability claims, reduced revenue, or harm to our reputation or competitive position. The natural sunsetting of third-party products and operating systems that we use requires that our infrastructure teams reallocate time and attention to migrations and updates, during which period potential security vulnerabilities could be exploited. Third-party risks may also include insufficient security measures, data location uncertainty, and the possibility of data storage in inappropriate jurisdictions where laws or security measures may be inadequate, and our ability to monitor our third-party service providers’ data security practices are limited. Although we generally have agreements relating to cybersecurity and data privacy in place with our third-party providers, they are limited in nature and we cannot guarantee that such agreements will prevent the accidental or unauthorized access to, or disclosure, loss, destruction, disablement, or encryption of, use or misuse of, or modification of, data (including personal information), or enable us to obtain adequate or any reimbursement from our third-party providers in the event we should suffer any such data security-related incidents. Due to applicable laws, rules, and regulations, or contractual obligations, we may be held responsible for any information security failure or cybersecurity attack attributed to our vendors as they relate to the information we share with them. A vulnerability in a third-party service provider’s software or systems, a failure of our third-party service providers’ safeguards, policies, or procedures, or a breach of a third-party service provider’s software or systems could result in the compromise of the confidentiality, integrity, or availability of our systems or the data housed in our third-party solutions.
Our information technology systems and data have been, and may in the future be, subject to increased risks as many of our employees continue to work remotely and utilize network connections, computers, and devices outside our premises or network, including working at home, while in transit, and in public locations. For example, technologies in our employees’ and service providers’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees and service providers to be more limited or less reliable than in our offices. Further, the security systems in place at our employees’ and service providers’ homes, or other remote work locations, may be less secure than those used in our offices, and while we have implemented technical and administrative safeguards to help protect our systems as our employees and service providers work remotely, we may be subject to increased cybersecurity risk, which could expose us to risks of data or financial loss, and could disrupt our business operations. There is no guarantee that the privacy, data security, and
data protection safeguards we have put in place will be completely effective or that we will not encounter risks associated with employees and service providers accessing company data and systems remotely.
Moreover, according to U.S. government sources and others, the conflict involving Russia and Ukraine has resulted in a heightened risk of cyberattacks against companies like ours that have operations, vendors, and/or supply chain providers located in or around the region of conflict or that are otherwise related to the conflict.
Our data security measures may also be breached due to employee error, malfeasance, theft, fraud, misconduct, or otherwise, or third parties may attempt to fraudulently induce employees, Redditors, or our advertisers to disclose sensitive or personal information in order to gain access to our data or Redditors’ or advertisers’ data or accounts. Since people on Reddit and our advertisers may use Reddit to establish and maintain online identities, unauthorized communications from Reddit accounts that have been compromised may damage their personal security, reputations, and brands as well as our reputation and brand. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage or breach systems continue to evolve in sophistication and volume and often are not recognized until launched against a target, we may be unable to anticipate these techniques, timely detect and appropriately remediate and respond, defend against such attacks, or implement adequate preventative measures. Moreover, the increasing sophistication and resources of cyber criminals and other non-state threat actors and increased actions by nation-state actors make keeping up with new threats difficult, as the techniques used to obtain unauthorized access to, or to sabotage, systems or networks are constantly evolving and generally are not recognized until launched against a target. Additionally, attackers have used machine learning and AI to launch more automated, targeted, and coordinated attacks against targets. Consequently, we may be unable to anticipate these techniques, detect or react in a timely manner, or implement preventative measures, which could result in delays in our detection or remediation of, or other response to, data security breaches and other data security-related incidents. If an actual or perceived breach of our or our third-party providers’ data security occurs, Redditors and our advertisers may be harmed, lose trust and confidence in us, decrease the use of our products and services, or stop using our products and services entirely. In the event of a data security breach, we may also incur significant legal and financial exposure, including as a result of litigation and other claims, regulatory investigations and inquiries, fines and penalties for non-compliance with applicable data privacy-related laws, rules, or regulations, remediation costs, or indemnification requests. Any of these actions could have an adverse effect on our business, results of operations, financial condition, and prospects.
We anticipate that our ongoing efforts related to data privacy, safety, security, and content review will identify instances of misuse of user data or other undesirable activity by third parties on our platform.
In addition to our efforts to mitigate cybersecurity risks, we are making investments in privacy, safety, security, and content review efforts to combat misuse of our services and user data by third parties. As a result of these efforts, we may discover incidents of misuse of, or unauthorized access to, user data or other undesirable activity by third parties. We have taken steps to protect the integrity of our API, but despite these efforts, our security measures or those of our third-party providers could be insufficient or breached as a result of third-party action, malfeasance, employee errors, service provider errors, technological limitations, defects or vulnerabilities in our platform, or otherwise. We may not discover all such incidents or activity, whether as a result of our data or technical limitations, including our lack of visibility over our encrypted services, the scale of activity on our platform, challenges related to our personnel working remotely, the allocation of resources to other projects, or other factors, and the media, or other third parties. Such incidents and activities may include the use of user data or our systems in a manner inconsistent with our terms, contracts, or policies, the existence of false or undesirable user accounts, election interference, improper advertising practices, activities that threaten people’s safety online or offline, or instances of spamming, scraping, data harvesting, unsecured datasets, or spreading misinformation. For example, third parties often attempt to access and collect Reddit site data through “scraping” and other unauthorized mechanisms for unauthorized purposes, such as distributing such data to other parties for commercial purposes or training AI models for commercial purposes. We may also be unsuccessful in our efforts to enforce our policies or otherwise remediate any such incidents. Any of the foregoing developments may negatively affect Redditor trust and engagement, harm our reputation and brand, make it more difficult for us to monetize our API, require us to change our business practices in a manner adverse to our business, and adversely affect our business, results of operations, financial condition, and prospects. Any such developments may also subject us to additional litigation and regulatory
inquiries, which could subject us to monetary penalties and damages, divert management’s time and attention, and lead to enhanced regulatory oversight.
Redditor growth and engagement depends upon effective interoperation with operating systems, networks, devices, web browsers, online application stores, regulations, and standards that we do not control. Changes in our products or to those operating systems, networks, devices, web browser, online application stores, regulations, or standards may harm Redditor retention, growth, and engagement, which could harm our business, results of operations, financial condition, and prospects.
Because we make our products and services available across a variety of operating systems, networks, and websites, we are dependent on the interoperability of our products and services with popular devices, desktop and mobile operating systems, and web browsers that we do not control, such as Mac OS, Windows, Android, iOS, Chrome, Safari, and Firefox. Any changes to these operating systems, devices, web browsers, or online stores distributing our apps that impact the accessibility, speed, or functionality of our products and services or give preferential treatment to competitive products could harm usage of our products and services. Such changes could degrade the functionality of our products and services, making it difficult for Redditors to access our content, or limit our ability to target or measure the effectiveness of ads, which could adversely affect usage of our products and services. Our competitors that control the operating systems, browsers, and online stores that our apps run on, or are distributed through, could make interoperability of our services with those systems, browsers, and stores more difficult. New products introduced by us may take longer to function with these systems and browsers. Further, if the number of platforms for which we develop our products expands, it will result in an increase in our operating expenses.
Additionally, we are subject to the standard policies and terms of service of these operating systems, as well as policies and terms of service of the various application stores that make our apps and experiences available to our developers, creators, and users. These policies and terms of service govern the availability, promotion, distribution, content, and operation generally of applications and experiences on such operating systems and stores. Each provider of these operating systems and stores has broad discretion to change and interpret its terms of service and policies with respect to our platform and those changes may be unfavorable to us and our developers’, creators’, and users’ use of our platform. If we were to violate, or an operating system provider or application store believes that we have violated, its terms of service or policies, that operating system provider or application store could limit or discontinue our access to its operating system or store. In some cases these requirements may not be clear or our interpretation of the requirements may not align with the interpretation of the operating system provider or application store, which could lead to inconsistent enforcement of these terms of service or policies against us, and could also result in the operating system provider or application store limiting or discontinuing access to its operating system or store. Any limitation on or discontinuation of our access to any third-party platform or application store could adversely affect our business, results of operations, financial condition, and prospects.
If we are unable to deliver a high-quality, relevant, reliable, trustworthy, and innovative user experience and products and services across different devices with different operating systems, user growth, retention, or engagement may decline, which could harm our business, results of operations, financial condition, and prospects. In addition, we may not be successful in developing relationships with key participants in the mobile industry or in developing products or services that operate effectively with these operating systems, networks, devices, web browsers, and standards. In the event that it is difficult for Redditors to access and use our products and services, particularly on their mobile devices, Redditor growth and engagement could be harmed, and our business, results of operations, financial condition, and prospects could be adversely affected.
Our business depends on continued and unimpeded access to our products and services on the internet by Redditors and our advertisers. If we or Redditors experience disruptions in internet service or if internet service providers are able to block, degrade, or charge for access to our products and services, we could incur additional expenses and the loss of users and advertisers, which could undermine our operations.
We depend on the ability of Redditors and our advertisers to access the internet. Currently, this access is provided by companies that have significant market power in the broadband and internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies, government-
owned service providers, device manufacturers, and operating system providers, any of whom could take actions that degrade, disrupt, or increase the cost of user access to our products or services, which would, in turn, negatively impact our business. The adoption of any laws, rules, or regulations that adversely affect the growth, popularity, or use of the internet, including laws, rules, regulations, or practices limiting internet neutrality, could decrease the demand for, or the usage of, our products and services, increase our cost of doing business, and adversely affect our results of operations. We also rely on other companies to maintain reliable network systems that provide adequate speed, data capacity, and security to us and our users. As the internet continues to experience growth in the number of users, frequency of use, and amount of data transmitted, the internet infrastructure on which we and our users rely may be unable to support the demands placed upon it. Frequent or persistent interruptions in our products and services could cause users to believe that our products and services are unreliable, leading them to switch to our competitors or to otherwise avoid our products and services. The failure of the internet infrastructure on which we or our users rely, even for a short period of time, could undermine our operations. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, or continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, results of operations, financial condition, and prospects could be harmed.
Our products and services may contain undetected software errors, bugs, or other vulnerabilities, which could harm our business, results of operations, financial condition, and prospects.
Our products and services incorporate complex software, and we encourage employees to quickly develop and help us launch new and innovative features. Our software, including any open source software that is incorporated into our code, may now or in the future contain errors, bugs, or other vulnerabilities. Some errors, bugs, or vulnerabilities in our software code inherently may be difficult to detect and may only be discovered after the product or service has been released for external or internal use. Such errors, bugs, vulnerabilities, or defects could also be exploited by malicious actors and result in exposure of our users’ or advertisers’ data, or otherwise result in a security breach or other security incident. We may need to expend significant financial and development resources to analyze, correct, eliminate, or work around errors or defects or to address and eliminate vulnerabilities. In addition, our products and services are increasingly reliant on machine learning systems and AI, which are complex, subject to increasing litigation and regulatory scrutiny, and may have errors or inadequacies that are not easily detectable. The effectiveness of such AI systems and technologies could be impaired by incomplete, biased, or inadequate inputs or training data, which could lead us to make determinations or recommendations in our products or services that have an adverse effect on our business and financial results. Moreover, these systems may inadvertently reduce our efficiency, or may cause unintentional or unexpected outputs that are incorrect, do not match our business goals, do not comply with our policies or applicable legal requirements, or otherwise are inconsistent with our brand, guiding principles, and mission. Any errors, bugs, or vulnerabilities discovered in our code after release could result in negative user experiences, damage to our reputation, compromised ability of our products and services to perform in a manner consistent with Redditor expectations, delayed product introductions, compromised ability to protect the data of our users or advertisers or an inability to provide some or all of our services, loss of Redditors, loss of advertisers or advertising revenue, or liability for damages, any of which could adversely affect our business, results of operations, financial condition, and prospects.
Many of our products and services contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could adversely affect our business, results of operations, financial condition, and prospects.
We use open source software in our products and services and may continue to use open source software in the future. Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public on unfavorable terms or at no cost. Any actual or claimed requirement to disclose our proprietary source code or pay damages for breach of contract may allow our competitors to create similar products with lower development effort and time and, ultimately, could result in a loss of sales for us. Some open source software may include generative AI software or other software that incorporates or relies on generative AI. The use of such software may expose us to risks as the intellectual property ownership, license rights, and other legal rights, including copyright, of generative AI software and tools have not been fully
interpreted by U.S. or foreign courts or been fully addressed by legislation. It may be challenging to ascertain whether the authors of the original software had sufficient rights to support our usage of the software and data and models underlying the software. In addition to intellectual property risks, the use of this software may exacerbate other risks, including cybersecurity and privacy risks and other rights issues. This could adversely affect our reputation and expose us to legal liability as well as contractual or regulatory risk.
We regularly contribute software source code to open source projects under open source licenses or release internal software projects under open source licenses, and may continue doing so in the future. Our ability to protect our intellectual property rights with respect to source code which we have made publicly available may be limited. The terms of many open source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in ways that could impose unanticipated conditions or restrictions on our ability to commercialize products or services incorporating such software. Moreover, we cannot assure you that our processes for controlling our use of open source software in our products will be effective. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source license, such use could inadvertently occur, or could be claimed to have occurred, in part because open source license terms are often ambiguous. From time to time, we may face claims from third parties asserting ownership of, or demanding release of, the open source software or derivative works that we develop using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue offering our products or services on terms that are not economically feasible, to re-engineer our products or services, to discontinue the sale of our products or services if re-engineering could not be accomplished on a timely or cost-effective basis, or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, results of operations, financial condition, and prospects.
Further, the use and distribution of open source software may entail greater risks than the use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. There is typically no support available for open source software, and we cannot ensure that the authors of such open source software will implement or push updates to address security risks or will not abandon further development and maintenance. Many of the risks associated with the use of open source software, such as the lack of warranties or assurances of title or performance, cannot be eliminated, and could, if not properly addressed, negatively affect our business. Any of these risks could be difficult to eliminate or manage and, if not addressed, could have an adverse effect on our business, results of operations, financial condition, and prospects.
We may be unable to obtain, maintain, protect, defend, or enforce our intellectual property adequately, which could harm our business, results of operations, financial condition, and prospects.
We believe that intellectual property is an important part of our industry and business. We rely primarily on a combination of copyright, trademark, and trade secret laws, as well as internal security controls, confidentiality procedures, invention assignment and license agreements, and contractual provisions, to establish and protect our intellectual property rights in the United States and abroad. Various factors outside our control pose a threat to our intellectual property rights, as well as to our products, services, and technologies. For example, the efforts we have taken to protect our intellectual property may not be sufficient or effective, and our copyrights, trademarks, and other intellectual property or proprietary rights may be challenged, contested, narrowed in scope, or held invalid or unenforceable. Further, in light of our reliance on a significant amount of open source materials, we may not have the ability to protect certain of our information and technology. The steps we take to protect our intellectual property rights may not be sufficient to effectively prevent third parties from infringing, misappropriating, or otherwise violating our intellectual property rights or to prevent unauthorized disclosure or unauthorized use of our trade secrets or other confidential information. We may not be effective in policing unauthorized use of our intellectual property or in appropriately managing our open source catalog. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive, could divert management’s attention and may result in a court determining that our intellectual property rights are unenforceable. If we are not successful in protecting our intellectual property rights in a cost-effective manner, our business, results of operations, financial condition, and prospects could be harmed.
Further, we have filed patent applications in the United States, which remain pending, to protect certain of our technology and intellectual property. There can be no assurance that pending patent applications will result in the issuance of registered patents. Even if issued, any resulting issued patents may have claims narrower than those set forth in our patent applications. We make business decisions about when to seek patent protection for a particular technology and when to rely upon trade secret protection, and the approach we select may ultimately prove to be inadequate. There can also be no assurance that our intellectual property rights will be sufficient to protect against others offering products or services that are substantially similar to ours and compete with our business or that unauthorized parties may attempt to copy aspects of our technology and use information that we consider proprietary. For example, it is possible that third parties, including our competitors, may obtain patents relating to technologies that overlap or compete with our technology. If third parties obtain patent protection with respect to such technologies, they may assert that our technology infringes their patents and seek a licensing fee from us or otherwise exclude us from using our technology. Additionally, there can be no assurance that each of our trademark applications will result in the issuance of a registered trademark or that each resulting trademark registration will be able to be maintained. We have acquired in the past, and may in the future, acquire additional patents or patent portfolios, license patents from third parties, or agree to license the use of our patents to third parties, which could require significant cash expenditures.
Any additional investment in protecting our intellectual property through additional copyright, trademark, patent, or other intellectual property filings could be expensive or time-consuming. We may not be able to obtain protection for our technology and, even if we are successful in obtaining effective copyright, trademark, and patent protection, it is expensive to maintain these rights, both in terms of application and maintenance costs, and the time and cost required to defend our rights could be substantial.
In addition to registered intellectual property rights, we rely on unregistered intellectual property rights, such as trade secrets, confidential information, know-how, and technical information. We seek to protect our intellectual property, technology, and confidential information by requiring our employees, contractors, consultants, and other third parties who develop intellectual property on our behalf to enter into invention assignment agreements, and third parties we share information with to enter into nondisclosure and confidentiality agreements. We cannot guarantee that we have entered into such agreements with each party who has developed intellectual property on our behalf and each party that has or may have had access to our confidential information, know-how, trade secrets, and technical information. These agreements may be insufficient or breached, or may not effectively prevent unauthorized access to or unauthorized use, disclosure, misappropriation, or reverse engineering of, our confidential information, intellectual property, or technology. Moreover, these agreements may not provide an adequate remedy for breaches or unauthorized use or disclosure of our confidential information or technology, or infringement of our intellectual property. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or know-how is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, trade secrets and know-how can be difficult to protect and some courts inside and outside of the United States are less willing or unwilling to protect trade secrets and know-how. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us, and our competitive position could be materially and adversely harmed. The loss of trade secret protection could make it easier for third parties to compete with our products and services by copying the functionality of our products and services. Additionally, individuals not subject to invention assignment agreements may make adverse ownership claims to our current and future intellectual property, and, to the extent that our employees, contractors, consultants, or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Effective intellectual property protection may not be available in every country in which we operate or intend to operate our business or offer our products and services, and our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States because of the differences in foreign patent, trademark, copyright, and other laws concerning intellectual property and proprietary rights.
Third parties may knowingly or unknowingly infringe, misappropriate, or otherwise violate our intellectual property or other proprietary rights, and particularly as we expand the scope of our business and the countries in which we operate, we may not be able to prevent third parties from infringing, misappropriating, or otherwise
violating or challenging our use of, our intellectual property or proprietary rights, including those used to build and distinguish the “Reddit” brand. If the protection of our intellectual property and proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our technologies, products, services, features, or methods of operations. We also may be required to spend significant resources to monitor and protect our intellectual property rights. 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. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. 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. An adverse outcome in such litigation or proceeding may expose us to a loss of our competitive position, expose us to significant liabilities, or require us to seek licenses that may not be available on commercially acceptable terms, or at all. Any of these events could harm our business, results of operations, financial condition, and prospects.
We have in the past, and may in the future, be subject to claims that we violated certain third-party intellectual property rights, which, even where meritless, can be costly to defend and could adversely affect our business, results of operations, financial condition, and prospects.
Our success depends, in part, on our ability to develop and commercialize our products and services without infringing, misappropriating, or otherwise violating the intellectual property rights of third parties. However, we have been in the past, and may in the future be, involved in lawsuits and other disputes alleging that we have infringed, misappropriated, or otherwise violated the intellectual property rights of third parties. We may not be aware that our products or services are infringing, misappropriating, or otherwise violating third-party intellectual property rights and such third parties may bring claims alleging such infringement, misappropriation, or violation. Third parties may be able to successfully challenge, oppose, invalidate, render unenforceable, dilute, misappropriate, or circumvent our patents, trademarks, copyrights, and other intellectual property rights, which has occurred in the past, and may occur in the future. Additionally, companies in the technology industry own large numbers of patents, copyrights, trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition and become increasingly high profile, the possibility of receiving more intellectual property claims against us grows. In addition, various “non-practicing entities,” and other intellectual property rights holders have asserted in the past, and may attempt to assert in the future, intellectual property claims against us and have sought, and may attempt to seek in the future, to monetize the intellectual property rights they own to extract value through licensing arrangements or other settlements.
We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not adversely affect our business, results of operations, financial condition, or prospects. We have incurred in the past, and may in the future incur, expenses associated with litigation and settlement costs arising out of allegations that we have infringed, misappropriated, or otherwise violated the intellectual property rights of third parties. Any such claims or litigation, even those without merit and regardless of the outcome, could cause us to incur significant expenses, and, if successfully asserted against us, could require that we pay substantial costs or damages, pay significant ongoing royalty payments, pay settlement or licensing fees, prevent us from offering our products or services or using certain technologies, force us to implement expensive work-arounds or re-designs, impose other unfavorable terms, distract management from our business, or satisfy indemnification obligations.
If any of our technologies, products, or services are found to infringe, misappropriate, or otherwise violate a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue commercializing or using such technologies, products, or services. However, we may not be able to obtain any required license on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We also could be required, including by court order, to cease the commercialization or use of the violating technology, products, or services. Accordingly, we may need to design around such violated intellectual property, which may be expensive, time-consuming, or infeasible. In addition, we could be found liable for significant monetary damages, including treble damages and
attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Claims that we have misappropriated the confidential information or trade secrets of third parties could similarly harm our business. If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement, misappropriation, or violation claims against us, such payments, costs, or actions could adversely affect our competitive position, business, results of operations, financial condition, and prospects. Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and require significant expenditures. Any of the foregoing could prevent us from competing effectively and could have an adverse effect on our business, results of operations, financial condition, and prospects.
Risks Related to Governmental Regulation and Litigation
Our business is subject to increasingly complex and evolving laws, rules, regulations, industry standards, and other legal obligations regarding content, consumer protection, competition, privacy, and other matters. Failure to comply with such laws, rules, regulations, industry standards, and other legal obligations could harm our business.
We are subject to a variety of laws, rules, regulations, industry standards, and other legal obligations in the United States and abroad that involve matters central to our business, including content, intellectual property, rights of publicity and privacy, advertising, machine learning and AI, marketing, distribution, competition, consumer protections, protection of minors, telecommunications, product liability, taxation, economic or other trade prohibitions or sanctions, and securities laws. These laws, rules, and regulations are stringent, evolving, and involve matters central to our business, including, among others:
•copyright or similar laws around the world, including the EU Directive on Copyright in the Digital Single Market (“EU Copyright Directive”), which has been implemented recently by certain EU member states, and the News Media Bargaining Code drafted by the Australian Competition and Consumer Commission, that introduce new constraining licensing regimes that could increase the liability of some content-sharing services with respect to content uploaded by their users, and may also require compensation negotiations with news agencies and publishers for the use of such content;
•various laws and proposals with regard to content removal and disclosure obligations around the world, such as the European Commission’s Digital Services Act and the Audio-Visual Media Services Directive, Germany’s Network Enforcement Act (“Netzwerkdurchsetzungsgesetz” or “NetzDG”), the UK’s Online Safety Bill;
•data localization laws, which generally mandate that certain types of data collected in a particular country be stored and/or processed within that country;
•various U.S. laws involving sex trafficking, including the Fight Online Sex Trafficking Act and the Stop Enabling Sex Traffickers Act; and
•various U.S. and international laws that govern the distribution of certain materials to children and regulate the ability of online services to collect information from minors, including the Children’s Online Privacy Protection Act.
These U.S. federal and state and foreign laws, rules, and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these laws, rules, and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate, and may be interpreted and applied inconsistently from jurisdiction to jurisdiction and inconsistently with our current policies and practices. New laws, amendments to or reinterpretations of existing laws, rules, regulations, standards, and other obligations have required us in the past, and may in the future require us, to incur additional costs, restrict our business operations, change how we use, collect, store, transfer, or process certain types of personal information and implement new processes to comply with those laws and our users’ exercise of their rights thereunder.
Legislative changes in the United States, at both the federal and state level, have imposed and could further impose new obligations in areas such as moderation of content posted on our platform by third parties, including with respect to requests for removal based on claims of copyright. Further, there are various Executive Branch and Congressional efforts to restrict the scope of the protections from legal liability for content moderation decisions and third-party content posted on online platforms that are currently available to online platforms under Section 230 of the Communications Decency Act, and our current protections from liability for content moderation decisions and third-party content posted on our platform in the United States could decrease or change, potentially resulting in increased liability for content moderation decisions and third-party content posted on our platform and higher litigation costs. There are also various state laws and proposals that seek to regulate online content moderation, impose new disclosure obligations, and expand the circumstances under which online intermediaries may be held liable for third-party content. Finally, there are pending cases before the judiciary that may result in changes to the protections afforded to internet platforms that, depending on the outcomes, could greatly limit the scope of the current protections. If these proposed or similar laws are passed or upheld, if similar future legislation or governmental action is proposed or taken, and if existing protections are limited or removed, changes will be required that could impose additional costs of operation, subject us to additional liability or cause Redditors to abandon the service, any of which may adversely affect our business, results of operations, financial condition and prospects.
We could also face fines, orders restricting or blocking our services in particular geographies, or other government-imposed sanctions as a result of content hosted on our services. For example, laws and regulations in Germany and India provide for the imposition of fines for failure to comply with certain content removal, law enforcement cooperation, and disclosure obligations. Numerous other countries in Europe, the Middle East, Asia-Pacific, and Latin America are considering, or have implemented, similar legislation imposing penalties, including fines, service throttling, access blocking, or advertising bans, for failure to remove certain types of content or to follow certain processes. Such content-related legislation also has required us in the past, and may require us in the future, to change our products or business practices, increase our costs, or otherwise impact our operations or our ability to provide services in certain geographies. Regulatory or legislative actions affecting the manner in which we display content to our users or obtain consent for various practices could require product changes in the user interface that could adversely affect user growth and engagement.
Additionally, we continue to pursue new business initiatives to empower communities through new technologies, including machine learning and AI, blockchain technology and non-fungible token (“NFT”) standards. These initiatives and technologies are subject to complex and rapidly-evolving laws and regulations that may be modified, interpreted, and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. As we navigate an uncertain legal and regulatory landscape, we make determinations about how these laws and regulations apply to our business initiatives; however, governments and regulatory authorities may disagree with our risk-based judgments, which may adversely affect our business initiatives. In addition, future legal and regulatory developments related to blockchain technology and NFT standards may negatively impact demand for, and our ability to offer, products and services related to these new technologies. They may also increase our compliance and litigation costs, cause us to change our business practices, and harm our business, results of operations, financial condition, and prospects.
Although we value privacy at Reddit, we face increasing scrutiny and regulatory complexity with regard to data privacy and data protection, especially with regard to our international expansion plans. If we fail, or are perceived as failing, to protect the data privacy of those who use or work at Reddit, our business and reputation will suffer and our business, results of operations, financial condition, and prospects could be adversely affected.
We receive, store, handle, transmit, use, and otherwise process personal and business information and other data from and about actual and prospective customers, as well as our employees, Redditors, and service providers. As a result, we and our handling of data are subject to a variety of laws, rules, and regulations relating to privacy and data security, including regulation by various federal, state, and foreign governmental authorities and agencies. In some cases, these laws, rules, and regulations impose obligations directly on us as both a data controller and a data processor (or the equivalents thereof). These laws, rules, and regulations are constantly evolving and may be interpreted, applied, created, or amended in a manner that could harm our current or future business and operations.
Our data handling and processing activities are also subject to contractual obligations and industry standards. These laws include, among others:
•U.S. federal privacy laws, such as the Federal Trade Commission Act;
•data privacy laws, such as the EU GDPR, the UK GDPR, and the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act (the “CCPA”);
•data privacy and protection laws passed by many states within the United States and by certain countries regarding notification to data subjects or regulators when there is a security breach of personal data; and
•new laws further restricting the collection, processing, or sharing of personal information for advertising-related purposes.
In the United States, violation of consumers’ privacy rights or failure to take appropriate steps to keep consumers’ personal information secure may constitute unfair or deceptive acts or practices in or affecting commerce in violation of the Federal Trade Commission Act or other state regulations. We also may be subject to specific data security frameworks or laws that require us to maintain a certain level of security. For example, the Federal Trade Commission expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
In addition to the foregoing federal laws and regulations, certain states have adopted new or modified privacy and data security laws and regulations that may apply to our business, such as the CCPA, which imposes obligations on businesses that collect and process personal information of California residents. Among other things, the CCPA broadly defines personal information, requires covered companies to provide disclosures to California residents about the data collection, use and disclosure practices of covered businesses, and provides such residents expanded rights to access, correct and delete their personal information and to opt-out of certain sales or transfers of personal information. The CCPA imposes severe civil penalties and statutory damages as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. The effects of the CCPA are significant and may require us to further modify our data collection or processing practices and policies and to incur costs and expenses in an effort to comply. In addition, California’s Age-Appropriate Design Code, which is modeled after the UK Information Commissioner’s Office’s (“UK ICO”) Age Appropriate Design Code, is intended to go into effect in 2024; non-compliance with the law, if enacted, could result in regulatory action, including injunctions and statutory civil penalties.
The enactment of the CCPA is prompting a wave of similar legislative developments in other states in the United States, which creates the potential for a patchwork of overlapping but different state laws. This also may mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business, results of operations, and financial condition. For example, like California, Virginia signed into law the Virginia Consumer Data Protection Act, which also contains detailed requirements, on covered companies, relating to the access to, deletion of, and disclosures of personal data collected by covered businesses about Virginia residents. Further, several other states (including Colorado, Connecticut and Utah) have also enacted new privacy regulations, which took effect or are scheduled to take effect in 2023. Similar laws have been proposed in other states, at the federal level, and in other countries, reflecting a global trend toward more stringent privacy legislation. These new state laws share similarities with the CCPA and legislation proposed in other states. Many other states are currently reviewing or proposing the need for greater regulation of the collection, sharing, use, and other processing of personal information for marketing purposes or otherwise, and there remains increased interest in a new comprehensive privacy and data protection law at the federal level as well. Additionally, in order to comply with the varying state laws around data breaches, we must maintain adequate data security measures, which require significant investments in resources and ongoing attention. The risk of legal claims in the event of a security breach is increasing. For example, as described above, the CCPA creates a private right of action for certain data breaches. Such laws and regulations could also restrict our customers’ ability to run their businesses, which may in turn, impact our business operations.
Additionally, laws in all 50 U.S. states require businesses to provide notice under certain circumstances to governmental authorities and affected individuals in connection with personal data breaches, and we have notified in the past, and may in the future notify, applicable governmental authorities and affected individuals in the event of a data breach or other data security incident. The laws are not consistent, as certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international, or other state laws, and such laws may differ from each other, which may complicate compliance efforts. Compliance in the event of a widespread data breach is costly. These laws, rules, and regulations may also impact our ability to expand advertising on our platform internationally, as they may impede our ability to deliver targeted advertising and accurately measure our ad performance.
In certain jurisdictions, regulatory requirements are more stringent than or different from those in the United States. In particular, the EU and its member states and the UK traditionally have taken broader views as to the types of data that are subject to privacy and data protection, and have imposed greater legal obligations on companies in this regard. For example, we are subject to the EU GDPR, supplemented by national laws in EU member states and the UK GDPR, which regulates the collection, control, sharing, disclosure, use, transfer, and other processing of personal data and imposes stringent data protection requirements with significant penalties, and the risk of civil litigation, for noncompliance. The enactment of the GDPR also introduced numerous privacy-related changes for companies operating in the EU and the UK, including greater control for data subjects (including, for example, the “right to be forgotten”), increased data portability for EU and UK consumers, data breach notification requirements, and increased fines. In particular, fines for certain breaches are significant, up to the greater of 4% of total global annual turnover or €20 million in the EU (£17.5 million under the UK GDPR). Since we are subject to the supervision of the relevant data protection authorities under both the EU GDPR and the UK GDPR, we could be fined under each of these regimes independently in respect of the same breach. In addition to fines, a breach of the relevant regimes could result in litigation, regulatory investigations or inquiries, reputational damage, orders to cease or change our data processing activities, enforcement notices, or assessment notices (for a compulsory audit). Moreover, following the UK’s exit from the EU and ongoing developments in the UK, including the introduction of the Data Protection and Digital Information Bill introduced into the UK Parliament for discussion in July 2022, there is now increased uncertainty with regard to data protection regulation in the UK. Since January 2021 (when the transitional period following Brexit expired), we have been required to comply with both the EU GDPR and the UK GDPR, exposing us to two parallel regimes with potentially divergent interpretations and enforcement actions for certain violations. The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, and because the UK GDPR will not automatically incorporate changes to the EU GDPR going forward, it is unclear how UK data protection laws and regulations will develop in the medium to longer term. For example, in 2021, the European Commission announced an adequacy decision concluding that the UK ensures an equivalent level of data protection to the EU GDPR, which provides some relief regarding the legality of continued personal data flows from the EU to the UK. This adequacy determination will automatically expire in June 2025 unless the European Commission renews or extends it and may be modified or revoked in the interim. Any changes required to comply with the EU GDPR or UK GDPR will lead to additional costs and increase our overall risk exposure.
Moreover, the EU-U.S. Privacy Shield Framework, a transfer framework we relied upon for data transferred from the EU and the UK to the United States, was invalidated in July 2020 by the Court of Justice of the EU. For transfers to the United States, the European Commission has adopted an adequacy decision for entities self-certified under the new EU-U.S. Data Privacy Framework (“DPF”), rendering the DPF effective as an EU GDPR transfer mechanism to the United States for self-certified entities. Although the DPF does not apply to the UK, on October 12, 2023, a UK-U.S. Data Bridge came into force to facilitate transfers of personal data from the UK to the United States. However, we expect the existing legal complexity and uncertainty regarding international personal data transfers to continue. In particular, we expect the DPF adequacy decision to be challenged and international transfers to the United States and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. In addition, the other bases upon which we rely to transfer such data, such as Standard Contractual Clauses (“SCCs”), have been subjected to regulatory and judicial scrutiny. The Court of Justice of the EU ruled in July 2020 that reliance on the SCCs alone may not necessarily be sufficient in all circumstances and transfers must be assessed on a case-by-case basis. In June 2021, the European Commission published revised SCCs for data transfers from the EU, which were required to be used for new and existing data transfer arrangements by
December 27, 2022. There is some uncertainty around whether the revised SCCs, particularly whether they can be relied on for data transfers to non-EU entities subject to the GDPR. The European Commission has stated an intention to publish a new set of SCCs applicable to such transfers to non-EU entities subject to the GDPR; the substantive content of these proposed SCCs remains unclear. The revised SCCs apply only to the transfer of personal data outside of the EU and not the UK; the UK ICO has published its own International Data Transfer Agreement and the International Data Transfer Addendum to the SCCs (the “IDTA”), which came into force on March 21, 2022: the revised clauses must be used for relevant new data transfers; and existing SCC arrangements must be migrated to the revised clauses by March 21, 2024. These various developments in relation to international personal data transfers require us to implement new or revised documentation and processes, within the relevant time frames, and are subject to ongoing scrutiny and potential future challenge, leading to additional costs and increasing our overall risk exposure.
While we also rely upon alternative legal bases for data transfers, if the new DPF is invalidated in the future and we are unable to continue to rely on SCCs and the IDTA or validly rely upon other alternative means of data transfers from the EU and the UK to the United States, we may suffer additional costs, complaints or regulatory investigations, inquiries, or fines, and we may be unable to operate material portions of our business in the EU or the UK, and/or stop using certain tools and vendors and make other operational changes which would materially and adversely affect our business, results of operations, financial condition, and prospects.
We are also subject to evolving EU and UK privacy laws, including with respect to cookies and e-marketing. For example, periodically, the UK ICO reaches out to us with questions regarding the UK ICO’s Age Appropriate Design Code and GDPR compliance, and our use of cookies on our site. In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem. Further, EU national laws that implement the ePrivacy Directive (Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector) may be replaced by an EU regulation, known as the ePrivacy Regulation (Proposal for a Regulation concerning the respect for private life and the protection of personal data in electronic communications), which may alter rules on tracking technologies, impose burdensome requirements surrounding obtaining consent and significantly increase fines for non-compliance. While the text of the ePrivacy Regulation is still under development, a recent European court decision, regulators’ recent guidance, and recent campaigns by a not-for-profit organization are driving increased attention to cookies and tracking technologies under existing law. If regulators start to enforce an increasingly strict approach, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs, and subject us to additional liabilities.
We make public statements about our use, collection, disclosure, and other processing of personal information through our privacy policies, information provided on our website, and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be perceived to have failed to do so. If the publication of our privacy policies and other statements that provide promises and assurances about data privacy and security or otherwise describe our data processing contain any information that a court or regulator finds to be deceptive, unfair, inaccurate, inadequate, or misrepresentative of our actual practices, we could also be exposed to legal or regulatory liability. Any such proceedings or violations could force us to spend money in defense or settlement, result in the imposition of monetary liability or demanding injunctive relief, divert management’s time and attention, increase our costs of doing business, and adversely affect our reputation. Furthermore, the uncertain and shifting regulatory environment and trust climate may cause concerns regarding privacy and data protection and may cause our customers to resist providing the data necessary to allow them to use our services effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could negatively impact our business operations.
Furthermore, emerging trends in data privacy and security may impact our business operations. For example, multiple jurisdictions are taking a heightened interest in AI and machine learning, which we make use of. There has been a recent wave of policy and regulatory responses from various governments rolling out action plans for risk mitigation to legislation being introduced to generally oversee the use of AI.
For example, in 2022, the European Commission proposed two directives seeking to establish a harmonized civil liability regime for AI in the EU, in order to facilitate civil claims in respect of harm caused by AI and to include AI-enabled products within the scope of the EU’s existing strict liability regime. In addition, in December 2023, the Council of the EU European Parliament and European Commission reached provisional agreement on a revised draft of the AI Act, which is currently expected to be enacted in 2024. The current draft of the AI Act, if enacted, would establish a governance framework for AI in the EU market. The regulation is intended to apply to companies that develop, use, and/or provide AI in the EU and would include requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security, and accuracy, and includes substantial penalties for non-compliance. Complying with the applicable requirements of the AI Act may impose additional costs on us, increase our risk of liability, or adversely affect our business. If enacted in this form or a similar form, this regulatory framework is expected to have a material impact on the way AI is regulated in the EU, and together with developing guidance and decisions in this area, may affect our use of AI and our ability to provide and to improve our services, require additional compliance measures and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, results of operations, financial condition, and prospects.
From time to time, governments, regulators, and other third parties have in the past, and may in the future, reach out to ask questions or express concerns about whether our products, services, or practices compromise the privacy or data protection rights of Redditors and others. While we strive to comply with applicable laws, rules, and regulations relating to privacy, data protection, and data security, our privacy policies, and other obligations we may have with respect to privacy, data protection, and data security, the failure or perceived failure to comply with such obligations may result, in investigations, inquiries, and other proceedings or actions against us by governments, regulators, or other third parties. Additionally, we have been in the past, and may in the future become, involved in data privacy-related litigation or other disputes. A number of proposals have recently been adopted or are currently pending before federal, state, and foreign legislative and regulatory bodies that could significantly affect our business.
We cannot assure you that any third-party providers with access to personally identifiable and other sensitive or confidential information in relation to which we are responsible will not breach contractual obligations imposed by us, or that they will not experience data security breaches or attempts thereof, which could have a corresponding effect on our business, including putting us in breach of our obligations under various data privacy and data protection laws, rules and regulations, which could in turn adversely affect our business, results of operations and financial condition. If our customers or third-party providers violate applicable laws, regulations, rules or standards, or our policies or other privacy or security-related obligations, such violations may also put the information of our customers, third-party providers or employees at risk. We cannot assure you that our contractual measures and our own privacy and data protection-related safeguards will protect us from the risks associated with the third-party processing, storage and transmission of such information. Increasing use of social media could also give rise to liability, breaches of data security or reputational damage.
Any failure or perceived failure by us or our third-party providers to comply with our privacy policies, data privacy-related obligations to Redditors or other third parties, or our data privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, or other failure or noncompliance by us with applicable laws, rules, regulations, industry standards, or other legal obligations or requirements relating to data privacy and our processing of personal information could subject us to investigations, litigation, sanctions, enforcement actions, disgorgement of profits, substantial fines, damages, reputational harm, a significant diversion of management’s attention and resources, civil and criminal penalties, injunctions, or other collateral consequences, any of which could adversely affect our business, results of operations, financial condition, and prospects.
We may incur liability as a result of information retrieved from or transmitted over the internet or published using our platform or as a result of claims related to our products, and legislation regulating content on our platform may require us to change our products or business practices and may adversely affect our business, results of operation, financial condition, and prospects.
We have faced, currently face, and will continue to face claims relating to information or content that is published or made available on our platform, including our policies and enforcement actions with respect to such information or content. We could incur significant costs investigating and defending such claims and, if we are found liable, significant damages. In particular, the nature of our business exposes us to claims related to defamation, dissemination of misinformation or news hoaxes, discrimination, harassment, intellectual property rights, rights of publicity and privacy, personal injury torts, laws regulating hate speech or other types of content, online safety, sex trafficking, consumer protection, and breach of contract, among others. In addition, there are various U.S. Executive Branch, Congressional, and state-level efforts to regulate the content made available on platforms such as ours, and to restrict the scope of the protections from legal liability for content moderation decisions and third-party content posted on online platforms that are currently available to online platforms under Section 230 of the Communications Decency Act, and our current protections from liability for content moderation decisions and third-party content posted on our platform in the United States could decrease or change, potentially resulting in increased liability for content moderation decisions and third-party content posted on our platform and higher litigation costs. In addition, there have been, and will continue to be, legislative developments related to imposing new obligations on online platforms with respect to commerce listings, user content, counterfeit goods, and copyright-infringing material.
This risk is enhanced in certain jurisdictions outside of the United States where our protection from liability for third-party actions may be unclear or where we may be less protected under local laws than we are in the United States. For example, in April 2019, the EU passed the EU Copyright Directive, which expanded online platform liability for copyright infringement and regulated certain uses of news content online, which member states are currently implementing into their national laws. In addition, the EU revised the European Audiovisual Media Service Directive to apply to online video-sharing platforms, which member states were required to implement into national law by December 2020. Irish regulators have designated us as a video-sharing platform service under their Online Safety and Media Regulation Act, implementing their version of the directive. We could also face fines, orders restricting or blocking our services in particular geographies, or other government-imposed remedies as a result of content hosted on our services. For example, legislation in Germany and India has resulted in the past, and may result in the future, in the imposition of fines or other penalties for failure to comply with certain content removal, law enforcement cooperation, and disclosure obligations. The governments of some countries, such as India and Pakistan, have passed laws and regulations restricting the distribution of content and products deemed to represent foreign or “immoral” influences. Numerous other countries in Europe, the Middle East, Asia-Pacific, and Latin America are considering or have implemented legislation imposing potentially significant penalties, including fines, service throttling, access bans, or advertising bans, for failure to remove certain types of content or follow certain processes. Content-related legislation and regulations also have required us in the past, and may require us in the future, to change our products or business practices, increase our costs, or otherwise impact our operations or our ability to provide services in certain geographies. For example, the EU Copyright Directive requires certain online services to obtain authorizations for copyrighted content or to implement measures to prevent the availability of that content, which may require us to make substantial investments in compliance processes. Member states’ laws implementing the EU Copyright Directive may also require online platforms to pay for content. In addition, the majority of the substantive provisions of the Digital Services Act in the EU are expected to take effect between 2023 and 2024, and have already, and will continue to, significantly increase our compliance costs and require changes to our processes and operations. Further, the European Electronic Communications Code, which EU member states are currently implementing into their national laws, has expanded the scope of the ePrivacy Directive’s security requirements and restrictions on communications data usage to certain over-the-top communications services. This expansion of the ePrivacy Directive may increase our compliance costs or require changes to our processes and operations. The UK Online Safety Bill, expected to take effect in 2024, may also significantly increase our compliance costs and proposes significant fines for certain breaches, up to the greater of GBP 18 million or 10% of our global, annual revenue. In the United States, changes to Section 230 of the Communications Decency Act or state or federal content-related legislation that impacts the scope of Section 230, or otherwise relates to our liability
with respect to content on our platform, have increased in the past, and may in the future increase, our costs or require significant changes to our products, business practices, or operations, which could adversely affect Redditor growth and engagement. Any of the foregoing events could adversely affect our business, results of operation, financial condition, and prospects.
In addition, the existing and any future regulation of adult content could prevent us from making some of our content available in various jurisdictions or otherwise adversely affect our business, results of operations, financial condition, and prospects. Regulation aimed at limiting minors’ access to adult content could also increase our cost of operations and introduce technological challenges, such as by requiring development and implementation of age verification systems. U.S. government officials could amend or construe and seek to enforce more broadly or aggressively the adult content recordkeeping and labeling requirements set forth in 18 U.S.C. Section 2257 and its implementing regulations in a manner that is unfavorable to our business.
Pending and future litigation could lead us to incur significant costs and adversely affect our business, results of operations, financial condition, and prospects.
We are, or may become, party to various lawsuits and claims arising in the normal course of business, which may include putative class action suits or other lawsuits or claims relating to privacy and other regulatory matters, user consent, intellectual property and/or open source software, customer matters, our marketing and sales practices, content on our site, contracts, employment matters, or other aspects of our business. Such lawsuits have in the past and may in the future result in us incurring significant expenses in settlement and litigation costs. Any negative outcome from any such lawsuits or claims could result in payments of substantial monetary damages or fines, or undesirable changes to our products or business practices and, accordingly, our business, results of operations, financial condition, or prospects could be adversely affected. There can be no assurances that a favorable final outcome will be obtained in all our cases, and defending any lawsuit, even unmerited claims, is costly and can impose a significant burden on management and employees. Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not be reversed upon appeal or in payments of substantial monetary damages or fines, or we may decide to settle lawsuits on similarly unfavorable terms, which could adversely affect our business, results of operations, financial condition, and prospects.
We are subject to governmental export controls and economic sanctions laws that could impair our ability to compete in global markets or subject us to liability if we are not in full compliance with applicable laws.
Our platform is subject to governmental, including U.S. and EU export control laws and regulations, and as a U.S. company, we are covered by the U.S. sanctions laws and regulations. U.S. export control and economic sanctions laws and regulations prohibit the provision of certain products and services to U.S. embargoed or sanctioned countries, governments, and persons, and complying with export control and sanctions regulations may be time-consuming and may result in the loss of sales opportunities. While we take precautions to prevent our platform from being exported in violation of these laws or engaging in any other activities that are subject to these regulations, from time to time, we may fail to fully comply with these laws and regulations. We believe our provision of such services is either in compliance with generally available exemptions from sanctions laws or otherwise in compliance with applicable law, and we have implemented certain control mechanisms designed to prevent unauthorized dealings with U.S. embargoed or sanctioned countries, such as preventing such users from paying for or receiving premium content or features. If such users circumvent these precautions or we are otherwise found to have failed to comply with U.S. export laws, U.S. economic sanctions, and other countries’ import and export laws, we could be subject to substantial civil and criminal penalties, including fines for the company, incarceration for responsible employees and managers, and the possible loss of export or import privileges, and we may incur reputational harm.
Our new products and services may subject us to additional regulatory requirements that could be costly and difficult to comply with or may subject us to other risks that could result in additional liability, reputational harm, or other consequences that could adversely affect our business, results of operations, financial condition, and prospects.
As we invest in new products and services, we expect some of these products and services will present additional risks, especially in areas where approaches to governmental regulation are evolving and developing, including new products in the areas of virtual goods and rewards, generative AI, and data licensing.
For example, we are exploring different ways for Redditors to purchase and gift virtual goods and receive rewards for contributions to our platform, including the Reddit Contributor Program and the Reddit Collectible Avatars Creators Program. These programs may be subject to a variety of laws and regulations in the United States, Europe, and elsewhere, including laws governing money laundering and terrorist financing, money transmission, prepaid access and stored value, electronic funds transfer, marketing of in-app purchases, virtual currency, consumer protection, taxation, unclaimed property, securities, banking and lending, trade sanctions, and import and export restrictions. In some jurisdictions, the application or interpretation of these laws and regulations is not, and in the future may not be, clear. For example, in some situations, the SEC has found the sale of certain virtual goods and non-fungible and fungible tokens to have been securities offerings and has fined issuers and taken other related actions to prohibit the sale and trading of such items. Moreover, to the extent our virtual goods and rewards products are deemed securities, our activities relating to these products could cause us to be required to register as a broker-dealer or exchange.
While we have been expanding the use of machine learning across the platform, we have also been exploring the use of generative AI within our platform, as well as the use and licensing of Reddit data for generative AI purposes. For example, we are experimenting with using generative AI to assist Redditors to create posts and comments that abide by community rules, recommend more relevant content to Redditors, or scale our content translation efforts as we grow our presence in certain international markets. We are also experimenting with using generative AI to assist advertisers to create ads, improve the placement of advertisements on our platform, and strengthen the offerings and functionality of our advertising tools. Uncertainty around new and emerging AI applications, such as generative AI content creation, will require additional investment in the development of proprietary systems, models, and datasets, which are often complex, may be costly and could impact our gross margin. Developing, testing and deploying these technologies may also increase the cost profile of our offerings due to the nature of the computing costs involved in such initiatives. Moreover, market acceptance of AI technologies is uncertain, and we may be unsuccessful in our service or product development efforts. There are significant risks involved in the development and deployment of AI technologies and there can be no assurance that our use of these technologies will enhance our products or services or be beneficial to our business, including our efficiency or profitability. For example, the continued use of any AI technologies in our products and services may give rise to risks related to, among other things, inaccurate or harmful content, bias, toxicity, discrimination, intellectual property infringement, misappropriation or other violations, defamation, data privacy, confidentiality, cybersecurity and data provenance, new or enhanced governmental or regulatory scrutiny, litigation or other legal liability, ethical concerns, negative user perceptions as to automation and AI, and other complications that could erode confidence in our brand, harm our reputation, and adversely affect our business and results of operations. If we do not have sufficient rights to use the data on which our systems rely, we may incur liability through the violation of such laws, third-party privacy or other rights or contracts to which we are a party. In addition, AI is the subject of evolving review by various U.S. governmental and regulatory agencies, and various U.S. states and other foreign jurisdictions are applying, or are considering applying, their platform moderation, cybersecurity, and data protection laws to AI or are considering general legal frameworks for AI. We may not be able to anticipate how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our offerings in certain jurisdictions if the legal frameworks are inconsistent across jurisdictions.
Our efforts to comply with these laws and regulations could be costly and may still not guarantee compliance. In the event that we are found to be in violation of any such legal or regulatory requirements, we may be subject to monetary fines or other penalties, and may subject us to additional regulation and oversight, all of which could significantly increase our operating costs. It is also possible that regulators in the United States or elsewhere may
take regulatory actions in the future and we may be subject to other enforcement or other regulatory actions by federal or state regulators, as well as private litigation, which could be costly to resolve.
In addition, we are in the early stages of our data licensing efforts and are exploring data licensing opportunities, where we believe the opportunity does not conflict with our values and the rights of our Redditors. These programs may subject us to evolving approaches to the regulation of this data and implicates complex and developing data privacy and data protection, misappropriation, and intellectual property laws, rules, and regulations.
If any of these risks occurs, our business, results of operations, financial condition, and prospects could be adversely affected.
Risks Related to Financial and Accounting Matters
We are exposed to fluctuations in currency exchange rates and interest rates, which could negatively affect our results of operations and our ability to invest and hold our cash.
Revenues generated are generally billed in U.S. dollars while expenses incurred by our international subsidiaries and activities are often denominated in the currencies of the local countries. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as the financial results of our international subsidiaries are translated from local currencies into U.S. dollars. Our financial results are also subject to changes in exchange rates that impact the settlement of any applicable transactions in non-local currencies. To date, we have not engaged in currency hedging activities to limit the risk of exchange rate fluctuations and, as a result, our results of operations and financial condition could be adversely affected by such fluctuations.
Changes in tax laws or tax rulings could adversely affect our effective tax rates, results of operations, and financial condition.
The tax regimes we are subject to or operate under are unsettled and may be subject to significant change. This challenge will continue to increase as we expand our operations globally. Changes in tax laws, issuance of new tax rulings, or changes in interpretations of existing laws could cause us to be subject to additional income-based taxes and non-income-based taxes, including payroll, sales, use, value-added, digital, net worth, property, and goods and services taxes, which in turn could adversely affect our results of operations and financial condition. In particular, the U.S. government may enact significant changes to the taxation of business entities including, among others, an increase in the corporate income tax rate, the imposition of minimum taxes or surtaxes on certain types of income, significant changes to the taxation of income derived from international operations, and an addition of further limitations on the deductibility of business interest. For example, on August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law in the United States. Among other changes, the IRA introduced a corporate minimum tax on certain corporations with average annual adjusted financial statement income over a three-tax-year period in excess of $1 billion and an excise tax on certain stock repurchases by certain covered corporations for taxable years beginning after December 31, 2022.
In addition, many countries in the EU, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could impact our tax obligations. In particular, over the past several years, the Organisation for Economic Co-operation and Development (“OECD”) has been working on a base erosion and profit shifting (“BEPS”) project. As part of the OECD’s BEPS project, over 140 member jurisdictions of the OECD Inclusive Framework have joined the Two-Pillar Solution to Address the Tax Challenges of the Digitalisation of the Economy, which includes a reallocation of taxing rights among jurisdictions and a global minimum tax rate of 15%. The Council of the European Union has approved its directive to implement rules regarding such a 15% global minimum tax rate, and other jurisdictions have already enacted taxes that target technology companies. We are unable to predict what changes to the tax laws of the United States and other jurisdictions may be proposed or enacted in the future or what effect such changes would have on our business. Any of these or similar developments or changes to tax laws or rulings could adversely affect our effective tax rate and our results of operations and financial condition.
We may have exposure to greater than anticipated tax liabilities.
The tax laws applicable to our business, including the laws of the United States and other jurisdictions, are subject to interpretation and certain jurisdictions are aggressively interpreting their laws in new ways in an effort to raise additional tax revenue. We are subject to taxation in several non-U.S. jurisdictions with increasingly complex tax laws, the application of which can be uncertain. The number of jurisdictions where we are subject to tax will increase as we expand our global operations. The amount of taxes paid in these jurisdictions could substantially change as a result of changes in the applicable tax principles, including increased tax rates, new tax laws, or revised interpretations of existing tax laws and precedent, which could have an adverse impact on our liquidity and results of operations. The relevant taxing authorities in a jurisdiction may disagree with our determinations regarding the income and expense attributable to that jurisdiction. If such a disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time or ongoing tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our business.
Our existing corporate structure has been implemented in a manner that we believe is in compliance with current prevailing tax laws, and our transfer pricing policies account for the functions, risks, and assets of the various entities involved in our intercompany transactions. The taxing authorities for the jurisdictions in which we operate may, however, challenge our methodologies for valuing intercompany arrangements, which could impact our worldwide effective tax rate and adversely affect our financial condition and results of operations. Moreover, changes to our corporate structure, including increased headcount and expanded functions outside of the United States, could impact our worldwide effective tax rate and adversely affect our financial condition and results of operations. Significant judgment is required in evaluating our tax positions and our worldwide provisions for taxes. During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our business, with some changes possibly affecting our tax obligations in future or past years.
Our ability to use net operating loss carryforwards and other tax attributes may be limited due to certain provisions of the Internal Revenue Code or state tax law.
We have incurred substantial losses during our history and may never achieve profitability. Under the Tax Cuts and Jobs Act, federal net operating loss carryforwards (“NOLs”) we generated in tax years through December 31, 2017, may be carried forward for 20 years and may fully offset taxable income in the year utilized, and federal NOLs we generated in tax years beginning after December 31, 2017, may be carried forward indefinitely but may only be used to offset 80% of our taxable income annually.
As of December 31, 2023, we had U.S. federal NOL carryforwards of approximately $216.7 million and state NOL carryforwards of approximately $177.1 million available to offset future taxable income. Our state NOL carryforwards will begin to expire in 2026 if not utilized. Our federal NOL carryforwards can be carried forward indefinitely, with utilization limited to 80% of our taxable income. Realization of these NOL carryforwards depends on future taxable income, and there is a risk that our existing carryforwards could expire unused and be unavailable to offset future taxable income, which could adversely affect our results of operations.
Under Sections 382 and 383 of the Internal Revenue Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change federal NOLs and other tax attributes (such as tax credits) to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a greater than 50 percentage point change (by value) in a corporation’s equity ownership by certain stockholders over a rolling three-year period. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of subsequent shifts in our stock ownership (some of which shifts are outside our control). As a result, our ability to use our pre-change federal NOLs and other tax attributes to offset future taxable income and taxes could be subject to limitations. Similar provisions of state tax law may also apply. For these reasons, even if we achieve profitability, we may be unable to use a material portion of our NOLs and other tax attributes, which could adversely affect our business, results of operations, financial condition, and prospects.
If we fail to 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 regulations could be impaired.
As a public company, we will be subject to the reporting requirements of the Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act, and the listing rules of the New York Stock Exchange (“NYSE”). We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly, and place significant strain on our personnel, systems, and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the Securities and Exchange Commission (the “SEC”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting, which includes hiring additional accounting and financial personnel to implement such processes and controls.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs, new internal processes and procedures, and significant management oversight. If any of these new or improved controls and systems do not perform as expected, we may experience deficiencies in our controls.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, to the extent we acquire other businesses, the acquired company may not have a sufficiently robust system of controls and we may discover deficiencies. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could adversely affect our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely cause the market price of our Class A common stock to decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE. We are not currently required to comply with the SEC rules that implement Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K.
Upon becoming a public company, and particularly after we are no longer an “emerging growth company,” we expect our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could adversely affect our business, results of operations, financial condition, and prospects, and could cause the market price of our Class A common stock to decline.
Our revolving credit facility contains restrictive and financial covenants that may limit our operational flexibility. If we fail to meet our obligations under the credit facility, our operations may be interrupted and our business, results of operations, financial condition, and prospects could be adversely affected.
In October 2021, we entered into a five-year, $750.0 million revolving credit facility by and among us and certain lenders, some of which are affiliated with certain members of our underwriting syndicate, to fund working capital and general corporate purpose expenditures. The revolving credit facility, as amended, contains customary conditions to borrowing, events of default, and covenants. Covenants include restrictions on our and certain of our subsidiaries’ ability to incur indebtedness, grant liens, make distributions to holders of our capital stock or the capital stock of our subsidiaries, make investments, or engage in transactions with our affiliates, and require us to maintain a minimum amount of liquidity. The obligations under the revolving credit facility are secured by liens on substantially all of our assets, including intellectual property assets.
Various risks, uncertainties, and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants could result in a default under the credit facility. Such a default could permit lenders to accelerate the maturity of outstanding amounts under our credit facility, if any, which in turn could result in material adverse consequences that negatively impact our business, the market price for our Class A common stock, and our ability to obtain other financing in the future. In addition, our credit facility’s covenants, consent requirements, and other provisions may limit our flexibility to pursue or fund strategic initiatives or acquisitions that might be in the long-term interests of us and stockholders.
We might require additional capital to support business growth, and this capital might not be available on terms favorable to us, or at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges and opportunities, including the need to develop new products or services, enhance our existing products or services, enhance our operating infrastructure, expand internationally, and acquire complementary businesses and technologies. In order to achieve these objectives, we may make future commitments of capital resources. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. In addition, the incurrence of indebtedness would increase our fixed obligations, and include covenants or other restrictions that would impede our ability to manage our operations. Further, if additional financing is needed, we may not be able to obtain additional financing on terms favorable to us, or at all. Our inability to obtain adequate financing or financing on terms satisfactory to us, when we require it, could significantly limit our ability to continue supporting our business growth and responding to business challenges and opportunities.
Our results of operations could be adversely affected by changes in financial accounting standards or by the application of existing or future accounting standards to our business as it evolves.
Our reported results of operations are impacted by the accounting standards promulgated by the SEC and accounting standards bodies and the methods, estimates, and judgments that we use in applying our accounting policies. A change in accounting standards could have a significant effect on our reported financial results, and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. The frequency of accounting standards changes could accelerate, including conversion to unified international accounting standards. Accounting standards affecting revenue recognition have affected, and could further significantly affect, the way we account for revenue. Any future changes to accounting standards may cause our results of operations to fluctuate.
As we enhance, expand, and diversify our business, products, and services, the application of existing or future financial accounting standards could adversely affect our results of operations or financial condition.
Future acquisitions and investments could disrupt our business and harm our business, results of operations, financial condition, and prospects.
Our success will depend, in part, on our ability to expand our products and services, and grow our business in response to changing technologies, Redditor and advertiser demands, and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:
•diversion of management time and focus;
•coordination of research and development and sales and marketing functions;
•retention of key employees from the acquired company;
•cultural challenges associated with integrating employees from the acquired company;
•integration of the acquired company’s accounting, management information, human resources, and other administrative systems and processes;
•liability for activities of the acquired company before the acquisition, including claims of intellectual property infringement, misappropriation, or other violation, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and
•litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders, or other third parties.
Our failure to address these risks or other problems encountered in connection with acquisitions could cause us to fail to realize the anticipated benefits of these acquisitions, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, incremental operating expenses, or the impairment of goodwill, any of which could harm our business, results of operations, financial condition, and prospects.
We hold cryptocurrencies and experiment with blockchain technology, which may subject us to exchange risk and additional tax, legal, and regulatory requirements.
We invested some of our excess cash reserves in Bitcoin and Ether and also acquired Ether and Matic as a form of payment for sales of certain virtual goods, which we may continue to do in the future. Ether and Matic received from the sales of virtual goods was not material for the years ended December 31, 2022 and 2023. We also acquired and hold digital assets that are cryptocurrencies for use by our product and engineering teams, which is limited to specific uses. The prices of cryptocurrencies such as Bitcoin, Ether, and Matic have been and may continue to be highly volatile, and our ability to sell cryptocurrencies for fiat currencies or other cryptocurrencies may be subject to unanticipated suspensions in trading, as well as exchange rate risk, which we may choose not to (or may be unable to) partially or fully hedge against. As of December 31, 2023, we did not hold digital assets other than Bitcoin and Ether for treasury purposes, and our investment policy requires approval by our board of directors for any investments in cryptocurrencies. Our investments in cryptocurrencies for treasury purposes are limited to Bitcoin, Ether, and any other cryptocurrency that the SEC, Commodities Futures Trading Commission, or high-ranking members of the staff of such regulatory bodies may, through public statements or guidance, identify as likely not being a security. Such determinations, however, are risk-based judgments made by us, and while such judgments are informed by regulatory developments, any such determination does not constitute a legal standard or determination binding on any regulatory body.
Cryptocurrencies have no physical form and rely on blockchain and other technologies for their creation, existence, and transactional validation on their respective blockchains. This reliance subjects cryptocurrencies, cryptocurrency exchanges, and other blockchain intermediaries to unique risks related to cybersecurity, malicious attack, and technological obsolescence. While we believe we have taken reasonable measures to secure our
cryptocurrencies and blockchain technology, these risks, in addition to human errors and computer malfunctions, may result in the loss or destruction of private keys needed to access the cryptocurrencies we hold and blockchain technology we control. In which case, we may lose part or all of the cryptocurrencies we hold and blockchain technology we control, and our financial condition and results of operations may be harmed.
In addition, cryptocurrencies are currently accounted for as indefinite-lived intangible assets under generally accepted accounting principles in the United States, which means we will recognize decreases in the value of the cryptocurrencies we hold as impairments, but will not recognize any increases in their value until we have sold them. This accounting treatment may adversely affect our operating results in periods where we have recognized an impairment. The Financial Accounting Standards Board issued new guidance in December 2023 related to the accounting for cryptocurrencies that requires them to be recognized at their fair value instead of at their cost basis. This guidance goes into effect for all entities for fiscal years beginning after December 15, 2024, and early adoption is permitted. We have not determined when we will adopt this new accounting standard but, in adopting it, we will need to adjust our accounting treatment of the cryptocurrencies we hold and may require adjustment of how we acquire them as well. In addition, there is also no guarantee that the accounting treatment or tax treatment of cryptocurrencies will remain the same in the future. If the accounting or tax treatment of cryptocurrencies changes, then we may have to further adjust our accounting or tax treatment of the cryptocurrencies we hold and how we acquire them in the future.
While we believe cryptocurrencies and blockchain technology have significant potential, the popularity and prevalence of cryptocurrencies is a relatively recent trend, and whether cryptocurrencies and blockchain technology will continue to be adopted by consumers and businesses in the long term is uncertain. There has been increased focus on the use of cryptocurrencies for improper, illegal, or fraudulent activities associated with various cryptocurrency projects, and the environmental risks posed by cryptocurrencies and blockchain technology. Many cryptocurrencies are distributed without an identifiable centralized issuer or governing body, and their legal and regulatory status in various jurisdictions is unclear and may change in the future. New legislation and regulations, law enforcement and regulatory interventions, and judicial decisions may adversely affect cryptocurrencies, blockchain technology, and future adoption of both by consumers and businesses. Developments of this nature may also adversely affect the value of cryptocurrencies we hold, blockchain technology we control, and our ability to buy, sell, accept, and use cryptocurrencies and blockchain technology in the future.
Risks Related to this Offering and Ownership of Our Class A Common Stock
The market price of our Class A common stock may be volatile or may decline significantly or suddenly regardless of our operating performance and we may not be able to meet investor or analyst expectations. You may not be able to sell your shares at or above the initial public offering price and may lose all or part of your investment.
The initial public offering price for our Class A common stock will be determined through negotiations between the underwriters and us, and may vary from the market price of our Class A common stock following our initial public offering. If you purchase shares of our Class A common stock in our initial public offering, you may not be able to sell those shares at or above the initial public offering price. We cannot assure you that the market price of our Class A common stock following our initial public offering will equal or exceed prices in privately negotiated transactions of shares of our Class A common stock that have occurred from time to time before our initial public offering. The market price of our Class A common stock may fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including:
•actual or anticipated fluctuations in Redditor growth, retention, and engagement, revenue, or other results of operations;
•variations between our actual results of operations and the expectations of securities analysts, investors, and the financial community;
•our plans to not provide annual financial guidance or projections;
•any forward-looking financial or operating information we may provide to the public or securities analysts, any changes in this information, or our failure to meet expectations based on this information;
•actions of securities analysts who 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;
•any significant changes in our management or board of directors;
•investors’ or analysts’ views of our stock structure and the significant voting control of certain of our stockholders;
•additional shares of our Class A common stock being sold into the market by us or our existing stockholders, or the anticipation of such sales, including the sale of shares to satisfy RSU-related tax obligations or if existing stockholders sell shares into the market;
•announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
•announcements by us or estimates by third parties of actual or anticipated changes in the size of our DAUq or related level of engagement;
•changes in operating performance and stock market valuations of technology companies in our industry, including our competitors;
•rumors and market speculation involving us or other companies in our industry;
•price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
•litigation threatened or filed against us, companies in our industry or both, or investigations by regulators into our operations or those of our competitors;
•the extent to which retail and other individual investors (as distinguished from institutional investors) invest in our Class A common stock, which may result in increased volatility;
•developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; and
•other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.
In addition, the stock market in general, and the market for technology companies in particular, has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Moreover, in the past, following periods of volatility in the overall market and the market prices of a particular company’s securities, securities class action litigation has often been instituted against that company. Securities litigation, if instituted against us, could result in substantial costs and divert our management’s attention and resources from our business.
Interest in our Class A common stock from retail and other individual investors, for reasons unrelated to our underlying business or macroeconomic or industry fundamentals, could result in increased volatility in the market price of our Class A common stock.
In addition to allocations made to retail investors by the underwriters and through our directed share program discussed elsewhere in this prospectus, we anticipate that a portion of the Class A common stock offered hereby will, at our request, be offered to retail investors through Fidelity Brokerage Services LLC, SoFi Securities, Inc., and Robinhood Financial LLC, as selling group members for this offering, through their respective brokerage platforms. These platforms are not affiliated with us. There may be risks associated with the use of such platforms that we
cannot foresee, including risks related to the technology and operation of such platforms, and the publicity and the use of Reddit or social media by users of such platforms that we cannot control.
In 2021, the market prices and trading volumes of certain securities, such as GameStop Corp., AMC Entertainment Holdings, Inc., and other “meme” stocks, experienced extreme volatility. The rapid and substantial increases or decreases in the market prices of “meme” stocks may be unrelated to the respective issuer’s operating performance or macroeconomic or industry fundamentals, and the substantial increases may be significantly inconsistent with the risks and uncertainties that the issuer faces. This volatility has been attributed, in part, to strong and atypical retail investor interest, including as may be expressed on financial trading and other social media sites and online forums such as r/ wallstreetbets, one of our subreddits. Given the broad awareness and brand recognition of Reddit, including as a result of the popularity of r/ wallstreetbets among retail investors, and the direct access by retail investors to broadly available trading platforms, the market price and trading volume of our Class A common stock could experience extreme volatility for reasons unrelated to our underlying business or macroeconomic or industry fundamentals, which could cause you to lose all or part of your investment if you are unable to sell your shares at or above the initial offering price.
Redditors’ participation in this offering could result in increased volatility in the market price of our Class A common stock.
Redditors will have the opportunity to participate in this offering through our directed share program discussed elsewhere in this prospectus, which could result in individual investors, retail or otherwise, constituting a larger proportion of the investors participating in this offering than is typical for an initial public offering. These factors could cause volatility in the market price of our Class A common stock. In addition, high levels of initial interest in our Class A common stock at the time of this offering may result in an unsustainable market price, in which case the market price of our Class A common stock may decline over time.
Further, if the market 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 market price of our Class A common stock.
No public market for our Class A common stock currently exists, and an active liquid market may not develop or be sustained following this offering.
Prior to this offering, there has been no public market for our Class A common stock. Although we have applied to have our Class A common stock listed on the NYSE, an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. The initial public offering price will be determined by negotiations between us and the underwriters and may not be indicative of the future market prices of our Class A common stock.
The multi-class structure of our common stock has the effect of concentrating voting control with those stockholders who held our capital stock prior to the listing of our Class A common stock on the NYSE, including our directors, executive officers, and 5% stockholders, and their respective affiliates, who will hold in the aggregate % of the voting power of our capital stock following the offering. This ownership will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any major corporate transaction requiring stockholder approval, including change of control transactions.
Our Class B common stock has ten votes per share, and our Class A common stock, which is the stock we are selling in this offering, has one vote per share. In addition, our Class C common stock has no votes per share. Immediately following this offering, based on the number of shares outstanding on December 31, 2023, and after giving effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement, the holders of our outstanding Class B common stock will hold % of the voting power of our
outstanding Class A and Class B common stock, with our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, holding in the aggregate % of the voting power of our Class A and Class B common stock, assuming no exercise by the underwriters of their option to purchase additional shares from us. Additionally, our principal stockholder, Advance, and certain of its affiliates beneficially own approximately shares of our Class B common stock, which will represent approximately % of the voting power of our outstanding Class A and Class B common stock immediately following this offering. In connection with this offering, Mr. Huffman and Advance are expected to enter into a voting agreement that will provide, among other things, that Mr. Huffman will be entitled to vote all of the securities beneficially owned by Advance and certain of its affiliates in favor of directors designated by Advance, director candidates nominated or identified by Mr. Huffman, and, in Mr. Huffman’s sole discretion, on all matters submitted to a vote of our stockholders, subject to certain exceptions. See “Description of Capital Stock—Voting Agreement” for more information. Because of the ten-to-one voting ratio between our Class B and Class A common stock, respectively, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore will be able to control all matters submitted to our stockholders for approval.
This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interests as one of our stockholders.
Future transfers by holders of our Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, as set forth in our amended and restated certificate of incorporation, including transfers to family members, certain trusts for estate planning purposes, entities under common control with or controlled by such holder of our Class B common stock, and, with respect to Advance, any Advance Entity (as such term is defined in our amended and restated certificate of incorporation). The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of our Class B common stock who retain their shares in the long term. As a result, it is possible that one or more of the persons or entities holding our Class B common stock could gain significant voting control as other holders of Class B common stock sell or otherwise convert their shares into Class A common stock. In addition, the conversion of Class B common stock to Class A common stock would dilute holders of Class A common stock, including holders of shares purchased in this offering, in terms of voting power within the Class A common stock. Any future issuances of common stock would also be dilutive to holders of Class A common stock. For example, because our Class C common stock carries no voting rights (except as otherwise required by law), if we issue Class C common stock in the future, the holders of Class B common stock may be able to hold significant voting control over 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.
We intend to enter into a governance agreement that grants our principal stockholder certain rights with respect to the control and management of our business, which may prevent us from taking actions that may be beneficial to us and our other stockholders.
In connection with this offering, we intend to enter into a governance agreement with Advance, our principal stockholder, and Mr. Huffman, our Chief Executive Officer and President and a member of our board of directors (the “Governance Agreement”). Pursuant to the Governance Agreement, Advance will have the right to designate two directors and one nonvoting board observer, and any increase in the size of our board of directors that would cause our board of directors to consist of more than ten members will be subject to Advance’s prior written approval. Subject to certain limitations, we will also require Advance’s prior written approval or consent to, among other things:
•establish any new class of securities or issue securities which, in the aggregate, represent more than 10% of the voting power of the securities beneficially owned by Advance and certain of its affiliates as of the completion of this offering;
•amend our amended and restated certificate of incorporation or amended and restated bylaws, if such amendment would adversely affect Advance’s rights thereunder;
•effect a change of control transaction or any other merger, consolidation, business combination, sale, or acquisition that changes the rights or preferences of our security holders;
•effect the liquidation, dissolution, or winding up of our business operations;
•terminate, reduce, or enlarge the responsibilities of, or elect, appoint, or remove, our Chief Executive Officer; or
•submit to our stockholders any proposal to effect the conversion of all then-outstanding shares of our Class C common stock into an equivalent number of fully paid and non-assessable shares of Class A common stock, as set forth in our amended and restated certificate of incorporation or otherwise.
The Governance Agreement will terminate upon the first to occur of (i) such date that Advance and certain of its affiliates cease to, in the aggregate, beneficially own at least 5% of the aggregate of the then-outstanding shares of our Class A and Class B common stock, (ii) the date when (x) Advance and certain of its affiliates cease to, in the aggregate, beneficially own at least 50% of the number of outstanding securities held by Advance as of the completion of this offering and (y) the then-outstanding shares of Class B common stock, in the aggregate, represent less than 7.5% of the aggregate of the then-outstanding shares of our Class A and Class B common stock, or (iii) the date that either we or Advance experience a change of control.
Accordingly, for so long as the Governance Agreement remains effective in accordance with its terms, Advance will have significant influence with respect to our management, business plans, and policies. In particular, Advance may be able to cause or prevent a change in the composition of our board of directors, the appointment, the scope of duties of, or termination of our Chief Executive Officer, or a change of control of our company. Additionally, the consent of Advance and Steve Huffman, for so long as he remains Chief Executive Officer, will be required to elect the chairperson of our board of directors. These restrictions could deprive you of an opportunity to receive a premium for your shares of Class A common stock as part of a sale of our company and ultimately might affect the market price of our Class A common stock. See “Certain Relationships and Related-Party Transactions— Governance Agreement” for more information.
Immediately after this offering, based on the number of shares outstanding on December 31, 2023, and after giving effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement, our principal stockholder, Advance and certain of its affiliates, will beneficially own shares of Class B common stock, which will represent approximately % of the voting power of our outstanding Class A and Class B common stock, assuming no exercise by the underwriters of their option to purchase additional shares from us. In connection with this offering, Mr. Huffman and Advance are expected to enter into a voting agreement that will provide, among other things, that Mr. Huffman will be entitled to vote all of the securities beneficially owned by Advance and certain of its affiliates in favor of directors designated by Advance, director candidates nominated or identified by Mr. Huffman, and, in Mr. Huffman’s sole discretion, on all matters submitted to a vote of our stockholders, subject to certain exceptions. See “Description of Capital Stock—Voting Agreement” for more information.
A substantial portion of the outstanding shares of our common stock after this offering will be restricted from immediate resale, but may be sold on a stock exchange in the near future. The large number of shares of our common stock eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our Class A common stock.
The market price of our Class A common stock could decline as a result of sales of a large number of shares of our Class A common stock in the market after this offering, and the perception that these sales could occur may also depress the market price of our Class A common stock. Upon the completion of this offering, based on the shares outstanding as of December 31, 2023, after giving effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement, we will have shares of Class A common stock outstanding (or shares of Class A common stock if the underwriters exercise their over-allotment option in full),
shares of Class B common stock outstanding, no shares of Class C common stock outstanding, and no shares of preferred stock outstanding.
All of the Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended (the “Securities Act”) except for any shares held by our affiliates as defined in Rule 144 under the Securities Act (“Rule 144”).
After the completion of this offering, stockholders owning an aggregate of 107,123,949 shares of our common stock will be entitled, under our amended and restated investors’ rights agreement, to certain rights with respect to the registration of the Class A common stock issuable upon conversion of such shares under the Securities Act. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause the market price of our Class A common stock to decline or be volatile.
Further, immediately after this offering, based on the number of shares outstanding on December 31, 2023, and after giving effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement, we will have options outstanding that, if fully exercised, would result in the issuance of shares of Class A common stock and shares of Class B common stock, as well as shares of Class A common stock and shares of Class B common stock issuable upon vesting of outstanding RSUs and PRSUs. We intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of our common stock subject to outstanding stock options, RSUs, and PRSUs as of the date of this prospectus and shares that will be issuable pursuant to future awards granted under our equity incentive plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to applicable vesting requirements, compliance by affiliates with Rule 144, and other restrictions provided under the terms of the applicable plan and/or the award agreements entered into with participants. In addition, we intend to file one or more registration statements on Form S-8 covering shares of our common stock issued pursuant to our equity incentive plans permitting the resale of such shares in the public market without restriction under the Securities Act.
In connection with this offering, we and all of our directors and executive officers, the selling stockholders, and certain other record holders that together represent approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to lock-up agreements with the underwriters agreeing that, subject to certain exceptions, without the prior written consent of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC, on behalf of the underwriters, we and they will not, in accordance with the terms of such agreements during the period ending on the opening of trading on the third trading day immediately following our public release of earnings for the quarter ending , 2024 (such period, the “Lock-up Period”):
(1)offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, lend, make any short sale, or otherwise transfer or dispose of, directly or indirectly, any shares of our Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock;
(2)enter into any swap, hedging transaction, or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our Class A common stock, whether any such transaction described above is to be settled by delivery of our Class A common stock or such other securities, in cash or otherwise;
(3)publicly disclose the intention to take any of the actions restricted by clause (1) or (2) above; or
(4)make any demand for, or exercise any right with respect to, the registration of any shares of our Class A common stock or any security convertible into or exercisable or exchangeable for our Class A common stock.
Furthermore, (i) an additional approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to the market standoff provisions in our amended and restated investors’ rights agreement, pursuant to which such holders agreed to not lend, offer, 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 our Class A common stock or any securities convertible into or exercisable or exchangeable for our Class A common stock held immediately prior to the effectiveness of this registration statement, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such Class A common stock during the Lock-up Period and (ii) an additional approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to restrictions contained in market standoff agreements with us that include restrictions on the sale, transfer, or other disposition of shares during the Lock-up Period.
As a result of the foregoing, substantially all of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to a lock-up agreement or market standoff provisions during the Lock-up Period. We have agreed to enforce all such market standoff restrictions on behalf of the underwriters and not to amend or waive any such market standoff provisions during the Lock-up Period without the prior consent of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC, on behalf of the underwriters, provided that we may release shares from such restrictions to the extent such shares would be entitled to release under the form of lock-up agreement with the underwriters signed by our directors and executive officers, the selling stockholders, and certain other record holders of our securities as described herein.
In addition, pursuant to certain exceptions to the lock-up agreements and market standoff agreements, certain shares of our Class A common stock will be eligible for sale in the open market during the Lock-up Period in sell-to-cover transactions in order to satisfy tax withholding obligations in connection with the settlement of RSUs and PRSUs for shares of our Class A and Class B common stock (in the case of RSUs and PRSUs covering shares of our Class B common stock, a portion will be converted to shares of our Class A common stock that will be eligible for sale in the open market in connection with such tax withholding obligations) as follows:
| | | | | | | | | | | | | | | | | | | | |
Date First Available for Sale Into the Market | | Number of RSUs or PRSUs for Shares of Our Class A Common Stock Eligible to Vest | | Number of RSUs or PRSUsfor Shares of Our Class B Common Stock Eligible to Vest | | Approximate Number of Shares of Our Class A Common Stock to be Sold in Sell-to-Cover Transactions(1) |
, 2024 (representing a quarterly vesting of service-based RSUs) | | | | | | |
Any time subject to the achievement of certain performance-related conditions | | | | | | |
________________
(1)Assumes a 53% tax withholding rate and, where applicable, the conversion of a portion of shares of Class B common stock to shares of Class A common stock to be sold to cover such tax withholding obligations.
The dates and numbers in the above table are estimates. We expect the settlement of the quarterly vesting event to extend over a multi-day period based on trading volumes. In addition, the exact number of shares of our Class A common stock eligible for sale in the open market in connection with such tax withholding obligations may differ based on our stockholders’ personal tax rates.
Furthermore, our Chief Operating Officer, Jennifer Wong, holds 20,000 PRSUs for shares of our Class A common stock that are issuable upon achievement of vesting conditions that will be deemed satisfied based on our attaining a $25.0 billion market capitalization valuation on the tenth trading day following this offering. To the extent these PRSUs vest, then under the lock-up agreement with the underwriters, Ms. Wong will be permitted to sell shares of Class A common stock in the open market in sell-to-cover transactions to cover tax withholding obligations related to the vesting of her PRSUs. For more information about the vesting criteria of this award, see “Executive and Director Compensation—Outstanding Equity Awards at Year-End.”
Upon the expiration of the Lock-up Period, substantially all of the securities subject to such lock-up and market standoff restrictions will become eligible for sale, subject to compliance with applicable securities laws. Furthermore, Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC, on behalf of the underwriters, may waive the lock-up agreements and market standoff agreements in whole or in part at any time.
The forms and specific restrictive provisions within these market standoff provisions vary between security holders. For example, some of these market standoff agreements do not specifically restrict hedging transactions and others may be subject to different interpretations between us and security holders as to whether they restrict hedging. Sales, short sales, or hedging transactions involving our equity securities, whether before or after this offering and whether or not we believe them to be prohibited, could adversely affect the market price of our Class A common stock.
Record holders of our securities are typically the parties to the lock-up agreements and to the market standoff agreements referred to above, while holders of beneficial interests in our shares who are not also record holders in respect of such shares are not typically subject to any such agreements or other similar restrictions. Accordingly, we believe that holders of beneficial interests who are not record holders and are not bound by market standoff or lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact the market price of our Class A common stock.
Sales of our shares of Class A common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock.
The multi-class structure of our common stock may adversely affect the trading market for our Class A common stock.
Certain stock index providers have excluded companies with multiple classes of shares of common stock from being added to certain stock indices. Accordingly, the multi-class structure of our common stock would make us ineligible for inclusion in indices with such restrictions and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices may not invest in our Class A common stock.
In addition, several stockholder advisory firms and large institutional investors have been critical of the use of multi-class structures. Such stockholder advisory firms may publish negative commentary about our corporate governance practices or our capital structure, which may dissuade large institutional investors from purchasing shares of our Class A common stock.
These actions could make our Class A common stock less attractive to other investors and may result in a less active trading market for our Class A common stock.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act. We will remain an “emerging growth company” until the earliest to occur of:
•the last day of the fiscal year during which our total annual revenue equals or exceeds $1.235 billion (subject to adjustment for inflation);
•the last day of the fiscal year following the fifth anniversary of this offering;
•the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt; or
•the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.
As a result of our “emerging growth company status,” we may take advantage of exemptions from various reporting requirements that would otherwise be applicable to public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Investors may find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our Class A common stock and the market price of our Class A common stock may be adversely affected and more volatile.
If industry or financial analysts do not publish research or reports about our business, or if they issue inaccurate or unfavorable research regarding our Class A common stock, the trading volume and market price of our Class A common stock could decline.
The trading market for our Class A common stock will be influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts or the content and opinions included in their reports. As a new public company, we may be slow to attract research coverage and the analysts who publish information about our Class A common stock will have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry or financial analyst coverage, if any of the analysts who cover us issues an inaccurate or unfavorable opinion regarding the market price of our Class A common stock, the market price of our Class A common stock may decline. In addition, the market prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or exceed, the financial guidance publicly announced by such companies or the expectations of analysts. If our financial results fail to meet, or exceed, our announced guidance or the expectations of analysts or public investors, analysts could downgrade our Class A common stock or publish unfavorable research about us. If one or more of these analysts cease coverage of our Class A common stock or fail to publish reports on us regularly, our visibility in the financial markets could decrease, which in turn could cause the trading volume or market price of our Class A common stock to decline.
We will have broad discretion in the use of the net proceeds to us from this offering and may not use them effectively.
We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. If we do not use the net proceeds that we receive in this offering effectively, our business, results of operations, financial condition, and prospects could be harmed, and the market price of our Class A common stock could decline. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government that may not generate a high yield for our stockholders. These investments may not yield a favorable return to our investors.
We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in the market price of our Class A common stock.
We have never declared or paid any cash dividends on shares of our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Additionally, our ability to pay dividends is limited by restrictions on our ability to pay dividends or make distributions under the terms of our revolving credit facility. Accordingly, investors must for the foreseeable future rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
If you purchase shares of our Class A common stock in this offering, you will incur immediate and substantial dilution.
The initial public offering price will be substantially higher than the pro forma net tangible book value per share of our common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchased our Class A common stock in this offering, at the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, you would experience an immediate dilution of $ per share, the difference between the price per share you pay for our Class A common stock and our pro forma net tangible book value per share as of $ , after giving effect to the issuance by us of shares of our Class A common stock in this offering, the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement. In addition, you may also experience additional dilution if options, RSUs, or other rights to purchase our common stock that are outstanding or that we may issue in the future are exercised, vest, or are converted or we issue additional shares of our common stock at prices lower than our net tangible book value at such time.
Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to the completion of this offering, contain, and the General Corporation Law of the State of Delaware (the “Delaware General Corporation Law”) contains, provisions which could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. These provisions will provide for the following:
•a multi-class structure which provides our holders of Class B common stock with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A, Class B, and Class C common stock;
•no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
•the exclusive right of our board of directors to establish the size of the board of directors and to appoint a director to fill a vacancy, however occurring, including by expanding the board of directors, subject to the rights granted to Advance pursuant to the Governance Agreement;
•the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including voting or other rights or preferences, without stockholder approval, subject to the rights granted to Advance pursuant to the Governance Agreement, which could be used to significantly dilute the ownership of a hostile acquiror;
•the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval, subject to the rights granted to Advance pursuant to the Governance Agreement;
•a majority or class voting requirement to amend certain provisions in our amended and restated certificate of incorporation and a supermajority or class voting requirement to amend our amended and restated bylaws;
•the requirement that a special meeting of stockholders may be called only by the chairperson of our board of directors (if any), our Chief Executive Officer, our board of directors pursuant to a resolution adopted by a majority of our board of directors, or, if at such time the holders of shares of our Class B common stock beneficially own, in the aggregate, at least 30% of the voting power of all of the then-outstanding shares of our capital stock, our Secretary, following his or her receipt of one or more written demands to call a special meeting from stockholders of record as of the applicable record date who hold, in the aggregate, at least 30% of the voting power of all of the then-outstanding shares of our capital stock;
•at any time when the holders of our Class B common stock hold less than 30% of the voting power of all of the then-outstanding shares of our capital stock, the requirement that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
•advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us; and
•the limitation of liability of, and provision of indemnification to, our directors and officers.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
In addition, we have opted out of Section 203 of the Delaware General Corporation Law, but our amended and restated certificate of incorporation will provide that the restrictions contained in Section 203 will apply to us immediately following the time at which all of the following conditions exist (if ever): (i) Section 203 by its terms would, but for the provisions of our amended and restated certificate of incorporation, apply to us; (ii) Advance and its affiliates and associates beneficially own less than 15% of the voting power of the then-outstanding shares of our common stock, and (iii) the Governance Agreement has terminated in accordance with its terms. Moreover, our amended and restated certificate of incorporation will provide that, unless and until these conditions all exist, we will be governed by provisions substantially similar to Section 203. These provisions and Section 203 each prevent some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations with us without the approval of the holders of substantially all of our outstanding common stock; provided, however, that unless and until we are governed by Section 203, Advance and its affiliates and associates will not be prohibited from engaging in such business combinations with us.
Any provision of our amended and restated certificate of incorporation, amended and restated bylaws, or the Delaware General Corporation 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 common stock, and could also affect the price that some investors are willing to pay for our common stock.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to the completion of this offering, provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by the Delaware General Corporation Law.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws to be effective immediately prior to the completion of this offering, and our indemnification agreements that we have entered or intend to enter into with our directors and officers, provide that:
•we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. The Delaware General Corporation Law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;
•we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;
•we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers will undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;
•the rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees, and agents and to obtain insurance to indemnify such persons; and
•we may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees, and agents.
While we have obtained directors’ and officers’ liability insurance policies, such insurance policies may not be available to us in the future at a reasonable rate, may not cover all potential claims for indemnification, and may not be adequate to indemnify us for all liability that may be imposed. Additionally, given the significant increase in the costs of directors’ and officers’ insurance policies recently, we may subsequently decide to select lower overall policy limits or forgo insurance altogether that we would otherwise rely upon to cover applicable defense costs, settlements and damages awards.
Our certificate of incorporation and bylaws currently provide, and our amended and restated certificate of incorporation and amended and restated bylaws will provide, for an exclusive forum in the Court of Chancery of the State of Delaware for certain disputes between us and our stockholders, and that the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act.
Our certificate of incorporation and bylaws currently provide, and our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to the completion of this offering, will provide, that: (i) unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for: (A) any derivative action or proceeding brought on our behalf, (B) any action asserting a claim for, or based on, a breach of a fiduciary duty owed by any of our current or former directors, officers, other employees, agents, or stockholders to us or our stockholders including, without limitation, a claim alleging the aiding and abetting of such a breach of fiduciary duty, (C) any action asserting a claim against us or any of our current or former directors, officers, employees, agents, or stockholders arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or bylaws, our amended and restated certificate of incorporation or amended and restated bylaws, or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of Delaware, or (D) any action asserting a claim related to or involving us that is governed by the internal affairs doctrine; (ii) unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, and the rules and regulations promulgated thereunder, although there is uncertainty as to whether a court would enforce this provision; (iii) any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock will be deemed to have notice of and consented to these provisions; and (iv) failure to enforce the foregoing provisions would cause us irreparable harm, and we will be entitled to equitable relief, including injunctive relief and specific performance, to enforce the foregoing provisions. Nothing in our current certificate of incorporation or bylaws or our amended and restated certificate of incorporation or amended and restated bylaws precludes stockholders that assert claims solely under the Exchange Act, from bringing such claims in federal court to the extent that the Exchange Act confers exclusive federal jurisdiction over such claims, subject to applicable law.
The choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our current or former directors, officers, other employees, agents, or stockholders, which may discourage such claims against us or any of our current or former directors, officers, other employees, agents, or stockholders and result in increased costs for investors to bring such a claim. We believe these provisions may benefit us by providing increased consistency in the application of the Delaware General Corporation Law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums, and protection against the burdens of multi-forum litigation. If a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation or our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in
other jurisdictions, which could adversely affect our business, results of operations, financial condition, and prospects.
Any future issuance of Class C common stock may have the effect of further concentrating voting control in our Class B common stock and may discourage potential acquisitions of our business and could have an adverse effect on the market price of our Class A common stock.
Under our amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, we will be authorized to issue up to shares of Class C common stock. Any future issuance of Class C common stock may have the effect of further concentrating voting control in our Class B common stock and may discourage potential acquisitions of our business and could have an adverse effect on the market price of our Class A common stock. Although we have no current plans to issue any shares of Class C common stock, we may in the future issue shares of Class C common stock for a variety of corporate purposes, including financings, acquisitions, investments, and equity incentives to our employees, consultants, and directors. Our authorized but unissued shares of Class C common stock are available for issuance with the approval of our board of directors without stockholder approval, except as may be required by the listing rules of the NYSE. Because the Class C common stock carries no voting rights (except as otherwise required by law), 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 our 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 the Class C common stock carries no voting rights (except as otherwise required by law), if we issue shares of Class C common stock in the future, the holders of our Class B common stock may be able to hold significant voting control over most matters submitted to a vote of our stockholders for a longer period of time than would be the case if we issued our Class A common stock rather than Class C common stock in such transactions. In addition, subject to the terms of the Governance Agreement, following the date on which no shares of our Class B common stock remain outstanding, upon the date and time or occurrence of an event specified by the vote of holders of a majority of the then-outstanding shares of our Class A common stock, each share of Class C common stock shall automatically convert into one share of our Class A common stock. 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 and Class B common stock. Any such issuance of Class C common stock could also cause the market price of our Class A common stock to decline.
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 strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management, and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “goal,” “objective,” “seeks,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:
•our strategies to increase awareness of Reddit, including through search engine optimization, partnerships, and investment in full-funnel marketing;
•our strategies to increase user growth and engagement;
•our expectations regarding the growth and availability of valuable and appealing user-generated content on our platform;
•our ability to develop new products and services and bring them to market in a timely manner and make enhancements to our platform;
•our ability to implement artificial intelligence and machine learning to increase user growth and engagement and support advertising growth;
•our experimentation with new approaches of storing Redditor awards and karma in a distributed ledger, such as a public blockchain, and storing Reddit Avatars as non-fungible tokens on the blockchain;
•user and advertiser growth strategies in geographies outside of the United States and in languages besides English;
•strategies to increase revenue from new and existing advertisers;
•strategies to expand revenue sources from non-advertising sources, including data licensing and our user economy;
•strategies to empower Redditors, including monetization tools for creators and communities;
•our content moderation model relative to complex content ranking algorithms;
•our ability to attract and retain Redditors and their level of engagement;
•the impact of the macroeconomic environment, including as a result of the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine and the recent escalation of conflict between Israel and the Palestinians, on our business and other uncertainties in the global economy generally;
•our ability to maintain and enhance our brand and reputation;
•our history of losses and expectation to incur continuing losses for the foreseeable future;
•our ability to maintain the security and availability of our platform and protect against data breaches and other security incidents;
•our ability to manage risks associated with our business, in particular, risks related to content on our platform, and our content moderation approach, which depends on users who volunteer to be moderators of their communities;
•potential harm caused by changes in internet search engines’ methodologies, particularly search engine optimization methodologies and policies;
•the size of our addressable markets, market share, and market trends, including our ability to grow our business in the countries we have identified as near-term priorities;
•our ability to attract and retain advertisers and scale our revenue model;
•our ability to develop effective products and tools for advertisers, including measurement tools;
•our ability to compete effectively in our industry;
•our ability to expand and monetize our platform internationally;
•fluctuations in our operating results and seasonality of our business;
•our ability to raise additional capital;
•our ability to receive, collect, transfer, store, use, share, and otherwise process data, including personal information, and compliance with laws, rules, and regulations related to data privacy, protection, and security and content;
•our ability to comply with modified or new laws and regulations applying to our business, and potential harm to our business as a result of those laws and regulations;
•changes in technology or methodology that impact our calculation of DAUq, including our ability to identify automated agents on our platform;
•volatility in DAUq relating to our API policies;
•real or perceived inaccuracies in current or historical metrics related to our business;
•the increased expenses associated with being a public company;
•our ability to effectively manage our growth and expand our infrastructure and maintain our corporate culture;
•our ability to identify, recruit, hire, and retain skilled personnel, including key members of senior management;
•our intention to continue to make investments in talent and our platform infrastructure;
•our plan to drive our growth generally by (i) evolving our service model to more types of advertisers and building deeper advertiser relationships, (ii) providing product opportunities and offerings that deliver value to our advertisers, (iii) developing measurements solutions to increase the effectiveness of our advertisers’ return on investment, and (iv) making technology enhancements that automate and improve the ease of use of our platform;
•build out of a self-serve offering as well as other automation tools;
•significant opportunity to increase the number of advertisers on Reddit over time through our self-serve offering as well as with increased sales and marketing resources;
•large and attractive opportunity in the digital advertising market, as well as an attractive offering for both advertisers and users who benefit from the contextual advertising content that our platform provides, and our intention to continue to invest in this area;
•expectation of increased losses and decline in operating margins as we invest in product improvements and innovations and our international growth;
•challenges in increasing ARPU on an absolute basis outside of the United States;
•potential need to absorb the costs related to investments in product improvements and innovations without generating sufficient revenue to offset these costs;
•our opportunity to continue to grow our DAUq in the United States and around the world and our focus on growing our platform globally, including through entering new geographic markets and investing in under-penetrated ones;
•our aim to increase DAUq by scaling internationally, developing products that are more compelling for our users, and improving the quality of our products across all platforms;
•our expectation of an increase in our costs and expenses from the launch of new ad formats, products, and features, primarily as additional hosting costs although most of these areas of focus will not initially generate revenue;
•potential decline in users due to a reduction in third-party applications;
•potential near-term volatility in Redditor and revenue growth rates;
•sufficiency of our existing cash, cash equivalents, and marketable securities and amounts available under our revolving credit facility to meet our working capital and capital expenditure needs over at least the next 12 months;
•sales of shares of our Class A common stock by us or our stockholders, including pursuant to exceptions in market standoff or contractual lock-up agreements, or the expiration of the Lock-up Period, and the anticipation of such events;
•our intended use of the net proceeds from this offering; and
•other risks and uncertainties described in this prospectus, including those described in “Risk Factors.”
We caution you that the foregoing list does not contain all of the forward-looking statements made in this prospectus.
We have based the forward-looking statements contained in this prospectus primarily on our current expectations, estimates, forecasts, and projections about future events and trends that we believe may affect our business, results of operations, financial condition, and prospects. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in “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.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.
MARKET AND INDUSTRY DATA
This prospectus contains estimates, projections, and other information concerning our industry and our business, as well as data regarding market research, estimates, and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry and general publications, government data, and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. Forecasts and other forward-looking information with respect to industry, business, market, and other data are subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus. See “Special Note Regarding Forward-Looking Statements” for more information.
Among others, we refer to estimates compiled by the following industry sources:
•International Data Corporation;
•Comscore Media Metrix Multi-Platform (“Comscore”), Cross Visiting, Custom-defined list including Reddit, Facebook.com, Instagram.com, Tiktok.com, X, Snap Inc., LinkedIn, Pinterest, and Twitch.tv, October to December 2023, % Vertical, U.S.;
•Comscore, Demographic Profile, Reddit, Average Across October to December 2023, % Composition Unique Visitors, U.S.;
•S&P Global Market Intelligence; and
•NC Ventures, LLC d/b/a NCS (“NCSolutions”).
Certain statistical information in this prospectus is based on the following survey and research reports commissioned by us:
•Attest Technologies, Inc. (“Attest”), Conversations on Social Media (U.S.), September 2023;
•Attest, Vertical Path to Purchase (U.S.), June to August 2023;
•Attest, Social Media Usage (U.S.), August 2023; and
•Attest, Online Recommendations (U.S., UK, Australia, Canada, and Germany), March 2023.
Testimonials contained in this prospectus are from actual users, moderators, and advertisers. Users, moderators, and advertisers featured in the prospectus agreed to the use of the examples shared.
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of $ (or approximately $ if the underwriters’ over-allotment option is exercised in full) based on an assumed initial public offering price of $ per share of Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of Class A common stock by the selling stockholders.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share of Class A common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $ , assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares of Class A common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $ , assuming the initial public offering price of $ per share of Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock, and facilitate an orderly distribution of shares for the selling stockholders. We intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures. We may also use a portion of the net proceeds to in-license, acquire, or invest in complementary technologies, assets, or intellectual property. We periodically evaluate strategic opportunities; however, we have no current commitments for any material acquisitions or investments at this time.
We intend to use some of the net proceeds to satisfy tax withholding and remittance obligations related to the RSU Net Settlement. Based on the assumed initial public offering price of $ per share of Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, an estimated shares underlying RSUs vesting in connection with our initial public offering, and an assumed % tax withholding rate for certain of our employees from whom we will withhold taxes, we would use approximately $ to satisfy our tax withholding and remittance obligations related to the vesting of such RSUs that are expected to vest upon the completion of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $ per share of Class A common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, assuming no change to the applicable tax rate, would increase (decrease) the amount we would be required to pay to satisfy these tax withholding and remittance obligations by approximately $ .
In addition to the RSUs described above, 662,447 PRSUs held by our Chief Executive Officer, Steven Huffman, are eligible to vest upon the company attaining a $5.0 billion market capitalization valuation, which could occur as early as the tenth consecutive trading day following this offering. To the extent these PRSUs vest, we will withhold a portion of the vested shares on the applicable vesting date and use some of the net proceeds from this offering to satisfy tax withholding and remittance obligations related to the vesting and settlement of the PRSUs.
Assuming that the closing trading price of Class A common stock on the tenth day of the relevant ten-trading-day period is $ , and assuming a maximum tax withholding rate of 53%, then we would use approximately $ to satisfy our tax withholding and remittance obligations related to the vesting of such PRSUs. A $1.00 increase (decrease) in the assumed closing trading price of $ per share of Class A common stock would increase (decrease) the amount we would be required to pay to satisfy these tax withholding and remittance obligations by approximately $ .
See “Executive and Director Compensation Outstanding—Equity Awards at Year-End” and “Capitalization—Vesting of Outstanding CEO Equity Award at Certain Trading Prices” for more information.
In addition, it is possible that in the future, we will decide to “net settle” additional RSUs or PRSUs upon the applicable vesting date, meaning that we will withhold a portion of the vested shares on the applicable vesting date and use some of the net proceeds from this offering, together with existing cash and cash equivalents, to satisfy tax withholding and remittance obligations related to the vesting and settlement of such awards.
We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. Additionally, we will have broad discretion over how to use the net proceeds from this offering. We intend to invest the net proceeds to us from the offering that are not used as described above in short-term and long-term high credit quality instruments and money market funds.
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. The terms of our revolving credit facility also restrict our ability to pay dividends, and we may enter into additional credit agreements or other borrowing arrangements in the future that may restrict our ability to declare or pay cash dividends on our capital stock. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to applicable law, and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, general business conditions, and other factors our board of directors may deem relevant.
CAPITALIZATION
The following table sets forth our cash, cash equivalents, and marketable securities and our capitalization as of December 31, 2023 on:
•an actual basis;
•a pro forma basis, giving effect to (i) the Preferred Stock Conversion; (ii) the Class B Conversion; (iii) the Option Exercise; (iv) the RSU Net Settlement; (v) the increase in accrued expenses and other current liabilities and an equivalent decrease in additional paid-in capital of $ in connection with the estimated tax withholding and remittance obligations related to the RSU Net Settlement; (vi) stock-based compensation expense of approximately $493.7 million associated with RSUs subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering, as further described in Note 14—Stock-Based Compensation of the notes to our consolidated financial statements; and (vii) the filing and effectiveness of our amended and restated certificate of incorporation, which will be in effect immediately prior to the completion of this offering. The pro forma adjustment related to stock-based compensation expense of approximately $493.7 million has been reflected as an increase to additional paid-in capital and accumulated deficit; and
•a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above, (ii) our receipt of estimated net proceeds from the sale of shares of Class A common stock that we are offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (iii) the receipt by us of gross proceeds of approximately $ in connection with the Option Exercise, and (iv) the use of a portion of the net proceeds from this offering, together with existing cash and cash equivalents, if necessary, to satisfy the estimated tax withholding and remittance obligations related to the RSU Net Settlement.
The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Actual | | Pro forma | | Pro forma
as adjusted |
| | | (unaudited) |
| (in thousands, except share and per share amounts) |
| Cash, cash equivalents, and marketable securities | $ | 1,213,122 | | | $ | | $ |
Convertible preferred stock; par value $0.0001 per share; 86,864,781 shares authorized; 73,021,449 shares issued and outstanding, actual; no shares authorized, issued, or outstanding, pro forma, and pro forma as adjusted | 1,853,492 | | | | | |
| Stockholders’ equity (deficit): | | | | | |
| Preferred stock, par value $0.0001 per share; no shares authorized, issued or outstanding, actual; shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted | — | | | | | |
Class A common stock, par value $0.0001 per share; 189,000,000 shares authorized, 7,099,700 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted | — | | | | | |
Class B common stock, par value $0.0001 per share; 142,000,000 shares authorized, 53,904,204 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted | 6 | | | | | |
| Class C common stock, par value $0.0001 per share; no shares authorized, issued, or outstanding, actual; shares authorized, no shares issued and outstanding, pro forma, and pro forma as adjusted | — | | | | | |
| Additional paid-in capital | 302,820 | | | | | |
| Accumulated other comprehensive income (loss) | 814 | | | | | |
| Accumulated deficit | (716,562) | | | | | |
| Total stockholders’ equity (deficit) | (412,922) | | | | | |
| Total capitalization | $ | 1,440,570 | | | $ | | $ |
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share of our Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) each of our pro forma as adjusted cash, cash equivalents, and marketable securities by approximately $ , and each of our pro forma as adjusted total stockholders’ equity and total capitalization by approximately $ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares of Class A common stock offered by us would increase (decrease) each of our pro forma as adjusted cash, cash equivalents, and marketable securities, total stockholders’ equity, and total capitalization by approximately $ , assuming the assumed initial public offering price of $ per share of our Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters’ over-allotment option was exercised in full, pro forma as adjusted cash, cash equivalents, and marketable securities, additional paid-in capital, total stockholders’ equity, total capitalization, and shares of Class A common stock outstanding as of December 31, 2023 would be $ , $ , $ , $ , and shares, respectively.
The number of shares of our common stock to be outstanding after this offering is based on shares of our Class A common stock, shares of our Class B common stock, and no shares of our Class C common stock outstanding, in each case, as of December 31, 2023, after giving effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement, and does not include:
• shares of our Class A common stock issuable upon the exercise of outstanding stock options as of December 31, 2023, having a weighted-average exercise price of $ per share (after giving effect to the Option Exercise);
• shares of our Class B common stock issuable upon the exercise of outstanding stock options as of December 31, 2023, having a weighted-average exercise price of $ per share (after giving effect to the Option Exercise);
•15,198,345 RSUs for shares of our Class A common stock subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was not yet satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering (we expect that satisfaction of the service-based and/or performance-based vesting conditions of certain of these RSUs through , 2024 will result in the net issuance of shares of Class A common stock, after withholding an aggregate of shares of Class A common stock to satisfy associated estimated tax withholding and remittance obligations in connection with the RSU Net Settlement);
•747,628 RSUs for shares of our Class B common stock subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was not yet satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering (we expect that satisfaction of the service-based and/or performance-based vesting conditions of certain of these RSUs through , 2024 after withholding an aggregate of shares of Class B common stock to satisfy associated estimated tax withholding and remittance obligations in connection with the RSU Net Settlement);
•1,636,151 RSUs for shares of our Class A common stock subject to service-based vesting conditions granted subsequent to December 31, 2023;
•20,000 PRSUs outstanding as of December 31, 2023, covering shares of our Class A common stock that will vest if our market capitalization exceeds $25.0 billion as of the tenth trading day following completion of this offering; provided, however, that if such market capitalization valuation is not met, such shares will be forfeited in full (see “Executive and Director Compensation—Narrative to the Summary Compensation Table” for more information);
•662,447 PRSUs outstanding as of December 31, 2023, covering shares of our Class B common stock that are issuable upon satisfaction of performance-based or market-based vesting conditions for which the performance-based or market-based vesting condition was not yet satisfied as of December 31, 2023, which will vest if our market capitalization exceeds $5.0 billion (see “Executive and Director Compensation—Outstanding Equity Awards at Year-End” and “—Vesting of Outstanding CEO Equity Award at Certain Trading Prices” below for more information);
• shares of our Class A common stock reserved for future issuance under the 2024 Plan, which will become effective on the date immediately prior to the date our registration statement relating to this offering becomes effective, including new shares and the number of shares (i) that remain available for grant of future awards under the 2017 Plan at the time the 2024 Plan becomes effective, which shares will cease to be available for issuance under the 2017 Plan at such time and (ii) underlying outstanding Prior Plan Awards that expire, or are cancelled, forfeited, reacquired, or withheld;
• shares of our Class A common stock reserved for future issuance under the ESPP, which will become effective on the date immediately prior to the date our registration statement relating to this offering becomes effective; and
•1,337,205 shares of our Class A common stock reserved for issuance to fund and support our community impact initiatives and other charitable activities.
The 2024 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See “Executive and Director Compensation—Equity Incentive Plans” for more information.
Vesting of Outstanding CEO Equity Award at Certain Trading Prices
Our Chief Executive Officer, Steven Huffman, holds 662,447 PRSUs for shares of our Class B common stock that are issuable upon achievement of a vesting condition that will be deemed satisfied based on our attaining a $5.0 billion market capitalization valuation following this offering. Market capitalization is calculated by multiplying (x) the average closing price for our Class A common stock, rounded to the nearest one-hundredth of a cent, for any ten consecutive trading days after our Class A common stock is first listed for trading in connection with this offering by (y) the number of shares of capital stock outstanding as of the completion of this offering. Accordingly, these PRSUs could vest as early as the tenth trading day following this offering.
The below table provides a representative example of the average ten-day stock price that is necessary to meet the $5.0 billion market capitalization vesting criteria based on shares of our Class A common stock and shares of our Class B common stock to be outstanding immediately after this offering (assuming no exercise by the underwriters of their over-allotment option), and after giving effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Market Capitalization Vesting Criteria | | Number of Outstanding PRSUs | | Average Ten-day Closing Price of Class A Common Stock Necessary to Meet the Market Capitalization Vesting Criteria Assuming the Number of Shares of Class A Common Stock Offered Hereby, as Set Forth on the Cover Page of this Prospectus, Remains the Same | | Average Ten-day Closing Price of Class A Common Stock Necessary to Meet the Market Capitalization Vesting Criteria if the Underwriters Exercise their Over-allotment Option in Full and Assuming the Number of Shares of Class A Common Stock Offered Hereby, as Set Forth on the Cover Page of this Prospectus, Remains the Same | | An Increase of 1.0 Million Outstanding Shares Upon the Completion of this Offering would Decrease the Average Ten-day Closing Price of Class A Common Stock Necessary to Meet the Market Capitalization Vesting Criteria by the Following Price per Share (Assuming Full Exercise of Underwriters’ Over-allotment Option) |
| $5.0 billion | | 662,447 | | $ | | $ | | $ |
We intend to net settle Mr. Huffman’s awards, meaning that we will withhold a portion of the vested shares on the applicable vesting date and use some of the net proceeds from this offering, together with existing cash and cash equivalents, if necessary, to satisfy tax withholding and remittance obligations related to the vesting and settlement of the PRSUs. Assuming that the closing trading price of Class A common stock on the tenth day of the relevant ten-trading-day period is $ , and based on an assumed maximum tax withholding rate of 53%, then we would use approximately $ to satisfy our tax withholding and remittance obligations related to the vesting of such PRSUs. A $1.00 increase (decrease) in the assumed closing trading price of $ per share of Class A common stock would increase (decrease) the amount we would be required to pay to satisfy these tax withholding and remittance obligations by approximately $ .
See “Executive and Director Compensation—Outstanding Equity Awards at Year-End” for more information on these awards.
DILUTION
If you invest in our Class A common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock in this offering and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately after this offering.
Our pro forma net tangible book value as of December 31, 2023 was $ , or $ per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities divided by the number of our shares of Class A and Class B common stock outstanding as of December 31, 2023, after giving effect to (i) the Preferred Stock Conversion; (ii) the Class B Conversion; (iii) the Option Exercise; (iv) the RSU Net Settlement; (v) the increase in accrued expenses and other current liabilities and an equivalent decrease in additional paid-in capital of $ in connection with the estimated tax withholding and remittance obligations related to the RSU Net Settlement; (vi) stock-based compensation expense of approximately $493.7 million associated with RSUs subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering, as further described in Note 14—Stock-Based Compensation of the notes to our consolidated financial statements; and (vii) the filing and effectiveness of our amended and restated certificate of incorporation, which will be in effect immediately prior to the completion of this offering.
After giving effect to (i) the pro forma adjustments set forth above, (ii) the sale by us of shares of our Class A common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (iii) the receipt by us of net proceeds of approximately $ in connection with the Option Exercise, and (iv) the use of a portion of the net proceeds from this offering, together with existing cash and cash equivalents, if necessary, to satisfy the estimated tax withholding and remittance obligations related to the RSU Net Settlement, our pro forma as adjusted net tangible book value as of December 31, 2023 would have been $ , or $ per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $ per share to new investors purchasing our Class A common stock in this offering. The following table illustrates this dilution on a per share basis:
| | | | | | | | | | | |
| Assumed initial public offering price per share | | | $ |
Pro forma net tangible book value per share as of December 31, 2023 | $ | | |
| Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing shares of our Class A common stock in this offering | | | |
| Pro forma as adjusted net tangible book value per share immediately after this offering | | | |
| Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering | | | $ |
The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $ per share of Class A common stock, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $ per share and increase (decrease) the dilution to new investors by $ per share, in each case assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares in the number of shares of Class A common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value by approximately $ per share and decrease (increase) the dilution to new investors by approximately $ per share, in each case assuming the assumed initial public offering price of $ per share,
which is the midpoint of the estimated price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value per share, as adjusted to give effect to this offering, would be $ per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $ per share.
The following table summarizes, as of December 31, 2023, on a pro forma as adjusted basis as described above, the number of shares of common stock purchased from us, the total consideration and the average price per share (i) paid to us by existing stockholders, and (ii) to be paid by new investors acquiring our Class A common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares Purchased | | Total Consideration | | Average Price |
| Number | | Percent | | Amount | | Percent | | Per Share |
Existing stockholders | | | % | | $ | | % | | $ |
| New investors | | | | | | | | | $ |
Total | | | 100 | % | | $ | | 100 | % | | |
Sales by the selling stockholders in this offering will cause the number of shares held by existing stockholders before this offering to be reduced to shares, or % of the total number of shares of our common stock outstanding immediately after the completion of this offering, and will increase the number of shares held by new investors to shares, or % of the total number of shares of our common stock outstanding immediately after the completion of this offering.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors and total consideration paid by all stockholders by approximately $ , assuming that the number of shares of Class A common stock offered by us and the selling stockholders, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise in full their option to purchase additional shares, our existing stockholders would own % and our new investors would own % of the total number of shares of common stock outstanding upon the completion of this offering.
To the extent that any outstanding options are exercised, outstanding RSUs settle, new options or RSUs are issued under our stock-based compensation plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.
The number of shares of our common stock to be outstanding after this offering is based on shares of our Class A common stock, shares of our Class B common stock, and no shares of our Class C common stock outstanding, in each case, as of December 31, 2023, after giving effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement, and does not include:
• shares of our Class A common stock issuable upon the exercise of outstanding stock options as of December 31, 2023, having a weighted-average exercise price of $ per share (after giving effect to the Option Exercise);
• shares of our Class B common stock issuable upon the exercise of outstanding stock options as of December 31, 2023, having a weighted-average exercise price of $ per share (after giving effect to the Option Exercise);
•15,198,345 RSUs for shares of our Class A common stock subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was not yet satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering (we expect that satisfaction of the service-based and/or performance-based vesting conditions of certain of these RSUs through , 2024 will result in the net issuance of shares of Class A common stock, after withholding an aggregate of shares of Class A common stock to satisfy associated estimated tax withholding and remittance obligations in connection with the RSU Net Settlement);
•747,628 RSUs for shares of our Class B common stock subject to service-based, performance-based, and/or liquidity-based vesting conditions outstanding as of December 31, 2023, for which the service-based and/or performance-based vesting condition was not yet satisfied as of December 31, 2023 and for which the liquidity-based vesting condition will be satisfied in connection with this offering (we expect that satisfaction of the service-based and/or performance-based vesting conditions of certain of these RSUs through , 2024 will result in the net issuance of shares of Class B common stock, after withholding an aggregate of shares of Class B common stock to satisfy associated estimated tax withholding and remittance obligations in connection with the RSU Net Settlement);
•1,636,151 RSUs for shares of our Class A common stock subject to service-based vesting conditions granted subsequent to December 31, 2023;
•20,000 PRSUs outstanding as of December 31, 2023, covering shares of our Class A common stock that will vest if our market capitalization exceeds $25.0 billion; provided, however, that if such market capitalization valuation is not met as of the tenth trading day following completion of this offering, such shares will be forfeited in full (see “Executive and Director Compensation—Narrative to the Summary Compensation Table” for more information);
•662,447 PRSUs outstanding as of December 31, 2023, covering shares of our Class B common stock that are issuable upon satisfaction of performance-based or market-based vesting conditions for which the performance-based or market-based vesting condition was not yet satisfied as of December 31, 2023, which will vest if our market capitalization exceeds $5.0 billion (see “Executive and Director Compensation—Outstanding Equity Awards at Year-End” and “Capitalization—Vesting of Outstanding CEO Equity Award at Certain Trading Prices” for more information);
• shares of our Class A common stock reserved for future issuance under the 2024 Plan, which will become effective on the date immediately prior to the date our registration statement relating to this offering becomes effective, including new shares and the number of shares (i) that remain available for grant of future awards under the 2017 Plan at the time the 2024 Plan becomes effective, which shares will cease to be available for issuance under the 2017 Plan at such time and (ii) underlying outstanding Prior Plan Awards that expire, or are cancelled, forfeited, reacquired, or withheld;
• shares of our Class A common stock reserved for future issuance under the ESPP, which will become effective on the date immediately prior to the date our registration statement relating to this offering becomes effective; and
•1,337,205 shares of our Class A common stock reserved for issuance to fund and support our community impact initiatives and other charitable activities.
The 2024 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See “Executive and Director Compensation—Equity Incentive Plans” for more information.
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth our selected consolidated financial data. The selected consolidated statements of operations data for the years ended December 31, 2022 and 2023 and the selected consolidated balance sheet data as of December 31, 2022 and 2023 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.
You should read the following selected consolidated financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace, and are qualified in their entirety by, the consolidated financial statements and related notes.
| | | | | | | | | | | | | | | | | | |
| | | | Year ended December 31, |
| | | | | | 2022 | | 2023 |
| | | | | | |
| | | | | | (in thousands, except share and per share amounts) |
| Consolidated Statements of Operations Data: | | | | | | | | |
| Revenue | | | | | | $ | 666,701 | | | $ | 804,029 | |
| Costs and expenses: | | | | | | | | |
| Cost of revenue | | | | | | 104,799 | | | 111,011 | |
| Research and development | | | | | | 365,164 | | | 438,346 | |
| Sales and marketing | | | | | | 225,078 | | | 230,175 | |
| General and administrative | | | | | | 143,822 | | | 164,658 | |
| Total costs and expenses | | | | | | 838,863 | | | 944,190 | |
| Income (loss) from operations | | | | | | (172,162) | | | (140,161) | |
| Other income (expense), net | | | | | | 14,234 | | | 53,138 | |
| Income (loss) before income taxes | | | | | | (157,928) | | | (87,023) | |
| Income tax expense (benefit) | | | | | | 622 | | | 3,801 | |
| Net income (loss) | | | | | | $ | (158,550) | | | $ | (90,824) | |
Net income (loss) per share attributable to Class A and Class B common stock, basic and diluted(1) | | | | | | $ | (2.77) | | | $ | (1.54) | |
| Weighted-average shares of Class A and Class B common stock used to compute net income (loss) per share, basic and diluted | | | | | | 57,251,112 | | 59,138,086 |
| Unaudited pro forma net income (loss) per share attributable to Class A and Class B common stock, basic and diluted | | | | | | | | |
| Unaudited pro forma weighted-average shares of common stock used to compute pro forma net income (loss) per share attributable to Class A and Class B common stock, basic and diluted | | | | | | | | |
| Other Financial Information: | | | | | | | | |
Adjusted EBITDA(2) | | | | | | $ | (108,393) | | | $ | (69,275) | |
| Net cash provided by (used in) operating activities | | | | | | $ | (94,021) | | | $ | (75,114) | |
Free Cash Flow(3) | | | | | | $ | (100,254) | | | $ | (84,838) | |
________________
(1)See Note 4—Net Income (Loss) per Share of the notes to our consolidated financial statements included elsewhere in this prospectus for a description of how we compute basic and diluted net income (loss) per share attributable to Class A and Class B common stock. The rights, including the liquidation and dividend rights, of Class A and Class B common stock are substantially identical other than voting rights. Accordingly, the Class A and Class B common stock share in our net income (loss).
(2)See “—Adjusted EBITDA” below for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
(3)See “—Free Cash Flow” below for more information and for a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
| | | | | | | | | | | | | |
| | | December 31, |
| | | 2022 | | 2023 |
| | | | | |
| | | (in thousands) |
| Consolidated Balance Sheet Data: | | | | | |
| Cash, cash equivalents, and marketable securities | | | $ | 1,266,544 | | | $ | 1,213,122 | |
| Working capital | | | 1,377,470 | | | 1,346,117 | |
| Total assets | | | 1,599,711 | | | 1,596,467 | |
| Total liabilities | | | 125,283 | | | 155,897 | |
| Convertible preferred stock | | | 1,853,492 | | | 1,853,492 | |
| Total stockholders’ equity (deficit) | | | (379,064) | | | (412,922) | |
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to supplement our consolidated financial statements, which are presented in accordance with U.S. GAAP, to evaluate our core operating performance. These non-GAAP financial measures include Adjusted EBITDA and Free Cash Flow. We use these non-GAAP financial measures to facilitate reviews of our operational performance and as a basis for strategic planning. By excluding certain items that are non-recurring or not reflective of the performance of our normal course of business, we believe that Adjusted EBITDA and Free Cash Flow provide meaningful supplemental information regarding our performance. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow investors to supplement their understanding of our financial trends and evaluate our ongoing and future performance in the same manner as management. However, there are a number of limitations related to the use of non-GAAP financial measures as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP measures. These non-GAAP measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with U.S. GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) excluding interest (income) expense, net, income tax expense (benefit), depreciation and amortization, stock-based compensation expense and related taxes, other (income) expense, net, and certain other non-recurring or non-cash items impacting net income (loss) that we do not consider indicative of our ongoing business performance. Other (income) expense, net consists primarily of realized gains and losses on sales of marketable securities, foreign currency transaction gains and losses, and other income and expense that are not indicative of our core operating performance. To evaluate our core operating results, we exclude other (income) expense, net from Adjusted EBITDA. We consider the exclusion of certain non-recurring or non-cash items in calculating Adjusted EBITDA to provide a useful measure for investors and others to evaluate our operating results in the same manner as management.
The following table presents a reconciliation of our net income (loss), the most directly comparable financial measure presented in accordance with U.S. GAAP, to Adjusted EBITDA:
| | | | | | | | | | | | | | | | | | |
| | | | Year ended December 31, |
| | | | | | 2022 | | 2023 |
| | | | | | (in thousands) |
| Reconciliation of Adjusted EBITDA: | | | | | | | | |
| Net income (loss) | | | | | | $ | (158,550) | | | $ | (90,824) | |
| Add (deduct): | | | | | | | | |
| Interest (income) expense, net | | | | | | (15,681) | | | (53,281) | |
| Income tax expense (benefit) | | | | | | 622 | | | 3,801 | |
Depreciation and amortization(1) | | | | | | 8,000 | | | 13,702 | |
Stock-based compensation expense and related taxes(2) | | | | | | 55,768 | | | 49,086 | |
Restructuring costs(3) | | | | | | — | | | 8,098 | |
| Other (income) expense, net | | | | | | 1,448 | | | 143 | |
| Adjusted EBITDA | | | | | | $ | (108,393) | | | $ | (69,275) | |
________________(1)Includes depreciation and amortization as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Year ended December 31, |
| | | | | | 2022 | | 2023 |
| | | | | | |
| | | | | | (in thousands) |
| Cost of revenue | | | | | | $ | 714 | | | $ | 152 | |
| Research and development | | | | | | 4,687 | | | 8,001 | |
| Sales and marketing | | | | | | 1,768 | | | 4,340 | |
| General and administrative | | | | | | 831 | | | 1,209 | |
| Depreciation and amortization | | | | | | $ | 8,000 | | | $ | 13,702 | |
(2)Includes stock-based compensation expense and related taxes as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Year ended December 31, |
| | | | | | 2022 | | 2023 |
| | | | | | |
| | | | | | (in thousands) |
| Cost of revenue | | | | | | $ | 133 | | | $ | 101 | |
| Research and development | | | | | | 35,917 | | | 24,334 | |
| Sales and marketing | | | | | | 7,678 | | | 5,678 | |
| General and administrative | | | | | | 12,040 | | | 18,973 | |
| Stock-based compensation expense and related taxes | | | | | | $ | 55,768 | | | $ | 49,086 | |
In connection with secondary sales of our common stock, stock-based compensation expense for the year ended December 31, 2023 included $5.7 million for the amount paid in excess of the estimated fair value of the common stock as of the date of the transactions.
(3)During the year ended December 31, 2023, we incurred restructuring costs of $8.1 million, primarily composed of severance and benefits expense, in connection with reductions in our workforce. These charges are non-recurring and are not reflective of underlying trends in our business.
Free Cash Flow
Free Cash Flow represents net cash provided by (used in) operating activities less purchases of property and equipment. We believe that Free Cash Flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. Additionally, we believe that Free Cash Flow is an important measure since we use third-party infrastructure partners to host our services and therefore we do not incur significant capital expenditures to support revenue generating activities.
The following table presents a reconciliation of net cash provided by (used in) operating activities, the most directly comparable financial measure calculated in accordance with U.S. GAAP, to Free Cash Flow:
| | | | | | | | | | | | | | | | | | |
| | | | Year ended December 31, |
| | | | | | 2022 | | 2023 |
| | | | | | (in thousands) |
| Reconciliation of Free Cash Flow: | | | | | | | | |
| Net cash provided by (used in) operating activities | | | | | | $ | (94,021) | | | $ | (75,114) | |
| Less: | | | | | | | | |
| Purchases of property and equipment | | | | | | (6,233) | | | (9,724) | |
| Free Cash Flow | | | | | | $ | (100,254) | | | $ | (84,838) | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Consolidated Financial Data” section, our consolidated financial statements and related notes, and other financial information appearing elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
Data as of and for the years ended December 31, 2022 and 2023 has been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.
Overview
Our mission is to bring community, belonging, and empowerment to everyone in the world. We built Reddit with the belief that communities unlock the power of human creativity and create a sense of belonging and empowerment for their members. We believe the world needs community more than ever, and that this represents our greatest opportunity to further enrich the lives of everyone in the world.
Reddit is a global, digital city where anyone in the world can join a community to learn from one another, engage in authentic conversations, explore passions, research new hobbies, exchange goods and services, create new communities and experiences, share a few laughs, and find belonging. They come together to share the rhythm of their daily discoveries, ask questions and receive advice, research before making a purchase decision, hear reactions to recent events, and thrive as a community. Built on shared interests, passion, and trust, Reddit has a community for everyone. Over time, Reddit has evolved to become one of the internet’s largest corpuses of information, with over one billion posts and over 16 billion comments through December 31, 2023.
We operate mobile applications and a website that allow users to form communities and create and share content. We currently generate substantially all of our revenue from third-party advertising on our platform. Operating costs are driven mainly by headcount related costs as well as costs associated with the hosting of our mobile applications and website and the delivery of our advertising services. To support continued user growth and expand our advertising business, we expect to continue to make investments in talent as well as our platform infrastructure.
Our strategy is to support the growth and engagement of our communities and to execute against our growth strategy across advertising, data licensing, and our user economy. We aim to become Redditors’ first choice when they are exploring their passions, looking for entertainment, or keeping tabs on culture and news. Accomplishing this goal will require us to expand and transform our platform to keep pace with the constantly evolving needs of our Redditors and advertisers.
For a discussion of the key opportunities and challenges we face in growing our business, see “—Key Factors Affecting our Performance.”
We are headquartered in San Francisco, California, and have several offices around the world.
Key Financial and Operating Metrics
We review a number of metrics, including the key metrics discussed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Trends in User Metrics
Daily Active Unique. We define a daily active unique (“DAUq”) as a user whom we can identify with a unique identifier who has visited a page on the Reddit website, www.reddit.com, or opened a Reddit application at least once during a 24-hour period. We calculate average DAUq for a particular period by adding the number of DAUq on each day of that period and dividing that sum by the number of days in that period. We measure DAUq because we believe that this metric helps management and investors understand usage of and engagement with our platform. DAUq is the primary metric by which we measure the scale of our active user base.
DAUq includes visits from those who have logged in to a registered account as well as those who have not logged in to—or do not have—a registered account. Visitors that come to Reddit from search engines are generally not logged in and originate from both desktop and mobile web. Currently, monetization of these users is mainly through conversation pages and feed ads. Measuring the number of logged-out visitors is difficult and complex. For example, prior to the first quarter of 2023, a portion of our historical DAUq metric counted views of pages that were hosted using Google’s Accelerated Mobile Page (“AMP”) framework. The accuracy of counting the DAUq attributable to this AMP traffic relied on the accuracy and completeness of information received from Google, which had not been historically complete and consistent. As such, our historical DAUq metrics are not directly comparable quarter over quarter or year over year. To the extent that our metric includes views of pages hosted on third-party infrastructure, like Google’s AMP framework, the accuracy and comparability of our metrics will depend on the accuracy and consistency of the information received from any such third party.
DAUq is shown globally and also broken out by the United States and the rest of the world because these markets have different characteristics. Most notably, we are more advanced in engagement and monetization in the United States than in the rest of the world.
In addition, we monitor logged-in DAUq, which we define as a user whom we can identify with a unique identifier who has visited a page on the Reddit website, www.reddit.com, or opened a Reddit application at least once during a 24-hour period and was logged in to a registered account. We measure logged-in DAUq because these users tend to have higher engagement and spend more time on our platform compared to users who are not logged in to a registered account. Logged-in users often start their experience in a personalized feed with advertising and dive into post pages with conversation page ads. These ads include display, video, and direct response as well as other ads for mobile applications, mobile web, and desktop web.
Quarterly Average DAUq
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total DAUq YoY Growth: | 5% | 5% | 7% | 7% | 5% | 7% | 15% | 27% |
| Logged-in DAUq YoY Growth: | 18% | 18% | 20% | 17% | 13% | 14% | 19% | 21% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total DAUq YoY Growth: | (2)% | (1)% | 2% | 6% | 6% | 9% | 19% | 34% | Total DAUq YoY Growth: | 12% | 11% | 11% | 7% | 4% | 5% | 12% | 21% | |
| Logged-in DAUq YoY Growth: | 15% | 16% | 18% | 15% | 12% | 12% | 16% | 20% | Logged-in DAUq YoY Growth: | 21% | 19% | 21% | 19% | 14% | 16% | 22% | 21% | |
We assess both year over year and quarter over quarter growth of DAUq in each period.
In the three months ended December 31, 2023, global DAUq grew 27% compared to the prior year period, driven by 34% growth in DAUq in the United States and 21% growth in DAUq in the rest of world. Global DAUq grew 11% compared to the prior quarter period, driven by 14% growth in DAUq in the United States and 8% growth in DAUq in the rest of world. The growth in global DAUq in the three months ended December 31, 2023 compared to the prior year period and prior quarter period was driven mainly by traction in our growth strategies, primarily from product enhancements and third-party search engine and algorithm changes. Global monthly average DAUq was 76.0 million in December 2023, reflecting momentum in DAUq growth, particularly in logged-out users, as we exited the quarter, and we continued to add users in January 2024.
Year over year and quarter over quarter activity can also fluctuate due to various internal and external factors. For example, quarter over quarter growth for the three months ended March 31, 2022 was 7%, as a result of
increased user activity due in part to r/ EldenRing and other gaming-related communities, as well as the ongoing conflict between Russia and Ukraine. We saw a decline in global DAUq in the three months ended June 30, 2022, when strong quarterly DAUq growth fell in the absence of peaks in usage surrounding worldwide events and cultural trends. During the three months ended December 31, 2022 and 2023, we deployed further advances in our process used to identify and address activity by users and visitors, including web crawlers and scrapers. As we identify automated agents, we remove them from our DAUq count prospectively and do not recalculate DAUq for prior periods if we assess such impact to be immaterial. As we have continued to improve our capabilities to identify suspicious traffic, we have not seen this methodology materially impact trends in DAUq from quarter to quarter.
Weekly Active Unique. We define a weekly active unique (“WAUq”) as a user whom we can identify with a unique identifier who has visited a page on the Reddit website, www.reddit.com, or opened a Reddit application at least once during a trailing seven-day period. We calculate average quarterly WAUq for a particular period by adding the number of WAUq on each day of that period and dividing that sum by the number of days in that period. We measure WAUq because we believe that this metric helps management and investors understand the reach of our platform.
Similar to DAUq, WAUq includes visits from those who have logged in to a registered account as well as those who have not logged in to—or do not have—a registered account. Measuring the number of logged-out visitors is difficult and complex and relies on the accuracy and completeness of information received from third parties. As such, our historical WAUq metrics are not directly comparable quarter over quarter or year over year. To the extent that our historical or future metric includes views of pages hosted on third-party infrastructure, like Google’s AMP framework, the accuracy of our metrics will depend on the accuracy and consistency of the information received from any such third party. During the three months ended December 31, 2022 and 2023, we deployed further advances in our process used to identify and address activity by users and visitors, including web crawlers and scrapers. As we identify automated agents, we remove them from our WAUq count prospectively and do not recalculate WAUq for prior periods if we assess such impact to be immaterial. As we have continued to improve our capabilities to identify suspicious traffic, we have not seen this methodology materially impact trends in WAUq from quarter to quarter.
Quarterly Average WAUq
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| WAUq YoY Growth: | 1% | 1% | 3% | 3% | 2% | 5% | 15% | 29% |
| DAUq/WAUq: | 27% | 27% | 27% | 28% | 28% | 28% | 28% | 27% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
WAUq YoY Growth: | (9)% | (8)% | (5)% | 3% | 4% | 9% | 21% | 39% | WAUq YoY Growth: | 10% | 10% | 11% | 4% | 1% | 1% | 9% | 20% |
In the three months ended December 31, 2023, global WAUq grew 29% compared to the prior year period, driven by 39% growth in WAUq in the United States and 20% growth in WAUq in the rest of world. In the three months ended December 31, 2023, global WAUq increased 12% compared to the prior quarter period, driven by 16% growth in WAUq in the United States and 8% growth in WAUq in the rest of world. For the three months ended December 31, 2023, the proportion of DAUq to WAUq was 27%.
Trends in Monetization Metrics
We monetize our business primarily through advertising on our mobile applications and website. In the year ended December 31, 2023, we recorded revenue of $804.0 million, as compared to revenue of $666.7 million for the year ended December 31, 2022, representing an increase of 21% compared to the prior year period.
ARPU. We define average revenue per unique (“ARPU”) as quarterly revenue in a given geography divided by the average DAUq in that geography. For the purposes of calculating ARPU, advertising revenue in a given geography is based on the geographic location in which advertising impressions are delivered, as this approximates revenue based on user activity, while other revenue in a given geography is based on the billing address of the customer. This differs from the presentation of our revenue by geography in the notes to our consolidated financial statements included elsewhere in this prospectus, where both advertising revenue and other revenue are based on the billing address of the customer.
We present ARPU globally and also broken out on a United States and rest of world basis because we currently monetize users in the United States and the rest of the world at different rates. We measure ARPU because we believe that this metric helps our management and investors assess the extent to which we are monetizing our DAUq. Monetization of new users is generally at a lower rate than existing users and as such, ARPU tends to grow at a lower rate than revenue in periods of strong DAUq growth. Additionally, logged-out users typically have lower engagement and spend less time on our platform compared to users who are logged in to a registered account, and therefore, logged-in users generally contribute significantly more to ARPU than logged-out users due to the lower monetization opportunity of logged-out users. Our ARPU reflects the seasonality of our advertising revenue, with the fourth quarter typically being the strongest quarter of each year, especially in the United States, our most developed geography. United States ARPU is higher primarily due to the relative size and maturity of the U.S. digital advertising market, a dynamic we expect will continue for the foreseeable future.
Quarterly ARPU
(in dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| YoY Growth: | 76% | 32% | 32% | 6% | 7% | 15% | 5% | (2)% |
| QoQ Growth: | (23)% | 4% | 14% | 17% | (22)% | 11% | 4% | 9% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| YoY Growth: | 82% | 35% | 36% | 5% | 5% | 15% | —% | (7)% | | YOY Growth: | 93% | 47% | 42% | 17% | 12% | 9% | 16% | 3% |
QoQ Growth: | (22)% | 3% | 16% | 13% | (22)% | 13% | 1% | 5% | | QoQ Growth: | (20)% | 9% | 1% | 33% | (23)% | 6% | 8% | 18% |
During the three months ended December 31, 2023, ARPU was $3.42, a decrease of 2% compared to $3.49 for the prior year period, United States ARPU was $5.51, compared to $5.92 for the prior year period, and rest of world ARPU was $1.34, compared to $1.30 for the prior year period. The decline in global ARPU compared to the prior year period was driven primarily by higher DAUq growth, particularly in logged-out users, which have a lower monetization opportunity than our logged-in users. The increase in global ARPU compared to the prior quarter period was due primarily to an increase in impressions delivered.
Non-GAAP Financial Measures
We use certain non-GAAP financial measures to supplement our consolidated financial statements, which are presented in accordance with U.S. GAAP, to evaluate our core operating performance. These non-GAAP financial measures include Adjusted EBITDA and Free Cash Flow. We use these non-GAAP financial measures to facilitate reviews of our operational performance and as a basis for strategic planning. By excluding certain items that are
non-recurring or not reflective of the performance of our normal course of business, we believe that Adjusted EBITDA and Free Cash Flow provide meaningful supplemental information regarding our performance. Accordingly, we believe these non-GAAP financial measures are useful to investors and others because they allow investors to supplement their understanding of our financial trends and evaluate our ongoing and future performance in the same manner as management. However, there are a number of limitations related to the use of non-GAAP financial measures as they reflect the exercise of judgment by our management about which expenses are excluded or included in determining these non-GAAP measures. These non-GAAP measures should be considered in addition to, not as a substitute for or in isolation from, our financial results prepared in accordance with U.S. GAAP. Other companies, including companies in our industry, may calculate these non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures. For a discussion of our non-GAAP financial measures, see “Selected Consolidated Financial Data—Non-GAAP Financial Measures.”
Key Factors Affecting our Performance
User Growth and Engagement
The absolute number of DAUq is a critical component to our business because it influences our advertising inventory as well as our infrastructure expenses.
We believe we have the opportunity to continue to grow our DAUq in the United States and around the world. Growth in DAUq depends on our ability to attract new users and retain existing users. We aim to increase DAUq by scaling internationally, improving discovery and the user experience, elevating conversations and video, modernizing search, and providing customized content recommendations. We believe we can grow engagement and convert more WAUq into DAUq by making it easier for new and existing Redditors to discover relevant communities and content. We believe we can convert logged-out DAUq into logged-in DAUq by making the user experience, including search, simpler and more personalized to further increase engagement and retention. Growth in DAUq is also impacted by external factors such as worldwide events, cultural trends, the global economy, and actions by external parties such as changes in internet search engine algorithms and dynamics.
Monetization
We started selling advertisements on Reddit in 2006. We began more meaningfully investing in our own ad technology and foundation in 2018. We built our advertising business by focusing on top U.S.-based advertisers, and over time we have expanded our focus towards mid-sized and smaller advertisers as well as new geographies. We believe we have a significant opportunity to increase our revenues from existing customers, as well as attract more advertisers to Reddit by enabling more ways for customers to invest to grow their business on Reddit, and intend to continue to make technological investments in this area. While these factors help us drive value for our advertisers, the pricing of our advertising products is also affected by other factors, including the global economy and the highly competitive nature of our industry.
We believe we are in the early stages of monetizing our user base, and we plan to expand our monetization efforts in ways that build on the core values of our platform. We plan to drive growth in advertising revenue by focusing on initiatives to support advertising improvements, including increased use of artificial intelligence in our advertising solutions. We also intend to open additional monetization channels for Reddit by providing our users and creators with the requisite tools and incentives to drive continued creation, improvements, and commerce.
We are also in the early stages of monetizing our emerging opportunity in data licensing by allowing third parties to access, search, and analyze data on our platform. In January 2024, we entered into certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years. We expect a minimum of $66.4 million of revenue to be recognized during the year ending December 31, 2024 and the remaining thereafter. Reddit data constantly grows and regenerates as users come and interact with their communities and each other. We believe our growing platform data will be a key element in the training of leading large language models (“LLMs”) and serve as an additional monetization channel for Reddit.
International Expansion
We see a massive opportunity to grow, from both an advertising perspective and from a user perspective, in geographies outside of the United States and in languages beyond English. Expanding in geographies outside of the United States will require increased costs related to hiring new employees (including expanding local sales organizations, if applicable), and providing machine translated content and highly relevant push notifications to help international users find and engage regularly with locally relevant and trending content. In the long term, we expect that revenue growth will outpace growth in personnel-related expenses, resulting in increased operational efficiency. In addition, given lower ARPU in less-developed markets, we also face greater challenges in increasing our ARPU on an absolute basis outside of the United States.
Product Innovation
We continue to make investments to be a leader in contextual and interest-based advertising and to execute against our growth strategy across advertising, data licensing, and our user economy. We also expect to see an increase in our costs from the launch of platform features, new ad formats and ads technology, and user economy products, primarily as additional hosting and headcount costs; however, most of these areas of focus will not initially generate revenue. We may face user resistance to using new products and features and advertiser reluctance to adopting new ad formats. As a result, we may need to absorb the related costs without generating sufficient revenue to offset these costs until such time that we are comfortable selling advertising against these products, features, or ad formats, or until such time that we are able to generate sufficient revenue from non-advertising sources. While we aim to allocate more headcount to these initiatives and curtail hiring in other areas, we expect our gross margins and operating margins will be impacted as we continue to make these investments.
Seasonality
We experience seasonality in our business and financial results. Overall advertising spend tends to be highest in the fourth quarter of each year due in large part to end-of-year advertiser spending and lowest in the first quarter of each year. In addition, we believe our strong growth in prior periods has made it difficult to evaluate the impact of seasonality on our business, and we expect seasonality to become more pronounced in the future as our business matures.
Continuing Impacts of Macroeconomic Conditions
The continuing impact from recent macroeconomic conditions has created significant volatility, uncertainty, and economic disruption. It has adversely affected the broader economies, financial markets, and overall demand for advertising.
At the onset of the COVID-19 pandemic, we saw an increase in user growth and engagement on our platform. The post-pandemic period presented challenges such as lower user growth and declining engagement in 2022 and the first half of 2023. Our user and revenue growth rates may continue to be volatile in the near term as a result of the COVID-19 pandemic as well as other macroeconomic conditions, including inflation, rising interest rates, supply chain and labor disruptions, geopolitical risks, and other risks and uncertainties, although we are unable to predict the duration or degree of such volatility with any certainty.
Macroeconomic conditions, including impacts from the global COVID-19 pandemic, supply chain and labor disruptions, concerns related to inflation and rising interest rates, as well as geopolitical risks and other factors have resulted in uncertainty in the advertising market and have impacted brands’ and agencies’ ability and willingness to invest in advertising, which has offset some of the growth from our business initiatives. As a result, we experienced a decline in our revenue growth rate in 2022 and 2023, especially in light of our strong growth in prior periods. We expect that these macroeconomic conditions may continue to impact revenue growth in the near term, although we are unable to predict the duration or degree of such volatility with any certainty.
Since the continuing impact of these macroeconomic conditions on our results of operations and overall financial performance remains highly unpredictable, our past results may not be indicative of our future
performance. Given the uncertainty, we are unable to predict the extent and duration of the impact of these conditions on our employees, users and advertisers, or our business, results of operations, and financial condition.
For more information about the factors potentially impacting our performance, see “Risk Factors” elsewhere in this prospectus. Results of Operations
The following table summarizes our historical consolidated statements of operations data for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Year ended
December 31, | | | | |
| | | | | | | | | 2022 | | 2023 | | $ Change | | % Change |
| | | | | | | | | | | | | |
| | | | | | | | | (in thousands, except percentages) |
| Revenue | | | | | | | | | $ | 666,701 | | | $ | 804,029 | | | $ | 137,328 | | | 21 | % |
| Net income (loss) | | | | | | | | | (158,550) | | | (90,824) | | | 67,726 | | | (43) | |
| Adjusted EBITDA | | | | | | | | | (108,393) | | | (69,275) | | | 39,118 | | | (36) | |
Components of Results of Operations
Revenue
We generate substantially all of our revenue through the sale of advertising on our mobile applications and website. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a cost per click (“CPC”) basis, views an ad contracted on a cost per thousand impressions (“CPM”) basis, views a video ad contracted on a cost per view (“CPV”) basis, or on a fixed fee basis, based upon ad delivery over the service period, which is typically less than 30 days in duration.
We also generate revenue from data licensing, Reddit Premium subscriptions, and products within our user economy. In our data licensing arrangements, we provide customers with the right to access data from our platform over the contractual period. We recognize data licensing revenue as our data partners consume and benefit from their use of the licensed data, which is generally ratably over the license period. Payments for Reddit Premium subscriptions are received upfront, are non-refundable, and are recognized ratably over the subscription period, which is generally less than one year. Products within our user economy include Reddit Gold and Collectible Avatars. Revenue from Reddit Gold and Collectible Avatars was immaterial for the periods presented.
Cost of Revenue
Cost of revenue consists primarily of payments to third parties for the cost of hosting and supporting our mobile applications and website. In addition, cost of revenue includes expenses directly associated with the delivery of our advertising and other services, including advertising measurement services and credit card and other transaction processing fees. Cost of revenue also consists of personnel-related costs, including salaries, benefits, and stock-based compensation.
Research and Development Expenses
Research and development expenses consist primarily of personnel-related costs including salaries, benefits, and stock-based compensation for engineers and other employees engaged in the research, design, and development of new and existing products. Research and development expenses also include consulting services and hosting costs associated with internal research and development activities, as well as allocated facilities and other supporting overhead costs.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel-related costs including salaries, benefits, and stock-based compensation for employees engaged in sales, sales support, business and brand development,
marketing, and customer service functions. Sales commissions are expensed as incurred in sales and marketing expenses as the expected period of benefit is one year or less. Sales and marketing expenses also include costs incurred for advertising, market research, branding, professional services, marketing, and promotional expenditures, as well as allocated facilities and other supporting overhead costs.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs including salaries, benefits, and stock-based compensation for certain executives as well as employees engaged in finance, legal, human resources, information technology, communications, and other administrative teams. General and administrative expenses also include costs incurred for professional services, including outside legal and accounting services, cryptocurrency impairment, as well as allocated facilities and other supporting overhead costs.
Other Income (Expense), Net
Other income (expense), net, consists of interest expense, interest income, realized gains and losses on sales of marketable securities, and foreign currency transaction gains and losses.
Income Tax Expense (Benefit)
We are subject to income taxes in the United States and foreign jurisdictions. Our income tax provision represents the income tax expense or benefit associated with our operations based on the tax laws of the jurisdictions in which we operate. The foreign jurisdictions where we operate have different statutory tax rates than the United States. Additionally, certain of our foreign earnings may also be taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to domestic income, use of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.
Discussion of Results of Operations
The following table sets forth our consolidated statements of operations data for the periods indicated:
| | | | | | | | | | | | | | | |
| | | Year ended
December 31, |
| | | | | 2022 | | 2023 |
| | | | | |
| | | | | (in thousands) |
| Consolidated Statements of Operations Data: | | | | | | | |
| Revenue | | | | | $ | 666,701 | | | $ | 804,029 | |
Costs and expenses(1): | | | | | | | |
| Cost of revenue | | | | | 104,799 | | | 111,011 | |
| Research and development | | | | | 365,164 | | | 438,346 | |
| Sales and marketing | | | | | 225,078 | | | 230,175 | |
| General and administrative | | | | | 143,822 | | | 164,658 | |
| Total costs and expenses | | | | | 838,863 | | | 944,190 | |
| Income (loss) from operations | | | | | (172,162) | | | (140,161) | |
| Other income (expense), net | | | | | 14,234 | | | 53,138 | |
| Income (loss) before income taxes | | | | | (157,928) | | | (87,023) | |
| Income tax expense (benefit) | | | | | 622 | | | 3,801 | |
| Net income (loss) | | | | | $ | (158,550) | | | $ | (90,824) | |
Adjusted EBITDA(2) | | | | | $ | (108,393) | | | $ | (69,275) | |
| Net cash provided by (used in) operating activities | | | | | $ | (94,021) | | | $ | (75,114) | |
Free Cash Flow(3) | | | | | $ | (100,254) | | | $ | (84,838) | |
_________________
(1)In connection with secondary sales of our common stock, stock-based compensation expense for the year ended December 31, 2023 included $5.7 million for the amount paid in excess of the estimated fair value of the common stock as of the date of the transactions.
(2)See “Selected Consolidated Financial Data—Adjusted EBITDA” for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
(3)See “Selected Consolidated Financial Data—Free Cash Flow” for more information and for a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
| | | | | | | | | | | | | | | |
| | | Year ended
December 31, |
| | | | | 2022 | | 2023 |
| | | | | (unaudited) |
| Consolidated Statements of Operations Data: | | | | | | | |
| Revenue | | | | | 100 | % | | 100 | % |
| Costs and expenses: | | | | | | | |
| Cost of revenue | | | | | 16 | | | 14 | |
| Research and development | | | | | 55 | | | 55 | |
| Sales and marketing | | | | | 34 | | | 29 | |
| General and administrative | | | | | 22 | | | 20 | |
| Total costs and expenses | | | | | 127 | | | 118 | |
| Income (loss) from operations | | | | | (27) | | | (18) | |
| Other income (expense), net | | | | | 2 | | | 7 | |
| Income (loss) before income taxes | | | | | (25) | | | (11) | |
| Income tax expense (benefit) | | | | | 0 | | | 0 | |
| Net income (loss) | | | | | (25) | % | | (11) | % |
Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended
December 31, | | | | |
| 2022 | | 2023 | | $ Change | | % Change |
| | | | | |
| (in thousands, except percentages) |
| Revenue | $ | 666,701 | | | $ | 804,029 | | | $ | 137,328 | | | 21 | % |
Revenue increased $137.3 million, or 21%, compared to the prior year. The growth in revenue was due primarily to an increase in impressions delivered as a result of strong DAUq growth, which outpaced the growth in pricing during the same period.
Cost of Revenue
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended
December 31, | | | | |
| 2022 | | 2023 | | $ Change | | % Change |
| | | | | |
| (in thousands, except percentages) |
| Cost of revenue | $ | 104,799 | | | $ | 111,011 | | | $ | 6,212 | | | 6 | % |
Cost of revenue increased $6.2 million, or 6%, compared to the prior year. The increase in cost of revenue was primarily attributable to higher infrastructure costs as a result of increased hosting usage to support product enhancements and user growth on our platform, partially offset by hosting cost efficiencies.
Research and Development Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended
December 31, | | | | |
| 2022 | | 2023 | | $ Change | | % Change |
| | | | | |
| (in thousands, except percentages) |
| Research and development | $ | 365,164 | | | $ | 438,346 | | | $ | 73,182 | | | 20 | % |
Research and development expenses increased $73.2 million, or 20%, compared to the prior year. The increase was primarily due to an increase in employee-related costs, which was driven mainly by an increase in salaries and an increase in headcount of 7%, and an increase in infrastructure costs to support our growth strategy.
Sales and Marketing Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended
December 31, | | | | |
| 2022 | | 2023 | | $ Change | | % Change |
| | | | | |
| (in thousands, except percentages) |
| Sales and marketing | $ | 225,078 | | | $ | 230,175 | | | $ | 5,097 | | | 2 | % |
Sales and marketing expenses increased $5.1 million, or 2%, compared to the prior year. The increase was primarily due to an increase in employee-related costs, which was driven mainly by an increase in salaries, partially offset by a decrease in marketing spend.
General and Administrative Expenses
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended
December 31, | | | | |
| 2022 | | 2023 | | $ Change | | % Change |
| | | | | |
| (in thousands, except percentages) |
| General and administrative | $ | 143,822 | | | $ | 164,658 | | | $ | 20,836 | | | 14 | % |
General and administrative expenses increased $20.8 million, or 14%, compared to the prior year. The increase in general and administrative expenses was primarily due to an increase in employee-related costs, which was driven mainly by an increase in salaries, and stock-based compensation expense of $5.7 million associated with secondary sales of our common stock. Headcount for employees classified under general and administrative expense remained consistent year over year.
Other Income (Expense), Net
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended
December 31, | | | | |
| 2022 | | 2023 | | $ Change | | % Change |
| | | | | |
| (in thousands, except percentages) |
| Other income (expense), net | $ | 14,234 | | | $ | 53,138 | | | $ | 38,904 | | | 273 | % |
Other income (expense), net for the year ended December 31, 2023 was $53.1 million compared to $14.2 million in the prior year. The increase was primarily due to higher interest earned on our cash and investments driven by higher interest rates.
Income Tax Expense (Benefit)
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended
December 31, | | | | |
| 2022 | | 2023 | | $ Change | | % Change |
| | | | | |
| (in thousands, except percentages) |
| Income tax expense (benefit) | $ | 622 | | | $ | 3,801 | | | $ | 3,179 | | | NM |
________________NM – Not meaningful
Income tax expense (benefit) for the year ended December 31, 2023 was $3.8 million compared to $0.6 million in the prior year. The increase in income tax expense for the year ended December 31, 2023 was primarily attributable to a partial valuation allowance release on our deferred tax assets in the prior year due to deferred tax liabilities acquired in business combinations.
Unaudited Quarterly Results of Operations Data
The following table sets forth our unaudited quarterly consolidated results of operations for each of the twelve quarterly periods ended December 31, 2023. These unaudited quarterly results of operations have been prepared on the same basis as our audited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the financial information reflects all normal recurring adjustments necessary for the fair statement of the results of operations and cash flows for these periods. This information should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results in any future period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31,
2021 | | June 30,
2021 | | September 30,
2021 | | December 31,
2021 | | March 31,
2022 | | June 30,
2022 | | September 30,
2022 | | December 31,
2022 | | March 31,
2023 | | June 30,
2023 | | September 30,
2023 | | December 31,
2023 |
| (in thousands) |
| Consolidated Statements of Operations Data: | | | | |
| Revenue | $ | 79,003 | | | $ | 108,054 | | | $ | 121,187 | | | $ | 176,672 | | | $ | 146,182 | | | $ | 148,556 | | | $ | 171,535 | | | $ | 200,428 | | | $ | 163,740 | | | $ | 183,031 | | | $ | 207,508 | | | $ | 249,750 | |
| Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of revenue | 13,587 | | | 16,164 | | | 20,049 | | | 22,765 | | | 22,362 | | | 25,841 | | | 28,182 | | | 28,414 | | | 26,863 | | | 28,836 | | | 26,395 | | | 28,917 | |
| Research and development | 44,601 | | | 89,191 | | | 54,718 | | | 68,465 | | | 77,178 | | | 86,627 | | | 95,134 | | | 106,225 | | | 108,767 | | | 109,726 | | | 108,285 | | | 111,568 | |
| Sales and marketing | 26,885 | | | 35,190 | | | 32,611 | | | 43,181 | | | 50,750 | | | 56,515 | | | 59,919 | | | 57,894 | | | 57,911 | | | 59,225 | | | 55,114 | | | 57,925 | |
| General and administrative | 50,723 | | | 37,950 | | | 20,975 | | | 35,074 | | | 31,096 | | | 35,900 | | | 39,250 | | | 37,576 | | | 40,801 | | | 38,233 | | | 37,299 | | | 48,325 | |
| Total costs and expenses | 135,796 | | | 178,495 | | | 128,353 | | | 169,485 | | | 181,386 | | | 204,883 | | | 222,485 | | | 230,109 | | | 234,342 | | | 236,020 | | | 227,093 | | | 246,735 | |
| Income (loss) from operations | (56,793) | | | (70,441) | | | (7,166) | | | 7,187 | | | (35,204) | | | (56,327) | | | (50,950) | | | (29,681) | | | (70,602) | | | (52,989) | | | (19,585) | | | 3,015 | |
| Other income (expense), net | 210 | | | 12 | | | (153) | | | (412) | | | 74 | | | 1,033 | | | 4,043 | | | 9,084 | | | 10,724 | | | 13,306 | | | 12,647 | | | 16,461 | |
| Income (loss) before income taxes | (56,583) | | | (70,429) | | | (7,319) | | | 6,775 | | | (35,130) | | | (55,294) | | | (46,907) | | | (20,597) | | | (59,878) | | | (39,683) | | | (6,938) | | | 19,476 | |
| Income tax expense (benefit) | 35 | | | 105 | | | 70 | | | 130 | | | 157 | | | 437 | | | (1,602) | | | 1,630 | | | 988 | | | 1,426 | | | 445 | | | 942 | |
| Net income (loss) | $ | (56,618) | | | $ | (70,534) | | | $ | (7,389) | | | $ | 6,645 | | | $ | (35,287) | | | $ | (55,731) | | | $ | (45,305) | | | $ | (22,227) | | | $ | (60,866) | | | $ | (41,109) | | | $ | (7,383) | | | $ | 18,534 | |
Adjusted EBITDA(1) | $ | (6,800) | | | $ | 8,881 | | | $ | 700 | | | $ | 27,174 | | | $ | (24,047) | | | $ | (40,397) | | | $ | (32,880) | | | $ | (11,069) | | | $ | (50,183) | | | $ | (35,368) | | | $ | (6,874) | | | $ | 23,150 | |
| Net cash provided by (used in) operating activities | $ | (33,119) | | | $ | (59,211) | | | $ | (5,131) | | | $ | (32,726) | | | $ | 4,901 | | | $ | (30,063) | | | $ | (33,123) | | | $ | (35,736) | | | $ | 4,075 | | | $ | (54,053) | | | $ | (7,703) | | | $ | (17,433) | |
Free Cash Flow(2) | $ | (33,486) | | | $ | (59,682) | | | $ | (5,933) | | | $ | (33,385) | | | $ | 3,622 | | | $ | (31,220) | | | $ | (35,592) | | | $ | (37,064) | | | $ | 3,719 | | | $ | (54,883) | | | $ | (11,639) | | | $ | (22,035) | |
________________
(1)The following table presents a reconciliation of Adjusted EBITDA to net income (loss), the most comparable U.S. GAAP financial measure, for each of the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31,
2021 | | June 30,
2021 | | September 30,
2021 | | December 31,
2021 | | March 31,
2022 | | June 30,
2022 | | September 30,
2022 | | December 31,
2022 | | March 31,
2023 | | June 30,
2023 | | September 30,
2023 | | December 31,
2023 |
| (in thousands) |
| Reconciliation of Adjusted EBITDA: | | | | |
| Net income (loss) | $ | (56,618) | | | $ | (70,534) | | | $ | (7,389) | | | $ | 6,645 | | | $ | (35,287) | | | $ | (55,731) | | | $ | (45,305) | | | $ | (22,227) | | | $ | (60,866) | | | $ | (41,109) | | | $ | (7,383) | | | $ | 18,534 | |
| Add (deduct) | | | | | | | | | | | | | | | | | | | | | | | |
| Interest (income) expense, net | (314) | | | (148) | | | (115) | | | 222 | | | (359) | | | (1,964) | | | (4,954) | | | (8,404) | | | (10,612) | | | (13,061) | | | (14,292) | | | (15,316) | |
| Income tax expense (benefit) | 35 | | | 105 | | | 70 | | | 130 | | | 157 | | | 437 | | | (1,602) | | | 1,630 | | | 988 | | | 1,426 | | | 445 | | | 942 | |
Depreciation and amortization(a) | 631 | | | 644 | | | 697 | | | 841 | | | 859 | | | 995 | | | 2,773 | | | 3,373 | | | 3,338 | | | 3,321 | | | 3,288 | | | 3,755 | |
Stock-based compensation expense and related taxes(b) | 49,361 | | | 78,679 | | | 7,170 | | | 19,146 | | | 10,298 | | | 14,935 | | | 15,297 | | | 15,238 | | | 13,167 | | | 10,116 | | | 9,423 | | | 16,380 | |
Restructuring costs(c) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,916 | | | 4,182 | | | — | | | — | |
| Other (income) expense, net | 105 | | | 135 | | | 267 | | | 190 | | | 285 | | | 931 | | | 911 | | | (679) | | | (114) | | | (243) | | | 1,645 | | | (1,145) | |
| Adjusted EBITDA | $ | (6,800) | | | $ | 8,881 | | | $ | 700 | | | $ | 27,174 | | | $ | (24,047) | | | $ | (40,397) | | | $ | (32,880) | | | $ | (11,069) | | | $ | (50,183) | | | $ | (35,368) | | | $ | (6,874) | | | $ | 23,150 | |
________________
(a)Depreciation and amortization included in above line items:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31,
2021 | | June 30,
2021 | | September 30,
2021 | | December 31,
2021 | | March 31,
2022 | | June 30,
2022 | | September 30,
2022 | | December 31,
2022 | | March 31,
2023 | | June 30,
2023 | | September 30,
2023 | | December 31,
2023 |
| (in thousands) |
| Cost of revenue | $ | 143 | | | $ | 143 | | | $ | 143 | | | $ | 143 | | | $ | 143 | | | $ | 143 | | | $ | 352 | | | $ | 76 | | | $ | 76 | | | $ | 76 | | | $ | — | | | $ | — | |
| Research and development | 241 | | | 255 | | | 289 | | | 365 | | | 380 | | | 420 | | | 1,928 | | | 1,959 | | | 1,924 | | | 1,925 | | | 1,946 | | | 2,206 | |
| Sales and marketing | 143 | | | 146 | | | 158 | | | 203 | | | 197 | | | 220 | | | 289 | | | 1,062 | | | 1,053 | | | 1,045 | | | 1,059 | | | 1,183 | |
| General and administrative | 104 | | | 100 | | | 107 | | | 130 | | | 139 | | | 212 | | | 204 | | | 276 | | | 285 | | | 275 | | | 283 | | | 366 | |
| Depreciation and amortization | $ | 631 | | | $ | 644 | | | $ | 697 | | | $ | 841 | | | $ | 859 | | | $ | 995 | | | $ | 2,773 | | | $ | 3,373 | | | $ | 3,338 | | | $ | 3,321 | | | $ | 3,288 | | | $ | 3,755 | |
________________
(b)Stock-based compensation expense and related taxes included in above line items:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31,
2021 | | June 30,
2021 | | September 30,
2021 | | December 31,
2021 | | March 31,
2022 | | June 30,
2022 | | September 30,
2022 | | December 31,
2022 | | March 31,
2023 | | June 30,
2023 | | September 30,
2023 | | December 31,
2023 |
| (in thousands) |
| Cost of revenue | $ | 11 | | | $ | 14 | | | $ | 29 | | | $ | 9 | | | $ | 29 | | | $ | 28 | | | $ | 35 | | | $ | 41 | | | $ | 38 | | | $ | 25 | | | $ | 19 | | | $ | 19 | |
| Research and development | 10,552 | | | 47,523 | | | 4,297 | | | 5,643 | | | 6,609 | | | 9,750 | | | 9,758 | | | 9,800 | | | 8,001 | | | 5,702 | | | 5,164 | | | 5,467 | |
| Sales and marketing | 3,622 | | | 7,749 | | | 1,442 | | | 2,155 | | | 1,604 | | | 2,024 | | | 2,063 | | | 1,987 | | | 1,813 | | | 1,389 | | | 1,253 | | | 1,223 | |
| General and administrative | 35,176 | | | 23,393 | | | 1,402 | | | 11,339 | | | 2,056 | | | 3,133 | | | 3,441 | | | 3,410 | | | 3,315 | | | 3,000 | | | 2,987 | | | 9,671 | |
| Stock-based compensation expense and related taxes | $ | 49,361 | | | $ | 78,679 | | | $ | 7,170 | | | $ | 19,146 | | | $ | 10,298 | | | $ | 14,935 | | | $ | 15,297 | | | $ | 15,238 | | | $ | 13,167 | | | $ | 10,116 | | | $ | 9,423 | | | $ | 16,380 | |
In connection with a tender offer and secondary sales of our common stock, stock-based compensation expense included $42.6 million, $69.0 million, $11.2 million, and $5.7 million for the three months ended March 31, 2021, June 30, 2021, December 31, 2021, and December 31, 2023, respectively, for the amount paid in excess of the estimated fair value of common stock as of the date of the transactions.
(c)During the three months ended March 31, 2023 and June 30, 2023, we incurred restructuring costs of $3.9 million and $4.2 million, respectively, primarily composed of severance and benefits expense, in connection with reductions in our workforce. These charges are non-recurring and are not reflective of underlying trends in our business.
(2)The following table presents a reconciliation of Free Cash Flow to net cash provided by (used in) operating activities, the most comparable U.S. GAAP financial measure, for each of the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31,
2021 | | June 30,
2021 | | September 30,
2021 | | December 31,
2021 | | March 31,
2022 | | June 30,
2022 | | September 30,
2022 | | December 31,
2022 | | March 31,
2023 | | June 30,
2023 | | September 30,
2023 | | December 31,
2023 |
| (in thousands) |
| Reconciliation of Free Cash Flow: | | | | |
| Net cash provided by (used in) operating activities | $ | (33,119) | | | $ | (59,211) | | | $ | (5,131) | | | $ | (32,726) | | | $ | 4,901 | | | $ | (30,063) | | | $ | (33,123) | | | $ | (35,736) | | | $ | 4,075 | | | $ | (54,053) | | | $ | (7,703) | | | $ | (17,433) | |
| Less: | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of property and equipment | (367) | | | (471) | | | (802) | | | (659) | | | (1,279) | | | (1,157) | | | (2,469) | | | (1,328) | | | (356) | | | (830) | | | (3,936) | | | (4,602) | |
| Free Cash Flow | $ | (33,486) | | | $ | (59,682) | | | $ | (5,933) | | | $ | (33,385) | | | $ | 3,622 | | | $ | (31,220) | | | $ | (35,592) | | | $ | (37,064) | | | $ | 3,719 | | | $ | (54,883) | | | $ | (11,639) | | | $ | (22,035) | |
Free Cash Flow included tender offer payments that were deemed compensation of $42.6 million and $58.5 million for the three months ended March 31, 2021 and June 30, 2021, respectively.
The following table sets forth the components of our unaudited consolidated statements of operations data for each of the periods presented as a percentage of revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| March 31,
2021 | | June 30,
2021 | | September 30,
2021 | | December 31,
2021 | | March 31,
2022 | | June 30,
2022 | | September 30,
2022 | | December 31,
2022 | | March 31,
2023 | | June 30,
2023 | | September 30,
2023 | | December 31,
2023 |
| Consolidated Statements of Operations Data: | | | | |
| Revenue | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of revenue | 17 | | | 15 | | | 17 | | | 13 | | | 15 | | | 17 | | | 16 | | | 14 | | | 16 | | | 16 | | | 13 | | | 12 | |
| Research and development | 56 | | | 83 | | | 45 | | | 39 | | | 53 | | | 58 | | | 55 | | | 53 | | | 66 | | | 60 | | | 52 | | | 45 | |
| Sales and marketing | 34 | | | 33 | | | 27 | | | 24 | | | 35 | | | 38 | | | 35 | | | 29 | | | 35 | | | 32 | | | 27 | | | 23 | |
| General and administrative | 65 | | | 34 | | | 17 | | | 20 | | | 21 | | | 25 | | | 23 | | | 19 | | | 25 | | | 21 | | | 18 | | | 19 | |
| Total costs and expenses | 172 | | | 165 | | | 106 | | | 96 | | | 124 | | | 138 | | | 129 | | | 115 | | | 142 | | | 129 | | | 110 | | | 99 | |
| Income (loss) from operations | (72) | | | (65) | | | (6) | | | 4 | | | (24) | | | (38) | | | (29) | | | (15) | | | (42) | | | (29) | | | (10) | | | 1 | |
| Other income (expense), net | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | 2 | | | 5 | | | 7 | | | 7 | | | 6 | | | 7 | |
| Income (loss) before income taxes | (72) | | | (65) | | | (6) | | | 4 | | | (24) | | | (37) | | | (27) | | | (10) | | | (35) | | | (22) | | | (4) | | | 8 | |
| Income tax expense (benefit) | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | | 1 | | | 1 | | | 1 | | | 0 | | | 0 | |
| Net income (loss) | (72) | % | | (65) | % | | (6) | % | | 4 | % | | (24) | % | | (37) | % | | (26) | % | | (11) | % | | (36) | % | | (23) | % | | (4) | % | | 8 | % |
Quarterly Trends
Revenue
Advertising spend is traditionally highest in the fourth quarter of each calendar year and lowest in the first quarter of each calendar year. For example, revenue was lower in the three months ended March 31, 2023 compared to the three months ended December 31, 2022. Aside from the decrease due to seasonality, revenue increased sequentially for all periods presented due to increases in impressions delivered, pricing, and user growth. Macroeconomic conditions, including supply chain and labor disruptions, concerns related to inflation as well as geopolitical risks, and other factors have resulted in uncertainty in the advertising market in recent periods, which has offset some of the growth from our business initiatives. As a result, we experienced a decline in our revenue growth rate in 2022 and 2023, especially in light of our strong growth in prior periods. We expect that these macroeconomic conditions will continue to impact revenue growth in the near term.
Cost of Revenue and Operating Expenses
Cost of revenue generally increased during each quarter presented, primarily driven by increases in infrastructure costs as a result of increased hosting usage. During the periods presented, some of the drivers for increased hosting usage included product enhancements, user growth, growth in advertising, and changes in the mix of content being delivered to our users. Cost of revenue as a percentage of revenue decreased starting in the three months ended September 30, 2023 as a result of hosting cost efficiencies, partially offset by increases to hosting costs due to user growth.
Operating expenses generally increased during each quarter presented primarily due to increases in headcount. Operating expenses were a higher percentage of revenue during the three months ended March 31, 2021 and June 30, 2021 due to stock-based compensation expense from a tender offer and secondary sales of our common stock that increased all operating expense line items.
Total cost and expenses growth slowed starting in the three months ended March 31, 2023 as a result of operating efficiencies put into place throughout 2023. We are focused on continuing to improve our operating leverage over the long term.
Liquidity and Capital Resources
We have historically financed our operations primarily through net proceeds from the sale of convertible preferred stock and payments received from our customers. Our primary uses of cash are personnel-related costs, the cost of hosting our mobile applications and website, and facility-related costs.
As of December 31, 2023, we had $1.2 billion in cash, cash equivalents, and marketable securities. Our cash and cash equivalents consist of cash in bank accounts, money market accounts, and other highly liquid investments with original maturities of 90 days or less from the date of purchase. Marketable securities consist of U.S. and non-U.S. government securities, investment-grade corporate and government agency securities, certificates of deposit, and commercial paper. As of December 31, 2023, approximately 1% of our cash, cash equivalents, and marketable securities was held outside of the United States.
On October 8, 2021, we entered into a five-year, $750.0 million, revolving loan and standby letter of credit facility agreement (“Revolving Credit Facility”) of which $100.0 million can be issued as letters of credit. As of December 31, 2023, we have issued two letters of credit, one of which is denominated in a foreign currency, for an aggregate of $4.9 million, which reduces the letter of credit borrowings available under the Revolving Credit Facility to $95.1 million. The available Revolving Credit Facility balance as of December 31, 2023 was $745.1 million.
On May 23, 2023, we amended the terms of the Revolving Credit Facility to replace LIBOR with Term SOFR as the interest rate benchmark. Under the amended terms of the Revolving Credit Facility, borrowings can be either ABR Loans, Term Benchmark Loans, or SONIA Loans. Outstanding ABR Loans bear interest at a rate equal to the greatest of (A) the Prime Rate, (B) the NYFRB Rate plus 0.5%, (C) the Adjusted Term SOFR Rate plus 1.0%, or (D) 1.0% (each as defined in the amended Revolving Credit Facility), in each case plus 0.25%. Outstanding Term Benchmark Loans bear interest at the Adjusted Term SOFR Rate, the Adjusted EURIBOR Rate, the Adjusted AUD Rate, or the Adjusted CDOR Rate (each as
defined in the amended Revolving Credit Facility), as applicable, in each case, plus 1.25%. Outstanding SONIA Loans bear interest at a rate equal to the Adjusted Daily Simple SONIA (as such term is defined in the amended Revolving Credit Facility) plus 1.25%. We are required to pay a quarterly commitment fee that accrues at 0.15% per annum on the unused portion of the aggregate commitments under the credit facility.
The Revolving Credit Facility contains customary conditions on our borrowing, including events of default and covenants. Covenants include restrictions on our and certain of our subsidiaries’ ability to incur indebtedness, grant liens, make distributions to holders of our preferred and common stock, make investments, or engage in transactions with our affiliates, and require us to maintain a minimum liquidity. The obligations under the Revolving Credit Facility are secured by liens on substantially all of our assets, including intellectual property assets. We were in compliance with all covenants as of December 31, 2023.
On March 10, 2023, Silicon Valley Bank (“SVB”) was closed and the Federal Deposit Insurance Corporation (“FDIC”) was named as receiver. While SVB was one of our primary banks at the time of its closure, we were able to transfer substantially all of our cash, cash equivalents, and investments to other financial institutions. We have regained access to all cash, cash equivalents, and investments that had been in SVB accounts, and did not experience losses or material disruptions to our operations due to SVB’s closure. There were also no changes to our Revolving Credit Facility as a result of the closure.
We believe our existing cash, cash equivalents, and marketable securities and amounts available under our Revolving Credit Facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months, though we may require additional capital resources in the future. Our future capital requirements will depend on many factors including our growth rate, headcount, sales and marketing activities, research and development activities, the introduction of new features and products, acquisitions, and continued user engagement.
The following table summarizes our cash flows for the periods presented:
| | | | | | | | | | | | | | | |
| | | Year ended
December 31, |
| | | | | 2022 | | 2023 |
| | | | | |
| | | | | (in thousands) |
| Net cash provided by (used in) operating activities | | | | | $ | (94,021) | | | $ | (75,114) | |
| Net cash provided by (used in) investing activities | | | | | (804,183) | | | 41,291 | |
| Net cash provided by (used in) financing activities | | | | | (3,784) | | | (811) | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | | | | | $ | (901,988) | | | $ | (34,634) | |
| Free Cash Flow | | | | | $ | (100,254) | | | $ | (84,838) | |
Operating Activities
Net cash used in operating activities was $(75.1) million in the year ended December 31, 2023, resulting primarily from net loss of $(90.8) million and an increase in accounts receivable of $53.3 million related to an increase in advertising revenue. These increases were partially offset by adjustments for non-cash items, primarily related to stock-based compensation expense of $47.6 million, and an increase in accounts payable and accrued expenses and other current liabilities of $25.2 million due to timing of payments. Net cash used in operating activities was $(94.0) million in the year ended December 31, 2022, resulting primarily from net loss of $(158.6) million and an increase in accounts receivable of $30.2 million related to an increase in advertising revenue. These increases were partially offset by adjustments for non-cash items, primarily related to stock-based compensation expense of $55.3 million, and an increase in accrued expenses and other current liabilities of $21.5 million due to timing of payments.
Investing Activities
Net cash provided by investing activities was $41.3 million in the year ended December 31, 2023, primarily due to the maturities and proceeds from the sale of marketable securities of $1.3 billion, partially offset by additional purchases of marketable securities. Net cash used in investing activities was $(804.2) million in the year ended December 31, 2022,
primarily due to purchases of marketable securities of $1.4 billion, partially offset by the maturities and proceeds from the sale of marketable securities of $674.9 million.
Financing Activities
Net cash used in financing activities was $(0.8) million in the year ended December 31, 2023 and consisted primarily of cash payments of $4.3 million for taxes related to net share settlement of restricted stock units and other financing activities of $4.9 million, partially offset by proceeds from exercises of employee stock options of $8.4 million. Net cash used in financing activities was $(3.8) million in the year ended December 31, 2022 and consisted primarily of cash payments for deferred offering costs of $9.8 million, offset by proceeds from exercises of employee stock options of $7.0 million.
Free Cash Flow
Free Cash Flow was $(100.3) million and $(84.8) million for the years ended December 31, 2022 and 2023, respectively, and was composed of net cash provided by (used in) operating activities, resulting primarily from net loss, adjusted for non-cash items and changes in working capital. Free Cash Flow also included purchases of property and equipment of $6.2 million and $9.7 million for the years ended December 31, 2022 and 2023, respectively. For the year ended December 31, 2023, the increase in Free Cash Flow as compared to the prior year was driven primarily by the decrease in cash used in operating activities.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Less than 1 Year | | 1–3 Years | | 3–5 Years | | 5+ Years |
| (in thousands) |
Operating leases | $ | 30,455 | | | $ | 5,304 | | | $ | 12,150 | | | $ | 11,747 | | | $ | 1,254 | |
| Purchase commitments | 338,224 | | | 106,003 | | | 232,221 | | | — | | | — | |
| Total | $ | 368,679 | | | $ | 111,307 | | | $ | 244,371 | | | $ | 11,747 | | | $ | 1,254 | |
Under the terms of certain of our purchase commitments, we are contractually obligated to purchase specified minimums over the contract term. If we do not meet the specified minimums, we will have an obligation to pay the service provider any shortfall. Obligations and commitments presented above are before consideration of any credits that may be earned during the term.
See Note 7—Operating Leases and Note 11—Commitments and Contingencies of the notes to our consolidated financial statements included elsewhere in this prospectus for additional discussion on our operating leases and purchase commitments.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ significantly from these estimates. To the extent that there are differences between our estimates and actual
results, our future financial statement presentation, results of operations, financial condition, and cash flows will be affected.
The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are described below. Refer to Note 2—Basis of Presentation and Significant Accounting Policies of the notes to our consolidated financial statements included elsewhere in this prospectus for further information on our other significant accounting policies.
Revenue Recognition
We generate substantially all of our revenue through the sale of advertising on our mobile applications and website. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a cost per click (“CPC”) basis, views an ad contracted on a cost per thousand impressions (“CPM”) basis, views a video ad contracted on a cost per view (“CPV”) basis, or on a fixed fee basis, based upon ad delivery over the service period, which is typically less than 30 days in duration. Generally, we recognize advertising revenue on a gross basis since we control the advertising units before being transferred to our users. In arrangements where another party is involved in providing specified services to a customer, we evaluate whether we are the principal or agent. In this evaluation, we consider if we obtain control of the specified goods or services before they are transferred to the customer. For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis. For the periods presented, revenue for arrangements where we are the agent was not material.
The transaction price in advertising arrangements is generally calculated as the number of advertising units delivered multiplied by the contractually agreed upon CPC, CPM, or CPV, or on a fixed fee basis and revenue is recognized based on the number of clicks, impressions, or views, or ratable over the service period, respectively. Payments for advertising arrangements are due based on the contractually stated payment terms, usually within 30 to 60 days. Sales and other similar taxes are excluded from revenue.
In our data licensing arrangements, we provide customers with the right to access data from our platform over the contractual period. The transaction price in data licensing arrangements is generally a fixed fee or usage-based fee. We recognize data licensing revenue as our data partners consume and benefit from their use of the licensed data, which is generally ratably over the license period. Payments for data licensing revenue arrangements are due based on the contractually stated payment terms, usually within 30 days.
Stock-Based Compensation
We have granted stock-based awards consisting of restricted stock units (“RSUs”), restricted stock awards (“RSAs”), and stock options to employees, members of our board of directors, and non-employee advisors. The substantial majority of our stock-based awards have been made to employees. We have not recognized any stock-based compensation expense to date for RSUs with a liquidity-based vesting condition because no qualifying event had occurred. Following the completion of this offering, the liquidity-based vesting condition for such RSUs will be satisfied, resulting in significant increases to our stock-based compensation related to these RSUs in future periods, including the quarter in which this offering is completed.
We account for stock-based employee compensation under the fair value recognition and measurement provisions, in accordance with applicable accounting standards, which requires equity-classified stock-based awards to be measured based on the grant date fair value. We have elected to account for forfeitures of awards as they occur, with previously recognized stock-based compensation reversed in the period that the awards are forfeited.
2023 CEO/COO Equity Awards
In 2020, 2022, and 2023, we granted our Chief Executive Officer and Chief Operating Officer RSUs with a liquidity-based performance condition combined with other performance-based or market-based vesting conditions. As the performance conditions of these awards are not probable, no shares have vested and no expense has been recorded as of December 31, 2023. In December 2023, certain of these awards were canceled and we concurrently granted the 2023 CEO/COO equity awards. As of December 31, 2023, the aggregate unrecognized stock-based compensation expense of the 2023 CEO/COO equity awards was $269.0 million, including unrecognized stock-based compensation expense of $129.9
million related to RSUs and unrecognized stock-based compensation expense of $139.1 million related to stock options, as further discussed below.
As part of the 2023 CEO/COO equity awards, we granted our Chief Executive Officer 2,990,511 RSUs covering 1,495,255 shares of our Class A common stock and 1,495,256 shares of our Class B common stock, and our Chief Operating Officer 1,462,028 RSUs covering shares of our Class A common stock (collectively, the “CEO/COO RSUs”). The CEO/COO RSUs have both service-based and performance-based vesting conditions. The service-based vesting condition for 50% of these awards was satisfied on the grant date. The service-based vesting condition of the remaining awards is satisfied by rendering continuous service for five years, during which time the grants will vest quarterly. The performance-based vesting condition is satisfied upon the sale of our common stock upon the consummation of a firm commitment underwritten initial public offering pursuant to an effective registration statement under the Securities Act or a sale event, which constitutes a change in the ownership or effective control of Reddit or in the ownership of a substantial portion of the assets of Reddit (each, a “Liquidity Event”). Additionally, we granted our Chief Executive Officer stock options to purchase 4,485,766 shares of our Class A common stock, and 1,495,256 shares of our Class B common stock, and our Chief Operating Officer stock options to purchase 2,924,056 shares of our Class A common stock (collectively, the “CEO/COO Options”) as part of the 2023 CEO/COO equity awards. The per share exercise price for 4,452,539 shares underlying the CEO/COO Options is $25.29, and for the remaining 4,452,539 shares underlying the CEO/COO Options, the per share exercise price is $45.00, $60.00, and $90.00 for each one-third of the remaining shares underlying such CEO/COO Options. The CEO/COO Options vest quarterly over five years and have a contractual term of ten years. See the Stock Options section below for additional discussion regarding these awards.
As of December 31, 2023, the total unrecognized stock-based compensation expense for the 2023 CEO/COO equity awards was $269.0 million, including unrecognized stock-based compensation expense of $129.9 million related to the CEO/COO RSUs and unrecognized stock-based compensation expense of $139.1 million related to the CEO/COO Options. If the performance-based vesting condition related to the CEO/COO RSUs had been satisfied on December 31, 2023, we would have recognized stock-based compensation expense of $65.9 million related to awards for which the service-based vesting condition had been satisfied and unrecognized stock-based compensation expense of $64.0 million would have been recognized over a weighted-average remaining requisite service period of 2.53 years.
Service-based RSUs
Substantially all of our outstanding RSUs contain both a service-based vesting condition and a performance-based vesting condition (“Double Trigger RSUs”). As of December 31, 2023, there were 22,955,194 and 1,495,256 Double Trigger RSUs outstanding covering shares of our Class A and Class B common stock, respectively. The service-based vesting condition for these awards is generally satisfied by rendering continuous service, generally for three to four years, during which time the grants will vest either quarterly or with a cliff vesting period of one year and continued vesting quarterly thereafter. The performance-based vesting condition is satisfied upon the sale of our Class A common stock in a public offering or sale event. Because no qualifying event has occurred, we have not recognized any stock-based compensation expense for the RSUs with both a service-based and performance-based vesting condition.
The total unrecognized stock-based compensation expense related to Double Trigger RSUs, including the CEO/COO RSUs, was $740.3 million as of December 31, 2023. Of this amount, $472.3 million relates to awards for which the service-based vesting condition has been satisfied, while $268.0 million relates to awards for which the service-based vesting condition had not yet been satisfied as of December 31, 2023. In the three months ending , 2024, we will record a cumulative one-time stock-based compensation expense of $ , determined using the grant date fair values of the RSUs, for which the service-based vesting condition was satisfied as of , 2024 and for which the liquidity-based vesting condition will be satisfied in connection with this offering. Subsequently, we will record stock-based compensation expense related to these awards using the accelerated attribution method over the remaining requisite service period.
We also grant RSUs with a service-based vesting condition only (“Single Trigger RSUs”). As of December 31, 2023, there were 1,783,275 Single Trigger RSUs outstanding covering shares of our Class A common stock, made up of 827,668 vested RSUs that have not been settled and 955,607 unvested RSUs. The service-based vesting condition for these awards is generally satisfied by rendering continuous service, generally for one to three years, during which time the grants will vest either with a cliff vesting period of one year and continued vesting quarterly thereafter or quarterly from the vesting
commencement date. As a result, we recorded stock-based compensation expense related to these awards on a straight-line basis over the requisite service period.
Total unrecognized stock-based compensation expense related to Single Trigger RSUs was $41.3 million as of December 31, 2023, and is expected to be recognized over a weighted-average period of 2.29 years. As of , 2024, of these RSUs were outstanding.
After the completion of this offering, based on RSU awards outstanding as of , 2024, we expect that approximately and RSUs will vest on each of 20, 2024 and 20, 2024, respectively.
Stock Options
Stock options generally vest over a service period of four years. Stock-based compensation expense for stock options granted to employees is recognized on a straight-line basis over the requisite service period, based on the grant date fair value, calculated under the Black-Scholes option pricing model.
Stock option holders have the right to exercise unvested options, which are subject to our repurchase rights at the original exercise price in the event of a voluntary or involuntary termination of employment of the holder prior to vesting. Shares issued for early exercised options are included in issued and outstanding shares as they are legally issued and outstanding but are not deemed outstanding for accounting purposes until the shares vest.
The Black-Scholes model includes subjective assumptions, including the fair value of our common stock, expected term of the option, expected volatility of the stock price, risk-free interest rate, and expected dividend rate. These assumptions involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
The assumptions under the Black-Scholes model are estimated as follows:
Fair Value of Common Stock—See “—Common Stock Valuations” below.
Expected Term—The expected term of options represents the period that our stock-based awards are expected to be outstanding and is calculated using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options.
Volatility—We determine the price volatility factor based on the historical and implied volatilities of our peer group as we do not have a sufficient trading history for our common stock. When considering which companies to include in our comparable industry peer companies, we focused on publicly traded companies with businesses similar to ours.
Risk Free Interest Rates—These rates are based on the implied yield currently available on U.S. Treasury notes with terms approximately equal to the expected life of the option.
Expected Dividend Yield—We have not and do not expect to pay cash dividends on our common stock.
The following weighted-average assumptions were used to determine the fair value of employee stock options granted during the year ended December 31, 2023:
| | | | | | | |
| | | |
| | | |
| Expected term (in years) | 6.31 | | |
| Expected volatility | 60.66 | % | | |
| Risk-free interest rate | 3.83 | % | | |
| Expected dividend yield | 0 | % | | |
The weighted-average fair value of employee stock options granted during the year ended December 31, 2023 was $15.67 per share. As of December 31, 2023, total unrecognized compensation expense of $147.4 million related to unvested stock options, including the CEO/COO Stock Options, is expected to be recognized on a straight-line basis over a weighted-average period of 4.77 years.
Service-based RSAs
We grant, in certain circumstances, RSAs with a service-based vesting condition, covering shares of our Class A common stock. The service-based vesting condition for these awards is generally satisfied by rendering continuous service, generally for three years, during which time the grants will vest with a cliff vesting period of one year and continued vesting quarterly thereafter. As a result, we record stock-based compensation expense related to these awards on a straight-line basis over the requisite service period.
Total unrecognized stock-based compensation expense related to RSAs was $3.1 million as of December 31, 2023 and is expected to be recognized over a weighted-average period of 1.45 years.
Performance-based and Market-based RSUs
Certain employees have RSU grant agreements with a liquidity-based performance condition combined with other performance-based or market-based vesting conditions (“PRSUs”). The awards are dependent upon continuous service. In general, the performance conditions are satisfied upon achieving certain metrics, including active user count and revenue targets, depending on the terms of the grant. In certain cases, the market condition is contingent on our aggregate market capitalization attaining $5.0 billion and $25.0 billion, based on the trailing average closing trading price of our Class A common stock for specified measurement periods following this offering. Once the Liquidity Event occurs, stock-based compensation expense will be recognized over the derived service period, regardless of whether, and the extent to which, the market condition is ultimately satisfied. The fair value of performance stock units with both a performance-based and market-based vesting condition is determined on the grant date using a Monte Carlo simulation model with the following weighted-average assumptions:
| | | | | |
| Expected time to Liquidity Event (in years) | 3.35 |
| Risk-free interest rate | 0.20 | % |
| Expected volatility | 60 | % |
| Expected dividend yield | 0 | % |
PRSUs granted during the year ended December 31, 2023 were not material to our consolidated financial statements.
As of December 31, 2023, there were 1,393,446 PRSUs outstanding of which 168,552 relate to Class A common stock and 1,224,894 relate to Class B common stock. If the Liquidity Event had occurred on December 31, 2023, we would have recognized stock-based compensation expense of $21.3 million, and the remaining unrecognized stock-based compensation expense of $0.5 million would be recognized over a weighted-average remaining derived service period of 2.18 years.
Common Stock Valuations
The fair value of the Class A common stock underlying our stock-based awards is determined by our board of directors, with input from management and reviews of third-party valuations of our common stock determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
Our board of directors exercised reasonable judgment and considered numerous subjective factors to determine the best estimate of the fair value of our common stock, including the following:
•the prices of recent issuances of convertible preferred stock by us to investors in arm’s-length transactions;
•the rights, preferences, and privileges of our convertible preferred stock relative to our common stock;
•third-party valuations of our common stock completed as of October 18, 2017, October 16, 2018, February 21, 2019, May 17, 2019, May 31, 2020, February 8, 2021, April 9, 2021, September 16, 2021, December 13, 2021, February 16, 2022, March 24, 2022, April 13, 2022, June 30, 2022, August 4, 2022, November 3, 2022, February 9, 2023, May 4, 2023, August 3, 2023, and December 30, 2023;
•the prices paid for common stock in tender offers and secondary market transactions;
•our performance and market position relative to our competitors or similar publicly traded companies;
•the likelihood and timing of achieving a liquidity event, such as an initial public offering or sale of our company, given internal company and prevailing market conditions;
•our developments and milestones;
•the lack of marketability of our common stock; and
•U.S. and global capital market conditions.
In valuing our common stock, our board of directors determined the equity value of our business using various valuation methods including combinations of income and market approaches with input from management.
During the years ended December 31, 2021, 2022, and 2023, key assumptions and estimates underlying our third-party valuation reports changed due to the tender offer and secondary market transactions and changes in estimates related to our expectations for the likelihood of a liquidity event. For each valuation, the equity value determined by the income and market approaches was then allocated to the common stock using either the option pricing method (“OPM”), or the probability-weighted expected return method (“PWERM”). The OPM is an allocation method that considers the current value of equity and then allocates that equity to the various equity interests considering their rights and preferences. The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes considered by a company, as well as the economic and control rights of each share class. Our valuations prior to September 16, 2021 were allocated utilizing the OPM approach. Beginning on September 16, 2021, our valuations were allocated utilizing the PWERM approach.
In addition, we considered secondary transactions involving our common stock if a secondary transaction occurred in the twelve months prior to the valuation date. In our evaluation of those transactions, we considered the facts and circumstances of each transaction and assigned appropriate weighting in the valuation of our common stock. Factors considered included the number of buyers and sellers, timing relative to the valuation date, and whether the transactions involved investors with access to our financial information.
Application of these valuation approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations and may have a material impact on the valuation of our common stock.
The fair value of our common stock as of February 8, 2021 and April 9, 2021 was determined using an OPM, which considered the Series E convertible stock offering price of $42.47 per share to determine the enterprise value using the backsolve method. The following table sets forth the key assumptions and judgments reflected in the third-party valuations of our common stock completed as of February 8, 2021 and April 9, 2021:
| | | | | | | | | | | |
| February 8, 2021 | | April 9, 2021 |
Valuation methodology | Backsolve Method (OPM) | | Backsolve Method (OPM) |
Marketable value per share(1) | $ | 19.35 | | | $ | 20.44 | |
Discount for lack of marketability | 25.0 | % | | 25.0 | % |
Weighting on discounted value per share | 80.0 | % | | 80.0 | % |
Secondary sale marketable value per share(2) | $ | 42.47 | | | $ | 42.47 | |
Secondary sale weighting | 20.0 | % | | 20.0 | % |
Concluded fair value per common share | $ | 20.10 | | | $ | 20.76 | |
_______________
(1)The Series E convertible preferred stock has economic rights and preferences over our common stock, including specific liquidation preferences and anti-dilution factors, which resulted in the premium in value of Series E convertible preferred stock over the marketable value of our common stock.
(2)The secondary sale marketable value per share represents the tender offer purchase price of $42.47 per share. As the tender offer involved our common stock, we considered it reasonable and prudent to include the transaction in the determination of the fair value of our common stock.
We determined the equity value of our business as of September 16, 2021, December 13, 2021, February 16, 2022, March 24, 2022, April 13, 2022, June 30, 2022, August 4, 2022, November 3, 2022, February 9, 2023, May 4, 2023, August 3, 2023, and December 30, 2023 utilizing a PWERM approach, which assigns probabilities to different exit scenarios in the valuation. The PWERM was determined to be an appropriate valuation methodology because of our expectations of a liquidity event, as our executive management began to prepare for our initial public offering, including commencing readiness efforts, presenting our roadmap to the board of directors, and initiating discussions with underwriters.
The following table set forth the key assumptions and judgments reflected in the third-party valuations of our common stock completed as of September 16, 2021, December 13, 2021, February 16, 2022, March 24, 2022, April 13, 2022, June 30, 2022, August 4, 2022, November 3, 2022, February 9, 2023, May 4, 2023, August 3, 2023, and December 30, 2023:
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| September 16,
2021 | | December 13,
2021 | | February 16,
2022 | | March 24,
2022 | | April 13,
2022 | | June 30,
2022 | | August 4,
2022 | | November 3,
2022 | | February 9,
2023 | | May 4,
2023 | | August 3,
2023 | | December 30,
2023 |
| Valuation methodology | PWERM | | PWERM | | PWERM | | PWERM | | PWERM | | PWERM | | PWERM | | PWERM | | PWERM | | PWERM | | PWERM | | PWERM |
| IPO scenario: | | | | | | | | | | | | | | | | | | | | | | | |
Scenario probability weighting(1) | 50.0 | % | | 60.0 | % | | 75.0 | % | | 80.0 | % | | 80.0 | % | | 75.0 | % | | 75.0 | % | | 65.0 | % | | 65.0 | % | | 65.0 | % | | 65.0 | % | | 70.0 | % |
Marketable value per share (PWERM)(2) | $ | 61.80 | | | $ | 63.12 | | | $ | 52.68 | | | $ | 52.36 | | | $ | 53.26 | | | $ | 41.01 | | | $ | 41.31 | | | $ | 33.95 | | | $ | 33.68 | | | $ | 33.32 | | | $ | 34.51 | | | $ | 35.92 | |
Discount for lack of marketability(3) | 13.5 | % | | 10.0 | % | | 10.0 | % | | 8.0 | % | | 6.0 | % | | 16.0 | % | | 15.0 | % | | 18.0 | % | | 19.0 | % | | 15.5 | % | | 12.5 | % | | 6.0 | % |
| Remain private scenario: | | | | | | | | | | | | | | | | | | | | | | | |
Scenario probability weighting(1) | 50.0 | % | | 40.0 | % | | 25.0 | % | | 20.0 | % | | 20.0 | % | | 25.0 | % | | 25.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % | | 30.0 | % |
Marketable value per share (OPM)(4) | $ | 27.89 | | | $ | 31.09 | | | $ | 27.28 | | | $ | 27.31 | | | $ | 27.94 | | | $ | 24.59 | | | $ | 26.31 | | | $ | 19.91 | | | $ | 21.74 | | | $ | 19.58 | | | $ | 20.37 | | | $ | 21.81 | |
Discount for lack of marketability(3) | 30.0 | % | | 27.5 | % | | 30.0 | % | | 29.0 | % | | 26.5 | % | | 25.0 | % | | 24.0 | % | | 25.5 | % | | 25.5 | % | | 23.5 | % | | 20.5 | % | | 14.0 | % |
| PWERM Discounted Value: | | | | | | | | | | | | | | | | | | | | | | | |
| Probability weighted discounted value | $ | 36.49 | | | $ | 43.10 | | | $ | 40.33 | | | $ | 42.42 | | | $ | 44.16 | | | $ | 30.45 | | | $ | 31.33 | | | $ | 23.29 | | | $ | 23.40 | | | $ | 23.54 | | | $ | 25.29 | | | $ | 29.27 | |
| Probability weighted discounted value weighting | 75.0 | % | | 75.0 | % | | 75.0 | % | | 75.0 | % | | 75.0 | % | | 75.0 | % | | 75.0 | % | | 75.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 75.0 | % |
| Secondary Sales: | | | | | | | | | | | | | | | | | | | | | | | |
Secondary sale marketable value per share(5) | $ | 42.86 | | | $ | 69.07 | | | $ | 57.31 | | | $ | 57.76 | | | $ | 58.06 | | | $ | 47.22 | | | $ | 46.84 | | | $ | 39.71 | | | $ | — | | | $ | — | | | $ | — | | | $ | 29.25 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Secondary sale weighting(6) | 25.0 | % | | 25.0 | % | | 25.0 | % | | 25.0 | % | | 25.0 | % | | 25.0 | % | | 25.0 | % | | 25.0 | % | | — | % | | — | % | | — | % | | 25.0 | % |
Concluded fair value per common share | $ | 38.08 | | | $ | 49.59 | | | $ | 44.57 | | | $ | 46.26 | | | $ | 47.63 | | | $ | 34.64 | | | $ | 35.21 | | | $ | 27.39 | | | $ | 23.40 | | | $ | 23.54 | | | $ | 25.29 | | | $ | 29.27 | |
_______________
(1)We increased our weighting of the IPO scenario from 50% as of September 16, 2021 to 60% as of December 13, 2021 as a result of changes in our expectations of a liquidity event. As of December 13, 2021, we engaged underwriters and legal counsel, and were planning to submit a draft Registration Statement on Form S-1 to the SEC in December 2021. We increased our weighting of the IPO scenario to 75% and 80% as of February 16, 2022 and March 24, 2022, respectively, as a result of progression in the offering, including the submission of amendments to our draft registration statement. We decreased our weighting of the IPO scenario to 75% as of June 30, 2022 and to 65% as of November 3, 2022 as a result of delays in the expected timing of our initial public offering. The weighting of the IPO scenario remained flat at 65% from November 3, 2022 to August 3, 2023 as there were no changes in the expected timing of our initial public offering. We increased our weighting of the IPO scenario to 70% as of December 30, 2023 as a result a decrease in expected time to a liquidity event and therefore an increase in the probability of a liquidity event at that date.
(2)The decreases in marketable value per share in the IPO scenario from $63.12 on December 13, 2021 to $52.68 on February 16, 2022, from $53.26 on April 13, 2022 to $41.01 on June 30, 2022, and from $41.31 on August 4, 2022 to $33.95 on November 3, 2022, were largely driven by the market volatility and global geopolitical instability during the year ended December 31, 2022 and resulted in a decrease in our guideline company exit multiples under the market approach. The marketable value per share in the IPO scenario remained relatively flat from $33.95 on November 3, 2022 to $33.68 on February 9, 2023, $33.32 on May 4, 2023, and $34.51 on August 3, 2023, as there were no changes in the expected timing of our initial public offering. The marketable value per share in the IPO scenario increased slightly from $34.51 on August 3, 2023 to $35.92 on December 30, 2023 as a result of a decrease in the expected time to a liquidity event.
(3)We decreased our discount for lack of marketability to 10% and 27.5% as of December 13, 2021 for the IPO and remain private scenario, respectively, due to the corresponding increase in the probability of a liquidity event. We further decreased our discount for lack of marketability from December 13, 2021 through April 13, 2022 for the IPO and remain private scenario due to the corresponding increase in the probability of a liquidity event. We increased our discount for lack of marketability from April 13, 2022 to February 9, 2023 as a result of delays in the expected timing of our initial public offering. We then decreased our discount for lack of marketability to 15.5% and 23.5% as of May 4, 2023, and to 12.5% and 20.5% as of August 3, 2023, and to 6% and 14% as of December 30, 2023 for the IPO and remain private scenario, respectively, due to a decrease in time to a liquidity event and therefore an increase in the probability of a liquidity event at each of those dates.
(4)The remain private marketable value per share as of September 16, 2021 was determined using an OPM, which considered the Series F and Series F-1 convertible stock offering price of $61.79 per share to determine the enterprise value using the backsolve method. The Series F and Series F-1 convertible preferred stock has economic rights and preferences over our common stock, including specific liquidation preferences and anti-dilution factors, which resulted in the premium in value of the Series F and Series F-1 convertible preferred stock over the marketable value of our common stock.
(5)The secondary sale marketable value per share for the September 16, 2021 valuation represents the weighted-average sales price of the tender offer and June 2021 secondary sales. The secondary sale marketable value per share for the December 13, 2021 valuation represents the weighted-average sales price of the November and December 2021 secondary sales. The secondary sale marketable value per share for the February 16, 2022, March 24, 2022, and April 13, 2022 valuations reflect a discount to the weighted-average secondary price per share of the November and December 2021 secondary sales. This discount is commensurate with the fluctuations in the marketable value per share in the IPO scenario. The overall decrease from December 13, 2021 was largely driven by the market volatility and global geopolitical instability during the year ended December 31, 2022. The secondary sale marketable value per share for the December 30, 2023 valuation represents the weighted-average sales price of the October and December 2023 secondary sales.
(6)The secondary sale weighting was zero as of February 9, 2023, May 4, 2023, and August 3, 2023 as there were no secondary sales transaction in the twelve months preceding each of those dates.
Recent Accounting Pronouncements
See Note 2—Basis of Presentation and Significant Accounting Policies of the notes to our consolidated financial statements included elsewhere in this prospectus for any recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of the statement of financial position included in this prospectus.
Emerging Growth Company Status
We are an emerging growth company as defined under the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards would otherwise apply to private companies. While we have not historically delayed the adoption of new or revised accounting standards until such time as those standards would apply to private companies, we elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies through December 31, 2022. As a result, our financial statements for the year ended December 31, 2022 may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Beginning January 1, 2023, we have elected to irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, we will comply with new or revised accounting standards at the time when adoption of such standards is required for public companies that are non-emerging growth companies.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate risk and foreign currency risk as follows:
Interest Rate Risk
We had cash and cash equivalents of $435.8 million and $401.2 million at December 31, 2022 and 2023, respectively. We had marketable securities of $830.7 million and $811.9 million at December 31, 2022 and 2023, respectively. Our cash and cash equivalents consist of cash in bank accounts, money market accounts, and other highly liquid investments with original maturities of 90 days or less from the date of purchase. Marketable securities consist of U.S. and non-U.S. government securities, investment-grade corporate and government agency securities, certificates of deposit, and commercial paper. Our investment policy and strategy are focused on the preservation of capital and supporting our liquidity requirements. We do not enter into investments for trading or speculative purposes. Due to the relatively short-term nature of our investment portfolio, a hypothetical 100 basis point change in interest rates would not have a material effect on the fair value of our portfolio or our consolidated financial statements for the periods presented.
Foreign Currency Risk
For the years ended December 31, 2022 and 2023, the majority of our revenue and operating expenses were denominated in U.S. dollars. We therefore have not had material foreign currency risk associated with sales and cost-based activities. For the years ended December 31, 2022 and 2023, our operations outside of the United States were not considered material and our results of operations and cash flows were minimally subject to fluctuations from changes in foreign currency rates. We believe the exposure to foreign currency fluctuation from operating expenses is immaterial at this time as the related costs do not constitute a significant portion of our total expenses. As we grow operations, our exposure to foreign currency risk will likely become more significant. For the years ended December 31, 2022 and 2023, we did not enter into any foreign currency exchange contracts for purposes of hedging foreign exchange rate fluctuations on our business operations, although we may elect to do so in the future.
BUSINESS
Our Mission
Our mission is to bring community, belonging, and empowerment to everyone in the world.
We built Reddit with the belief that communities unlock the power of human creativity and create a sense of belonging and empowerment for their members. Our over 100,000 active communities have channeled the power of human creativity to grow Reddit since our founding. We believe the world needs community more than ever, and that this represents our greatest opportunity to further enrich the lives of everyone in the world.
Overview: The Power of Reddit’s Communities
Reddit is a global, digital city where anyone in the world can join a community to learn from one another, engage in authentic conversations, explore passions, research new hobbies, exchange goods and services, create new communities and experiences, share a few laughs, and find belonging. People are diverse and have multiple interests. Just like in a city, where citizens are part of multiple subcommunities, on Reddit, users often belong to multiple communities. At Reddit, users can dive into anything, and if a community does not already exist around a particular topic, they can create one. In December 2023, more than 500 million visitors(1), and in the three months ended December 31, 2023, an average of 73.1 million daily active uniques (“DAUq”), around the world came together on Reddit – continuously adding to our longstanding and constantly evolving human archive of information. They come together to share the rhythm of their daily discoveries, ask questions and receive advice, research before making a purchase decision, hear reactions to recent events, and thrive as a community. Built on shared interests, passion, and trust, Reddit has a community for everyone.
Communities on Reddit are organized based on specific interests and are called subreddits. Within subreddits, Redditors engage in active and in-depth conversations by sharing experiences, submitting links, uploading images and videos, and replying to one another in comment threads on any topic. Subreddits are denoted by an “r/” before their names: r/ explainlikeimfive helps people learn anything with child-friendly explanations; r/ lgbt helps people find their identity; and r/ BeyondTheBump helps people transition from pregnancy to parenthood. Redditors invest time to shape their communities, share their experiences, send support and supplies when someone is down on their luck, and even code scripts and develop tools to advance their communities.
Similar to how cities are made from cement and steel, but are really built by their citizens, Reddit is made from code and algorithms, but is really built by our users. It is a place where human ingenuity and creativity thrive. We empower users to participate and to shape Reddit by sharing content, upvoting or downvoting, and commenting. In addition, Redditors themselves not only create and build communities, but they also moderate these communities as volunteers to help keep them safe, vibrant, and true to themselves. Like cities, we design tools that give communities what they need to make their communities their own and evolve over time, rebuilding and reshaping by adapting to new technologies and reflecting new cultural trends. Newly created subreddits create a sense of belonging for their members, spurring the creation of more new subreddits to continue the cycle. In this way, Reddit’s community ecosystem grows and expands with the interests and passions of our users, keeping Reddit on trend and resilient to fading fads.
Reddit’s community ecosystem is organically built upon shared interests, passions, and trust rather than friends, celebrities, and their followers. This distinction results in a unique sense of belonging, privacy, and authenticity for our users. We do not require that users disclose their identities, freeing them from having to perform and the associated pressures to always appear perfect. As a result, users come to Reddit for fundamentally distinct purposes, with each adding incremental value to our entire community. Redditors are free to be vulnerable or ask questions they would not be able to ask anywhere else.
(1) Each visitor is a user whom we can identify with a unique identifier who has visited a page on the Reddit website or opened a Reddit application at least once during the month. We use unique identifiers to deduplicate multiple visits from the same visitor. Our monthly visitor number involves a similar calculation process as our weekly active unique (“WAUq”) metric and daily active unique (“DAUq”) metric, except over a longer period of time.
Powerful Advertising Engine Built Around Context and User Interest
These qualities not only make the experience more enjoyable for users, they also make Reddit a unique platform for advertisers due to our intentional, authentic, trusted nature and our strength in contextual and interest-based advertising. For advertisers, we provide access to a unique and highly engaged audience where our trusted, passionate communities drive recommendations on brands and buying decisions. Whether users come to Reddit through a third-party search engine or if they initiate their search on Reddit, our users often have high intent – they are looking for answers or recommendations that they can trust, and these users can benefit from the conversations and contextual ads that are displayed on Reddit. According to a 2023 survey we commissioned of 4,000 U.S. Redditors aged 18 and older (the “Vertical Path to Purchase Survey”), 75% of respondents said they believe Reddit is a trustworthy place to inform their decision to buy a new product across specified consumer product categories.
A Valuable Source of Conversational Data and Knowledge
Over time, Reddit has evolved to become one of the internet’s largest corpuses of information, with over one billion posts and over 16 billion comments through December 31, 2023, and was among the top ten most-visited sites in the United States in December 2023, according to Similarweb. Our content is particularly important for artificial intelligence (“AI”) – it is a foundational part of how many of the leading large language models (“LLMs”) have been trained. Furthermore, we use internally built and trained models to improve many aspects of Reddit, including user onboarding, content translation, and moderation and safety. Our massive corpus of conversational data and knowledge is what makes us unique, and we believe its value will continue to grow over time as our user-generated data continues to grow.
Entrepreneurial User Economy
Commerce is another area of growth that has emerged organically on Reddit. In fact, new community-based marketplaces have already sprung up specifically for commercial purposes, such as r/ PhotoShopRequest, where users can request photoshop services for payment, or r/ RandomActsofCards, where users request and send cards to each other and spread a little bit of joy around the world. We want to develop this user-powered economy on Reddit by providing our users and creators with the requisite tools and incentives to drive continued creation, improvements, and commerce. In turn, we believe these initiatives will open additional monetization channels for us.
Our high gross margin and capital-efficient business model is simple and scalable and allows us to invest deliberately in our global opportunity. Our revenue for the years ended December 31, 2022 and 2023 was $666.7 million and $804.0 million, respectively, representing growth of 21%. Our gross margin for the years ended December 31, 2022 and 2023 was 84% and 86%, respectively. During these periods, we continued to invest in growing our business. Our net loss for the years ended December 31, 2022 and 2023 was $(158.6) million and $(90.8) million, respectively. Our Adjusted EBITDA for the years ended December 31, 2022 and 2023 was $(108.4) million and $(69.3) million, respectively. For more information and for a reconciliation of Adjusted EBITDA to net income (loss), see “Selected Consolidated Financial Data—Adjusted EBITDA.”
Communities and Redditors
Reddit is a community of communities where users come to connect with others with similar interests. Many Redditors find and come to our platform to express themselves and explore their interests, as well as to understand elements of other people’s experiences and perspectives.
When Reddit first launched in 2005, we began as one large community where users across the internet could come together to find belonging, trust, and shared interests and to discuss passions. At Reddit, people of all interests and backgrounds were welcomed and engaged with one another by sorting through our home page and jumping into conversations that resonated with them. As time passed, the number of users and breadth of topics grew virally, and we saw an opportunity to help Redditors better create, find, and join communities that were most relevant for them. With that in mind, we introduced subreddits in 2008. Subreddits are communities that are organized based on specific interests and allow Redditors to engage in active and in-depth conversations by sharing stories, submitting links, and engaging with one another.
This spirit of belonging has led to communities of all types. With over 100,000 active communities, Redditors can stay and broaden their engagement with us throughout the different stages of their lives, as illustrated by Jonas and Alexandra in the following examples:
Jonas has been a member of our community since 2011, and found Reddit when he was looking to learn how to build a computer. He found a community—known as a subreddit on our platform—called r/ buildapc, and was immediately drawn into the incredibly knowledgeable and welcoming group. The subreddit’s posts were exactly what he had been looking for, and soon enough he found himself engaging with the content directly—asking questions, offering advice to newer builders, delivering feedback on others’ builds, and posting links to sales as an active and trusted member of the community. Reddit became an integral part of his daily routine—log in, browse the front page for memes and interesting PC discussions, and find new PC building subreddits (r/ watercooling and r/ hardwareswap quickly became two favorites). When Jonas finally built his computer, it was a reflection of the r/ buildapc community, and he thanked the community by posting the final product in the subreddit. He did not just build a PC; he found his place in a community of symbiotic subreddits that provided him with valuable insights and empowered him to have a voice.
Jonas’s place in the Reddit community evolved alongside him. As he grew out of his young adult years, he joined various fashion communities. It felt like the r/ buildapc days, but instead of spending hours reading dense paragraphs comparing processors, he flipped through gallery upon gallery of aesthetic inspirations and shared his own outfits. The community empowered Jonas to experiment and express his authentic self—all in a safe, supportive, low-stakes environment where he could take risks without the social pressures that usually held him back. This pattern of Reddit engagement continued to grow with him: r/ GradSchool and r/ FinancialCareers became important communities to him as he graduated from college; r/ investing and r/ Watchexchange when he got his first real paycheck; and r/ personalfinance and r/ Cooking when he was learning important elements of adulthood.
Alexandra, another Redditor, has always valued contributing to her community. As a high school and college student, she volunteered with local environmental stewardship organizations, food banks, and programs for the elderly. Her drive to help others led her to choose a career in healthcare administration. But shortly after turning 32, Alexandra’s world was knocked off its axis when she was diagnosed with breast cancer. Alexandra was faced with a complicated and scary new reality not long after moving across the country. She was far from family, friends, and had left behind the volunteer communities that had also provided her support in her young adult years. Alexandra joined the r/ breastcancer community on Reddit after finding limited options to connect with other patients for support—a problem, especially for younger patients. Alexandra dove deep into the community and leaned on fellow Redditors for help, support, and guidance. She had found a home among people sharing their challenges, their experiences, and their empathy for each other. One day, Alexandra saw someone with a question she knew she could answer, and she began commenting and sharing her own experiences. Alexandra’s professional background in healthcare and data analytics gave her a huge advantage when it came to interpreting scientific information, navigating cancer decisions, and advocating for herself as a patient. She began posting more often and formed connections with new community members. And then, as her journey through chemotherapy, radiation, and many surgeries came to a successful end, she knew that she wanted to continue to share her skills and patient insight with the breast cancer community. Alexandra answered the call for new moderators to join the subreddit and found an opportunity to volunteer once again.
As a moderator, Alexandra first helped point people to relevant information and removed unwelcome posts. But soon her love for the community grew, as well as her ambitions for it. She began promoting the community to the specialists who treated her cancer and worked with other moderators to start weekly threads. New people joined the community every day, grateful for the information and the connection, and as the community grew, Alexandra felt like she was helping people at a scale she never had before. The growth of the community was delightful for Alexandra, but her personal growth was even more valuable. Through her interactions in the community, she became aware of problems that breast cancer patients experience every day, like being given a crushing diagnosis via a patient portal or navigating byzantine insurance systems. Alexandra’s career is focused on delivering quality healthcare experiences and outcomes. Because of her volunteerism on Reddit, she is now able to bear in mind not only her personal cancer journey, but those of countless others as she strategizes new quality programs for her radiology providers. Alexandra has become a beacon of knowledge in her chosen field of work, not just due to her
own experiences, but because of her deeply personal connection to Redditors whom she has helped around the world.
Jonas and Alexandra found belonging on Reddit, and have been empowered over time in more and more parts of their lives thanks to the Reddit community.
Why Users Come to Reddit
The internet has given people the tools to redefine how we live. We have search engines to find content and social networks to share and follow each other. Our community of communities sets itself apart with its unique combination of characteristics and is designed to provide users with a trusted place to be authentic to themselves in sharing and discovering while maintaining their privacy.
Open, Growing Archive of Human Knowledge (2005– )
Over the last 18 years, Reddit has become one of the internet’s largest open archives of human experiences. With over one billion posts and over 16 billion comments organized into communities, Reddit content provides authentic, human perspectives across almost any topic imaginable. Most of this vast collection of content is publicly accessible to everyone on the internet by design, with many subreddits that do not require a login. Our constantly updated user-generated content provides a vast collection of human experiences, answers, and conversations and provides a source of fresh ideas. Reddit’s influence and relevance organically grows, and Reddit quickly responds to new topics based on real experiences. Topical communities such as r/ travel, r/ vanderpumprules, r/ MachineLearning, r/ cricket, r/ boxoffice, and r/ TaylorSwift have had meaningful breakouts as the headlines have evolved. As a result of Reddit’s scale and longevity, our content library is a broad memory of human interest, organically expanding and deepening into more topics. At times, Reddit may be the only place to find the information users are looking for, and users searching for information often come to Reddit and discover conversations taking place there.
Centered on Interests, with Unmatched Breadth and Depth of Human Knowledge
Time spent on Reddit is guided by personal intention and interests. Breadth of communities and depth of engagement means that Redditors benefit from a trove of knowledge organized by topic that we believe is unmatched by any other internet platform. We bring together the power of user-generated content with an open community structure that enables people to find content and communities relevant to them. Reddit is home to over 100,000 active subreddits, which cover a wide variety of topics—r/ wholesomememes, r/ philosophy, r/ Pets, r/ InteriorDesign, r/ NBA, and r/ worldnews, to name a few—and can be creative, humorous, informative, inspirational, absurd, serious, or contemplative. Communities vary in size, and as of December 2023, there were over 500 communities with at least one million subscribers, including communities like r/ askreddit and r/ politics. Redditors create experiences in the communities through their user-empowered content and sharing, and authentic approach to creation. We generally find that the longer Redditors have been on Reddit, the more engaged they become. As of December 2023, when someone first makes an account, the average active minutes for logged-in users on Reddit starts at approximately 20 minutes per day, but increases to over 35 minutes a day for those who have been on Reddit for over five years and even over 45 minutes a day for those who have been on Reddit for over seven years. Additionally, users tend to join more subreddits as their tenure increases, with a median of five subscriptions for users who have been on Reddit for less than one and a half years and 43 subscriptions for users with a tenure of four and a half to six years. Breadth, depth, and trusted content are some of Reddit’s defining features. According to a 2023 survey we commissioned of almost 800 U.S. Redditors (the “User Perceptions Survey”), 95% of respondents said there is a community for everyone on Reddit, 85% said Reddit is where they learn about the topics they love the most, and 83% recognized conversations on Reddit as more on-topic than anywhere else on social media, each result being higher than what respondents say for Discord, Facebook, Instagram, Pinterest, Snapchat, TikTok, X, and YouTube.
People-powered Curation for Authentic Interactions and Trusted Content
Our differentiated community approach underlies the interactions on our platform: Reddit is centered around human creativity and belonging. The content found in Reddit communities is curated by people, creating a highly relevant content experience that attracts users to our platform. Every post and comment on Reddit, regardless of the
author, starts with one upvote, and must earn its visibility through community members upvoting it and boosting it to the subreddit’s front page. Unlike traditional social media, voting (both up and down) is completely anonymous, encouraging broader Redditor participation. This unique upvoting and downvoting system not only curates the quality and relevance of content, but also determines the prominence of a certain piece of content. According to the User Perceptions Survey, 76% of respondents pay more attention to things they see on Reddit than the things they see on other social media platforms. In a separate survey we commissioned of almost 500 U.S. Redditors, 76% of respondents agreed that “people post things that are honest and truthful,” which was higher than each of Facebook, Instagram, Snapchat, TikTok, X, and YouTube. We believe community-driven promotion of content leads to greater trust of the content on Reddit.
Authentic and Trusted Recommendations
Reddit’s community-powered recommendations are a foundational part of why so many users visit Reddit on a daily basis. At Reddit, users can ask for hyper-specific recommendations like, “What shoes last the longest on NYC pavement?” and receive dozens of personalized responses suggesting different brands, shoe types, or even shoe care techniques – recommendations that are all based on real human experiences. In a world where consumers are increasingly inundated with curated messaging and product placement, Reddit stands out as a refreshing alternative, offering authentic human recommendations that people can actually trust. Furthermore, recommendations are validated through upvotes and downvotes to instill confidence in potential consumers. We see that trust reflected in the high velocity of people coming to Reddit to find great content and trusted recommendations. In 2023, every second an average of two users asked for a recommendation, each yielding an average of 14 personalized responses. According to a 2023 survey we commissioned of Redditors across the United States, the United Kingdom (the “UK”), Australia, Canada, and Germany aged 18 and over, 94% of 4,500 respondents reported that they engaged with recommendation content on Reddit in the last year, and 73% of 1,845 respondents said they are likely to follow the guidance of recommendations they receive on Reddit when considering an important purchase.
Flexible Canvas for Self- and Community-expression
Every subreddit is a flexible canvas for communities to express themselves through a customizable experience. We give communities the ability to choose the format for conversations in their communities—text, image, video, opinion polls, chatrooms—which enables them to create dynamic and engaging experiences. We give moderators the creative tools to design the look and feel of communities, and we give developers an open application programming interface (“API”) to build bots and create features that shape their communities, meaning what a community envisions for itself drives its unique development.
Communities on Reddit can serve many purposes. In the Reddit ecosystem, many communities will spring up around a single topic, with each subreddit branching out to explore a subtopic or related concept of the original idea. For example, there are numerous photography communities, including: r/ analog for film photography; r/ SonyAlpha for Sony brand photographers; r/ photomarket for buying and selling photography gear; r/ photocritique for photo critiques; and r/ iPhoneography for the iPhone photographers of the world. Our communities also respond quickly to new topics. As generative AI garnered headlines, we saw an over 170% increase in mentions of “Gen-AI” on Reddit during the year ended December 31, 2023 when compared to the prior year. In addition, r/ MachineLearning had approximately 2.8 million subscribers as of December 31, 2023. Supporting the connections between communities and the free flow of ideas across our platform is instrumental to how our communities thrive and expand.
Layered Moderation, Community Management, and Safety Supports Trust
We are committed to continuously enhancing our policies and processes to promote the safety of users and moderators, and the health of our platform. Our approach is akin to a democratic city, wherein everyone has the ability to vote and self-organize, follow a set of common rules, and establish community-specific norms. This approach gives Redditors a voice and agency in the process and also means that any content that gains traction on Reddit has been reviewed in context by humans.
Users can up- and down-vote content, which helps push valuable, healthy content to the top of conversations and bad content to the bottom. In addition, communities self-organize and create subreddit-level rules that are tailored to their unique circumstances, and volunteer moderators within the community enforce those rules.
Moderators have context as leaders and members of their communities to define and enforce the rules to create a harmonious community experience. They play a critical role in shaping the culture and focus of each community on Reddit. The result is that each community has its own unique environment in which Redditors can express their genuine perspective and share real experiences while discouraging bad behavior. Our Community Management team engages with moderators through various programs, including moderator councils and moderator events, and also enforces the Moderator Code of Conduct.
We backstop this bottoms-up organic moderation engine with our site-wide Content Policy, a set of overarching rules and policies that govern all content on Reddit. Our Content Policy is intended to be protective, not intrusive. It helps protect against harassment, bullying, and violence – especially hate based on identity or vulnerability. These site-wide rules are enforced by both volunteer moderators and Reddit employees and are supported by both automated tools and manual review.
Moreover, users have complete control of their identity while using Reddit. We empower people to share as much or as little personal information as they want to as they explore their interests, giving them the freedom of privacy and safety from judgment. By curating their own spaces and sharing only what they feel is appropriate in each, our users thrive.
Our Strategy for Growing Users and Engagement
Our strategy is to support the growth and engagement of our communities. We aim to become Redditors’ first choice when they are exploring their passions, looking for entertainment, or keeping tabs on culture and news. Accomplishing this goal will require us to expand and transform our platform to keep pace with the constantly evolving needs of our Redditors and advertisers. In addition, we expect that AI can improve many aspects of our platform. We are investing in ways to harness AI to make the user experience more personalized and safer and to improve our search capabilities, which we expect will increase user engagement and retention. We further expect AI to improve our ability to localize content from one region to another as we seek to expand internationally and to inform our ability to moderate content.
We intend to grow users and engagement through the following initiatives:
•Grow Awareness of Reddit. We have primarily grown organically, as the content of our communities draws in Redditors. We plan to expand the ways people become aware of Reddit through various strategies depending on the type of use case and user, including search engine optimization and partnerships. We have also invested in improving our off-platform presence by making it easier to share and embed Reddit content on other surfaces and websites.
•Grow Engagement. We had an average of 73.1 million DAUq and 267.5 million WAUq in the three months ended December 31, 2023. In the six months ended December 31, 2023, we added at least one million average DAUq every month and averaged 76.0 million DAUq in December 2023. We believe that there is a significant opportunity to convert many of the users who come to Reddit on a weekly or monthly basis to become daily users. We plan to continue to grow engagement by focusing on:
◦Improving Discovery and User Experience. We want to make it easier for new and existing Redditors to discover relevant communities and content. To that end, we are applying machine learning to improve the classification of our content and interest-based recommendations. For example, we are deploying internally built models to improve the experiences of Redditors by increasing the likelihood that their posts will qualify for a particular subreddit. In July 2023, we introduced the Communities Tab, a new dedicated surface for Redditors with curated lists of popular communities within specific interest groupings to aid in discovery. In addition, we want the basic features of Reddit to be faster, easier to use, and more accessible, including posting into communities, finding and creating new communities, and moderating communities. For example, recent investments to improve speed and usability for users resulted in an experience that was twice as fast as the prior experience. We also want people who come in through search, word-of-mouth recommendation, or sharing, to experience faster and easier onboarding. We believe that the recent increase in the year-over-year growth of our DAUq is in part a result of our early efforts across these initiatives.
◦Elevating Conversations and Video. We believe that our investments and efforts to grow engagement and the richness of our communities through more video and more vibrant conversations will continue to convert our massive monthly reach into more daily users. In December 2023, we experienced approximately 35% growth in the number of videos watched for 10 seconds or more and an approximately 16% increase in daily active video viewers compared to December 2022. We also recognize that conversations are the heart of Reddit, with 27% of almost 3,200 Redditors surveyed across the United States, the UK, France, Germany, Mexico, and India identifying “reading comments” as their top task to complete. In addition, we are focused on reducing the time it takes for users to access conversations, as well as providing them with better guidance on community rules when they comment to reduce moderated actions. These initiatives also allow for new and additional ways for brands to engage with Redditors in their communities.
◦Modernizing Search. With millions of users finding and exploring Reddit’s diverse archive of communities and conversations through third-party search, we believe search represents a meaningful opportunity for us to drive future user growth and retention. While we are still in the early innings, search is already a key action taken on Reddit with an average of over 35 million daily search queries directly on Reddit in December 2023. We recognize the importance of search, and have made significant investments to make searches more relevant and drive deeper engagement. We have observed 30% higher week-one retention (which measures the percentage of users who return to Reddit eight to 14 days after first accessing Reddit) in users with any search activity compared to all users from October 2023 to December 2023. We have also introduced significant improvements to our search capabilities and speed, simplifying our search experience, improving search outcomes through our partnership with a leading search partner, and making it easier for Redditors to search for content.
◦Customized Content Recommendations. We utilize AI to recommend relevant posts and communities, utilizing factors such as search queries, post topics, and engagement with similar users to enhance both the search and discovery experience. This recommendation engine powers our entire platform, selecting and ranking content on the home feed, in a post detail page, within the communities, and in notifications and emails. We believe our investments in AI have improved new user onboarding and driven engagement with existing users. For example, we re-trained our New Home Feed ranking with significantly more data and user signals. In the three months ended December 31, 2023 compared to the three months ended June 30, 2023, we observed an increase of over 30% in “Good Visits,” defined as a user consuming a post for more than 30 seconds.
•Grow Our International User Base. During the three months ended December 31, 2023, approximately 50% of Redditors visited the platform from outside of the United States. In the three months ended December 31, 2023, over 90% of all Reddit posts were made in English. We see a massive opportunity to grow in geographies outside of the United States and in languages beyond English. We are beginning the work of translating our corpus of conversational data using translation models to multiple different languages to increase our international growth. In particular, we are focused on growing Redditors in the UK, France, Spain, Germany, Brazil, and India. We are focused on these markets because they represent large populations as well as attractive advertising markets. Our strategy to land in these markets and then grow is centered around offering users culturally relevant and location-specific content. With over 12 million DAUq in these markets for the three months ended December 31, 2023, we have many initiatives to capture the massive growth opportunity; at present, we have slightly more than 1% penetration of the approximately 1.1 billion internet users in these six strategic markets. We also intend to use the Community Tab, machine-translated content, and highly relevant push notifications to help international users find and engage regularly with locally relevant and trending content. We have captured increased international momentum, with an average of 36.7 million international DAUq for the three months ended December 31, 2023, representing 21% growth year over year.
Why Advertisers Come to Reddit
Reddit is the place where people, entities of public interest, and businesses come together to engage in human-to-human conversations relevant to their interests. Across our diverse communities, people seek and share
information in context about products and services, often with high purchase intent. We have made investments and acquisitions that have enabled us to be a leader in contextual and interest-based advertising. Advertisers of all sizes rely on Reddit to find high-intent customers that they are not able to reach on traditional social media platforms.
Advertisers come to Reddit for distinctive benefits:
•Contextual and Interest-based Advertising. People on Reddit are exploring and engaging in over 100,000 active communities, making Reddit a high-quality environment to reach people when they are in a mindset to discover and seek information. Reddit’s advertising platform enables marketers to find relevant audiences on the Reddit platform using our interest graph and to reach users in contextually relevant communities and content, using conversational and engaging formats. According to the User Perceptions Survey, 85% of respondents said Reddit is where they learn about the topics they love most. For example, an advertiser with a camping product can reach people who visit outdoor activity communities such as r/ CampingandHiking or r/ Outdoors. Reddit’s unique community structure and interest-driven model acts as a strong signal for advertisers. According to the same survey, 61% of respondents said that they believe that ads on Reddit are more relevant than on other sites, and 61% of respondents stated that they pay more attention to ads on Reddit than on other sites. During the three months ended December 31, 2023, 90% of our managed advertisers used first-party Reddit data from user activities on our platform.
•Ability to Connect with a High-Intent Audience Seeking Recommendations on the Path to Purchase. Many people come to Reddit, directly or through search, to find trusted recommendations across every phase of the purchase funnel. According to the Vertical Path to Purchase Survey, 75% of respondents said they believe Reddit is a trustworthy place to inform their decision to buy a new product across specified consumer product categories. Furthermore, according to a 2023 survey we commissioned of 4,500 Redditors across the United States, the UK, Australia, Canada, and Germany aged 18 and over, 94% of respondents reported that they engaged with recommendation content on the platform in the last year. Of the approximately 3,700 survey respondents who reported they engaged with recommendation content on Reddit, 93% said they were satisfied with the recommendations they read. The conversational nature of the platform allows users to discover new products and services at the start of their purchasing journey. According to the Vertical Path to Purchase Survey, 80% of those surveyed said that they find immediate answers to specific questions on Reddit when deciding to buy a new product across specified consumer categories. Additionally, these conversations create a unique opportunity for advertisers to engage Redditors who are considering brands and products. According to a 2023 survey we commissioned of 1,845 Redditors across the United States, the UK, Australia, Canada, and Germany aged 18 and over, 73% of respondents said they are likely to follow the guidance of the recommendations they receive on the platform when considering an important purchase. They are also open to advertising, with 61% of Redditors in the market for a new product or service across a variety of categories saying they would “purchase a product/brand if I saw an ad about it on Reddit,” and 73% of Redditors surveyed agreeing that they “can make a faster purchase decision based on experiences shared by other Redditors,” according to the Vertical Path to Purchase Survey. This successful experience is why 90% of monthly Redditors surveyed said they plan to use Reddit the “same or more” in the year ahead when it comes to researching their purchases, according to a 2023 survey of almost 2,000 Redditors across the United States, the UK, Australia, Canada, and Germany aged 18 and over.
•Unduplicated, Authentic, and Attentive Audience in an Attractive Demographic. In December 2023, the average active minutes on Reddit per logged-in user in the United States was between 25 and 30 minutes per day, and there was an average of 73.1 million DAUq during the three months ended December 31, 2023. During this period, approximately 50% of DAUq were from the United States, and the remainder were from the rest of the world. According to Comscore data about Redditors in the United States aged 18 and over, for the three months ended December 31, 2023, 41% were between the ages of 18 to 34, 50% were male, and 64% had a household annual income of $75,000 or more. Many Redditors are not active on traditional social media platforms; according to Comscore data for the three months ended December 31, 2023, of people who visited Reddit in the United States, 32% were not active on Facebook, 37% were not active on Instagram, 73% were not active on Snapchat, 41% were not active on TikTok, and 53% were not active on X. Because Reddit is interest-driven versus friends-and-follower driven, and because Redditors
have control over their identity, they often seek information on topics important to them that are not visible to social media platforms. For example, a Redditor might privately explore how to cure their acne, but they are unlikely to share this with friends on other platforms publicly. As such, Reddit offers advertisers a chance to reach users that other platforms cannot in the most contextually relevant ways.
•Gain Access to a Platform with Data Signals that is Built to Respect Privacy. Privacy is core to Reddit’s DNA, culture, and values. We are committed to building a business that is aligned with respecting users and giving them control over their data privacy. The performance of our advertising model is based on first-party data from user-directed activities on the platform, such as the communities that users visit or subscribe to for email digests and the context they are engaging in. The foundation of our ad performance is based on context and interest instead of tracking users based on personally identifiable information. This is unique in the digital advertising marketplace; our lack of reliance on third-party data makes our offering more resilient to the loss of signal that other platforms rely upon as well as forthcoming changes to the internet ecosystem. As consumers and regulatory bodies become increasingly focused on privacy, our approach supports transparency and respect for privacy of our users and our advertisers.
•Action-Oriented Outcomes that Drive Attractive, Measurable Return on Investment. Advertisers can bid in our auctions in a way that aligns with their objectives. They can bid to pay for the people they reach in video views or impressions. Alternatively, they can bid for specific actions that are focused on objectives like mid-stream clicks and downstream conversions or app downloads. Our rich contextual and interest-based audience and marketplace efficiency drives incremental value for its advertisers. For example, advertisers saw an average return on ad spend of $2.21 for every $1.00 spent on Reddit between 2020 to 2022 across selected advertising campaigns commissioned by food and beverage companies, according to an NCSolutions 2023 meta-study. We work with our marketing measurement partners to measure the impact of their campaigns on Reddit.
•Multiple Layers of Brand Safety and Customizable Controls. Beyond our multiple layers of moderation and safety across platform content, we also offer advertiser-level controls. Our Content Policy establishes the type of content that is not allowed across all communities, with community rules determining content within each community. In addition, our brand safety approach includes proactive solutions focused on creating a safe environment for any business on Reddit by showing ads in communities and alongside
content that has been reviewed and deemed appropriate for advertising. As part of the advertiser controls, we offer inventory tiers and keyword exclusion lists to enable advertisers to reach as many people as possible, while controlling where their ads appear. We also offer a suite of partnerships with third-party verification companies, including MOAT on brand safety and an ability to support DoubleVerify viewability.
The Future of Our Platform and Monetization Strategies
Advertising
Reddit is a unique place on the internet, and we believe that we have many avenues to increase value to advertisers through our interest- and community-based platform. We continue to expand our ad platform capabilities to enable more ways for customers to invest to grow their business on Reddit. We plan to increase our revenue from existing advertisers and to attract more advertisers to Reddit. We also plan to provide businesses with profiles and advanced tools to enable them to organically discover and engage with relevant communities and conversations in order to contribute informative and entertaining content and to create a sense of belonging between their brands and our users. We are still in the early phases of our opportunity and plan to pursue the following eight levers to expand our monetization and average revenue per unique(2):
1.More Context and Interest. We plan to continue to add additional contextual and interest-based signals and intelligence into our advertiser platform. We believe this will help advertisers find more relevant audiences on Reddit. This includes existing placements in the home feed and in conversations, as well as potential future opportunities (e.g., ads in comment threads and on search pages; video ads). This provides an opportunity for advertisers of all sizes to find high-intent users they cannot reach elsewhere.
(2) Average revenue per unique (“ARPU”) is defined as quarterly revenue in a given geography divided by the average DAUq in that geography.
2.Deliver ROI with Marketplace Optimizations. We are in the early stages of using machine learning and prediction models to better match supply and demand and deliver return on investment (“ROI”) for our advertisers. We believe these initiatives can drive significant value for advertisers and relevance for users. We are currently focused on using our powerful prediction models to work across objectives, placements, and formats – helping to better predict conversion rates of an ad (e.g., installs; purchases). Additionally, beyond improving the efficiency of the marketplace, we have dedicated efforts to fully and reliably deliver our clients’ budgets to achieve their business objectives. We are also expanding and optimizing our advertising inventory with smarter dynamic ad loading systems. All this builds on our growing understanding of the rich topical content on Reddit to enable advertisers to connect with their customers at the right time and location.
3.Advertiser Diversity and Depth. We plan to increase the types, sizes, and geographies of advertisers we reach and expand annual partnerships for longer-term visibility. Historically, our advertisers were predominantly large, global enterprises. We aim to grow our advertisers from endemic advertisers in verticals where we have the largest number of active communities, like technology and communications; business, legal, and finance; and media and entertainment, to newer verticals such as automotive; retail; consumer packaged goods; pharmaceuticals; and food and beverage. We are focused on geographic markets where we have teams, channel partners, or vendors to help manage small- and mid-size businesses globally. As we expand our sales team into markets outside of the United States, we can bring new advertisers into our ads platform, increasing ad diversity and performance, as well as competition. Although just over half of our user base was outside of the United States, for the three months ended December 31, 2023, only 18% of our advertising revenue was from advertisers outside of the United States. We believe that we can grow revenue contribution from international advertisers by demonstrating our value proposition in these global communities. As we grow the number of Redditors outside of the United States, this increases our opportunity to bring in more advertisers in these regions.
4.Demonstrate ROI. By improving the measurement of our ads, we can provide better data to show our advertisers the ROI of their presence on Reddit. We plan to improve measurement with levers such as more tools for conversion tracking (including a conversion API), on-property-brand and conversion-lift testing, and more measurement pixel, toolkit adoption, and data capture. As such, we expect to drive signal growth, improve signal quality, and build signal resiliency.
5.AI-Powered Audience Reach and Bidding. We are using machine learning models for contextual keyword audience reach and interest-based audience reach, ranking ads based on brand suitability and machine learning-predicted user engagement. Additionally, machine learning-powered “auto-bidding” (e.g., Maximum Clicks and Maximum Conversions) helps advertisers maximize campaign objectives and ROI while avoiding extensive manual testing.
6.Expanded Formats and Offerings. We plan to continue to develop new ad positions based on evolving consumer behaviors on the platform (e.g., video and search usage growth). We plan to expand our ad formats in ways that allow advertisers to creatively talk to communities and share more information (e.g., product-level creative; games). We are in the early stages of expanding conversation-based ads, but we expect this breadth and depth of new ad formats to allow advertisers to build on our unique role in the consumer’s path to purchase and high-intent commercial conversations to help people find products they love in the right place at the right time. In addition to inserting highly contextual ads adjacent to the most relevant conversations, we plan to also introduce new formats like search or shopping ads designed to cultivate a thriving shopping ecosystem by connecting marketers with high-value customers and communities.
7.Automation/Scale Service Model. Through easier onboarding, setup, campaign management, and optimization, we expect to scale our service model through diverse service channels matched to client needs – from managed service models, to hybrid, to enabling advertisers to activate with little to no sales team assistance (i.e., unmanaged). To that end, we have focused on improvements such as reduced complexity in bidding or placement management, to utilizing Reddit’s AI models to algorithmically
generate “Reddit-y” creatives and help advertisers find the best performing audiences. This simplifies core manual optimization tasks needed for more outcomes and better performance.
8.Acquire More Advertisers. With more automation in the future, we believe that we can become even more accessible to a larger portion of small- and medium-sized businesses enabled by partnerships and demand generation. We are also deepening our relationships with large agencies through solutions that enable enterprise operations across large clients. For example, by providing scalable creative asset support—such as leveraging generative AI to create ads on Reddit easily by scraping customer websites and landing pages—we can enable small- and medium-sized businesses to unlock audiences and performance on Reddit. For larger, enterprise-level businesses, we are focused on providing key management tooling to manage accounts and campaigns more easily across our platform. We are also testing a solution, Reddit Pro, to provide a suite of tools to businesses and entities on Reddit, including the ability to onboard and create an official organic presence on the platform, as well as access insights about their business and relevant communities and conversations. We expect this will allow more businesses and entities to engage with our communities on Reddit.
Data Licensing
Reddit is one of the internet’s largest corpuses of authentic and constantly updated human-generated experience. In an increasingly data-driven world, we recognize that this information is increasingly important for a multitude of different uses and applications. We believe the internet should work for consumers and they should be able to find the information they need or experiences they want. And, organizations need to prioritize sources of real-time human perspectives—from a company looking for feedback on a new consumer product to investors trying to capture market sentiments or signals—and Reddit provides a differentiated solution. Reddit data and information constantly grows and regenerates as users come and interact with their communities and each other in genuine and authentic ways. Today, our over one billion posts and 16 billion comments are a foundational part of how leading LLMs have been trained. We expect our growing data advantage and intellectual property to continue to be a key element in the training of future LLMs. Furthermore, in a world increasingly saturated with AI-generated content, we expect users to increasingly seek out and value fresh ideas, and that models will need to refresh their learning from these ideas. As AI and machine learning technology becomes more ubiquitous and used, we believe the importance of Reddit data goes up.
We are in the early stages of allowing third parties to license access to search, analyze, and display historical and real-time data from our platform:
1.Data API Access. Customers can pay to access real-time data streams of anonymous, public discussion on Reddit via data APIs once they exceed certain rate limits. These data APIs are able to provide real-time access to evolving and dynamic topics, such as sports, movies, news, fashion, and the latest trends, unlocking customer use cases such as building third-party applications, behavioral analysis, and algorithmic trading.
2.Model Training. Reddit data is a foundational piece to the construction of current AI technology and many LLMs. We believe that Reddit’s massive corpus of conversational data and knowledge will continue to play a role in training and improving LLMs. As our content refreshes and grows daily, we expect models will want to reflect these new ideas and update their training using Reddit data.
User Economy
Commerce has already emerged on our platform organically as a result of our interest- and community-based approach. Artisans sell their creations, collectors sell beloved items, developers sell entertainment via originally developed video games. This activity has been taking place in communities dedicated to creativity, memorabilia, and fandoms for many years. In fact, new community-based marketplaces have already sprung up specifically for commercial purposes, such as r/ PhotoShopRequest, where users can request photoshop services for payment, or r/ Watchexchange, where users can sell watches. We intend to support the Reddit user economy by providing our
users and creators with the requisite tools and incentives to drive continued creation, improvements, and commerce. In turn, we believe this will open additional monetization channels for Reddit:
1.Developer Platform. We believe that providing developers with additional tools and increased monetization opportunities will further unlock human creativity on Reddit and incentivize continued improvements to the overall user experience and utility of the platform. We believe our developer platform has the potential to become a driver for community-powered innovation and deepen relationships between users and communities; empower users to continuously create, improve, and grow; and ultimately strengthen our community of communities at scale.
2.Contributor Program. As creators, builders, and developers generate value on our platform, we intend to empower these groups to participate in their value creation by receiving monetary benefits from Reddit and other community members. Increasingly, talented individuals are turning to online communities to share their creations with fans, peer creators, and enthusiasts. Reddit has always been a place for creators to share and receive appreciation for talent without the prerequisite of a dedicated following, and we will continue to foster this capability. We are focused on increasing the types of ways that users can recognize contributors with real-world money to incentivize and reward quality content creation – effectively allowing them to invest in the very communities they are a part of. As such, we believe we have an opportunity to supercharge and incentivize content creation, drive further engagement, and allow us to grow new revenue streams beyond advertising.
3.Community Marketplace. Reddit is home to many vibrant user-to-user marketplaces (like r/ PhotoshopRequest, r/ Watchexchange, and r/ SneakerMarket) that enable real-life commerce of digital and physical goods. As of December 31, 2023, we had cumulatively seen over 60,000 photoshop requests and 20,000 watches sold on r/ PhotoshopRequest and r/ Watchexchange, respectively. We also have a Collectible Avatars Creator Program, which empowers users to create, own, and monetize their artistic creations, and for which we receive a portion of the primary sales and royalty fees. Since launching in July 2022, over 30 million connected wallets have been activated.
Our Market Opportunity
Community is a core human need. With over 18 years of accumulated knowledge across various archetypes of communities, our user-generated content provides a vast collection of human experiences, answers, and conversations on almost every topic. We believe the proof of the importance of conversation on Reddit is that unlike most other parts of the internet, the comments on Reddit are at least as valuable as the post itself. At scale and with our longevity, our content library makes Reddit a uniquely valuable place ripe for many streams of monetization. We have a long and successful history of evolving with the internet and are continuing to develop new market opportunities, such as our data licensing business and our vision of creating a user economy on Reddit, two emerging vectors of growth.
Advertising
People come to Reddit in many ways, and the core of our monetization is through advertising solutions based on user engagement. By 2027, we estimate our total addressable market globally from advertising, excluding China and Russia, to be $1.4 trillion.
Our market opportunity is based on the digital advertising market excluding China and Russia, and consists of desktop and mobile web, display, video, and social direct response ads, in addition to search advertising. Using estimates from S&P Global Market Intelligence’s Global Advertising Expenditure Forecasts, we believe this market is $1.0 trillion today, excluding China and Russia, and is expected to grow at a CAGR of 8% to $1.4 trillion in 2027. Additionally, as we continue to build out our search capabilities, we believe we can more fully address the $750 billion opportunity in search advertising that S&P Global Market Intelligence estimates the market to be in 2027.
Data Licensing
Given the value of Reddit’s data in sentiment analysis and trend identification, we believe that there is an emerging opportunity in data licensing. As LLMs continue to grow, we believe that Reddit will be core to the capabilities of organizations that use data as well as the next generation of generative AI and LLM platforms. Using estimates from International Data Corporation’s (“IDC”) Artificial Intelligence Tracker, the broader AI market, excluding China and Russia, is expected to grow at a CAGR of 20% to $1.0 trillion in 2027. We believe the importance of data to all types of analytics and AI, from training to testing and refining models, positions us well to tap into this strong market.
User Economy
We believe there are a number of paths for growth by building an economy on Reddit. Commerce is already at the core of many communities today. As we introduce new ways to enable developers to add additional functionality to their communities, we believe there will be further development of economic features on Reddit (e.g., games). We see informal exchanges today of digital goods, services, and even physical goods. Digital goods can include games and other software and apps, while services can include photoshopping art, all of which are provided by users for users. Physical goods, exchanged through community-powered marketplaces, can range from consumer electronics to antiques and furniture, or even from pet supplies to sporting goods. We recognize the opportunity that commerce presents and we have continued to invest in the future of Reddit’s user economy. Using estimates from IDC’s Consumer Market Model and focusing on six core geographies (United States, Canada, Australia, Western Europe, India, and Latin America), we believe this market size is $1.3 trillion today, and it is expected to grow at a CAGR of 12% to $2.1 trillion in 2027. We believe that over time, we can generate revenue based on the volume of commerce that is conducted on Reddit.
Advertiser Success Stories
H&M
“Reddit has quickly become an always-on partner for us at H&M, connecting our breadth of apparel must-haves with passionate style, fashion, and parenting communities at scale. Reddit was able to extend our qualified reach among our target consumer cohorts during the peak holiday time frame; and it works!
We were thrilled our partnership was able to drive significant lifts in attention and intent, strengthening H&Ms position as a destination holiday retailer among crowded apparel and gifting marketplaces.”
– Kayla Koterbay, Head of Media, North America, H&M
H&M has long positioned itself as an inspirational and progressive retail brand, rooted in supplying its customers with well-priced apparel and accessories. As part of an always-on approach, the retail brand focused its
holiday marketing efforts on Reddit. Using multiple Reddit ad products, the campaign exceeded H&M’s purchase intent benchmarks by 5.5 times and brand favorability benchmarks by 2.9 times.
Dell
“The ‘I.T. Squad’ was our first custom program with Reddit and it exceeded expectations. Tactics like the animated series and AMA were a winning combination that really allowed us to talk to our B2B IT decision makers in a community where they are wanting to consume content and information. And we were able to do that in a way that is totally unique and native to the platform.”
– Candace Lill, Senior Media Strategist, Dell
To earn the trust of IT decision makers, Dell launched a holistic program with Reddit. With a suite of ad products at their disposal, Dell and Reddit leaned into Reddit iconography to create an award-winning campaign that
resonated with audiences. The program delivered click-through and view-through rates at more than 115% higher than benchmarks.
Oatly
“Creative and its ability to capture the attention of the user is at the core of every campaign put forward by the PHD and Oatly teams. Viewability and engagement are always key in defining success. However, the ability to attribute value to these metrics has always been a difficult one for agencies.
With Reddit’s unique offering in the form of great value CPMs, low funnel traffic, highly engaged users and specific targeting it offered the perfect stage for Oatly to showcase its ability to capture users attention and utilize that to its advantage over the course of the campaign. And what better way to do that than through the innovative Megathread ad format, topped off with the enabling of all comments on the post, defining PHD and Oatly’s confidence in the platform, formats, audience and creative’s ability to deliver to core campaign goals.”
– Anna Marsh, Global Digital Manager, PHD Media
Oatly, the dairy alternative beverage brand, has big goals to shift eating habits of people across the globe, and knows that change doesn’t happen without conversations and discussions. To drive mass awareness among and across its target consumer audience, ranging in ages between 18 to 44, Oatly and its agency PHD Media developed
marketing efforts across Reddit that generated conversation volume, engagement rates above benchmark, and converted website traffic.
Yes Milady!
“The campaign was so good that I put all our advertising budget into it and only sometimes tried other types of ads. It was a carousel with lots of Redditor interaction. In the end, I stopped all other forms of advertising in 2023 and focused all our advertising money on this ad with Reddit.”
– Aaron Rosenzweig, Co-Founder, Yes Milady!
For many small businesses, there is no room to waste any dollar spent on marketing or advertising. Yes Milady! reported that Reddit delivered a return on ad spend 7.5 times more than search and social media ad competitors utilized by Yes Milady!, the vegan food seasoning product. After engaging with interest groups on Reddit, the small brand pulled media from other channels and devoted its marketing budget solely to Reddit.
Caliber Fitness
“Discussion and community is at the core of Reddit, so it seemed like the perfect place to launch a marketing campaign for the free version of our Caliber app. We wanted to find users who would discuss the app online, share it with friends and family members, and also provide feedback on how we could improve it. Reddit has come through in all of these ways and more. Since launching the campaign, Reddit quickly became the most efficient paid acquisition channel for us.
Even better, we’ve discovered that our initial theory has proven itself out: we have seen an increasing amount of organic referral traffic from users talking about the app both online and offline. We’ve even seen Redditors recommending our app in other subreddits, so awareness of the Caliber app continues to grow on Reddit, even outside the boundaries of the paid marketing campaign. We couldn’t be happier with the performance of our Reddit campaign, and feedback from our own Reddit community has helped guide our development roadmap to make the app even better.”
– Justin Fauci, Co-Founder and CTO, Caliber Fitness
Caliber Fitness wanted to stand out from other fitness apps and engage directly with its core base of prospective customers. The growing business created a long-form post to speak with Redditors to outline the key differentiators of its fitness app. The transparent communication tactic resonated with audiences and proved to be an efficient paid channel for the brand.
How Reddit Works
Communities
A community on Reddit is called a “subreddit,” as it is a sub-community on Reddit. The terms community and subreddit can be used interchangeably. Communities have a name and a purpose, and are best described as a curated collection of conversations between community members.
Moderators
Communities are created and led by Redditors who we call moderators, volunteers who are motivated by their passion for a given topic or idea. Moderators are not employees of Reddit. They set the tone for their communities by defining a purpose, creating rules, starting conversations, and keeping conversations on topic while abiding by our Moderator Code of Conduct. Most communities have teams of moderators that work together to keep their communities organized and focused. In December 2023, we had an average of over 60,000 daily active moderators. Any Redditor can become a moderator either by joining an existing moderation team for a community they are a part of, or by starting a new community.
Rules
Moderators create and enforce rules that keep conversations aligned to the purpose of the community. Content can be removed from Reddit manually by the moderators or, in many cases, by using automated tools. For instance,
communities about cats do not allow pictures of dogs, and question-centric communities only allow posts that are formatted as questions. We are investing in automated and configurable tools to help users post successfully and follow the community rules. Our Reddit team also leverages automated tools, including proactive spam detection and content labeling systems, that have allowed us to scale-up our platform and operations. In addition to community rules, Reddit employees also work to enforce the Reddit site-wide Content Policy.
Posts
Every community is filled with conversation prompts, which we call posts. Posts are made by community members who have something they would like to share with their community. Blocks of text, images, videos and web links are common mediums for posts. Every post is a bid for connection and interaction within the community.
Because posts on Reddit come in a variety of formats, communities on Reddit have many choices for how they can enable their members to engage in conversation. Communities have tools to determine which types of posts they allow in order to best align with their community purpose. Communities focused on discussion of news content might limit their communities to posting weblink posts to news publisher sites. Meme communities enable image and video posts to allow for the free flow of new visual ideas. Support communities often choose to focus on text, so that members can seek out and provide support for one another pseudonymously. Some communities allow all formats of post content.
The visibility of posts on the front page of a subreddit is determined by two factors:
•Rules—Does the post abide by the subreddit rules where it is being posted as well as Reddit’s Content Policy?
•Votes—Do members of the subreddit think that the post is interesting to other members?
Conversations
Every post on Reddit is a prompt for an unlimited number of conversations which are called comment threads. Comment threads are the mechanism by which community members converse with one another, sharing their feedback, related ideas, words of encouragement, critiques, or any other type of response to any post in the community. Redditors often describe comment threads as the most engaging part of the Reddit experience.
Illustration of a conversation thread
The first comment on any post is structured as a direct reply to the post it is attached to, whether that be a comment answering the question posed in the post, or a funny joke relevant to the post, or a rebuttal debating the content of the post. Every subsequent comment submitted after the first can either be a reply to the original post, or a reply to any other comment on the post. Comments on Reddit are also subject to rules and votes similarly to posts. Because comments can be submitted as replies to any other visible comment, threads can grow to be any length of comment replies, and conversations can go infinitely deep and branch in a myriad of directions. This structure lets conversations unfold as naturally as conversations in real life.
Votes
Votes enable community members to collectively and anonymously participate in deciding what gets viewed and discussed in communities. Posts in a community are displayed in a ranked order list based on a calculation called the “Hot Score.” The “Hot Score” is a simple algorithm that relies on votes from Redditors to collaboratively rank posts. As time goes on, newer content has a higher multiplier keeping Reddit always up to date. Every post and comment on Reddit is displayed with two “voting” buttons that enable all members of a community to anonymously “upvote” or “downvote” each piece of content. Community members upvote posts and comments which they find to be value-additive and relevant to the community, and downvote posts and comments which are off-topic, offensive,
or distracting. These votes, as well as a few other pieces of metadata such as the time that the post is made, are considered in the “Hot Score.”
Illustration of the upvote/downvote buttons
Search
Many users come to Reddit seeking information. Users that utilize third-party search engines can arrive at Reddit organically or even by appending “Reddit” to their searches for better results. Furthermore, Redditors can search directly on the platform by different types of content: posts, comments, people, communities, media (on mobile apps). Redditors can also filter and sort their searches in a myriad of ways, either by searching within specific communities or prioritizing results based on factors like relevance, newness, time period, or popularity, among others. For those who want to search for the latest trends on Reddit, activating the search bar will show a list of some of the most-searched things on Reddit in the last few hours. In December 2023, an average of over 35 million daily search queries happened directly on Reddit. As such, we recognize the importance of this motion, and have made significant investments designed to ensure that searches are relevant and drive deeper engagement. For example, we utilize machine learning for search ranking models to improve the overall user experience.
Karma
Karma reflects the cumulative number of upvotes (net of downvotes) a Redditor has received since joining the platform and is displayed on a Redditor’s profile, publicly available to everyone on the site. A Redditor’s karma reflects their community contributions and helps them build trust with others. As such, our karma system incentivizes Redditors to contribute to their communities by sharing trustworthy, on-topic, and thoughtful content, which gives Redditors confidence that our communities will be full of relevant and high quality posts and discussions.
Reddit Gold and Contributor Program
Reddit Gold is purchased by Redditors using real (fiat) money and can be awarded to other Redditors for a post or a comment – serving as a tool to celebrate good content and highlight it for others. While there is no monetary value associated with Gold, eligible Redditors who receive a qualifying amount of Gold and Karma can then participate in Reddit’s tiered Contributor Program to get payout in real (fiat) money. In this way, the Reddit Gold system empowers our users to reward quality content and incentivizes Redditors to go above and beyond in contributing to their communities, sharing their expertise, and coming up with creative and original content. Today, Gold can only be awarded on eligible content and cannot be used as a method of direct payment or compensation for other Redditors.
Reddit Avatars
Redditors can create cartoon versions of themselves, to put a face to their digital identity, which we refer to as Reddit Avatars. Reddit Avatars deepen engagement and offer another way for Redditors to express themselves. Redditors can customize their Reddit Avatars across a variety of vectors, including makeup, accessories, expressions, facial hair, face coverings, top, right hand accessory, left hand accessory, bottoms, hair color, hair style, hat, body color, and full body outfit. While a selection of Reddit Avatar customization options is always available to all Redditors, many have limited access—some accessories are only available to Reddit Premium users, some are only available for a short duration, and some are both—which creates a consistent stream of new Reddit Avatar content for all users. In July 2022, we launched Collectible Avatars, designed by artists who are paid for their customized Reddit Avatars, and where purchasers gain rights to use the designs on and off Reddit, which is enabled using blockchain technology. Through December 2023, over 30 million Reddit Avatars had been created.
Illustration of a Reddit Avatar
Reddit Premium
Reddit Premium is a subscription that offers users certain added benefits, including viewing ad-free content on our mobile applications and website, access to a members’ lounge, custom app icons, and exclusive customization of Reddit Avatars.
Our Community Values
Our Community Values existed long before they were written down. In addition to helping guide product and strategy decisions, they capture the idealism within Reddit that both we and our users love.
Remember the Human
We believe Reddit is the most human place on the internet. It is powered by the creativity, passion, and generosity of the people who spend time on Reddit and make it their own. We respect Redditors and work hard to give them a place where self-expression can thrive and communities can achieve amazing things together.
We also remember that there are real people on the other side of the screen who lead full and complex lives. And often, when someone is struggling or in need of support, they come to Reddit to find help and understanding they cannot find elsewhere. We take this role seriously and aim to make Reddit a place where people can continue to find communities that accept and appreciate them for who they are.
Start with Community
Reddit succeeds when our communities succeed. When we build anything on Reddit, we start with community – evaluating ideas by how well they empower communities.
Reddit has evolved by decentralizing control and empowering communities to create the spaces that work for them, spaces that have become some of the most selfless, ingenuitive, funny, and enriching communities on the internet. We trust communities to know what works best for them and give them the autonomy to make decisions for themselves.
Keep Reddit Real
Reddit is where people can be genuine. The humans of Reddit are a vast and diverse group of people, who come to the platform as their full, imperfect, human selves. This results in the type of candid, honest discussions you cannot have anywhere else and the vast breadth of communities that are found on Reddit. We present an authentic, unmanicured version of the world, and as long as being your unfiltered self is not hurting anyone or violating the Content Policy, then there is a place for you on Reddit.
We do not understand or agree with everything on Reddit (we are a vast and diverse group of people, too), and we do not try to conform Reddit to what we or other people think it should be. We do, though, try to create a space that is as real, complex, and wonderful as the world itself.
Privacy is a Right
Reddit stands for privacy. Redditors have complete control of their identity and are empowered to share as much or as little personal information as they want. Redditors do not reveal information about each other without permission, and Reddit does not use nonpublic information about Redditors without their consent.
We also let people know and control how we use their data. We run ads and use what people agree to share with us to show them ads we think they might be interested in (and yes, to make money), but we do not sell Redditors’ information.
Believe in the Good
Reddit reflects humanity. When people on Reddit come together around something they really care about, they can and will do extraordinary things. In our interactions, we try to give each other the benefit of the doubt and
remember that most people—even when upset, frustrated, or misguided—are decent and reasonable, and will do the right thing given the right circumstances.
Believing in the good does not mean disbelieving the bad. But we believe most people come to Reddit because they genuinely want to contribute and feel a sense of belonging. If that is not happening, something is wrong and we will fix it. People are good, and if we empower them, the good will always outshine the bad.
Our Unique Three Layer Moderation Model
On Reddit, we have a unique governance model where everyone is governed by a set of rules, has the ability to vote and self-organize, and ultimately shares responsibility for how the platform works.
Moderation at the platform level is governed by our site-wide Content Policy, a set of fundamental rules set at the Reddit, Inc. level that everyone on Reddit must follow. These universal policies apply to all communities and disallow behaviors that are harmful and ruin the experience for Redditors. They are principles-based and include things most everyone can agree on, such as our prohibitions on harassment, sharing intimate images without consent, encouraging violence, revealing people’s private information, and other behaviors that have no place on our platform. We have technology and teams dedicated to monitoring for violations, as well as reviewing reports of potential violations from moderators and Redditors. Consequences for violating our site-wide Content Policy range in severity depending on the behavior, including warnings to loss of privileges (ability to contribute to community discussions or moderate communities), all the way to removal or bans from specific communities or from the entire platform. Reddit publishes a bi-annual Transparency Report that provides detailed insights and metrics about content that was removed from Reddit.
In addition to our Content Policy, each subreddit is semi-autonomous: communities abide by an agreed upon set of transparent rules created and enforced by moderators, who are fellow community members. Anyone can create a community, setting additional rules on top of our platform policies to foster the environment they want to be in. Our community moderation involves communities writing and enforcing their own rules that allow them to stay on topic, support their culture and values, and accomplish their goals. These rules are tailored to the unique needs of members, and tend to be far more specific than the site-wide rules the company sets. Community moderators are empowered to remove any post that does not follow the community rules, without any involvement or direction from
Reddit. We believe the self-moderation our Redditors do at this community level is a highly scalable approach to address the challenges of moderating content online. Below is an example of subreddit rules for r/ science.
Finally, we believe it is vital that Redditors understand and participate in how content is ranked and displayed inside of communities. Our system is unique in the industry and we believe avoids many problems that come with more complex content ranking algorithms. Anonymous voting creates a single, shared view of community posts that enables all community members to see the same content and to build culture and consensus together. Therefore, each individual Redditor plays a crucial role, voting up or down on posts and comments. Through this system of voting, Redditors can accept or reject any piece of content. While most platforms have some version of the upvote function—an action to convey approval or agreement—we at Reddit see the additional downvote as equally important. The downvote is where community culture is made, through rejecting transgressive behavior or low-quality content. Reddit’s voting system turns every Redditor into a content moderator.
Promoting Both Open Expression and Safety on Reddit
Open expression and conversation are important for the health of society and our communities; our most difficult decisions involve balancing principles of speech and safety. But we strive to provide both on Reddit. The Reddit Content Policy is a platform-wide set of rules that apply to everyone on Reddit. While the rules protect the creativity of our communities and their ability to establish their own norms, the rules also make clear that everyone on Reddit has an expectation of safety and privacy. For example, Rule 1 states:
Remember the human. Reddit is a place for creating community and belonging, not for attacking marginalized or vulnerable groups of people. Everyone has a right to use Reddit free of harassment, bullying, and threats of violence. Communities and users that incite violence or that promote hate based on identity or vulnerability will be banned.
Reddit Safety teams have a range of enforcement options when dealing with individuals or communities that violate the rules. The teams can remove violating content, temporarily suspend, or permanently ban individual accounts from the platform. Where the issues involve an entire community and its behavior, the team can apply an
increasing number of restrictions, ultimately culminating in a ban of the community itself as a last resort. Our teams do not take banning a community lightly. Any action against a community requires an understanding of whether the group’s behavior is furthering or impeding our mission of creating community and belonging. We have an internal cross-functional council that carefully evaluates the impact of our rules enforcement and debates each and every rule change while seeking valuable input from moderators in the communities as well as external stakeholders.
Our Offerings for Advertisers
Our strategy is to be the leader in contextual advertising. We offer a suite of products across the entire marketing funnel, which advertisers can use to achieve their goals, including top of funnel goals like building brand awareness to lower funnel goals like driving conversions, and have maintained a balance of revenue from brand and performance over time. We serve ads on Reddit across our mobile apps as well as our web applications (both mobile and desktop), with the majority of ad impressions served on our mobile apps during the year ended December 31, 2023.
Ad Products
•Auction-Based Delivery. During the three months ended December 31, 2023, approximately 88% of our ad revenue was generated from advertisers buying ads in our auctions, over 50% of our ad revenue was generated from advertisers with performance-oriented objectives, and over 52% of our ad revenue came from customers in the technology and communications; business, legal, and finance; electronics and communication; and media and entertainment industries. Additionally, we saw strong year-over-year growth in our emerging verticals, such as automotive, retail, consumer packaged goods, pharmaceuticals,
and food and beverage. We continue to diversify our customer base. In the three months ended December 31, 2023, technology and communications was our largest industry, though no customers from one industry constituted 15% or more of our revenue. During the three months ended December 31, 2023, more than half of all ad revenue was bid on a cost-per-click basis, where the advertiser is seeking an action-oriented outcome (e.g., traffic, install, conversion, signup). Furthermore, approximately 65% of our direct ad revenue came from our large customer sales business, which includes Fortune 500 companies and AdAge 200 customers with complex service models, and approximately 30% of our ad revenue came from mid-market and small- and mid-size business customers, respectively, during the three months ended December 31, 2023. We offer a variety of objective types for auction-based delivery, including awareness, traffic, conversions, video views, app installs, catalog sales, and lead generation. Advertisers can bid with cost per impression, cost per click, or cost per video view, depending on their objective type. Advertisers can use our auction-based advertising platform to bid the amount that corresponds to their performance goals, and reach their audience with a Promoted Post, which runs in personalized and community feeds or Conversation Placement. In addition to our placements, advertisers can select from a number of ad formats including: text, image, video, carousel, lead generation, product ads and more, as well as Reddit unique advertiser activations, such as Free-Form ads and Promoted AMAs. Our latest solutions harness Reddit’s high intent, deep consideration conversations about products and services and are designed to bring advertisers higher value customers. We recently introduced Shopping Ads to help e-commerce and retail advertisers find their customers across Reddit. We are currently testing dynamic Shopping Ads—where advertisers upload their product catalog and we do the rest—automatically generating ads from the catalog and aiming to serve the right product to the right user at the right time. We are also introducing Shopping Ads in contextually relevant spaces like Conversations so that advertisers can show up at the very point a consumer is making a purchase decision. In addition, we are developing solutions specific for other advertiser verticals. For example, in 2023 we launched Lead Generation ads that help business-to-business and business-to-consumer advertisers generate valuable leads with a native, in-product lead form.
•Fixed Price, Guaranteed Delivery. For advertisers who are seeking high-impact placements with guaranteed reach, we offer our takeover products which are run during specific time periods (flighting) and
are booked in 24 hour increments at a predefined rate. We offer advertisers the following options to increase their audience reach and brand visibility:
◦Reddit takeover—100% reach through the most visible placements on Reddit, including Home and Popular Feeds, Search, Trending Tile.
◦Front page takeover—100% reach on the top of the Home Feed and Popular Feeds.
◦Trending takeover—Reach Redditors through the top trends of the week and the Search Feed.
◦Category takeover—100% reach on top of the feed of top communities in a selected category.
Auction Technology
We began more meaningfully investing in our own ad technology and foundation in 2018 and have been building on that foundation since. Our advertising auctions are designed to allow us to match the right advertisers with the right audience in a way that maximizes the advertiser’s goals and the Redditor’s experience. We determine which ads to serve taking a variety of factors into account including the advertiser’s bid and the Redditor’s propensity to engage with the ad. Advertisers can choose from a variety of bid types including cost per impression, cost per click, and cost per video view. Starting in 2022, we introduced new automated bidding solutions. Maximize Clicks helps advertisers achieve the most ad clicks possible within a set budget. Maximize Conversions helps advertisers achieve the most conversions possible within their budget and using machine learning, adjusts bids for each and every impression based on a user’s likelihood of completing a conversion event. Maximize Installs automatically sets bids in order to get as many clicks as possible to an advertiser’s app store page, where users can subsequently install their mobile app.
Audience Reach
We offer advertisers four key options for finding audiences based on interests: Reddit Audiences, Custom Audiences, Demographics and Devices. Reddit’s core offering, used by the majority of our advertisers, is Reddit Audiences, which includes our unique contextual and interest-based, community and keyword options. Interest-based audience reach gives advertisers the option to find users based on their interests, determined by content they’ve recently interacted with, including Reddit communities. For example, Gaming is an interest group within which there are several sub-groups, such as RPG Games or Mobile Gaming. Keyword Targeting leverages the richness of Reddit’s contextual first-party data, along with behavioral attributes. Reddit is a place where people come to engage around their passions, answer their questions, or discover new interests. By offering advertisers the option to reach audiences using keywords that appear or are associated with content, we can deliver ads in places and to people that are highly relevant to them.
We rely on advanced AI and machine learning technologies to continuously enhance the quality of our Audience Reach products. At Reddit, we utilize advanced machine learning techniques across various stages of our advertising technology stack to enhance our Audience Reach solutions. Our primary focus is on Natural Language Processing (“NLP”) methods, which we employ to extract relevant keywords from our extensive text database, to determine they are safe and suitable for commercial audience reach purposes.
For Keyword Targeting, which we recently launched and is in its early stages, we consider a wide array of contextual signals, such as post titles, body content, and user comments, along with behavioral attributes, including the user’s engagement with specific content and keywords on Reddit. Our approach varies depending on the strength of contextual relevance. In instances where context is prominent, like on Conversation and Community pages, we tend to prioritize contextual matching. Conversely, on mixed Feeds covering diverse topics, we may lean towards behavioral signals.
Additionally, we may employ fuzzy matching of keywords (e.g., “Star Wars” becoming “Sci-Fi”) to optimize ad volume without compromising performance. Our machine learning techniques also power our keyword recommendations product, assisting users in expanding their keyword lists. We also employ machine learning to identify and prevent advertisers from reaching users based on sensitive keywords, safeguarding their well-being on our platform. For ad ranking and click prediction, our models leverage deep-learning methods to maximize clicks and conversions while minimizing costs for advertisers.
Advertisers can also use the Reddit Pixel, which a growing number of managed and unmanaged advertisers use on our platform. The Reddit Pixel measures the actions that Redditors take on an advertiser’s website after interacting with their ad on Reddit, and can also re-engage people who have already visited their website, and drive them further down the conversion funnel.
Measurement
Advertisers need to be able to understand the effectiveness of their investment when using our ad products beyond ad clicks. For a holistic view of the media impact of an advertiser’s ads on Reddit, we provide marketing science tools to help advertisers be seen and safe, build their brand, and grow sales and conversions through a variety of first party and third-party tools.
•Reach—To help advertisers understand if their reach was effective, we offer solutions such as Oracle Moat-verified viewability, audience verification through NCSolutions, and DoubleVerify for fraud.
•Resonance—To help advertisers understand what people think and feel after being exposed to their campaign on Reddit, we offer first and third-party solutions to run brand lift studies, including Reddit Brand Lift and industry-leading partners, such as Kantar.
•Reaction—To help advertisers understand the business-driven actions people take after being exposed to their ads, we offer a variety of tools, like the Reddit Pixel and Reddit Conversion API, to measure offsite events. We also offer Reddit Conversion Lift, a measurement product that enables advertisers to understand the incremental value that advertising on Reddit is providing their business—typically on the advertiser’s website, as well as many other partner solutions. For example, we offer Samba to measure TV viewership, Foursquare to measure in-store visits, NCSolutions to measure in-store purchases, and TransUnion for MTA. We also offer Reddit Brand Lift, which gauges the added effect of a campaign on brand perception through randomized controlled surveys overseen by Reddit’s in-house Marketing Science team.
Brand Safety
We take a layered and dynamic approach designed to ensure brands appear in only brand-suitable environments. In addition to our platform policies and human-moderated communities, we take additional steps to create brand-suitable environments in addition to offering several tools advertisers can implement based on their specific needs:
•Community Allowlist—Ads only run in communities that are deemed suitable for advertising. All communities are reviewed prior to showing ads; the allowlist is updated dynamically, powered by machine learning and human review.
•Reddit-wide Keyword Blocklist—Reddit applies both community and content guardrails for advertising. All post headlines on Reddit are scanned in order to ensure the content is suitable to appear next to advertising.
•Community Exclusion—In addition to Reddit’s community allowlist, advertisers have the ability to exclude communities from their campaign, withholding their ad from appearing in a specific community or list of communities. They can exclude up to 1,000 communities.
•Keyword Exclusion—In addition to the Reddit-wide keyword blocklist, advertisers have the ability to select custom keywords they do not want their brand to be adjacent to. They can exclude up to 1,000 keywords.
•Inventory Type—Offers advertisers additional control and flexibility over content types and audience reach. Advertisers can choose from three different inventory types: limited, standard, or expanded. All inventory types are held to Reddit’s content and advertising standards. When advertisers choose to run in limited inventory, we use Oracle Data Cloud’s contextual intelligence brand safety segments to scan the organic content around the ad. This technology provides pre-bid inventory filtering for dynamic user-generated content feeds, which we believe to be the first of its kind, and allows advertisers to add third-party validation for their ad placement on top of Reddit standards listed above.
Go-To-Market Approach
We built our advertising business by focusing on top U.S.-based advertisers, and over time we have expanded our focus towards mid-sized and smaller advertisers as well as new geographies. We have a diverse advertiser base across categories, this includes areas that both align with the largest number of active communities, such as technology, gaming, and media and entertainment, as well as areas that align with Reddit’s role in driving purchasing decisions, as indicated by strong our growth in newer verticals such as retail, automotive, and pharmaceuticals.
We have expanded our offerings, and today, we provide a managed service experience (where we assist advertisers in campaign strategy, set up, and execution), a hybrid service, and an unmanaged service, each tailored to our customers’ needs. Today in the Ads Manager we offer two distinct campaign creation flows. Simple Create is a streamlined build flow that makes it easy for small advertisers to launch an ad on Reddit with three simple steps. More sophisticated advertisers have the option to utilize Advanced Create where they can access our full suite of ads products and features. We continue to build and launch more automation and optimization into our advertising platform, to make it easier to get started, set bids, optimize creative, and manage campaigns in our advertising auctions. This allows smaller advertisers to access a simpler, scaled service model, as well as drive efficiency in serving large and mid-market customers. In addition, the evolution of our ads manager has enabled more advertisers to participate in a hybrid-service model, where they play an increased role in managing their Reddit campaigns, enabling internal teams to expand their coverage to a higher number of advertiser accounts. Our recent expansion of first party measurement has enabled more advertisers to quantify their conversion lift and brand lift from advertising on Reddit, and adjust their willingness to pay for the returns they see.
Large Advertisers. We have a team dedicated to delivering high service levels with the top-spending advertisers in North America, Europe, the Middle East, Africa, and Australia. This team is organized by verticals so that they can specialize and provide a consultative approach with recommendations rooted in deep knowledge pertaining to their category and our advertising solutions. Additionally, these advertisers typically work with large creative and media agencies, and we have a dedicated team who simultaneously works to develop annual spend commitments
from the top advertising agency-holding companies. This provides a dual layer of relationship building to continue to grow our share of spend with these advertisers.
Mid-sized and Smaller Advertisers. As our advertising solutions have advanced, so has our ability to attract mid-sized and smaller advertisers, which we assist through our hybrid service model. These advertisers typically discover the Reddit advertising platform via direct sales, channel marketing, channel sales, and often have a direct and streamlined buying process. In addition, we actively move our highest potential self-serve advertisers into our hybrid service model to provide them with a more comprehensive service and to help them achieve even better results. This segment is typically high value goods and services companies with an annual ad spend in excess of $10 million. While many of these advertisers are focused on measuring their return on investment and are typically using advertising to drive conversions such as purchases or account sign-ups, they are also investing in brand awareness. These clients seek easy ways to scale optimizations in the ad platform to increase the performance of campaigns.
Self-service Advertisers. We have advertisers who do not engage with our sales team and instead directly use our self-serve ads platform, with a significant percentage of those advertisers using Simplified Campaign flow. These advertisers have smaller annual budgets and are typically looking to drive specific business results. These advertisers typically have started using our ads platform through familiarity with our consumer product or paid media. Today, this segment largely serves as a source of high-quality leads for our hybrid service, but in the future, we expect this segment to become a stand-alone offering. As we continue to build our self-serve advertising offering, these advertisers will be able to more easily and effectively reach their audiences and achieve their goals. We have recently launched tools focused on simplifying the campaign creation process with more automation and fewer clicks to get started to enable smaller advertisers to reach Redditors and maximize their return on investment on Reddit. Automation also provides benefits for servicing advertisers of all sizes.
International Advertisers. In 2020, we opened our first sales offices outside of the United States, in Canada and the UK. We have since grown these teams and have also opened up offices in Australia, Germany, and the Netherlands. For the three months ended December 31, 2023, approximately 50% of Redditors visited from outside of the United States, and $44.7 million of our revenue came from advertisers outside of the United States compared to $36.7 million in the same period in the prior year, representing growth of 22% and illustrating our significant international growth opportunity.
Ads Platform and Ads Technology
We began more meaningfully investing in our own ad technology and foundation in 2018. This platform is integrated into the overall Reddit technology stack to deliver ads to Redditors in a manner that is seamlessly integrated with their holistic Reddit experience. The ad formats used to show ads are native to Reddit, and match the organic content that is consumed by Redditors across various product surfaces like feeds and conversation pages.
•Ad Server for Delivery and Auction. Our ad delivery engine consists of a horizontally scaled-out “Ad Server” service that responds to real-time requests globally, in a high-availability and low-latency manner. The Ad Server contains an optimized representation of all ads running in the system at any point, along with all associated information needed to match ads with Redditors. A key part of the Ad Server logic is choosing which ad to serve to a Redditor for a given location on the app, in the common case where multiple ads are a match. To that end, the Ad Server runs a second price auction and takes into account various information corresponding to the matching ads (e.g., their bid type, bid value, remaining budget, etc.) and other computed information (e.g., probability of Redditor engagement, Redditor experience quality factors, etc.).
•Advertiser Experience Service. The ads platform has an Advertiser Experience Service that utilizes our operations and account teams to help run advertising campaigns. This service allows advertisers to define various campaign parameters (e.g., objective, audience reach, budget, bids, etc.), to create the ad creative itself, and then provides reporting and analytics on the delivery of those ads and the measured performance. This includes the resulting ad impressions, clicks, engagements and conversions. Our service is tightly integrated with our ad delivery and auction in order to allow for the created ad campaigns to “go live” on
Reddit and behave as expected based on any eventual modifications made. Finally, the service has integrations with ad review processes, internal billing and finance systems, and external payment processors for advertiser billing.
•Advertiser Creative Services. We recently launched the “AI Headline Generator” which empowers advertisers with limited creative resources to quickly create multiple Reddit-friendly ad headlines through generative AI. Advertisers can simply provide their website and Reddit can dynamically generate multiple ad headlines for their campaign within the ads manager.
•Audience Reach. The audience reach subsystem of the ads platform involves both the Advertiser Experience Service and the Ad Server. Within our Advertiser Experience Service, our advertisers are able to select which Redditors their ads should potentially get delivered to. Multiple audience reach options are currently supported: interest, community, keyword, geography, custom audience and reengaging using the Reddit Pixel. Ad audience reach is assisted by our internal usage data and Redditor engagement model. This component also includes forecasting, which demonstrates the potential reach of the chosen settings. The audience reach component within the Ad Server is responsible for maintaining the data sets and software logic that implements the desired reach. The data sets contain pre-processed information that allows the Ad Server to implement the desired reach in real-time and with low request latency. Some key data sets include Reddit’s first-party data mapping Redditors to interests and communities based on our unique consumer engagement model.
•Measurement. The ads platform measures various aspects of an ad campaign’s performance, including reach, impressions, clicks, conversions and incrementality. We support both first-party and third-party measurement options. Our first-party measurement options include Reddit Brand Lift, which gauges the added effect on brand perception using randomized controlled surveys overseen by Reddit’s in-house Marketing Science team, as well as Reddit Conversion Lift, which analyzes the next steps taken by users after viewing a campaign on Reddit using Reddit Pixel, Conversions API and/or Mobile Measurement Partner integration. Reddit Conversion Lift analyzes campaign conversion metrics such as: app installs, page visits, leads, add-to-carts and purchases. Our third-party measurement options are built in partnership with industry partners such as Apple (SKAdNetwork), Oracle (Moat), DoubleVerify, NCSolutions, Kantar, TransUnion, and others, and works in conjunction with our first-party features to provide more detailed insight into campaign effectiveness. Metrics are reported to advertisers and are integrated into the ads platform.
•Brand Suitability. Our ads platform is built to support multiple brand safety capabilities for advertisers who may want varying degrees of control over adjacent content to their advertising placements. Our brand safety capabilities are split into two categories: Global (always-on for advertisers) and Custom (available to advertisers based on their specific needs).
◦Global brand safety capabilities: We only allow ads to run on specific product surfaces within Reddit properties that we deem safe for ads. Various approaches are used to select these surfaces: We only show ads inside communities that are on the “Community allow-list,” which is a list of Reddit communities that have been determined to be safe for ads. When showing ads on “mixed feeds” like our Home feed, which are feeds of content aggregated from various communities, we only show ads in specific locations where the adjacent content is from communities on the allow-list. Additionally, we only allow ads to appear in locations where the adjacent organic content has been scanned against a continuously updated keyword “blocklist.”
◦Custom brand safety capabilities: We offer several tools for advertisers who want to customize control beyond our global brand safety capabilities: Advertisers can provide a list of communities to explicitly exclude their ads from; advertisers can supplement the broader keyword blocklist with custom negative keywords; and advertisers can choose to filter out ad locations on Reddit which are adjacent to certain content categories based on Oracle Data Cloud’s contextual intelligence service.
Our Data and API Policies
Reddit has become one of the internet’s largest open archives of human experiences and Reddit data can be utilized in many ways – to both improve our platform and for commercial application. Since introducing our Data API in 2008, we have seen thousands of applications built – tools, and utilities dedicated to improving the user experience. While we recognize that many of our users enjoy using third-party applications that contribute to Reddit in many important ways, we also concluded that we needed to better manage infrastructure and opportunity costs – especially with commercial entities that require large-scale data use from our API.
To that end, we changed our Data API Terms in 2023 to enforce rate limits. Under our new terms, pricing is based on usage levels comparable to our own costs. Our Data API is free of charge at 100 queries per minute per OAuth client and ten queries per minute if not using OAuth authentication. For third-party apps and other customer use cases that require higher usage limits, we are generally charging $0.24 per 1,000 API calls.
Research and Development
Our research and development organization is responsible for the design, development, testing, and delivery of new technologies, features, integrations, and improvements of our platform. It is also responsible for operating and scaling our platform. Our research and development organization consists of teams specializing in software engineering, Redditor experience, and product management. We intend to continue to invest in our research and development capabilities to expand our platform.
Identifying, hiring, developing, motivating, growing, and retaining highly skilled personnel for all areas of our organization remains a long-term priority for our company. In addition, our focus on Redditor generated content and community customization and innovation ensures that we can tap the creativity and talent of our whole Redditor base.
Building the Future of the Internet at Reddit
We believe that community and belonging are core human needs, and that people can use Reddit to fulfill those needs. We also understand that so many people find community and belonging at their place of work, and for that reason, we have been on a mission to build a culture at Reddit where each of our employees—whom we call Snoos—feels seen, heard, valued, and empowered to do the best work of their lives.
We believe that great companies are made by great people, and that the continued success of Reddit is contingent upon the talent we attract, retain, and develop. Snoos in over a dozen countries are working together to help us achieve our mission to bring community, belonging, and empowerment to the world. Although our Snoos are unique, they each have a few things in common: the skills to do their job well, the humility and confidence to learn and grow, the ability to remember the human in each decision they make, grit in challenging times, and a belief in the importance and attainability of our mission.
To bring community, belonging, and empowerment on Reddit, we believe that we must create it at Reddit first. It starts with our employees treating each other with respect through honoring our commitments and being kind, courteous, and professional to one another. Just as our users seek community to address needs around belonging, we cultivate that within our company via our Employee Resource Groups (ERGs). These groups represent Snoos who are veterans, BIPOC, LGBTQ+, of various abilities, women, and allies. We also host a range of less formal gatherings based on shared interests. Our Snoos often describe our work culture as fun, quirky, and a place where you can be your authentic self; this makes working at Reddit special and something that we believe to be a competitive advantage for us. To ensure that we continue to cultivate a strong workplace culture and make decisions that are best for our business, our users, and our Snoos, we have the following values to guide us:
•Reddit’s Mission First—Our mission is to bring community, belonging, and empowerment to the world. As we move towards this goal with different initiatives from different parts of the organization, it is important to remember that we’re in this together. We move forward with this one shared goal above all others.
•Make Something People Love—Our surest path to success is to make something people love.
•Evolve—Only by continually improving and learning will we succeed.
•Work Hard—Our mission is ambitious. It requires taking on and solving hard problems, and solving hard problems requires hard work. Nothing important is easy, and it is our firm belief that what we are working on is incredibly important. Each and every Snoo will have to give their best if Reddit is going to get to the next level.
•Default Open—The free flow of ideas and feedback is the lifeblood of a healthy organization, and Reddit must embrace it if we are to thrive.
As of December 31, 2023, we had 2,013 employees, including 1,619 in the United States. None of our employees are represented by a labor union or party to a collective bargaining agreement. We consider our relationship with our employees to be good.
Competition
We are competing for people’s time and for global advertising spend. As such, we face significant competition across many areas of our business. People may choose to spend their time using other products when looking to fulfill the needs Reddit provides, such as being entertained, seeking information, diving into current events, exploring passions and hobbies, or peer-to-peer commerce. Examples of select competitors across several time spent categories include:
•For Seeking Information—Google, Amazon, YouTube, Wikipedia, X, and other news sites. Some users are also turning to LLMs such as ChatGPT, Gemini, and Anthropic.
•For Entertainment—Meta (including Facebook, Instagram, Threads, and WhatsApp), YouTube, Snap, X, TikTok, Roblox, and Twitch.
•For Passions and Hobbies—Facebook Groups, Discord, X, and Pinterest.
•For Peer-to-peer Commerce and User Economy—Facebook Marketplace, Nextdoor, Craigslist, Poshmark, Etsy, and Roblox.
Advertisers can also reach consumers via many other digital advertising platforms and channels. We compete directly with all other major advertising platforms as well as publishers including: Google, Meta, Snapchat, TikTok, Pinterest, and X. To compete effectively, we will need to enable advertisers to identify the audiences they wish to reach effectively and be able to accurately show the value of their investment. In addition, our data licensing offerings face competition from other sources of information, including news, publishing, entertainment, and social media.
Intellectual Property
Our success depends in part on our ability to protect our intellectual property and proprietary technologies. To protect our proprietary rights, we rely on a combination of intellectual property rights in the United States and other jurisdictions, including patents, trademarks, copyrights, trade secret laws, license agreements, internal procedures, and contractual provisions. We also enter into confidentiality and invention assignment agreements with our employees and contractors and sign confidentiality agreements with third parties. Our internal controls restrict access to proprietary technology.
As of December 31, 2023, we had 39 pending trademark applications and 331 trademark registrations around the world. We have also filed 105 copyright registrations on various graphical designs and have filed one utility patent application and two provisional patent applications in the United States as of December 31, 2023. We may not be able to obtain protection for our intellectual property, and our existing and future trademarks, copyrights, patents, and other intellectual property rights may not provide us with competitive advantages or distinguish our products and services from those of our competitors. Our applications may not result in the registered intellectual property, and any resulting issuances may have narrower scope than our applications. Additionally, our current and future trademarks, copyrights, patents, and other intellectual property rights may be contested, circumvented, or
found unenforceable or invalid, and we may not be able to prevent third parties from infringing, misappropriating, or otherwise violating them. Our internal controls and contractual provisions may not always be effective at preventing unauthorized parties from accessing or obtaining our intellectual property, trade secrets, confidential information, and proprietary technologies.
Other companies and “non-practicing entities” that own patents, copyrights, trademarks, trade secrets, and other intellectual property rights related to the mobile, communication, media, internet, and other technology-related industries frequently enter into litigation based on allegations of infringement, misappropriation, and other violations of intellectual property or other rights. Third parties, including our competitors and non-practicing entities, have in the past and may in the future make claims from time to time that we have infringed, misappropriated, or otherwise violated their patents, trademarks, copyrights, trade secrets, or other intellectual property rights. We are party to agreements under which we are obligated to indemnify our customers and suppliers against such claims. As our business grows and competition increases, we will likely face more claims, oppositions, and disputes related to intellectual property and litigation matters. In addition, to the extent that we gain greater visibility and market exposure as a public company, we face a higher risk of being the subject of intellectual property infringement claims from third parties. See “Risk Factors—Risks Related to Cybersecurity, Information Systems, and Intellectual Property” for more information regarding risks related to our intellectual property and proprietary rights.
Our Facilities
Our corporate headquarters is located in San Francisco, California, where we lease approximately 48,000 square feet of office space pursuant to a lease agreement that expires in 2029, subject to the terms thereof. We lease additional offices in the United States and around the world, including in New York, Chicago, Los Angeles, London, and many more. All of our offices are located in areas of the globe where we can attract the best talent and our employees benefit from a space to be together when co-creating and working to achieve our mission.
We believe that our existing facilities are sufficient for our near-term needs. We believe that suitable additional alternative spaces will be available in the future on commercially reasonable terms, if required.
Reddit’s workplace philosophy is focused on providing versatility for employees while fostering a diverse and high-performing company culture. Our ability to recruit and retain top talent is bolstered by Reddit’s flexible work policy, which provides support and opportunities for employees to work remotely or in one of our offices. This strategy, in conjunction with our competitive compensation programs reflective of the cost of talent in high labor markets like the San Francisco, Bay Area, has created advantages that have contributed to the growth and strength of our company.
Regulation
We are subject to many U.S. federal and state and foreign laws, rules, and regulations, including those related to privacy, rights of publicity, data protection, content regulation, intellectual property, health and safety, competition, protection of minors, consumer protection, and taxation. These laws and regulations are constantly evolving and may be interpreted, applied, created, or amended, in a manner that could harm our business.
Furthermore, foreign data protection, privacy, consumer protection, content regulation, and other laws and regulations are often more restrictive than those in the United States. It is possible that certain governments may seek to block or limit our products or otherwise impose other restrictions that may affect the accessibility or usability of any or all our products for an extended period of time or indefinitely. We have a legal and a public policy team that monitor legal and regulatory developments in the United States, as well as globally, and communicates regularly with policymakers and regulators.
Legal Proceedings
We are currently involved in, and may in the future be involved in, legal proceedings, claims, and government investigations in the ordinary course of business, including claims for infringing, misappropriating, or otherwise violating intellectual property rights related to our products, including our API, and/or the content contributed by our Redditors. Although the results of these proceedings, claims, and investigations cannot be predicted with certainty,
we do not believe that the final outcome of these matters is reasonably likely to have a material adverse effect on our business, financial condition, or results of operations. Regardless of final outcomes, however, any such proceedings, claims, and investigations may nonetheless impose a significant burden on management and employees and may come with costly defense costs or unfavorable preliminary and interim rulings.
MANAGEMENT
Executive Officers, Directors, and Director Nominee
The following table sets forth information regarding our executive officers, directors, and director nominee as of December 31, 2023:
| | | | | | | | | | | | | | |
| Name | | Age | | Position(s) |
| Executive Officers | | | | |
| Steven Huffman | | 40 | | Chief Executive Officer, President, and Director |
| Jennifer Wong | | 48 | | Chief Operating Officer |
| Andrew Vollero | | 57 | | Chief Financial Officer |
Christopher Slowe, Ph.D. | | 45 | | Chief Technology Officer |
| Benjamin Lee | | 56 | | Chief Legal Officer and Corporate Secretary |
| | | | |
Non-Employee Directors and Director Nominee | | | | |
Patricia Fili-Krushel(2) | | 70 | | Director |
Porter Gale(2) | | 57 | | Director |
David Habiger(1) | | 54 | | Director and Chairperson of the Board of Directors |
Robert A. Sauerberg(1) | | 62 | | Director and Vice Chairperson of the Board of Directors |
Michael Seibel(1) | | 41 | | Director |
Steven O. Newhouse(3)(4) | | 66 | | Director Nominee |
_______________
(1)Member of the audit committee.
(2)Member of the compensation and talent committee.
(3)Member of the nominating and corporate governance committee effective upon the completion of this offering.
(4)Mr. Newhouse has been appointed to serve as a member of our board of directors effective upon the completion of this offering.
Executive Officers and Employee Director
Steven Huffman is our co-founder and has served as our Chief Executive Officer and President and as a member of our board of directors since July 2015. Prior to returning to Reddit, Mr. Huffman was the co-founder and Chief Technology Officer at Hipmunk, an online commercial travel company, from June 2010 to October 2015. From June 2005 to October 2009, Mr. Huffman co-founded Reddit and held a variety of leadership roles at the company. Mr. Huffman has served on the boards of directors of GameChanger Charity, a 501(c)(3) organization leveraging technology and innovation to improve the lives of hospitalized children, since December 2020, and Bishop Fox, a cybersecurity firm, since July 2019. He previously served on the board of directors of Vy Global Growth, a public blank check company organized for the purpose of effecting a business combination with one or more target businesses, from September 2020 to September 2022. Mr. Huffman received a Bachelor of Science in Computer Science from the University of Virginia. We believe Mr. Huffman is qualified to serve as a member of our board of directors because of the perspective and experience he brings as our co-founder and Chief Executive Officer.
Jennifer Wong has served as our Chief Operating Officer since April 2018. Prior to joining Reddit, Ms. Wong was the Chief Operating Officer and President of Digital at Time Inc., a mass media company, from January 2016 to February 2018. Ms. Wong also served as Chief Business Officer at POPSUGAR Inc., a media and technology company, from September 2011 to December 2015. She has served on the boards of directors of IMAX Corporation, a technology and entertainment company, since March 2023, Discover Financial Services, a banking and financial services company, since July 2019, and Marfeel Solutions, S.L., an advertising and marketing technology platform, since January 2016. She also worked as an Associate Partner at McKinsey & Company, a management consulting firm. Ms. Wong received a Master of Business Administration from Harvard Business School, a Master of Science
in Engineering Economic Systems & Operations from Stanford University and a Bachelor of Science in Applied Mathematics from Yale University.
Andrew Vollero has served as our Chief Financial Officer since March 2021. Prior to joining Reddit, he served as Chief Financial Officer at Allied Universal, a provider of security, technological and professional services, from October 2018 to March 2021. From August 2015 to May 2018, Mr. Vollero served as the first Chief Financial Officer of Snap Inc., a camera and social media company. From September 2000 to August 2015, Mr. Vollero was employed at Mattel, Inc., a toy manufacturer, where he served as the Senior Vice President, Corporate Strategy, Development & Investor Relations from September 2005 to August 2015 and Division Chief Financial Officer, Senior Vice President, Finance and Strategy from September 2000 to September 2005. Mr. Vollero worked for PepsiCo and Yum Brands in various financial and operational roles from 1991 to 2000. Mr. Vollero received a Master of Science in Management from Oxford University and a Bachelor of Arts in Mathematics and Economics from Yale University.
Christopher Slowe, Ph.D., is our founding engineer and has served as our Chief Technology Officer since May 2017, after serving as our Director of Engineering from January 2016 to May 2017. Prior to returning to Reddit in December 2015, Dr. Slowe served as the Chief Scientist at Hipmunk from November 2010 to December 2015. From September 2005 to November 2010, Dr. Slowe held a variety of engineering leadership roles at Reddit. Dr. Slowe received a Ph.D. in Physics and a Bachelor of Arts in Physics and Math from Harvard University.
Benjamin Lee has served as our Chief Legal Officer since March 2022 and as our Corporate Secretary since October 2019. He previously served as our Executive Vice President of Legal and General Counsel from September 2019 to March 2022. Prior to joining Reddit, Mr. Lee served as General Counsel at Plaid Inc., a fintech company, from January 2018 to September 2019, and as Deputy General Counsel, Product at Airbnb, Inc., an online marketplace for travel and lodging rentals, from October 2016 to January 2018. From 2010 to 2016, Mr. Lee worked at Twitter, Inc., a social media company, where he served as Vice President of Legal and Deputy General Counsel. Mr. Lee has also held various roles at Google Inc., a technology company, NEC Laboratories America, a technological research company, and AT&T Corp., a telecommunications provider, and he has taught as an adjunct professor at Seton Hall University School of Law. He has also worked at the law firm White & Case, LLP, as well as at the Legal Aid Society. Mr. Lee received a Juris Doctor from Columbia Law School and a Bachelor of Science in Physics and Economics from Yale University.
Non-Employee Directors
Patricia Fili-Krushel has served on our board of directors since January 2022. From September 2018 to February 2021, Ms. Fili-Krushel served as the Chief Executive Officer at Coqual, a global, non-profit think tank and advisory group focused on diversity, equity, and inclusion. From January 2011 to November 2015, Ms. Fili-Krushel held various roles at Comcast Corporation, a global media and technology company, including Chair of the NBCUniversal News Group and an Executive Vice President. From April 2001 to December 2010, Ms. Fili-Krushel served as Executive Vice President, Administration at Time Warner Inc., a global media and entertainment company. Prior to her time at Time Warner, Ms. Fili-Krushel held various senior and executive roles for entertainment and media companies, including ABC Television, Disney ABC Television Group, Lifetime, HBO, and ABC Sports. Ms. Fili-Krushel has served on the boards of directors of Dollar General Corporation, a discount retailer, and Chipotle Mexican Grill, Inc., a restaurant chain, since October 2012 and March 2019, respectively. Ms. Fili-Krushel received a Master of Business Administration from Fordham Gabelli School of Business and a Bachelor of Science in Communication and Media Studies from St. John’s University. We believe Ms. Fili-Krushel is qualified to serve as a member of our board of directors because of her established experience in entertainment and media.
Porter Gale has served on our board of directors since May 2019. Ms. Gale served as Chief Marketing Officer at Joy, a wedding planning platform, from February 2023 to October 2023. From February 2019 to September 2021, Ms. Gale served as the Chief Marketing Officer at Personal Capital, an online financial management company. From April 2015 to January 2019, Ms. Gale helped build and grow Globality, an AI-driven SaaS platform and marketplace, as its Marketing General Manager and interim Chief Marketing Officer. Ms. Gale advised a variety of B2B and B2C firms from 2011 to 2015, including Accompany, Esri, fitmob, Headnote, Hint, Michael Mina,
N3twork, PubNub, RocketFuel, RouteHappy, Surf Air, UpLift, Vurb, and WePay. She served as the Vice President of Marketing at Virgin America, a U.S. airline company, from November 2007 to October 2011. Ms. Gale received a Master of Art in Documentary Filmmaking from Stanford University and a Bachelor of Science in Business Administration from Boston University. We believe Ms. Gale is qualified to serve as a member of our board of directors because of her established experience as an executive, advisor, and company builder.
David Habiger has served on our board of directors since November 2022 and as Chairperson of our board of directors since November 2023. Mr. Habiger has served as Chief Executive Officer and President of J.D. Power, a market research and data analytics company, since March 2018. He previously served as Chief Executive Officer at the software companies Textura Corporation, NDS Group, Ltd., and Sonic Solutions between 2005 and 2016. Mr. Habiger has served on the board of directors of a number of technology companies, including Stamps.com, Inc., a provider of internet-based postage services, from October 2016 to October 2021; Grubhub Inc., an online and mobile food ordering and delivery platform, from October 2016 to June 2021; Echo Global Logistics, Inc., a transportation management technology company, from December 2012 to November 2021; Control4 Corporation, a provider of home and business automation systems, from September 2012 to August 2019; and Xperi Corporation, a product and intellectual property licensing company, from December 2016 until it merged with TiVo Corporation to form Xperi Holding Corporation in June 2020. He then served as chairman of the board of directors of Xperi Holding Corporation until October 2022. Mr. Habiger also previously served on the board of directors of Noble Rock Acquisition Corporation, a public blank check company organized for the purpose of effecting a business combination with one or more target businesses, from January 2021 to December 2022. He has served as chairman of the board of directors of Xperi, Inc., a consumer and entertainment products licensing company, since October 2022, and has also served on the board of directors of the Federal Reserve Bank of Chicago since January 2020. From October 2012 to January 2020, Mr. Habiger served as a Senior Advisor at Silver Lake Partners, a private equity firm, and from January 2013 to October 2019, he was a Venture Partner at Pritzker Group, a venture capital firm. Mr. Habiger received a Master of Business Administration from the University of Chicago and a Bachelor of Business Administration from St. Norbert College. We believe Mr. Habiger is qualified to serve as a member of our board of directors because of his extensive experience as an executive leader of, advisor to, and investor in technology companies, and as a board member of public companies across numerous industries, as well as his deep understanding of business, operational, and financial matters.
Robert A. Sauerberg has served on our board of directors since April 2012 and as Vice Chairperson of our board of directors since November 2023. Mr. Sauerberg served as a President and Chief Executive Officer at Condé Nast, a premier media company, from January 2016 to May 2019, as President from January 2011 to December 2015, and as Group President, Consumer Marketing from January 2005 to December 2010. From January 2000 to December 2005, Mr. Sauerberg served as Chief Operating Officer at Fairchild Publications, a media publishing company. Mr. Sauerberg received a Master of Business Administration from Mercer University and a Bachelor of Science in Finance from University of Arkansas at Fayetteville. We believe Mr. Sauerberg is qualified to serve as a member of our board of directors because of his extensive leadership and executive experience.
Michael Seibel has served on our board of directors since June 2020. Mr. Seibel has served as a Group Partner at Y Combinator since October 2014, and has also served as the Managing Director of YC Early Stage since October 2016. From February 2012 to August 2012, Mr. Seibel served as Chief Executive Officer of Socialcam, Inc., a social media company, and from June 2007 to October 2011, he served as Chief Executive Officer of Justin.tv (now known as Twitch.tv), an online video broadcasting company. Mr. Seibel has served on the board of directors of Dropbox, Inc., a file hosting service, since November 2020. Mr. Seibel received a Bachelor of Arts in Political Science from Yale University. We believe Mr. Seibel is qualified to serve as a member of our board of directors because of his extensive leadership experience and deep knowledge of technology companies and his experience in investing in and advising technology companies.
Non-Employee Director Nominee
Steven O. Newhouse has been appointed to serve as a member of our board of directors, effective upon the completion of this offering. Mr. Newhouse is co-president of Advance, a private, family-held business that owns and invests in a broad range of companies across media, entertainment, communications, technology, education, and other sectors. Mr. Newhouse has served on the board of directors of Warner Bros. Discovery, Inc. a publicly traded
global media and entertainment company, since April 2022. He served as an observer on the boards of directors of Discovery, Inc. from 2008 to 2022 and Reddit from 2011 to 2024. Mr. Newhouse also serves on the board of trustees of New York-Presbyterian Hospital. Mr. Newhouse received a Bachelor of Arts in American Studies from Yale University. We believe Mr. Newhouse is qualified to serve as a member of our board of directors because of his great depth of knowledge and experience regarding the media and entertainment business.
Family Relationships
There are no family relationships among any of our executive officers or directors.
Board Structure and Composition
Director Independence
Our board of directors currently consists of six members and will be increased to seven members effective upon completion of this offering. Our board of directors has determined that each of our directors, other than Mr. Huffman, and our director nominee qualifies as an independent director in accordance with the rules of the NYSE. Under the rules of the NYSE, the definition of independence includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his or her family members has engaged in various types of business dealings with us. In addition, as required by the rules of the NYSE, our board of directors has made a subjective determination as to each independent director that no relationships exist that, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s relationships as they may relate to us and our management.
Voting Arrangements
Pursuant to our current certificate of incorporation, our current directors were elected as follows:
•Mr. Seibel and Mr. Sauerberg were elected by the holders of our Series A convertible preferred stock;
•Mr. Huffman was elected by the holders of our Class A and Class B common stock, voting together as a single class; and
•Ms. Gale was elected by the holders of our Series A, Series B, Series C, and Series D convertible preferred stock, voting on an as-converted to Class B common stock basis and together as a single class with the holders of our Class A and Class B common stock.
Prior to the effectiveness of the registration statement of which this prospectus forms a part, Mr. Huffman and Advance are expected to enter into a voting agreement that will provide, among other things, that Mr. Huffman will be entitled to vote all of the securities beneficially owned by Advance and certain of its affiliates in favor of the directors designated by Advance and candidates nominated or identified by Mr. Huffman, in connection with any election of directors. See “Description of Capital Stock—Voting Agreement” for more information.
Governance Agreement
In connection with this offering, we intend to enter into a governance agreement with Advance and Mr. Huffman (the “Governance Agreement”) granting Advance, among other things, certain board and committee designation rights. Moreover, our amended and restated certificate of incorporation, which will be adopted immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, will provide that the authorized number of directors may be changed exclusively by resolution of our board of directors or as provided in the Governance Agreement, which grants Advance approval rights with respect to any increase in the size of our board of directors that would cause our board of directors to consist of more than ten members. See “Certain Relationships and Related-Party Transactions—Governance Agreement” for more information.
Leadership Structure of the Board
Our amended and restated bylaws and corporate governance guidelines to be adopted immediately following the effectiveness of the registration statement of which this prospectus forms a part will provide our board of directors with flexibility to combine or separate the positions of chairperson of the board of directors and Chief Executive Officer and to implement a lead director in accordance with its determination regarding which structure would be in the best interests of our company.
Our board of directors has concluded that our current leadership structure is appropriate at this time. However, our board of directors will continue to periodically review our leadership structure and may make such changes in the future as it deems appropriate.
Role of Board in Risk Oversight Process
Risk assessment and oversight are an integral part of our governance and management processes. Our board of directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings, and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the board of directors at regular board meetings as part of management presentations that focus on particular business functions, operations or strategies, and presents the steps taken by management to mitigate or eliminate such risks.
Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. While our board of directors is responsible for monitoring and assessing strategic risk exposure, our audit committee is responsible for overseeing our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The audit committee also approves or disapproves any related person transactions. Our compensation and talent committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Our nominating and corporate governance committee will monitor the effectiveness of our corporate governance guidelines.
Board Committees
Our board of directors has three standing committees: the audit committee; the compensation and talent committee; and the nominating and corporate governance committee. Each committee is governed by a charter that will be available on our website following completion of this offering.
Audit Committee
Our audit committee consists of David Habiger, Robert A. Sauerberg, and Michael Seibel. Mr. Habiger is the chairperson of our audit committee. The composition of our audit committee meets the requirements for independence under the rules of the NYSE and Rule 10A-3 of the Exchange Act. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Mr. Habiger is an “audit committee financial expert” within the meaning of the SEC rules. This designation does not impose on such directors any duties, obligations, or liabilities that are greater than are generally imposed on members of our audit committee and our board of directors. Our audit committee is directly responsible for, among other things:
•appointing, retaining, compensating, and overseeing the work of our independent registered public accounting firm;
•assessing the independence and performance of the independent registered public accounting firm;
•reviewing with our independent registered public accounting firm the scope and results of the firm’s annual audit of our financial statements;
•overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the financial statements that we will file with the SEC;
•pre-approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
•reviewing policies and practices related to risk assessment and management;
•reviewing our accounting and financial reporting policies and practices and accounting controls, as well as compliance with legal and regulatory requirements;
•reviewing, overseeing, approving, or disapproving any related person transactions;
•reviewing with our management the scope and results of management’s evaluation of our disclosure controls and procedures and management’s assessment of our internal control over financial reporting, including the related certifications to be included in the periodic reports we will file with the SEC; and
•establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls, or auditing matters, or other ethics or compliance issues.
Compensation and Talent Committee
Our compensation and talent committee consists of Patricia Fili-Kruschel and Porter Gale. Ms. Fili-Kruschel is the chairperson of our compensation and talent committee. Each of Ms. Fili-Kruschel and Ms. Gale is a non-employee director, as defined by Rule 16b-3 promulgated under the Exchange Act and meets the requirements for independence under the rules of the NYSE. Our compensation and talent committee is responsible for, among other things:
•reviewing and approving the compensation of our executive officers, including reviewing and approving corporate goals and objectives with respect to compensation;
•administering our equity incentive plans;
•reviewing and approving, or making recommendations to our board of directors with respect to, incentive compensation and equity plans;
•reviewing and recommending that our board of directors approve the compensation for our non-employee board members; and
•establishing and reviewing general policies relating to compensation and benefits of our employees.
Nominating and Corporate Governance Committee
Effective upon the completion of this offering, our nominating and corporate governance committee will consist of Steven O. Newhouse. Mr. Newhouse will be the chairperson of our nominating and corporate governance committee, and meets the requirements for independence under the rules of the NYSE. Our nominating and corporate governance committee will be responsible for, among other things:
•identifying and recommending candidates for membership on our board of directors, including the consideration of nominees submitted by stockholders, and on each of the board’s committees;
•reviewing and recommending our corporate governance guidelines and policies;
•reviewing proposed waivers of the code of business conduct and ethics for directors and executive officers;
•overseeing the process of evaluating the performance of our board of directors; and
•assisting our board of directors on corporate governance matters.
Business Ethics Policy
In connection with this offering, our board of directors has adopted a business ethics policy that applies to all of our employees, officers, and directors, including our Chief Executive Officer and President, Chief Financial Officer, and other executive and senior financial officers. Upon completion of this offering, the full text of our business ethics policy will be posted on the investor relations section of our website. We intend to disclose future amendments to our business ethics policy, or any waivers of such policy, on our website or in public filings.
Indemnification and Insurance
We maintain directors’ and officers’ liability insurance. Our amended and restated certificate of incorporation and amended and restated bylaws will include provisions limiting the liability of directors and officers and indemnifying them under certain circumstances. We have entered into indemnification agreements with all of our directors to provide our directors and certain of their affiliated parties with additional indemnification and related rights. See “Description of Capital Stock—Limitations on Liability and Indemnification Matters.”
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served as a member of a compensation committee (or if no committee performs that function, the board of directors) of any other entity that has an executive officer serving as a member of our board of directors.
EXECUTIVE AND DIRECTOR COMPENSATION
Executive Compensation
This section discusses the material components of the executive compensation program for our named executive officers. Our named executive officers for 2023 were:
•Steven Huffman, Chief Executive Officer and President;
•Jennifer Wong, Chief Operating Officer; and
•Andrew Vollero, Chief Financial Officer.
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion. 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.
Summary Compensation Table
The following table presents all of the compensation awarded to or earned by or paid to our named executive officers for 2022 and 2023:
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| Name and Principal Position | | Year | | Salary | | Bonus | | Stock
Awards | | Option
Awards | | Non-Equity
Incentive Plan
Compensation | | All Other
Compensation | | Total |
| | ($) | | ($) | | ($)(1) | | ($)(1) | | ($)(2) | | ($)(3) | | ($) |
| Steven Huffman | | 2023 | | 341,346 | | | — | | | 98,332,716 | | | 93,776,049 | | | 792,000 | | | 7,375 | | | 193,249,486 | |
| Chief Executive Officer and President | | 2022 | | 200,000 | | | 125,000 | | | — | | | — | | | — | | | 7,375 | | | 332,375 | |
| Jennifer Wong | | 2023 | | 583,820 | | | — | | | 45,696,176 | | | 45,736,084 | | | 506,880 | | | 7,375 | | | 92,530,335 | |
| Chief Operating Officer | | 2022 | | 562,772 | | | 168,832 | | | 29,946,596 | | | — | | | — | | | 7,375 | | | 30,685,575 | |
| Andrew Vollero | | 2023 | | 613,569 | | | — | | | 5,413,034 | | | — | | | 527,155 | | | 9,000 | | | 6,562,758 | |
| Chief Financial Officer | | 2022 | | 600,000 | | | 180,000 | | | — | | | — | | | — | | | 9,000 | | | 789,000 | |
________________
(1)Amounts reported represent (i) the grant date fair value of RSUs, PRSUs, and option awards granted to our named executive officers in the applicable year and (ii) the incremental fair value of modifications in the applicable year to PRSU awards held by our named executive officers (as determined based on the fair value of the PRSUs as of the date of modification or cancellation minus the fair value of the original award at the date of modification or cancellation), in each case, as computed in accordance with FASB Accounting Standards Codification Topic 718 (“ASC 718”), rather than amounts paid to or realized by the individual. The assumptions used in calculating the grant date fair value of the awards are described in Note 14—Stock-Based Compensation to our consolidated financial statements included in this prospectus.
(2)For 2023, amounts represent cash bonuses paid to our named executive officers under our 2023 executive bonus program, described under “Narrative to the Summary Compensation Table—Annual Performance Bonuses” below.
(3)Amounts represents company matching contributions made under our 401(k) plan.
Narrative to the Summary Compensation Table
Annual Base Salaries
Our named executive officers receive a base salary to compensate them for services rendered to us. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role, and responsibilities. In June 2023, Mr. Huffman’s annual base salary was increased from $200,000 to $450,000, Ms. Wong’s annual base salary was increased from $562,772 to $600,000,
and Mr. Vollero’s annual base salary was increased from $600,000 to $624,000. In February 2024, Mr. Huffman’s annual base salary was increased to $550,000, Ms. Wong’s annual base salary was increased to $650,000, and Mr. Vollero’s annual base salary was increased to $647,700.
Our board of directors and compensation and talent committee may adjust base salaries of our named executive officers from time to time in their discretion.
Annual Performance Bonuses
We maintain an annual performance-based cash bonus program in which each of our named executive officers participated in 2023. Each named executive officer’s target bonus is expressed as a percentage of base salary, and for 2023 were as follows: Mr. Huffman: 125%; Ms. Wong: 60%; and Mr. Vollero: 60%.
For 2023, bonus opportunities were based on achievement of performance goals set by our board of directors relating to DAUq, revenue, and Adjusted EBITDA (weighted 40%, 40%, and 20%, respectively), each with threshold, target, and maximum performance levels. In February 2024, our compensation and talent committee and board of directors determined that the 2023 DAUq, revenue, and Adjusted EBITDA performance goals were achieved at 225%, 77%, and 100% of their respective targets, resulting in an overall achievement level of 140.8%. The bonus amounts paid to our named executive officers under our 2023 bonus program are set forth above in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation.”
Our compensation and talent committee and board of directors may adjust the target bonus opportunities of, or award discretionary bonuses to, our named executive officers from time to time in their discretion. In February 2024, Ms. Wong’s target bonus was increased to 75% of her base salary.
Equity Compensation
We have granted stock options and RSUs to our employees, including our named executive officers, in order to attract and retain them, as well as to align their interests with the interests of our stockholders. We have also granted Mr. Huffman and Ms. Wong PRSUs that vest based upon the achievement of performance-based and market-based conditions. In late 2023, however, we determined that most of the PRSUs were not providing the incentive initially intended, and, upon recommendation of our compensation and talent committee, our board of directors (with the assistance of its compensation consultant) and our major stockholders approved (i) cancelling all of the PRSUs for which performance had not already been achieved other than 662,447 PRSUs held by Mr. Huffman and granted in 2020 and 20,000 PRSUs held by Ms. Wong and granted in 2023 and (ii) the grant of new time- and liquidity event-based RSU awards, stock options, and premium-priced stock options as set forth in the table below and described in the paragraphs that follow.
| | | | | | | | | | | | | | | | | | | | |
| Award Type | | Exercise Price Per Share | | Number of RSUs or Shares Underlying Options |
| | Steven Huffman | | Jennifer Wong |
| RSUs | | $ | — | | | 2,990,511 | | | 1,462,028 | |
| At-the-Money Options | | $ | 25.29 | | | 2,990,511 | | | 1,462,028 | |
| Premium-Priced Options | | $ | 45.00 | | | 996,837 | | | 487,342 | |
| Premium-Priced Options | | $ | 60.00 | | | 996,837 | | | 487,343 | |
| Premium-Priced Options | | $ | 90.00 | | | 996,837 | | | 487,343 | |
For Mr. Huffman’s RSU award and at-the-money option, half of the underlying shares are settleable or exercisable (as applicable) for shares of Class B common stock. All other shares underlying the awards are settleable or exercisable (as applicable) for shares of Class A common stock.
Each RSU award vests based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. For each RSU award, the service-based vesting condition was satisfied as to 50% of the total RSUs on the grant date, and for the remaining 50% of the RSUs will be satisfied as to 1/20th of such remaining RSUs on each quarterly anniversary of November 20, 2023 for a five-year period, subject to continued service with
us (which, for Mr. Huffman, must be service as our Chief Executive Officer or in such other position that is approved by our board of directors). The liquidity event vesting condition will be satisfied upon completion of this offering.
Each option has a maximum term of 10 years and vests and becomes exercisable as to 1/20th of the underlying shares on each quarterly anniversary of December 29, 2023, subject to continued service with us (which, for Mr. Huffman must be service as our Chief Executive Officer or in such other position that is approved by our board of directors).
We believe the awards provide baseline equity compensation to Mr. Huffman and Ms. Wong in line with market practice while strongly aligning their interests with the interests of our stockholders and encouraging stretch performance. The at-the-money options will only have value to the extent that the value of our common stock increases after the grant date, and the premium-priced options will only have value to the extent the value of our common stock exceeds the applicable $45.00, $60.00, or $90.00 per share exercise prices. As compared to the options, the RSUs provide more stable long-term incentive compensation because the value of the RSUs tracks the value of our common stock.
In February 2023, our board of directors extended to February 2030 the term of 562,447 PRSUs held by Mr. Huffman and 100,000 PRSUs held by Ms. Wong that had previously satisfied a performance-based vesting condition related to an annual revenue target, and which remain eligible to vest upon satisfaction of a liquidity-based vesting condition (which will be satisfied upon completion of this offering). In connection with the extension, Mr. Huffman and Ms. Wong were also granted an additional 112,489 and 20,000 PRSUs, respectively, that were eligible to vest based on the attainment of a market capitalization goal. Mr. Huffman’s 112,489 PRSUs were cancelled in December 2023 as described above, and Ms. Wong’s 20,000 PRSUs remain eligible to vest on the tenth trading day after our Class A common stock is first listed for trading in connection with this offering, subject to continued service through such tenth trading day, if our aggregate market capitalization exceeds $25.0 billion, where market capitalization is calculated by multiplying (A) the average closing price of our Class A common stock over the ten consecutive trading days after our Class A common stock is first listed for trading in connection with this offering by (B) the number of shares of our outstanding capital stock as of the completion of this offering.
In May 2023, our board of directors granted Ms. Wong an award of 48,712 RSUs, which vest based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. The service-based vesting condition of the RSUs is satisfied as to 1/4th of the RSUs on each quarterly anniversary of February 20, 2023 over a one-year period, subject to continued service with us. The liquidity event vesting condition will be satisfied upon completion of this offering.
In February 2023, our compensation and talent committee granted Mr. Vollero an award of 129,898 RSUs, which vest based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. The service-based vesting condition of the RSUs is satisfied as to 1/12th of the RSUs on each quarterly anniversary of February 20, 2023 over a three-year period, subject to continued service with us. The liquidity event vesting condition will be satisfied upon completion of this offering. In November 2023, our compensation and talent committee granted Mr. Vollero an additional award of 85,714 RSUs, which vest based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. The service-based vesting condition of the RSUs is satisfied as to 1/8th of the RSUs on each quarterly anniversary of November 20, 2023 over a two-year period, subject to continued service with us. The liquidity event vesting condition will be satisfied upon completion of this offering.
In connection with this offering, we have adopted the 2024 Incentive Award Plan (the “2024 Plan”) in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of our affiliates and to enable us to obtain and retain services of these individuals, which is essential to our long-term success. The 2024 Plan will be effective on the date immediately prior to the date the registration statement relating to this offering becomes effective. For more information about the 2024 Plan, see “Equity Incentive Plans” below.
Retirement Benefits
We currently maintain a 401(k) retirement savings plan for our U.S. employees, including our named executive officers, who satisfy certain eligibility requirements. The Internal Revenue 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, for each year we match 100% of the first $3,000 of each participant’s salary deferrals, and then 25% of the participant’s remaining deferrals, and these matching contributions are fully vested as of the date on which the contribution is made. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan, and making fully vested matching contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.
Perquisites and Other Personal Benefits
We determine perquisites on a case-by-case basis and will provide a perquisite to a named executive officer when we believe it is necessary to attract or retain the named executive officer. In 2023, we did not provide any perquisites or personal benefits to our named executive officers not otherwise made available to our other employees.
Outstanding Equity Awards at Year-End
The following table presents information regarding outstanding equity awards held by our named executive officers as of December 31, 2023. Except as otherwise indicated in the footnotes to the table, each award covers shares of our Class A common stock.
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| | Option Awards | | Stock Awards(1) |
| Name | | Vesting Commencement Date | | Grant
Date | | Number of
Securities
Underlying
Unexercised
Stock
Options
Exercisable | | Number of
Securities
Underlying
Unexercised
Stock
Options
Unexercisable | | Option
Exercise
Price | | Option
Expiration
Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested | | Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested | | Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned Shares, Units or
Other Rights
That Have Not
Vested |
| | | (#) | | (#) | | ($) | | | (#) | | ($)(1) | | (#)(2) | | ($)(1) |
| Steven Huffman | | 7/9/2015 | | 7/10/2015(3) | | 2,168,730 | | — | | 1.93 | | | 7/9/2025 | | | | | | | | |
| | 6/1/2016 | | 6/1/2016(4) | | | | | | | | | | | | | | 562,447 | |
|
| | 8/14/2020 | | 8/14/2020(5) | | | | | | | | | | | | | | 662,447 | |
|
| | 12/25/2023 | | 12/25/2023(6) | | — | | 2,990,511 | | 25.29 | | | 12/25/2033 | | | | | | | | |
| | 12/25/2023 | | 12/25/2023(6) | | — | | 996,837 | | 45.00 | | | 12/25/2033 | | | | | |
| | |
| | 12/25/2023 | | 12/25/2023(6) | | — | | 996,837 | | 60.00 | | | 12/25/2033 | | | | | | | | |
| | 12/25/2023 | | 12/25/2023(6) | | — | | 996,837 | | 90.00 | | | 12/25/2033 | | | | | | | | |
| | 11/20/2023 | | 12/25/2023(7) | | | | | | | | | | | | | | 2,990,511 | | | |
| Jennifer Wong | | 4/19/2018 | | 6/12/2018(8) | | 1,111,453 | | — | | 5.35 | | | 6/11/2028 | | | | | | | | |
| | 6/1/2016 | | 12/11/2019(4) | | | | | | | | | | | | | | 100,000 | | |
| | 2/20/2021 | | 5/20/2021(9) | | | | | | | | | | | | | | 49,400 | | |
| | 4/19/2021 | | 5/20/2021(10) | | 88,984 | | — | | 20.76 | | | 5/19/2031 | | | | | | | | |
| | 2/9/2023 | | 2/9/2023(11) | | | | | | | | | | | | | | 20,000 | | |
| | 5/20/2022 | | 3/24/2022(12) | | | | | | | | | | 453,148 | | | | | | |
| | 2/20/2023 | | 5/4/2023(13) | | | | | | | | | | | | | | 48,712 | | | |
| | 12/25/2023 | | 12/25/2023(6) | | — | | 1,462,028 | | 25.29 | | | 12/25/2033 | | | | | | | | |
| | 12/25/2023 | | 12/25/2023(6) | | — | | 487,342 | | 45.00 | | | 12/25/2033 | | | | | | | | |
| | 12/25/2023 | | 12/25/2023(6) | | — | | 487,343 | | 60.00 | | | 12/25/2033 | | | | | | | | |
| | 12/25/2023 | | 12/25/2023(6) | | — | | 487,343 | | 90.00 | | | 12/25/2033 | | | | | | | | |
| | 11/20/2023 | | 12/25/2023(7) | | | | | | | | | | | | | | 1,462,028 | | |
| Andrew Vollero | | 5/20/2021 | | 5/20/2021(14) | | | | | | | | | | | | | | 800,000 | | |
| | 2/20/2023 | | 2/8/2023(9) | | | | | | | | | | | | | | 129,898 | | |
| | 11/20/2023 | | 11/1/2023(15) | | | | | | | | | | | | | | 85,714 | | |
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(1)Amounts are calculated by multiplying the number of RSUs and PRSUs shown in the table by the fair market value of our common stock as of December 31, 2023. As there was no public market for our common stock on December 31, 2023, we
have assumed that the fair market value on such date was $ per share, which represents the midpoint of the estimated price range set forth on the cover page of this prospectus.
(2)Represents RSUs that vest in whole or in part based on the achievement of liquidity event conditions and PRSUs that vest in whole or in part based on the achievement of performance conditions.
(3)The option vests as to 20% of the shares on the first anniversary of the vesting commencement date and as to 1/48th of the remaining shares on each monthly anniversary thereafter, subject to continued service with us. The option covers shares of Class B common stock.
(4)The RSUs were subject to a performance vesting condition based on achievement of an annual revenue target, which has been satisfied, and remain subject to a liquidity event vesting condition, which will be satisfied upon completion of this offering Mr. Huffman’s RSUs cover shares of Class B common stock.
(5)The PRSUs are subject to (x) a performance vesting condition based on the achievement of an average of 100 million average unique visitors per day over a continuous 30-day period on all user platforms hosted or developed by us, subject to continued service with us through the vesting date and (y) a liquidity event vesting condition, which will be satisfied upon completion of this offering. If the performance vesting condition is not met before the completion of this offering, the PRSUs will remain outstanding and eligible to vest if either of (and on the earlier of) the following occurs on or before August 14, 2024: (i) satisfaction of the performance vesting condition or (ii) our aggregate market capitalization exceeds $5.0 billion, where market capitalization is calculated by multiplying (x) the average closing price for our Class A common stock over a period of any ten consecutive trading days after our Class A common stock is first listed for trading in connection with this offering by (y) the number of shares of our outstanding capital stock as of the completion of this offering, subject to continued service with us through such tenth trading day. Notwithstanding the foregoing, if we undergo a change in control transaction on or before August 14, 2024, then all of the PRSUs will forfeit unless the maximum purchase price payable to our stockholders in such transaction exceeds $5.0 billion in value, in which case the PRSUs will vest upon the closing of such transaction, subject to continued service with us through such date. The PRSUs cover shares of Class B common stock.
(6)The option vests and becomes exercisable as to 1/20th of the shares on each quarterly anniversary of the vesting commencement date, subject to continued service with us. For Mr. Huffman’s option with an exercise price of $25.29 per share, half of the underlying shares are Class B common stock.
(7)The RSUs vest based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. The service-based vesting condition of the RSUs was satisfied as to 50% of the RSUs on the grant date, and for the remaining 50% of the RSUs will be satisfied as to 1/20th of such remaining RSUs on each quarterly anniversary of the vesting commencement date, subject to continued service with us. The liquidity event vesting condition will be satisfied upon completion of this offering. Half of Mr. Huffman’s RSUs cover shares of Class B common stock.
(8)The option vests as to 25% of the shares on the first anniversary of the vesting commencement date and as to 1/36th of the shares on each monthly anniversary thereafter, subject to continued service with us. The option may be exercised prior to vesting with any shares purchased subject to a right of repurchase by us at the original exercise price that lapses in accordance with the option’s vesting schedule.
(9)The RSUs vest based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. The service-based vesting condition of the RSUs is satisfied as to 1/12th of the RSUs on each quarterly anniversary of the vesting commencement date, subject to continued service with us. The liquidity event vesting condition will be satisfied upon completion of this offering.
(10)The option vests as to 1/36th of the shares on each monthly anniversary of the vesting commencement date, subject to continued service with us. The option may be exercised prior to vesting with any shares purchased subject to a right of repurchase by us at the original exercise price that lapses in accordance with the option’s vesting schedule.
(11)The PRSUs are eligible to vest on the tenth trading day after our Class A common stock is first listed for trading in connection with this offering, subject to continued service with us through such tenth trading day, if our aggregate market capitalization exceeds $25.0 billion, where market capitalization is calculated by multiplying (A) the average closing price of our Class A common stock over the ten consecutive trading days after our Class A common stock is first listed for trading in connection with this offering by (B) the number of shares of our outstanding capital stock as of the completion of this offering; provided, however, that if such market capitalization valuation is not met as of the tenth trading following completion of this offering, such shares will be forfeited in full.
(12)The RSUs vest as to 1/20th of the RSUs on each quarterly anniversary of the vesting commencement date, subject to continued service with us.
(13)The RSUs vest based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. The service-based vesting condition of the RSUs is satisfied as to 1/4th of the RSUs on each quarterly anniversary of the vesting commencement date, subject to continued service with us. The liquidity event vesting condition will be satisfied upon completion of this offering.
(14)The RSUs vest based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. The service-based vesting condition of the RSUs is satisfied as to 27% of the RSUs on the one-year anniversary of the vesting commencement date and as to 1/16th of the RSUs on each quarterly anniversary thereafter, subject to continued service with us. The liquidity event vesting condition will be satisfied upon completion of this offering.
(15)The RSUs vest based on the satisfaction of both a service-based vesting condition and a liquidity event vesting condition. The service-based vesting condition of the RSUs is satisfied as to 1/8th of the RSUs on each quarterly anniversary of the vesting commencement date, subject to continued service with us. The liquidity event vesting condition will be satisfied upon completion of this offering.
For additional information regarding the 662,447 PRSUs held by Mr. Huffman see “Capitalization—Vesting of Outstanding CEO Equity Award at Certain Trading Prices.”
Executive Compensation Arrangements
Offer Letters
We have entered into amended and restated offer letters with each of our named executive officers, which provide for at-will employment and set forth the executive’s base salary, target variable compensation, and eligibility for employee benefits.
Change in Control and Severance Agreements
We have entered into change in control and severance agreements (each, a “Severance Agreement” and together, the “Severance Agreements”) with each of our named executive officers, which supersede and replace all existing change in control and severance benefits for them. Each named executive officer’s benefits under their Severance Agreement are described below. Payments and benefits under each Severance Agreement are contingent on the applicable executive timely providing us with (and not revoking) a general release of claims.
Mr. Huffman and Ms. Wong
In the event we terminate Mr. Huffman’s or Ms. Wong’s employment without “cause” or he or she resigns for “good reason” (in each case, as defined in the applicable Severance Agreement) other than during the period beginning three months before and ending 12 months after a change in control of the Company, in addition to any accrued obligations, the executive will be entitled to the following: (i) an amount equal to 12 months of his or her then-current base salary, (ii) payment or reimbursement of COBRA premiums for up to 12 months following the termination date, and (iii) 12 months of additional vesting for his or her outstanding equity awards that vest solely based on continued service to the Company. In the event we terminate Mr. Huffman’s or Ms. Wong’s employment without “cause” or he or she resigns for “good reason” during the period beginning three months before and ending 12 months after a change in control of the Company, in addition to any accrued obligations, the executive will be entitled to the following: (i) an amount equal to 18 months (for Mr. Huffman) or 12 months (for Ms. Wong) of his or her then-current base salary, (ii) a prorated target annual bonus for the year of termination, (iii) payment or reimbursement of COBRA premiums for up to 18 months following the termination date, and (iv) full vesting acceleration of his or her outstanding equity awards (with any performance goals deemed achieved at target levels).
Mr. Vollero
In the event we terminate Mr. Vollero’s employment without “cause” or he resigns for “good reason” (in each case, as defined in his Severance Agreement) other than during the period beginning three months before and ending 12 months after a change in control of the Company, in addition to any accrued obligations, Mr. Vollero will be entitled to the following: (i) an amount equal to 12 months of his then-current base salary, (ii) 50% of his annual target bonus for the year of termination, and (iii) a cash payment equal to the cost of 12 months of COBRA premiums. In the event we terminate Mr. Vollero’s employment without “cause” or he resigns for “good reason” during the period beginning three months before and ending 12 months after a change in control of the Company, in addition to any accrued obligations, Mr. Vollero will be entitled to the following: (i) an amount equal to 12 months of his then-current base salary, (ii) 50% of his annual target bonus for the year of termination, or a prorated target annual bonus for the year of termination (whichever is greater), (iii) a cash payment equal to the cost of 12 months of COBRA premiums, and (iv) full vesting acceleration of his outstanding equity awards that vest solely based on continued service to the Company.
Equity Incentive Plans
2024 Incentive Award Plan
We have adopted the 2024 Plan, which will be effective on the date immediately prior to the date our registration statement relating to this offering becomes effective. The principal purpose of the 2024 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 2024 Plan, as it is currently contemplated, are summarized below.
Share Reserve. Under the 2024 Plan, shares of our Class A 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, RSU awards, performance bonus awards, performance stock unit awards, dividend equivalents, or other stock or cash based awards, which includes shares of our Class A common stock that remain available for grant of future awards under the 2017 Plan at the time the 2024 Plan becomes effective (which shares will cease to be available for issuance under the 2017 Plan at such time). The number of shares initially reserved for issuance or transfer pursuant to awards under the 2024 Plan will be increased by (i) the number of shares represented by awards outstanding under the Spiketrap Inc. Amended and Restated 2019 Equity Incentive Plan, the Dubsmash Inc. 2018 Stock Plan, the Spell, Inc. 2017 Stock Plan, our 2012 Stock Option and Grant Plan (as amended, the “2012 Plan”), and the 2017 Plan (such awards outstanding under such plans, the “Prior Plan Awards”) that become available for issuance under the counting provisions described below following the effective date of this offering and (ii) an annual increase on the first day of each fiscal year beginning in 2025 and ending in 2034, equal to the lesser of (A) 5% of the shares of common stock outstanding (on an as converted basis) on the last day of the immediately preceding 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 2024 Plan:
•to the extent that an award (including a Prior Plan Award) expires, lapses, or is terminated, converted into an award in respect of shares of another entity in connection with a spin-off or other similar event, exchanged for cash, surrendered, repurchased, cancelled, in any case, in a manner that results in the Company acquiring the underlying shares at a price not greater than the price paid by the participant or not issuing the underlying shares, such unused shares subject to the award at such time will be available for future grants under the 2024 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 2024 Plan or Prior Plan Award, such tendered or withheld shares will be available for future grants under the 2024 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 2024 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 2024 Plan; and
•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 2024 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 a cash-based award to any individual for services as a non-employee director during any calendar year may not exceed $ .
Administration. The compensation and talent committee of our board of directors is expected to administer the 2024 Plan unless our board of directors assumes authority for administration. The board of directors may delegate its powers to a committee, which, to the extent required to comply with Rule 16b-3, is intended to be comprised of “non-employee directors” for purposes of Rule 16b-3 under the Exchange Act. The 2024 Plan provides that our board of directors or compensation and talent committee may delegate its authority to grant awards other than to individuals subject to Section 16 of the Exchange Act or officers or directors to whom authority to grant awards has been delegated.
Subject to the terms and conditions of the 2024 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 2024 Plan. The administrator is also authorized to adopt, amend or rescind rules relating to administration of the 2024 Plan. Our board of directors may at any time remove the compensation and talent committee as the administrator and revest in itself the authority to administer the 2024 Plan. The full board of directors will administer the 2024 Plan with respect to awards to non-employee directors.
Eligibility. Awards under the 2024 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. However, only employees of our company or certain of our subsidiaries may be granted incentive stock options, or ISOs.
Awards. The 2024 Plan provides that the administrator may grant or issue stock options, SARs, restricted stock, RSUs, performance bonus awards, performance 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 (“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 (“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 2024 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.
•RSUs 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 (“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 2024 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 2024 Plan will be settled in cash or shares of our common stock, or in a combination of both, at the election of the administrator.
•Performance Bonus Awards and Performance Stock Units are denominated in cash or shares/unit equivalents, respectively, and may be linked to one or more performance or other criteria as determined by 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 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 converted to cash or shares by such formula and such time as determined by the administrator. In addition, dividend equivalents with respect to an awards subject to vesting will either (i) to the extent permitted by applicable law, not be paid or credited or (ii) be accumulated and subject to vesting to the same extent as the related award.
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 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 under the 2024 Plan prior to the completion of such transaction, such awards (other than any portion subject to performance-based vesting) will be subject to accelerated vesting such that 100% of such awards will become vested and exercisable or payable, as applicable. Notwithstanding the foregoing, if a participant’s service with us is terminated by us without “cause” or the participant resigns for “good reason” (in each case, as defined in the 2024 Plan) within three months before or 12 months after a change in control, the vesting and exercisability of the participant’s awards under the 2024 Plan shall fully accelerate. The administrator may also make appropriate adjustments to awards under the 2024 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. The administrator has broad discretion to take action under the 2024 Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting our common stock, such as stock dividends, stock splits, mergers, acquisitions, consolidations and other corporate transactions. In addition, in the event of certain non-reciprocal transactions with our stockholders known as “equity restructurings,” the administrator will make equitable adjustments to the 2024 Plan and outstanding awards.
Amendment and Termination. The administrator may terminate, amend or modify the 2024 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), and generally no amendment may materially and adversely affect any outstanding award without the affected participant’s consent. 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 2024 Plan after the tenth anniversary of the effective date of the 2024 Plan, and no additional annual share increases to the 2024 Plan’s aggregate share limit will occur from and after such anniversary. Any award that is outstanding on the termination date of the 2024 Plan will remain in force according to the terms of the 2024 Plan and the applicable award agreement.
2017 Equity Incentive Plan
Our board of directors originally adopted the 2017 Plan on July 10, 2017, and subsequently amended the 2017 Plan to increase the number of shares reserved for issuance, each of which was approved by our shareholders. The 2017 Plan is the successor to the 2012 Plan, which is described below. The 2017 Plan allows for the grant of incentive stock options to employees, including the employees of any subsidiary, and for the grant of nonstatutory stock options, restricted stock awards, and RSUs to employees, directors, and consultants, including employees and consultants of any parent, subsidiary, or affiliate. As of December 31, 2023, options to purchase 22,126,343 shares of our Class A common stock at a weighted-average exercise price per share of $21.74 (taking into account the premium-priced options held by Mr. Huffman and Ms. Wong), options to purchase 1,495,256 shares of our Class B common stock at an exercise price per share of $25.29, 24,907,021 RSUs and PRSUs covering shares of our Class A common stock, and 2,157,703 RSUs and PRSUs covering shares of our Class B common stock remained outstanding under the 2017 Plan. In connection with the effectiveness of the 2024 Plan, no further awards will be granted under the 2017 Plan. However, all outstanding awards will continue to be governed by their existing terms.
Plan Administration. Our board of directors has administered the 2017 Plan since its adoption. Our board of directors has full authority and discretion to take any actions it deems necessary or advisable for the administration of the 2017 Plan, and has the authority to select the service providers to whom awards will be granted, the number of shares subject to those awards, the terms and conditions of those awards and to construe and interpret the 2017 Plan.
Stock Options. Incentive stock options and nonstatutory stock options are granted under stock option agreements adopted by the board of directors. The plan administrator determines the exercise price for stock options, within the terms and conditions of the 2017 Plan, provided that the exercise price of a stock option cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2017 Plan vest based on vesting criteria specified in the stock option agreement as determined by the plan administrator.
RSU Awards. RSUs are granted under RSU award agreements adopted by the plan administrator. An RSU may be settled by cash, delivery of stock, or a combination of cash and stock as deemed appropriate by the plan administrator. Additionally, dividend equivalents may be credited in respect of shares covered by an RSU which may be paid in cash or shares. RSUs granted under the 2017 Plan vest based on vesting criteria specified in the RSU award agreement as determined by the plan administrator.
Performance Awards. Performance-based awards may contain vesting criteria set by our board of directors that are subject to the satisfaction of one or more performance goals as determined by our board of directors.
Changes to Capital Structure. In the event that there is a specified type of change in our capital structure, such as a stock split or recapitalization, appropriate adjustments will be made to the number and class of shares of our common stock that may be delivered under the 2017 Plan and/or the number, class, and price of shares covered by each outstanding stock award.
Corporate Transactions. The 2017 Plan provides that in the event of certain specified significant corporate transactions, generally including (i) a sale of all or substantially all of our assets, (ii) a merger, consolidation, or other similar transaction of the company with or into another entity, or (iii) a person or group becoming the beneficial owner of more than 50% of our then-outstanding voting power (subject to certain exclusions), each outstanding award will be treated as the plan administrator determines. Such determination may, without limitation,
provide for one or more of the following: (A) the assumption, continuation, or substitution of such outstanding awards by the company, the surviving corporation, or its parent, (B) the cancellation of such awards in exchange for a payment to the recipients equal to the excess of the fair market value of the shares subject to such awards over the exercise price of such awards (if any), or (C) the cancellation of any outstanding awards for no consideration. If an acquirer in the transaction does not assume or replace awards outstanding under the 2017 Plan, stock options will become fully exercisable and RSUs will fully vest.
Transferability. Under the 2017 Plan, awards are generally not transferable (other than by will or the laws of descent and distribution), except as otherwise provided under the 2017 Plan or the applicable award agreements.
Plan Amendment or Termination. Our board of directors has the authority to amend or terminate the 2017 Plan, although certain material amendments would require the approval of our stockholders, and amendments that would materially and adversely affect the rights of any recipient would require the consent of such recipient with respect to his or her awards. In connection with the effectiveness of the 2024 Plan, no further awards will be granted under the 2017 Plan.
2012 Stock Option and Grant Plan
Our board of directors adopted, and our stockholders approved, the 2012 Plan on April 10, 2012, and it was subsequently amended. The 2012 Plan allows for the grant of incentive stock options to employees, including the employees of any parent or subsidiary, and for the grant of nonstatutory stock options, restricted stock awards, and RSUs to employees, directors, and consultants, including employees and consultants of any parent, subsidiary, or affiliate. As of December 31, 2023, options to purchase 7,213,522 shares of our Class B common stock at a weighted-average exercise price per share of $6.72 and 562,447 PRSUs covering shares of our Class B common stock remained outstanding under the 2012 Plan. In connection with the adoption of the 2017 Plan, we ceased granting awards under the 2012 Plan. However, all outstanding awards continue to be governed by their existing terms.
Plan Administration. Our board of directors or a duly authorized committee of our board of directors administers the 2012 Plan and the awards granted under it. Our board of directors may also delegate to one or more of our officers the authority to make awards under the 2012 Plan to employees and consultants, within parameters specified by our board of directors. Under the 2012 Plan, the board of directors has the authority to select the service providers to whom awards will be granted, the number of shares subject to those awards, and the terms and conditions of those awards, and to construe and interpret the 2012 Plan.
Changes to Capital Structure. In the event that there is a specified type of change in our capital structure, such as a stock split or recapitalization, appropriate adjustments will be made to the number and class of shares of our common stock that may be delivered under the 2012 Plan and/or the number, class, and price of shares covered by each outstanding stock award.
Corporate Transactions. The 2012 Plan provides that in the event of certain specified significant corporate transactions, generally including (i) a sale of all or substantially all of our assets, (ii) a merger, consolidation, or other similar transaction of the Company with or into another entity, or (iii) a person or group becoming the beneficial owner of more than 50% of our then-outstanding capital stock, each outstanding award will be treated as the plan administrator determines. Such determination may, without limitation, provide for one or more of the following: (A) the assumption, continuation, or substitution of such outstanding awards by the Company, the surviving corporation, or its parent, (B) the cancellation of such awards in exchange for a payment to the recipients equal to the excess of the fair market value of the shares subject to such awards over the exercise price of such awards (if any), or (C) the cancellation of any outstanding awards for no consideration. If an acquirer in the transaction does not assume or replace awards outstanding under the 2012 Plan, stock options will become fully exercisable and RSUs will fully vest.
Transferability. Under the 2012 Plan, the board of directors may provide for limitations on the transferability of awards, in its sole discretion. Awards are generally not transferable (other than by will or the laws of descent and distribution), except as otherwise provided under the 2012 Plan or the applicable award agreements.
Plan Amendment or Termination. Our board of directors has the authority to amend or terminate the 2012 Plan, although certain material amendments would require the approval of our stockholders, and amendments that would materially and adversely affect the rights of any recipient would require the consent of such recipient with respect to his or her awards. In connection with the adoption of the 2017 Plan, we ceased granting awards under the 2012 Plan.
2024 Employee Stock Purchase Plan
We have adopted the ESPP, which will be effective on the date immediately prior to the date the registration statement relating to this offering becomes effective. The ESPP is designed to allow our eligible employees to purchase shares of our common stock, at periodic 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 and talent committee will administer the ESPP. Our compensation and talent 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 our shares of our Class A common stock which will be authorized for sale under the ESPP is equal to the sum of (i) shares of Class A common stock and (ii) an annual increase on the first day of each fiscal year beginning in 2025 and ending in 2034, equal to the lesser of (A) % of the shares of common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such number of shares of common stock as determined by our board of directors; provided, however, no more than shares of our Class A 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. 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 15% of their base compensation. 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 100,000 shares in each offering period and may not accrue the right to purchase shares of common stock at a rate that exceeds $25,000 in fair market value of shares of our common stock (determined at the time the option is granted) for each calendar year the option is outstanding (as determined in accordance with Section 423 of the Code). 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 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 purchase period within an offering period.
Unless a participant has previously cancelled 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 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 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.
Compensation Recovery (“Clawback”) Policy
Effective upon the completion of this offering, we have adopted a compensation recovery policy as required by Rule 10D-1 under the Exchange Act and the corresponding listing standard adopted by the NYSE. The policy generally provides that if we are required to prepare an accounting restatement (including a restatement to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period), we must recover from our current and former executive officers any incentive-based compensation that was erroneously received on or after the effective date of the policy and during the three years preceding the date we are required to prepare such accounting restatement. The amount required to be recovered will be the excess of the amount of incentive-based compensation received over the amount that otherwise would have been received based on the restated financial measure.
Director Compensation
In February 2022, we adopted our non-employee director compensation program (the “Director Compensation Program,” described below), which was amended and restated in February 2024. Other than Patricia Fili-Krushel
and David Habiger, none of our non-employee directors received any compensation in 2023 for their service on our board of directors.
In February 2023, we granted Ms. Fili-Krushel an award of 9,806 RSUs under the 2017 Plan covering Class A shares of common stock. The RSUs have a seven-year term and vest based on the satisfaction of service-based and liquidity-based vesting conditions. The service-based vesting condition is satisfied as to 50% of the RSUs on each of February 9, 2024 and February 9, 2025, subject to continued service with us. The liquidity-based vesting condition will be satisfied upon completion of this offering.
In connection with the commencement of his service on our board of directors, in February 2023, we granted David Habiger an award of 21,906 RSUs under the 2017 Plan covering Class A shares of common stock. The RSUs have a seven-year term and vest based on the satisfaction of service-based and liquidity-based vesting conditions. The service-based vesting condition is satisfied as to 50% of the RSUs on each of November 3, 2023 and November 3, 2024, subject to continued service with us. The liquidity-based vesting condition will be satisfied upon completion of this offering.
The following table sets forth all of the compensation earned by or paid to our non-employee directors in 2023 for their service on our board of directors. Mr. Huffman receives no additional compensation for his service as director, and his compensation as our Chief Executive Officer and President is set forth in the Summary Compensation Table above.
2023 Director Compensation Table
| | | | | | | | | | | | | | |
| Name | | Stock Awards ($)(1) | | Total
($) |
| Patricia Fili-Krushel | | 229,460 | | | 229,460 | |
| Porter Gale | | — | | | — | |
David Habiger | | 512,600 | | | 512,600 | |
Paula A. Price(2) | | — | | | — | |
| Robert A. Sauerberg | | — | | | — | |
| Michael Seibel | | — | | | — | |
________________
(1)The amount reported represents the grant date fair value of RSU awards granted in 2023 as computed in accordance with ASC 718, rather than amounts paid to or realized by the individuals. The assumptions used in calculating the grant date fair value of awards are described in Note 14—Stock-Based Compensation to our consolidated financial statements included in this prospectus.
The table below shows the aggregate numbers of option awards (exercisable and unexercisable) and RSUs held as of December 31, 2023 by each non-employee director, each of which covers Class A shares of common stock.
| | | | | | | | | | | | | | |
| Name | | Option Award Outstanding at Year End | | Stock Awards Outstanding at Year End |
| Patricia Fili-Krushel | | — | | | 21,905 | |
| Porter Gale | | — | | | — | |
| David Habiger | | — | | | 21,906 | |
Paula A. Price | | 120,000 | | | — | |
| Robert A. Sauerberg | | — | | | — | |
| Michael Seibel | | 120,000 | | | — | |
(2)Ms. Price stepped down from our board of directors in February 2024.
Non-Employee Director Compensation Program
In February 2022, we adopted the Director Compensation Program, which was amended and restated in February 2024, and pursuant to which our non-employee directors will be eligible to receive cash compensation and equity awards for service on our board of directors.
Under the Director Compensation Program, commencing upon the completion of this offering, our non-employee directors will be eligible to receive cash compensation as follows:
•Each non-employee director will receive an annual cash retainer in the amount of $60,000.
•The non-employee chair of our board of directors will receive additional cash compensation in the amount of $100,000 per year for service as the chair of our board of directors.
•The non-employee vice chair of our board of directors will receive additional cash compensation in the amount of $50,000 per year for service as the vice chair of our board of directors.
•The chair of the audit committee will receive additional cash compensation in the amount of $25,000 per year for service on the audit committee.
•Each member of the audit committee other than the chair will receive additional cash compensation in the amount of $12,500 per year for service on the audit committee.
•The chair of the compensation and talent committee will receive additional cash compensation in the amount of $20,000 per year for service on the compensation and talent committee.
•Each member of the compensation and talent committee other than the chair will receive additional cash compensation in the amount of $10,000 per year for service on the compensation and talent committee.
•The chair of the nominating and corporate governance committee will receive additional cash compensation in the amount of $15,000 per year for service on the nominating and corporate governance committee.
•Each member of the nominating and corporate governance committee other than the chair will receive additional cash compensation in the amount of $7,500 per year for service on the nominating and corporate governance committee.
All annual cash retainers will be paid quarterly in arrears promptly following the end of the applicable quarter, and prorated for partial service.
Each non-employee director may elect to receive all or a portion of their annual cash retainers in the form of RSUs under the 2024 Plan. Elections to convert annual cash retainers into RSUs must generally be made on or prior to December 31 of the year prior to the year in which the annual cash retainers are scheduled to be paid, or such earlier deadline as established by our board of directors or compensation and talent committee. Each individual who first becomes a non-employee director is permitted to elect to convert the annual cash retainer payments scheduled to be paid in the same calendar year into RSUs, provided that the election is made on or prior to the date the individual becomes a non-employee director. RSUs granted in lieu of the annual cash retainers will be fully vested on the grant date, and the number of RSUs will be determined by dividing the amount of the cash retainers that would otherwise be paid by the average closing trading price of our Class A common stock over the 60 trading days preceding the grant date. In addition, the Director Compensation Program provides that non-employee directors may elect to defer the settlement of such fully vested RSUs granted to them.
Each non-employee director who is serving immediately before and continues to serve immediately after each annual stockholder’s meeting will automatically be granted, on the date of the annual stockholder’s meeting, an award of a number of RSUs calculated by dividing (a) $250,000 by (b) the average closing trading price of a share of our Class A common stock over the 60 trading days preceding the grant date. Each annual award will fully vest on the earlier of (i) the first anniversary of the grant date, and (ii) immediately before our annual stockholder’s meeting following the grant date, subject to continued service with us through the applicable vesting date.
Each award of RSUs, along with any other equity-based awards held by any non-employee director that is subject to vesting, will fully vest upon a change in control of the company.
Arrangements with Advance
Robert A. Sauerberg has served as Advance’s designee to our board of directors. In this capacity, Mr. Sauerberg has been compensated by Advance, and his compensation arrangements provide for an incentive payment that is tied to certain liquidity events, including this offering and other conditions. In connection with this offering, Mr. Sauerberg is expected to receive the incentive payment. Following the completion of this offering, Mr. Sauerberg will no longer be compensated by Advance for service on our board of directors.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
The following includes a summary of transactions since January 1, 2021 and any currently proposed transactions, to which we were or are to be a participant, in which (i) the amount involved exceeded or will exceed $120,000; and (ii) any of our directors, executive officers, or holders of more than 5% of our capital stock, or any affiliate or member of the immediate family of the foregoing persons or entities, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described under “Executive and Director Compensation.”
We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that we would pay or receive, as applicable, in arm’s-length transactions.
Convertible Preferred Stock Financings
Series E Convertible Preferred Stock Financing
In February 2021, we entered into a Series E preferred stock purchase agreement with various investors, pursuant to which we issued and sold an aggregate of 12,195,638 shares of our Series E convertible preferred stock at a purchase price of $42.4742 per share for gross proceeds of $518.0 million in multiple closings. The first closing occurred in February 2021, at which time we issued 6,709,954 shares of our Series E convertible preferred stock for gross proceeds of $285.0 million. The second closing occurred in February 2021, at which time we issued 1,952,946 shares of our Series E convertible preferred stock for gross proceeds of $82.9 million. The third closing occurred in March 2021, at which time we issued 1,177,184 shares of our Series E convertible preferred stock for gross proceeds of $50.0 million. The fourth closing occurred in March 2021, at which time we issued 1,059,466 shares of our Series E convertible preferred stock for gross proceeds of $45.0 million. The fifth closing occurred in May 2021, at which time we issued 117,718 shares of our Series E convertible preferred stock for gross proceeds of $5.0 million. The sixth closing occurred in May 2021, at which time we issued 589,778 shares of our Series E convertible preferred stock for gross proceeds of $25.1 million. The seventh closing occurred in June 2021, at which time we issued 588,592 shares of our Series E convertible preferred stock for gross proceeds of $25.0 million.
The table below sets forth the number of shares of our Series E convertible preferred stock purchased by our executive officers, directors, holders of more than 5% of our capital stock and their affiliated entities, or immediate family members of the foregoing.
| | | | | | | | | | | | | | |
| | Shares of Series E Preferred Stock | | Aggregate Purchase Price |
Name(1) | | (#) | | ($) |
Advance Magazine Publishers Inc.(2) | | 588,592 | | 24,999,974 | |
Tencent Cloud Europe B.V.(3) | | 2,354,370 | | 99,999,982 | |
Robert A. Sauerberg, Jr. 2002 Revocable Trust(4) | | 47,087 | | 1,999,983 | |
Entities affiliated with Sam Altman(5) | | 1,177,184 | | 49,999,949 | |
VYC19 Limited(6) | | 2,354,370 | | 99,999,982 | |
______________
(1)For more information regarding these stockholders and their equity holdings, see “Principal and Selling Stockholders.”
(2)Advance Magazine Publishers Inc. (“Advance”) beneficially owns more than 5% of our outstanding capital stock. Steven O. Newhouse, our director nominee, is currently, and was at the time of the Series E convertible preferred stock financing, co-president and a director of Advance Publications, Inc., the indirect parent company of Advance.
(3)Tencent Cloud Europe B.V. beneficially owns more than 5% of our outstanding capital stock.
(4)Robert A. Sauerberg is currently, and was at the time of the Series E convertible preferred stock financing, a member of our board of directors.
(5)Entities affiliated with Sam Altman collectively beneficially own more than 5% of our outstanding capital stock. Mr. Altman was, at the time of the Series E convertible preferred stock financing, a member of our board of directors.
(6)VYC19 Limited, together with its affiliates, beneficially owns more than 5% of our outstanding capital stock.
Series F and Series F-1 Convertible Preferred Stock Financing
In August 2021, we entered into a Series F preferred stock purchase agreement with various investors, pursuant to which we issued and sold an aggregate of 6,634,905 shares of our Series F convertible preferred stock at a purchase price of $61.7944 per share for gross proceeds of $410.0 million. In September 2021, we entered into an amended and restated Series F preferred stock purchase agreement with various investors, pursuant to which we issued and sold an aggregate of 5,104,017 shares of our Series F-1 convertible preferred stock at a purchase price of $61.7944 per share for gross proceeds of $315.4 million in multiple closings. The first closing occurred in September 2021, at which time we issued 2,029,306 shares of our Series F-1 convertible preferred stock for gross proceeds of $125.4 million. The second closing occurred in September 2021, at which time we issued 323,653 shares of our Series F-1 convertible preferred stock for gross proceeds of $20.0 million. The third closing occurred in September 2021, at which time we issued 2,103,750 shares of our Series F-1 convertible preferred stock for gross proceeds of $130.0 million. The fourth closing occurred in September 2021, at which time we issued 647,308 shares of our Series F-1 convertible preferred stock for gross proceeds of $40.0 million.
The table below sets forth the number of shares of our Series F convertible preferred stock and our Series F-1 convertible preferred stock purchased by our executive officers, directors, holders of more than 5% of our capital stock and their affiliated entities, or immediate family members of the foregoing.
| | | | | | | | | | | | | | | | | | | | |
| | Shares of Series F Preferred Stock | | Shares of Series F-1 Preferred Stock | | Aggregate Purchase Price |
Name(1) | | (#) | | (#) | | ($) |
Advance Magazine Publishers Inc.(2) | | — | | 16,182 | | 999,957 | |
Tencent Cloud Europe B.V.(3) | | — | | 1,076,997 | | 66,552,383 | |
FMR LLC(4) | | 6,634,905 | | — | | 409,999,974 | |
Entities affiliated with Sam Altman(5) | | — | | 161,828 | | 10,000,064 | |
VYC19 Limited(6) | | — | | 404,569 | | 25,000,099 | |
_____________
(1)For more information regarding these stockholders and their equity holdings, see “Principal and Selling Stockholders.”
(2)Advance beneficially owns more than 5% of our outstanding capital stock. Steven O. Newhouse, our director nominee, is currently, and was at the time of the Series F convertible preferred stock financing, co-president and a director of Advance Publications, Inc., the indirect parent company of Advance.
(3)Tencent Cloud Europe B.V. beneficially owns more than 5% of our outstanding capital stock.
(4)Funds and accounts managed by direct or indirect subsidiaries of FMR LLC collectively beneficially own more than 5% of our outstanding capital stock.
(5)Entities affiliated with Mr. Altman collectively beneficially own more than 5% of our outstanding capital stock. Mr. Altman was, at the time of the Series F-1 convertible preferred stock financing, a member of our board of directors.
(6)VYC19 Limited, together with its affiliates, beneficially owns more than 5% of our outstanding capital stock.
Subleases
On October 18, 2017, we entered into a sublease agreement with Advance to lease approximately 15,200 square feet of office space in New York City, which agreement expired in 2022. Pursuant to this sublease, we recognized rent expense of $0.7 million and $0.5 million for the years ended December 31, 2021 and 2022, respectively.
On June 1, 2019, we entered into a sublease agreement with Advance, as amended on August 1, 2021 and January 1, 2023, to lease approximately 14,043 square feet of office space in Chicago, which agreement expires in 2024, subject to the terms thereof. Pursuant to this sublease, we recognized rent expense of $0.3 million for each of the years ended December 31, 2021 and 2022 and $0.5 million for the year ended December 31, 2023. Since January 1, 2024, we recognized rent expense of $0.1 million pursuant to this sublease
On July 21, 2021, we entered into a sublease agreement with Advance to lease approximately 47,800 square feet of office space in New York City, which agreement expires in 2028, subject to the terms thereof. We will be subject to total non-cancellable minimum lease payments of approximately $17.2 million over the term of the sublease beginning in 2022 if certain contingencies are met. Pursuant to this sublease, we recognized rent expense of
$1.4 million and $3.1 million for the years ended December 31, 2022 and 2023, respectively. Since January 1, 2024, we recognized rent expense of $0.5 million pursuant to this sublease.
Our sublease agreements with Advance are negotiated in the ordinary course of business. Advance beneficially owns more than 5% of our outstanding capital stock. Steven O. Newhouse, our director nominee, is co-president and a director of Advance Publications, Inc., the indirect parent company of Advance.
Tender Offer
In April 2021, we conducted a tender offer for shares of our outstanding Class A and Class B common stock from certain of our employees, advisors, and directors and purchased an aggregate of 2,697,712 shares of our outstanding common stock at a purchase price of $42.4742 per share, for an aggregate purchase price of $114.6 million (the “2021 Tender Offer”).
The table below summarizes purchases of common stock from our executive officers and directors in the 2021 Tender Offer.
| | | | | | | | | | | | | | | | | | | | |
| Name | | Position | | Shares of Common Stock | | Aggregate Purchase Price
($) |
| Steven Huffman | | Chief Executive Officer, President, and Director | | 396,762 | | | 16,852,148.54 | |
| Jennifer Wong | | Chief Operating Officer | | 300,000 | | | 12,742,260.00 | |
Christopher Slowe, Ph.D. | | Chief Technology Officer | | 217,184 | | | 9,224,716.65 | |
| Porter Gale | | Director | | 8,669 | | | 368,208.84 | |
The 2021 Tender Offer was conducted to reward and incentivize employees, advisors, and directors and to provide liquidity.
Stock Repurchase
In March 2021, we repurchased an aggregate of 1,177,185 shares of our outstanding Class B common stock from Yishan Wong, who beneficially owns more than 5% of our outstanding capital stock, at a purchase price of $42.4742 per share, for an aggregate purchase price of $50.0 million.
Voluntary Conversion Agreement with Entities Affiliated with FMR LLC
In August 2021, funds and accounts managed by direct or indirect subsidiaries of FMR LLC, which collectively beneficially own more than 5% of our outstanding capital stock, entered into a Voluntary Conversion Agreement with us, whereby such entities agreed to convert shares of Class B common stock (after giving effect to the Preferred Stock Conversion) into shares of Class A common stock at certain intervals. In particular, at the expiration of the lock-up period described elsewhere in this prospectus (the “Initial Conversion Date”), funds and accounts managed by direct or indirect subsidiaries of FMR LLC have agreed to convert from Class B common stock to Class A common stock an amount of shares equal to 10% of the total shares of Class A common stock outstanding as of such date (minus any shares of Class A common stock held by such entities on such date). Following the Initial Conversion Date, at the end of each quarter following the Initial Conversion Date, funds and accounts managed by direct or indirect subsidiaries of FMR LLC have agreed to convert an additional number of shares of Class B common stock into shares of Class B common stock an amount of shares that equal 10% of the total shares of Class A common stock outstanding as of such quarterly measurement date (in each case, minus the aggregate number of shares of Class A common stock held by such entities), until such time that an aggregate of 6,634,905 shares of Class B common stock have been converted into shares of Class A common stock.
Investors’ Rights Agreement
We are party to an amended and restated investors’ rights agreement with the purchasers of our outstanding convertible preferred stock and certain holders of our common stock, including certain of our directors and executive officers, holders of more than 5% of our capital stock and entities with which certain of our directors are
affiliated. The holders of approximately 107,123,949 shares of our common stock, including shares of our common stock issuable upon the conversion of our outstanding convertible preferred stock, are entitled to rights with respect to the registration of their shares under the Securities Act. For a more detailed description of these registration rights, see “Description of Capital Stock—Registration Rights.”
Right of First Refusal
We are party to an amended and restated right of first refusal agreement with the purchasers of our outstanding convertible preferred stock and certain holders of our common stock, including certain of our directors and executive officers, holders of more than 5% of our capital stock, and entities with which certain of our directors are affiliated. Pursuant to this agreement, we have a right of first refusal relating to the shares of our common stock held by certain parties to the agreement, The amended and restated right of first refusal agreement will terminate in connection with this offering. In addition, pursuant to our equity plans, we have a right of first refusal relating to the shares of our capital stock that stockholders propose to sell in certain circumstances to other parties. Since January 1, 2021, we have waived our rights of first refusal under the amended and restated right of first refusal agreement and our equity plans in connection with the sale of certain shares of our capital stock, including sales or purchases by certain of our executive officers or holders of more than 5% of our capital stock.
Tax Return Filing and Sharing Agreement
We were party to a certain Tax Return Filing and Sharing Agreement (the “TSA”) with Advance Publications, Inc. (“AP”), the indirect parent company of Advance. Advance is our principal stockholder. Pursuant to the TSA, AP filed certain combined state and local income tax returns, which we were included in, and paid taxes with respect thereto. The TSA obligated us to pay AP certain amounts, which were generally intended to reimburse AP for the portion of such state and local taxes reported on AP’s combined returns that were attributable to us. The TSA expired as of December 31, 2021, after which we were no longer included in any of AP’s combined tax returns. In June 2023, we paid an aggregate of $0.2 million to AP to satisfy our accrued reimbursement obligation under the TSA for tax years 2015 through 2021.
Governance Agreement
In connection with this offering, we intend to enter into a governance agreement with Advance, our principal stockholder, and Steven Huffman, our Chief Executive Officer, President, and a member of our board of directors (the “Governance Agreement”), to provide Advance with certain control and approval rights.
Board of Directors
In the event that our board of directors determines to increase the size of the board of directors, any such increase that would cause our board of directors to consist of more than ten members will be subject to Advance’s prior written approval. Further, subject to certain limitations, no director can be selected as chairperson of our board of directors without the prior written approval of each of Advance and, for so long as he remains our Chief Executive Officer, Mr. Huffman.
Designation Rights
The Governance Agreement will require us to nominate two directors designated by Advance (the “Advance Designees”) at each applicable annual or special meeting of stockholders. Subject to certain limitations, Advance will have the exclusive right to replace its Advance Designees and fill any vacancies created by reason of death, removal, or resignation of its Advance Designees. Upon the termination of the Governance Agreement, each Advance Designee is obligated to immediately offer to tender their resignation from the board of directors. Upon Advance’s request, one Advance Designee shall be a member of each committee of our board of directors, other than the audit committee or any committee where the sole purpose of such committee is to address actual or potential conflicts of interest between us and Advance. Advance will also have the right to designate one nonvoting board observer, subject to such observer entering into an observer agreement setting forth confidentiality and other obligations.
Securities Issuances
Unless Advance provides its consent, we shall only be permitted to issue shares of Class A common stock, Class C common stock, or securities convertible solely into, exchangeable solely for, or containing a right to purchase solely, shares of Class A common stock or any other class or series of common stock with one or fewer votes per share, subject to limited exceptions.
Moreover, we will be required to obtain Advance’s prior written approval or consent to establish any new class of securities or to issue securities which, in the aggregate, represent more than 10% of the voting power of the securities beneficially owned by Advance and certain of its affiliates as of the completion of this offering. Notwithstanding the foregoing, we will not be required to obtain Advance’s separate approval to issue securities (i) upon the conversion of convertible securities previously approved by Advance pursuant to the foregoing sentence, (ii) to our employees pursuant to a customary employee equity plan, employee stock purchase plan, or similar stock purchase program, or (iii) to compensate Mr. Huffman, provided that any such issuance to our employees or to Mr. Huffman shall be approved by, or based on delegated authority granted by, our compensation and talent committee.
Additional Approval Rights
We will also be required to obtain Advance’s prior written approval or consent in order to:
•amend our amended and restated certificate of incorporation or amended and restated bylaws if such amendment would adversely affect Advance’s rights thereunder;
•effect or consummate a change of control transaction or any other merger, consolidation, business combination, sale, or acquisition that changes the rights or preferences of our security holders;
•effect the liquidation, dissolution, or winding up of our business operations;
•terminate, reduce, or enlarge the responsibilities of, or elect, appoint, or remove, our Chief Executive Officer; or
•submit to our stockholders any proposal to effect the conversion of all then-outstanding shares of our Class C common stock into an equivalent number of fully paid and non-assessable shares of Class A common stock, as set forth in our amended and restated certificate of incorporation or otherwise.
Standstill
During the term of the Governance Agreement, Advance and certain of its affiliates are prohibited from acquiring, directly or indirectly, beneficial ownership of our securities in excess of the percentage of our securities beneficially owned by Advance and such affiliates as of the completion of this offering, plus five percentage points. However, any acquisition of our securities (i) by way of stock splits, stock dividends, reclassifications, recapitalizations, or other distributions to all of our security holders on a pro rata basis, (ii) that is approved in advance by a majority of the independent directors of our board of directors, or (iii) by Mr. Huffman (in case Advance and Mr. Huffman are deemed a Group under Section 13D of the Exchange Act) shall not be counted towards determining if Advance or its affiliates have exceeded the percentage ownership cap.
Termination
The Governance Agreement will terminate upon the first to occur of (i) such date that Advance and certain of its affiliates cease to, in the aggregate, beneficially own at least 5% of the aggregate of the then-outstanding shares of our Class A and Class B common stock, (ii) the date (x) when Advance and certain of its affiliates cease to, in the aggregate, beneficially own at least 50% of the number of outstanding securities held by Advance as of the completion of this offering and (y) the then-outstanding shares of Class B common stock, in the aggregate, represents less than 7.5% of the aggregate of the then-outstanding shares of our Class A and Class B common stock, or (iii) the date that either we or Advance experience a change of control.
Other Transactions
We have entered into employment, offer letter, and change of control and severance agreements with our executive officers that, among other things, provide for certain compensatory and change in control benefits, as well as severance benefits. For a description of these agreements with our named executive officers, see “Executive and Director Compensation—Executive Compensation Arrangements.”
We have also granted stock options and RSUs to our executive officers and certain of our directors. For a description of these equity awards, see “Executive and Director Compensation—Equity Compensation.”
Director and Officer Indemnification
We have entered into indemnification agreements with certain of our current executive officers and directors, and intend to enter into new indemnification agreements with each of our current executive officers and directors before the completion of this offering.
Our amended and restated certificate of incorporation also provides that, to the fullest extent permitted by law, we will indemnify any officer or director of our company against all damages, claims, and liabilities arising out of the fact that the person is or was our officer or director, or served any other enterprise at our request as an officer or director. Amending this provision will not reduce our indemnification obligations relating to actions taken before an amendment.
Directed Share Program
At our request, the underwriters have reserved up to shares of our Class A common stock, or % of the shares offered in this offering, for sale at the initial public offering price through a directed share program to (i) eligible users and moderators on our platform, (ii) certain members of our board of directors, and (iii) friends and family members of certain of our employees and directors. Current and former Reddit employees are not eligible to participate. See “Underwriters—Directed Share Program.”
Related Person Transaction Policy
We have a written related person transaction policy, to be effective upon the completion of this offering, that applies to our executive officers, directors, director nominees, holders of more than 5% of any class of our voting securities and any member of the immediate family of, and any entity affiliated with, any of the foregoing persons. Such persons will not be permitted to enter into a related person transaction with us without the prior consent of our audit committee, or other independent members of our board of directors in the event it is inappropriate for our audit committee to review such transaction due to a conflict of interest. Any request for us to enter into a transaction with an executive officer, director, director nominee, principal stockholder, or any of their immediate family members or affiliates, in which the amount involved exceeds $120,000 must first be presented to our audit committee for review, consideration, and approval. In approving or rejecting any such proposal, our audit committee will consider the relevant facts and circumstances available and deemed relevant to our audit committee, including, but not limited to, the commercial reasonableness of the terms of the transaction and the materiality and character of the related person’s direct or indirect interest in the transaction. All of the transactions described in this section occurred prior to the adoption of this policy.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table contains information about the beneficial ownership of our common stock as of December 31, 2023, (i) immediately prior to the completion of this offering and (ii) as adjusted to reflect the sale of shares of our Class A common stock offered by this prospectus, assuming no exercise of the underwriters’ over-allotment option to purchase additional shares from us, by:
•each of our directors and director nominee;
•each of our named executive officers;
•all directors, director nominee, and executive officers as a group;
•each of the selling stockholders; and
•each person, or group of persons, known to us who beneficially owns more than 5% of our capital stock.
In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable pursuant to stock options that are exercisable within 60 days of December 31, 2023 or issuable pursuant to RSUs or PRSUs which are subject to vesting and settlement conditions expected to occur within 60 days of December 31, 2023 (including those for which the liquidity-based vesting condition will be satisfied in connection with this offering). Shares issuable pursuant to stock options are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the percentage of any other person.
We have based percentage ownership of our common stock before this offering on 17,591,501 shares of our Class A common stock, 122,454,940 shares of our Class B common stock, and no shares of our Class C common stock outstanding as of December 31, 2023. This table gives effect to the Preferred Stock Conversion, the Class B Conversion, the Option Exercise, and the RSU Net Settlement, in each case, as if such conversion, exercise, or settlement, as applicable, had occurred as of December 31, 2023, but not giving effect to any voting proxies that will expire in connection with this offering. The exact number of shares of our Class A common stock that will be withheld from a stockholder in connection with the RSU Net Settlement may differ based on the stockholder’s personal tax rates. The percentage ownership of our common stock after this offering also assumes the foregoing and the issuance and sale of Class A common stock by us in this offering, and assumes no exercise of the underwriters’ over-allotment option. In addition, the percentage ownership of our common stock after this offering does not reflect any shares of Class A common stock that may be purchased in this offering or pursuant to our directed share program described in “Underwriters—Directed Share Program.” For further information regarding material transactions between us and certain of our stockholders, see “Certain Relationships and Related-Party Transactions.” Unless otherwise indicated, the address for each listed stockholder is: c/o Reddit, Inc., 303 2nd Street, South Tower, 5th Floor, San Francisco, California 94107. Except as indicated in the footnotes to the following table or pursuant to applicable community property laws, we believe, based on information furnished to us, that each
stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder’s name.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of Beneficial Owner | | Shares
Beneficially Owned
Before this Offering | | % of Total Outstanding | | % Total Voting Power Before this Offering | | Shares of Class A Common Stock Being Offered | | Shares
Beneficially Owned
After this Offering | | % of Total Outstanding | | % Total Voting Power After this Offering |
| Class A | | Class B | | | | | Class A | | Class B | | |
| Shares | | % | | Shares | | % | | | | | Shares | | % | | Shares | | % | | |
Named Executive Officers, Directors, and Director Nominee: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Steven Huffman(1) | | 368,954 | | 2.1 | % | | 4,312,818 | | 3.5 | % | | 3.3 | % | | 3.5 | % | | | | | | | | | | | | | | |
Shares subject to voting proxy(2) | | 16,182 | | * | | 42,191,092 | | 34.5 | % | | 30.1 | % | | 34.0 | % | | | | | | | | | | | | | | |
Total | | 385,136 | | 2.2 | % | | 46,503,910 | | 37.3 | % | | 33.0 | % | | 37.3 | % | | | | | | | | | | | | | | |
Jennifer Wong(3) | | 2,078,159 | | 10.9 | % | | — | | * | | 1.5 | % | | * | | | | | | | | | | | | | | |
Andrew Vollero(4) | | 291,719 | | 1.7 | % | | — | | * | | * | | * | | | | | | | | | | | | | | |
Patricia Fili-Krushel(5) | | 7,990 | | * | | — | | * | | * | | * | | | | | | | | | | | | | | |
Porter Gale(6) | | 111,331 | | * | | — | | * | | * | | * | | | | | | | | | | | | | | |
David Habiger(7) | | 5,147 | | * | | — | | * | | * | | * | | | | | | | | | | | | | | |
Robert A. Sauerberg(8) | | — | | * | | 47,087 | | * | | * | | * | | | | | | | | | | | | | | |
Michael Seibel(9) | | 120,000 | | * | | 31,697 | | * | | * | | * | | | | | | | | | | | | | | |
Steven O. Newhouse(10) | | 16,182 | | * | | 42,191,092 | | 34.5 | % | | 30.1 | % | | 34.0 | % | | | | | | | | | | | | | | |
All executive officers, directors, and director nominee as a group (11 persons)(11) | | 3,758,387 | | 19.0 | % | | 47,101,798 | | 37.6 | % | | 35.1 | % | | 36.9 | % | | | | | | | | | | | | | | |
5% or Greater Stockholders: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Advance Magazine Publishers Inc.(12) | | 16,182 | | * | | 42,191,092 | | 34.5 | % | | 30.1 | % | | 34.0 | % | | | | | | | | | | | | | | |
FMR LLC(13) | | — | | * | | 11,743,944 | | 9.6 | % | | 8.4 | % | | 9.5 | % | | | | | | | | | | | | | | |
Entities affiliated with Quiet Capital and Tacit Capital(14) | | 2,972,235 | | 16.9 | % | | 6,610,551 | | 5.4 | % | | 6.8 | % | | 5.6 | % | | | | | | | | | | | | | | |
Entities affiliated with Sam Altman(15) | | 789,456 | | 4.5 | % | | 11,369,103 | | 9.3 | % | | 8.7 | % | | 9.2 | % | | | | | | | | | | | | | | |
Entities affiliated with Tencent(16) | | 1,127,422 | | 6.4 | % | | 14,320,372 | | 11.7 | % | | 11.0 | % | | 11.6 | % | | | | | | | | | | | | | | |
Entities affiliated with Vy Capital(17) | | 404,569 | | 2.3 | % | | 6,792,080 | | 5.5 | % | | 5.1 | % | | 5.5 | % | | | | | | | | | | | | | | |
Selling Stockholders: | | | | | | | | | | | | | | | | | | | | | | | | | | |
All selling stockholders who beneficially own, in the aggregate, less than 1% of our common stock | | | | | | | | | | | | | | | | | | | | | | | | | | |
_______________
*Represents beneficial ownership of less than one percent of the shares of our common stock.
(1)Consists of (i) 368,954 net shares of Class A common stock pursuant to RSUs that are subject to service-based vesting conditions, which have been or will be satisfied within 60 days of December 31, 2023, and liquidity-based vesting conditions, which will be satisfied upon completion of this offering, (ii) 1,510,784 shares of Class B common stock held in a revocable family trust of which Mr. Huffman is the trustee, (iii) 2,168,730 shares underlying options to purchase shares of
Class B common stock that are exercisable within 60 days of December 31, 2023 and held in a revocable family trust of which Mr. Huffman is the trustee, and (iv) 633,304 net shares of Class B common stock pursuant to RSUs that are subject to service-based or performance-based vesting conditions, which have been or will be satisfied within 60 days of December 31, 2023, and liquidity-based vesting conditions, which will be satisfied upon completion of this offering. Of the shares of common stock beneficially owned by Mr. Huffman, 1,510,784 shares of Class B common stock are pledged as collateral to secure personal indebtedness pursuant to a line of credit and security agreement effective May 2023. Does not include 662,447 shares of Class B common stock pursuant to PRSUs that will vest if our market capitalization exceeds $5.0 billion for a ten-trading-day period following this offering. See “Executive and Director Compensation—Outstanding Equity Awards at Year-End” and “Capitalization—Vesting of Outstanding CEO Equity Award at Certain Trading Prices” for more information.
(2)Consists of (i) 16,182 shares of Class A common stock and (ii) 42,191,092 shares of Class B common stock held by Advance Magazine Publishers Inc. (“Advance”). The board of directors of Advance Publications, Inc. (“AP”), the indirect parent company of Advance, makes all voting and investment decisions with respect to the Reddit shares held by Advance, subject to, except under limited circumstances, an irrevocable proxy held by Mr. Huffman pursuant to the terms of a voting agreement to be entered into between Mr. Huffman and Advance. See “Description of Capital Stock—Voting Agreement” for more information. The members of the board of directors of AP are Michael A. Newhouse, Steven O. Newhouse, Samuel I. Newhouse, III, Thomas S. Summer, and Victor F. Ganzi. Steven O. Newhouse, our director nominee, and each of the other directors of AP disclaims beneficial ownership over such Reddit shares. The address for Advance is c/o Advance Publications, Inc., One World Trade Center, New York, New York 10007.
(3)Consists of (i) 97,790 shares of Class A common stock, (ii) 1,200,437 shares underlying options to purchase Class A common stock that are exercisable within 60 days of December 31, 2023, (iii) 250,000 shares underlying options to purchase Class A common stock that are exercisable within 60 days of December 31, 2023 and held by the MorMa Trust dated June 22, 2021, over which Ms. Wong’s spouse has voting and dispositive power, and (iv) 529,932 net shares of Class A common stock pursuant to RSUs that are subject to service-based or performance-based vesting conditions, which have been or will be satisfied within 60 days of December 31, 2023, and/or liquidity-based vesting conditions, which will be satisfied upon completion of this offering. Does not include 20,000 shares of Class A common stock pursuant to PRSUs that will vest if our market capitalization exceeds $25.0 billion on the tenth consecutive trading day following this offering (and which will be forfeited in full if such market-based vesting condition is not achieved). See “Executive and Director Compensation—Outstanding Equity Awards at Year-End” for more information.
(4)Consists of 291,719 net shares of Class A common stock pursuant to RSUs that are subject to service-based vesting conditions, which have been or will be satisfied within 60 days of December 31, 2023, and liquidity-based vesting conditions, which will be satisfied upon completion of this offering. See “Executive and Director Compensation—Outstanding Equity Awards at Year-End” for more information.
(5)Consists of 7,990 net shares of Class A common stock pursuant to RSUs that are subject to service-based vesting conditions, which have been or will be satisfied within 60 days of December 31, 2023, and liquidity-based vesting conditions, which will be satisfied upon completion of this offering.
(6)Consists of 111,331 shares of Class A common stock, of which 9,479 shares were unvested and subject to repurchase by us.
(7)Consists of 5,147 net shares of Class A common stock pursuant to RSUs that are subject to service-based vesting conditions, which have been or will be satisfied within 60 days of December 31, 2023, and liquidity-based vesting conditions, which will be satisfied upon completion of this offering.
(8)Consists of 47,087 shares of Class B common stock held by the Robert A. Sauerberg, Jr. 2002 Revocable Trust.
(9)Consists of (i) 120,000 shares underlying options to purchase Class A common stock that are exercisable within 60 days of December 31, 2023 and (ii) 31,697 shares of Class B common stock held by the Michael William Seibel Revocable Trust.
(10)Consists of the shares listed in footnote 12. Steven O. Newhouse, our director nominee, disclaims beneficial ownership over such shares.
(11)Consists of (i) 305,871 shares of Class A common stock beneficially owned by our current officers and directors, of which 9,479 shares are unvested and subject to repurchase by us, (ii) 2,140,779 shares underlying options to purchase Class A common stock that are exercisable within 60 days of December 31, 2023, (iii) 1,311,737 net shares of Class A common stock pursuant to RSUs that are subject to service-based or performance-based vesting conditions, which have been or will be satisfied within 60 days of December 31, 2023, and/or liquidity-based vesting conditions, which will be satisfied upon completion of this offering, (iv) 43,795,660 shares of Class B common stock beneficially owned by our current officers and directors, (v) 2,672,834 shares underlying options to purchase Class B common stock that are exercisable within 60 days of December 31, 2023, and (vi) 633,304 net shares of Class B common stock pursuant to RSUs that are subject to service-based or performance-based vesting conditions, which have been or will be satisfied within 60 days of December 31, 2023, and/or liquidity-based vesting conditions, which will be satisfied upon completion of this offering. Includes shares of Class A common stock and Class B common stock held by Advance over which, except under limited circumstances, Mr. Huffman holds an irrevocable proxy, pursuant to the terms of a voting agreement to be entered into between Mr. Huffman and Advance. See “Description of Capital Stock—Voting Agreement” for more information. See footnote (12) for more information regarding Advance.
(12)Consists of (i) 16,182 shares of Class A common stock and (ii) 42,191,092 shares of Class B common stock held by Advance. The board of directors of AP, the indirect parent company of Advance, makes all voting and investment decisions with respect to the Reddit shares held by Advance, subject to, except under limited circumstances, an irrevocable proxy held by Mr. Huffman pursuant to the terms of a voting agreement to be entered into between Mr. Huffman and Advance. See “Description of Capital Stock—Voting Agreement” for more information. The members of the board of directors of AP are Michael A. Newhouse, Steven O. Newhouse, Samuel I. Newhouse, III, Thomas S. Summer, and Victor F. Ganzi. Steven O. Newhouse, our director nominee, and each of the other directors of AP disclaims beneficial ownership over such Reddit shares. The address for Advance is c/o Advance Publications, Inc., One World Trade Center, New York, New York 10007.
(13)Consists of (i) 77,915 shares of Class B common stock held by FIAM Target Date Blue Chip Growth Commingled Pool, (ii) 3,600 shares of Class B common stock held by FIAM Target Date Large Cap Stock Commingled Pool, (iii) 793,873 shares of Class B common stock held by Fidelity Advisor Series I: Fidelity Advisor Growth Opportunities Fund, (iv) 1,200 shares of Class B common stock held by Fidelity Advisor Series I: Fidelity Advisor Large Cap Fund, (v) 254,214 shares of Class B common stock held by Fidelity Advisor Series VII: Fidelity Advisor Technology Fund, (vi) 33,923 shares of Class B common stock held by Fidelity Blue Chip Growth Commingled Pool, (vii) 1,414 shares of Class B common stock held by Fidelity Blue Chip Growth Institutional Trust, (viii) 322,368 shares of Class B common stock held by Fidelity Canadian Growth Company Fund, (ix) 236,672 shares of Class B common stock held by Fidelity Central Investment Portfolios LLC:Fidelity U.S. Equity Central Fund - Communication Services Sub, (x) 200 shares of Class B common stock held by Fidelity Concord Street Trust: Fidelity Founders Fund, (xi) 3,600 shares of Class B common stock held by Fidelity Concord Street Trust: Fidelity Large Cap Stock Fund, (xii) 200 shares of Class B common stock held by Fidelity Concord Street Trust: Fidelity Large Cap Stock K6 Fund, (xiii) 157,749 shares of Class B common stock held by Fidelity Contrafund: Fidelity Advisor New Insights Fund - Sub A, (xiv) 1,043,950 shares of Class B common stock held by Fidelity Contrafund: Fidelity Contrafund, (xv) 176,436 shares of Class B common stock held by Fidelity Contrafund: Fidelity Contrafund K6, (xvi) 59,496 shares of Class B common stock held by Fidelity Contrafund: Fidelity Series Opportunistic Insights Fund, (xvii) 320,720 shares of Class B common stock held by Fidelity Contrafund Commingled Pool, (xviii) 5,200 shares of Class B common stock held by Fidelity Destiny Portfolios: Fidelity Advisor Capital Development Fund, (xix) 3,500 shares of Class B common stock held by Fidelity Destiny Portfolios: Fidelity Advisor Diversified Stock Fund, (xx) 500 shares of Class B common stock held by Fidelity Founders Investment Trust, (xxi) 4,109 shares of Class B common stock held by Fidelity Global Growth and Value Investment Trust - Sub A, (xxii) 398,794 shares of Class B common stock held by Fidelity Global Innovators Investment Trust, (xxiii) 548,968 shares of Class B common stock held by Fidelity Growth Company Commingled Pool, (xxiv) 17,600 shares of Class B common stock held by Fidelity Hastings Street Trust: Fidelity Series Large Cap Stock Fund, (xxv) 62,099 shares of Class B common stock held by Fidelity Insights Investment Trust, (xxvi) 200 shares of Class B common stock held by Fidelity Large Cap Stock Institutional Trust, (xxvii) 523,502 shares of Class B common stock held by Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund, (xxviii) 92,987 shares of Class B common stock held by Fidelity Mt. Vernon Street Trust: Fidelity Growth Company K6 Fund, (xxix) 83,490 shares of Class B common stock held by Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund, (xxx) 30,764 shares of Class B common stock held by Fidelity NorthStar Fund - Sub D, (xxxi) 323,345 shares of Class B common stock held by Fidelity OTC Commingled Pool, (xxxii) 28,500 shares of Class B common stock held by Fidelity Puritan Trust: Fidelity Puritan Fund – Equity Sub B, (xxxiii) 1,025,187 shares of Class B common stock held by Fidelity Securities Fund: Fidelity Blue Chip Growth Fund, (xxxiv) 55,991 shares of Class B common stock held by Fidelity Securities Fund: Fidelity Blue Chip Growth K6 Fund, (xxxv) 111,612 shares of Class B common stock held by Fidelity Securities Fund: Fidelity OTC K6 Portfolio, (xxxvi) 3,851,357 shares of Class B common stock held by Fidelity Securities Fund: Fidelity OTC Portfolio, (xxxvii) 134,285 shares of Class B common stock held by Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund, (xxxviii) 253,500 shares of Class B common stock held by Fidelity Securities Fund: Fidelity Small Cap Growth Fund, (xxxix) 46,800 shares of Class B common stock held by Fidelity Securities Fund: Fidelity Small Cap Growth K6 Fund, (xl) 58,000 shares of Class B common stock held by Fidelity Select Portfolios: Select Communication Services Portfolio, (xli) 265,261 shares of Class B common stock held by Fidelity Select Portfolios: Select Technology Portfolio, (xlii) 113,574 shares of Class B common stock held by Fidelity Special Situations Fund, (xliii) 11,305 shares of Class B common stock held by Fidelity U.S. Growth Opportunities Investment Trust, (xliv) 112,531 shares of Class B common stock held by Variable Insurance Products Fund II: VIP Contrafund Portfolio – Subportfolio A, (xlv) 91,644 shares of Class B common stock held by Variable Insurance Products Fund IV: VIP Technology Portfolio, and (xlvi) 1,809 shares of Class B common stock held by FMR Capital, Inc. Flex Pilot Portfolio. These funds and accounts are managed by direct or indirect subsidiaries of FMR LLC. The shares held by these funds and accounts are beneficially owned, or may be deemed to be beneficially owned, by FMR LLC, certain of its subsidiaries or affiliates, and other companies. Abigail P. Johnson is a Director, the Chairman, and the Chief Executive Officer of FMR LLC. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. The address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.
(14)Consists of (i) 223,592 shares of Class A common stock held by Quiet Expansion II, L.P., (ii) 1,246,068 shares of Class A common stock held by Quiet SPV R6, L.P., (iii) 1,369,323 shares of Class A common stock held by Quiet SPV R7, L.P., (iv) 133,252 shares of Class A common stock held by Quiet SPV R9, L.P., (v) 1,327,898 shares of Class B common stock held by Quiet SPV R9, L.P., (vi) 561,041 shares of Class B common stock held by Quiet Expansion II, L.P., (vii) 316,996 shares of Class B common stock held by Quiet Growth I, LP, (viii) 395,000 shares of Class B common stock held by Quiet R8, L.P., (ix) 132,852 shares of Class B common stock held by Quiet SPV R7, L.P., (x) 470,874 shares of Class B common stock held by Quiet Venture II, L.P., (xi) 1,792,183 shares of Class B common stock held by Tacit Capital Fund, LP – Series R1, (xii) 363,258 shares of Class B common stock held by Tacit Capital Fund, LP – Series R2, (xiii) 63,395 shares of Class B common stock held by Tacit Capital Fund, LP – Series R3, (xiv) 922,241 shares of Class B common stock held by Tacit Capital Fund, LP – Series R4, (xv) 84,050 shares of Class B common stock held by Tacit Capital Fund, LP – Series R5, and (xvi) 180,763 shares of Class B common stock held by QCM Expansion Holdings, LLC. The mailing address for each of these entities is 548 Market Street PMB 72966, San Francisco, California 94104.
(15)Consists of (i) 161,828 shares of Class A common stock held by Apollo Projects SPV-B, L.P. (“SPV-B”), (ii) 627,628 shares of Class A common stock held by Altman Holdco, LLC (“Altman Holdco”), (iii) 337,500 shares of Class B common stock held by Altman Holdco, (iv) 94,174 shares of Class B common stock held by Apollo Projects, L.P., (v) 1,083,010 shares of Class B common stock held by Apollo Projects SPV-A, L.P. (“SPV-A”), and (vi) 9,854,419 shares of Class B common stock held by Hydrazine Capital II, L.P. (“Hydrazine”). Apollo Projects SPV-A GP, LLC (“Apollo SPV GP”) is the general partner of SPV-B and SPV-A. Sam Altman is the managing member of Apollo SPV GP and, as a result, holds voting and dispositive power with respect to the shares held by SPV-B and SPV-A. The Samuel H. Altman Revocable Trust is the managing member of Altman Holdco. Mr. Altman is co-trustee of the Samuel H. Altman Revocable Trust and, as a result, may be deemed to share voting and dispositive power with respect to the shares held by Altman Holdco. Apollo Projects GP, LLC (“Apollo Projects GP”) is the general partner of Apollo Projects. Mr. Altman is the managing member of Apollo Projects GP and, as a result, holds voting and dispositive power with respect to the shares held by Apollo Projects. Hydrazine Capital II, GP, LLC (“Hydrazine GP”) is the general partner of Hydrazine. Mr. Altman is the managing member of Hydrazine GP and, as a result, holds voting and dispositive power with respect to the shares held by Hydrazine. Mr. Altman disclaims beneficial ownership of these shares except to the extent of his respective pecuniary interest therein. The mailing address for each of these entities is 8595 Pelham Road, Suite 400, #309, Greenville, South Carolina 29615.
(16)Consists of (i) 1,076,997 shares of Class A common stock held by Tencent Cloud Europe B.V., (ii) 50,425 shares of Class A common stock held by Jojoba Investment Limited, (iii) 13,882,385 shares of Class B common stock held by Tencent Cloud Europe B.V., and (iv) 437,987 shares of Class B common stock held by Jojoba Investment Limited. The mailing address for both Tencent Cloud Europe B.V. and Jojoba Investment Limited is c/o Tencent Holdings Limited, Level 29, Three Pacific Place, 1 Queen’s Road East, Wanchai, Hong Kong. Each of Tencent Cloud Europe B.V. and Jojoba Investment Limited is a wholly owned subsidiary of Tencent Holdings Limited. Prior to the completion of this offering, Tencent Cloud Europe B.V. holds 3,543,124 shares of our non-voting Series D-1 preferred stock and, other than in connection with this offering and other specified transactions, can not convert such shares into shares of our voting Series D preferred stock if the voting power of Tencent Cloud Europe B.V. and its affiliates would exceed 9.9% of the voting power of all of our then-outstanding shares of capital stock at the time of conversion.
(17)Consists of (i) 404,569 shares of Class A common stock held by VYC19 Limited, (ii) 2,354,370 shares of Class B common stock held by VYC19 Limited, and (iii) 4,437,710 shares of Class B common stock held by VY Fund I, L.P. Pierre Connolly and Alvin Bhawanie are directors of VYC19 Limited and, as a result, may be deemed to share voting and dispositive power with respect to the shares held by VYC19 Limited. Vy GP II Limited is the general partner of VY Fund I, L.P. George Bashforth and Jonathan Bain are directors of Vy GP II Limited and, as a result, may be deemed to share voting and dispositive power with respect to the shares held by VY Fund I, L.P. Each of the foregoing persons disclaims beneficial ownership of these shares except to the extent of his or her pecuniary interest therein. The mailing address for each of these entities is Emirates Financial Towers, South Tower, Level 9, Office 901/902, Dubai International Financial Centre, P.O. Box 506950, Dubai, United Arab Emirates.
DESCRIPTION OF CAPITAL STOCK
The following summary describes our capital stock and certain provisions of our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective immediately prior to the completion of this offering, the amended and restated investors’ rights agreement to which we and certain of our stockholders are parties, the Governance Agreement, and of the Delaware General Corporation Law. Because the following is only a summary, it does not contain all of the information that may be important to you. For a complete description, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws, amended and restated investors’ rights agreement, and Governance Agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is part.
General
Upon the completion of this offering and the filing of our amended and restated certificate of incorporation, our authorized capital stock will consist of:
•2,000,000,000 shares of Class A common stock, par value $0.0001 per share;
•140,000,000 shares of Class B common stock, par value $0.0001 per share;
•100,000,000 shares of Class C common stock, par value $0.0001 per share; and
•100,000,000 shares of undesignated preferred stock, par value $0.0001 per share.
As of December 31, 2023, after giving effect to (i) the Preferred Stock Conversion; (ii) the Class B Conversion, (iii) the Option Exercise; (iv) the RSU Net Settlement; and (v) the filing and effectiveness of our amended and restated certificate of incorporation, which will be in effect immediately prior to the completion of this offering, there were shares of Class A common stock held by stockholders of record, shares of Class B common stock held by stockholders of record, no shares of Class C common stock outstanding, and no shares of our convertible preferred stock outstanding. We have no current plans to issue any Class C common stock. Our board of directors is authorized, without stockholder approval except as required by the rules of the NYSE and subject to the Governance Agreement, to issue additional shares of our capital stock.
Common Stock
We have three classes of authorized common stock: Class A common stock, Class B common stock, and Class C common stock. The rights of holders of Class A common stock, Class B common stock, and Class C common stock are identical, except with respect to voting and conversion rights.
Voting Rights
Each holder of our Class A common stock is entitled to one vote per share, each holder of our Class B common stock is entitled to 10 votes per share, and each holder of our Class C common stock is entitled to no votes per share. The holders of our Class A 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 and restated certificate of incorporation. Delaware law could require either holders of our Class A common stock, Class B common stock, or Class C common stock to vote separately as a single class in the following circumstances:
•if we were to seek to amend our amended and restated certificate of incorporation to increase or decrease the par value of a class of our capital stock, then that class would be required to vote separately to approve the proposed amendment; and
•if we were to seek to amend our amended and restated certificate of incorporation in a manner that alters or changes the powers, preferences, or special rights of a class of our capital stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.
Our amended and restated certificate of incorporation will not provide for cumulative voting for the election of directors. In addition, the affirmative vote of holders of at least a majority of the voting power of all of the then-outstanding voting stock will be required to take certain actions, including amending certain provisions of our amended and restated certificate of incorporation, including the provisions relating to amending our amended and restated bylaws and director liability. For so long as any shares of our Class B common stock remain outstanding, the affirmative vote of the holders of at least a majority of the voting power of all then-outstanding shares of our Class B common stock, voting separately as a class, will be required to take certain actions, including amending the provisions of our amended and restated certificate of incorporation relating to the terms of our common stock, the availability of written consent in lieu of a meeting of our stockholders, and director liability.
Conversion Rights
Class B Common Stock. Each outstanding share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, which occurs after the completion of this offering, except for certain permitted transfers set forth in our amended and restated certificate of incorporation, including transfers to family members, certain trusts for estate planning purposes, entities under common control with or controlled by such holder of our Class B common stock, and with respect to Advance, any Advance Entity (as defined in our amended and restated certificate of incorporation). Once converted into Class A common stock, the Class B common stock will not be reissued.
All of the outstanding shares of Class B common stock will convert automatically into shares of Class A common stock upon the first date on which the aggregate number of outstanding shares of Class B common stock ceases to represent at least 7.5% of the aggregate number of then-outstanding shares of our Class A and Class B common stock. Once converted into Class A common stock, the Class B common stock will not be reissued.
Class C Common Stock. Subject to the rights granted to Advance pursuant to the Governance Agreement, following the date on which no shares of our Class B common stock remain outstanding and upon the date and time, or occurrence of an event, specified by the affirmative vote of the holders of a majority of the then-outstanding shares of our Class A common stock, voting as a separate class, all of the outstanding shares of our Class C common stock will convert automatically into shares of our Class A common stock. We have no current plans to issue any Class C common stock.
Economic Rights
Dividends. Any dividend or distribution paid or payable to the holders of shares of Class A, Class B, and Class C common stock shall be paid pro rata, on an equal priority, pari passu basis, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A, Class B, and Class C common stock, each voting separately as a class; provided, however, that if a dividend or distribution is paid in the form of Class A, Class B, or Class C common stock (or rights to acquire shares of Class A, Class B, or Class C common stock), then the holders of the Class A common stock shall receive Class A common stock (or rights to acquire shares of Class A common stock), holders of Class B common stock shall receive Class B common stock (or rights to acquire shares of Class B common stock), and holders of Class C common stock shall receive Class C common stock (or rights to acquire shares of Class C common stock), unless a disparate dividend treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the then-outstanding shares of Class A, Class B, and Class C common stock, each voting separately as a class.
Liquidation. In the event of our liquidation, dissolution, or winding-up and upon the completion of the distributions required with respect to any series of redeemable convertible preferred stock that may then be outstanding, our remaining assets legally available for distribution to stockholders shall be distributed on an equal priority, pro rata basis to the holders of Class A, Class B, and Class C common stock, unless different treatment of the shares of each such class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A, Class B, and Class C common stock, each voting separately as a class.
Change of Control Transactions. In the event of certain mergers, consolidations, business combinations, or other similar transactions, shares of our Class A, Class B, or Class C common stock will be treated equally, identically, and will share ratably, on a per share basis, in any consideration related to such transaction, unless (i) the only difference in the per share consideration is that any securities distributed to holders of our Class B common stock have ten times the voting power of any securities distributed to the holders of our Class A common stock, and that any securities distributed to the holders of our Class C common stock have no voting rights, or (ii) different treatment of the shares of each class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and by the affirmative vote of the holders of a majority of the outstanding shares of Class B common stock, each voting separately as a class. In the event that the holders of shares of Class A common stock, Class B common stock, or Class C common stock are granted rights to elect to receive one of two or more alternative forms of consideration in connection with such transaction, the foregoing will be satisfied if holders of shares of Class A, Class B, and Class C common stock are granted identical election rights, provided that any securities that a holder of our Class B common stock may elect to receive may have ten times the voting power of securities that a holder of our Class A common stock may elect to receive, and any securities that a holder of our Class C common stock may elect to receive may have no voting rights.
Subdivisions, Combinations, and Reclassifications. If we subdivide or combine in any manner outstanding shares of Class A, Class B, or Class C common stock, then the outstanding shares of the other classes will be subdivided or combined in the same proportion and manner, unless different treatment of the shares of each class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock, by the affirmative vote of the holders of a majority of the outstanding shares of Class B common stock, and by the affirmative vote of the holders of a majority of the outstanding shares of Class C common stock, each voting separately as a class.
No Preemptive or Similar Rights
Holders of shares of our common stock do not have preemptive, subscription, or redemption rights. There will be no redemption or sinking fund provisions applicable to our common stock.
Fully Paid and Non-assessable
All of our outstanding shares of Class A and Class B common stock are fully paid and non-assessable.
Class C Common Stock
Our authorized but unissued shares of Class C common stock are available for issuance with the approval of our board of directors without stockholder approval, except as may be required by the rules of the NYSE. We have no current plans to issue any shares of Class C common stock. However, we may in the future issue shares of Class C common stock for a variety of corporate purposes, including financings, acquisitions, investments, 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 and Class B common stock. Because the Class C common stock carries no voting rights (except as otherwise required by law) 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 (except as otherwise required by law), if we issue shares of Class C common stock in the future, the holders of our Class B common stock may be able to hold significant voting control and 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. 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 and Class B common stock.
Preferred Stock
In connection with the effectiveness of the registration statement of which this prospectus forms a part, no shares of our redeemable convertible preferred stock will be outstanding. Under the terms of our amended and
restated certificate of incorporation that will become effective immediately prior to the completion of this offering, our board of directors is authorized to direct us to issue shares of preferred stock in one or more series without stockholder approval, unless required by law or by any stock exchange, and subject to the rights granted to Advance pursuant to the Governance Agreement. Our board of directors has the discretion to determine the rights, preferences, privileges, and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges, and liquidation preferences, of each series of preferred stock.
Subject to the rights granted to Advance pursuant to the Governance Agreement, our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of Class A common stock and Class B common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in control of our company that may otherwise benefit holders of our Class A, Class B, and Class C common stock and may adversely affect the market price of the Class A common stock and the voting and other rights of the holders of our Class A, Class B, and Class C common stock. We have no current plans to issue any shares of preferred stock.
Stock Options
As of December 31, 2023, we had outstanding options to purchase an aggregate of 5,718,266 shares of our Class B common stock, with a weighted-average exercise price of $1.86 per share, pursuant to the 2012 Plan.
As of December 31, 2023, we had outstanding options to purchase an aggregate of 22,126,343 shares of our Class A common stock, with a weighted-average exercise price of $21.74 per share, pursuant to the 2017 Plan (including the premium-priced CEO/COO Options).
As of December 31, 2023, we had outstanding options to purchase an aggregate of 1,495,256 shares of our Class B common stock, with a weighted-average exercise price of $25.29 per share, pursuant to the 2017 Plan (including the premium-priced CEO/COO Options).
As of December 31, 2023, we had outstanding options to purchase an aggregate of 456,044 shares of our Class A common stock, with a weighted-average exercise price of $4.02 per share, pursuant to equity plans we assumed in acquisitions.
In connection with the Option Exercise, and without giving effect to the Class B conversion, shares of our Class A common stock and shares of our Class B common stock will be cash exercised, with a weighted-average exercise price of $ and $ per share, respectively.
Restricted Stock Units
As of December 31, 2023, we had outstanding RSUs representing 562,447 shares of our Class B common stock, issued pursuant to the 2012 Plan for which the performance-based vesting condition was satisfied and will be issuable upon satisfaction of a liquidity-based vesting condition, which will be satisfied upon the completion of this offering.
As of December 31, 2023, we had outstanding RSUs representing 24,907,021 shares of our Class A common stock and 2,157,703 shares of our Class B common stock, issued pursuant to the 2017 Plan; 22,955,194 of such RSUs represent shares of our Class A common stock and were issuable upon satisfaction of service-based and liquidity-based vesting conditions, 1,783,275 of such RSUs represent shares of our Class A common stock and were issuable upon satisfaction of a service-based vesting condition, 168,552 of such RSUs represent shares of our Class A common stock and were issuable upon satisfaction of performance-based or market-based vesting condition, 1,495,256 of such RSUs represent shares of our Class B common stock and were issuable upon satisfaction of service-based and liquidity-based vesting conditions, and 662,447 of such RSUs represent shares of our Class B common stock and were issuable upon satisfaction of performance-based or market-based vesting conditions.
In connection with the RSU Net Settlement, we will issue shares of our Class A common stock and shares of our Class B common stock, after withholding an aggregate of shares of Class A common
stock and shares of Class B common stock, respectively, to satisfy associated estimated tax withholding and remittance obligations.
Voting Agreement
Prior to the effectiveness of the registration statement of which this prospectus forms a part, Mr. Huffman, our Chief Executive Officer, President, and a member of our board of directors, is expected to enter into a voting agreement with Advance, our principal stockholder (the “Voting Agreement”), which Voting Agreement will remain in effect after the completion of this offering. We are not a party to the Voting Agreement. As a result of the Voting Agreement and subject to its conditions, Mr. Huffman will be deemed to hold under certain circumstances an aggregate of % of the voting power of our outstanding capital stock immediately after this offering. Pursuant to the Voting Agreement, Mr. Huffman will have the authority (and irrevocable proxy) to vote shares then owned by Advance, subject to certain limitations, as follows:
•in favor of the director nominees designated by Advance in connection with any election of directors, for so long as Advance has the right to designate directors pursuant to the Governance Agreement;
•in favor of the directors nominated or identified by Mr. Huffman, in connection with any election of directors; and
•in Mr. Huffman’s sole discretion, on all matters submitted to a vote of our stockholders, except for (i) the election of directors, as set forth above, (ii) any action terminating, reducing, or enlarging the responsibilities of, or electing, appointing, or removing Mr. Huffman as Chief Executive Officer, and (iii) certain matters requiring the consent of Advance, as described below.
Prior to Advance exercising any approval rights it may have under our amended and restated certificate of incorporation, amended and restated bylaws, or otherwise, Advance and Mr. Huffman will use reasonable efforts to mutually agree upon how Advance shall exercise such right. If, after reasonable efforts, Mr. Huffman and Advance cannot agree, Advance shall be permitted to exercise its approval rights in its sole discretion. However, if an agreement is reached and such matter is submitted to a vote of our stockholders, Mr. Huffman will have the right to vote all of the shares subject to the Voting Agreement in a manner consistent with how Advance and Mr. Huffman have mutually agreed the vote for such matter shall be cast. The matters subject to the mutual agreement of Advance and Mr. Huffman are as follows:
•the establishment of any new class of securities or the issuance of securities which, in the aggregate, represent more than 10% of the voting power of the securities beneficially owned by Advance and certain of its affiliates as of the completion of this offering; provided, however, that Advance’s separate approval will not be necessary to issue securities (i) to our employees pursuant to a customary employee equity plan, employee stock purchase plan, or similar stock purchase program, or (ii) to compensate Mr. Huffman, so long as any such issuance to our employees or to Mr. Huffman is approved by, our compensation and talent committee;
•any amendment to our amended and restated certificate of incorporation or amended and restated bylaws that would adversely impact Advance’s rights thereunder;
•a change of control transaction or any other merger, consolidation, business combination, sale, or acquisition that changes the rights or preferences of our security holders;
•the liquidation, dissolution, or winding up of our business operations;
•submission to our stockholders of any proposal to effect the conversion of all then-outstanding shares of our Class C common stock into an equivalent number of fully paid and non-assessable shares of Class A common stock, as set forth in our amended and restated certificate of incorporation or otherwise; and
•any other matters that require Advance’s approval as set forth in our amended and restated certificate of incorporation, amended and restated bylaws, and/or any agreement among our stockholders entered into at the time of, or following, this offering.
In the event that Advance transfers, assigns, sells, pledges, or otherwise disposes of any shares, each transferee, assignee, or other recipient shall receive such shares subject in all respects to the terms of the Voting Agreement, unless such transfer results in the conversion of shares of Class B common stock into Class A common stock in accordance with the terms of our amended and restated certificate of incorporation.
Additionally, in the event that prior to the termination of the Voting Agreement, Mr. Huffman provides explicit written notice that he will not vote the shares subject to the Voting Agreement, or that Advance is permitted to vote the shares subject to the Voting Agreement, Advance will be entitled to vote any of the shares subject to the Voting Agreement in its sole discretion.
The Voting Agreement will terminate upon the earliest to occur of: (i) the date on which Mr. Huffman is no longer our Chief Executive Officer; (ii) the completion of the liquidation, dissolution, or winding up of our business operations, or upon a change of control; (iii) the execution of a general assignment for the benefit of our creditors or the appointment of a receiver or trustee to take possession of our property or assets; (iv) the date when (a) Advance and certain of its affiliates cease to beneficially own at least 50% of the number of outstanding securities beneficially owned by Advance as of the completion of this offering and (b) the then-outstanding shares of our Class B common stock, in the aggregate, represents less than 7.5% of the aggregate of the then-outstanding shares of our Class A and Class B common stock; or (v) the “Expiration Date,” which is the tenth anniversary date of the Voting Agreement; provided, however, that the Expiration Date shall be automatically extended for one-year terms unless either Advance or Mr. Huffman provide notice of their intent to have the Voting Agreement expire, at least sixty days prior to the next applicable Expiration Date.
Registration Rights
Upon the completion of this offering, certain holders of our Class B common stock and our Class A common stock will be entitled to rights with respect to the registration of their shares under the Securities Act. These registration rights are contained in the Amended and Restated Investors’ Rights Agreement, which was entered into in connection with our convertible preferred stock financings. The registration rights set forth in the Amended and Restated Investors’ Rights Agreement terminate upon the earlier to occur of (i) five years following the completion of this offering, (ii) five years after a Reporting Event (as defined in the Amended and Restated Investors’ Rights Agreement, (iii) with respect to any particular stockholder, the earliest of when such stockholder is able to sell all of its shares pursuant to Rule 144(b)(1)(i) of the Securities Act or holds 1% or less of our outstanding common stock and is able to sell all of its Registrable Securities (as defined in the Amended and Restated Investors’ Rights Agreement) pursuant to Rule 144 of the Securities Act during any three month period, or (iv) after the consummation of a Liquidation Event (as defined in our amended and restated certificate of incorporation). We will pay the registration expenses (other than any underwriting discounts and selling commissions) of the holders of the shares registered for sale pursuant to the registrations described below, including the reasonable fees of one counsel for the selling holders not to exceed $25,000. However, we will not be required to bear the expenses in connection with the exercise of the demand registration rights of a registration if the request is subsequently withdrawn at the request of the selling stockholders holding a majority of the voting power of the securities to be registered. In an underwritten public offering, the underwriters have the right, subject to specified conditions, to limit the number of shares such holders may include.
Demand Registration Rights
Upon the completion of this offering, the holders of up to 107,123,949 shares of our common stock will be entitled to demand registration rights. At any time beginning on the earlier of (i) September 1, 2026 and (ii) six months after the completion of this offering, the holders of at least 50% of the voting power of the Registrable Securities then outstanding can request that we register the offer and sale of their shares on a registration statement on Form S-1 if we are eligible to file a registration statement on Form S-1 so long as the request covers at least that number of shares with an anticipated aggregate offering price of at least $30.0 million. We are obligated to effect only two such registrations. If we determine that it would be seriously detrimental to us and our stockholders to effect such a demand registration, we have the right to defer such registration, not more than twice in any 12-month period, for a period of up to 90 days. In addition, we will not be required to effect a demand registration during the
period beginning 60 days prior to our good faith estimate of the date of the filing of and ending on a date 180 days following the effectiveness of a registration statement relating to a registration initiated by us.
Form S-3 Registration Rights
Upon the completion of this offering, the holders of up to 107,123,949 shares of our common stock will be entitled to certain Form S-3 registration rights. The holders of at least 30% of the voting power of the Registrable Securities then outstanding may make a written request that we register the offer and sale of their shares on a registration statement on Form S-3 if we are eligible to file a registration statement on Form S-3 so long as the request covers at least that number of shares with an anticipated offering price of at least $15.0 million, net of any underwriting discounts and commissions. These stockholders may make an unlimited number of requests for registration on Form S-3; however, we will not be required to effect a registration on Form S-3 if we have effected two such registrations pursuant to such requests within the 12-month period preceding the date of the request. In addition, if we determine that it would be seriously detrimental to us and our stockholders to effect such a registration, we have the right to defer such registration, not more than twice in any 12-month period, for a period of up to 90 days. Lastly, we will not be required to effect a demand registration during the period beginning 30 days prior to our good faith estimate of the date of the filing of and ending on a date 90 days following the effectiveness of a registration statement relating to a registration initiated by us.
Piggyback Registration Rights
Upon the completion of this offering, 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 up to 107,123,949 shares of our common stock will be entitled to certain “piggyback” registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations, which, in the case of an underwritten offering, will be in the sole discretion of the underwriters. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to (i) a demand registration, (ii) a registration related solely to a company stock plan, (iii) a registration relating to a corporate reorganization or transaction under Rule 145 of the Securities Act, (iv) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the public offering of our common stock, or (v) a registration in which the only common stock being registered is common stock issuable upon the conversion of debt securities that are also being registered, the holders of these shares are entitled to notice of the registration and have the right, subject to certain limitations, to include their shares in the registration.
Anti-Takeover Provisions
Certain provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective immediately prior to the completion of this offering, which are summarized below, may have the effect of delaying, deferring or discouraging another person from acquiring control of us. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We have opted out of Section 203 of the Delaware General Corporation Law, but our amended and restated certificate of incorporation will provide that the restrictions contained in Section 203 will apply to us immediately following the time at which all of the following conditions exist (if ever): (i) Section 203 by its terms would, but for the provision of our amended and restated certificate of incorporation, apply to us; (ii) Advance and its affiliates and associates beneficially own less than 15% of the voting power of the then-outstanding shares of our common stock, and (iii) the Governance Agreement has terminated in accordance with its terms. If these conditions all exist, we will thereafter be governed by Section 203, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
•the business combination or transaction which resulted in the stockholder becoming an interested stockholder was approved by the board of directors prior to the time that the stockholder became an interested stockholder;
•upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by directors who are also officers of the corporation and shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•at or subsequent to the time the stockholder became an interested stockholder, the business combination was approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
In general, Section 203 defines a “business combination” to include mergers, asset sales, and other transactions resulting in financial benefit to a stockholder and an “interested stockholder” as a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock.
Moreover, our amended and restated certificate of incorporation will provide that, unless and until all of the conditions discussed above exist (at which point we will thereafter be governed by Section 203), we will be governed by provisions substantially similar to Section 203. These provisions will likewise prohibit us from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, subject to the exceptions outlined above, except that neither Advance nor its affiliates and associates will be deemed to be an “interested stockholder” for these purposes. The application of these provisions, or the potential application of Section 203 to us in the future, may have the effect of delaying, deferring, or preventing changes in control of our company.
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
Our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective immediately prior to the completion of this offering, will include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our board of directors or management team, including the following:
Multi-Class Stock
As described above in “—Common Stock—Voting Rights,” our amended and restated certificate of incorporation will provide for a multi-class common stock structure, which will provide holders of our Class B common stock with significant influence over matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.
Board of Directors Vacancies
Our amended and restated certificate of incorporation and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats, subject to the rights granted to Advance pursuant to the Governance Agreement. In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by a majority vote of our entire board of directors, except that we will be required to obtain Advance’s prior written approval to increase the size of our board of directors if such increase would cause our board of directors to consist of more than ten members. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by
filling the resulting vacancies with its own nominees. This will make it more difficult to change the composition of our board of directors and will promote continuity of management.
Stockholder Action; Special Meeting of Stockholders
Our amended and restated certificate of incorporation will provide that, at any time when the holders of our Class B common stock hold less than 30% of the voting power of all of the then-outstanding shares of our capital stock, our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, once the holders of our Class B common stock hold less than 30% of the voting power of all of the then-outstanding shares of our capital stock, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws. Our amended and restated certificate of incorporation will further provide that special meetings of our stockholders may be called only by the chairperson of our board of directors (if any), our Chief Executive Officer, our board of directors pursuant to a resolution adopted by a majority of our board of directors, or, at such time the holders of shares of our Class B common stock beneficially own, in the aggregate, at least 30% of the voting power of all of the then-outstanding shares of our capital stock, our Secretary, following his or her receipt of one or more written demands to call a special meeting from stockholders of record as of the applicable record date who hold, in the aggregate, at least 30% of the voting power of all of the then-outstanding shares of our capital stock. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our amended and restated bylaws will provide advance notice procedures for stockholders seeking to bring business before annual or special meetings of stockholders or to nominate candidates for election as directors at annual or special meetings of stockholders. Our amended and restated bylaws will also specify certain requirements regarding the form and content of a stockholder’s notice. These provisions might preclude our stockholders from bringing matters before annual or special meetings of stockholders or from making nominations for directors at annual or special meetings of stockholders if the proper procedures are not followed. We expect that these provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
No Cumulative Voting
The 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 and restated certificate of incorporation will not provide for cumulative voting.
Amendment of Charter and Bylaws Provisions
Amendments to our amended and restated certificate of incorporation will require the approval of a majority of the outstanding voting power of our common stock, except where a class vote would be required by applicable law. Our amended and restated bylaws will also provide that approval of stockholders holding at least 66 2/3% of our outstanding voting power voting as a single class is required for stockholders to amend or adopt any provision of our bylaws.
Issuance of Undesignated Preferred Stock
Subject to the rights granted to Advance pursuant to the Governance Agreement, our board of directors will have the authority, without further action by our stockholders, to issue up to shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock 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.
Choice of Forum
Our amended and restated certificate of incorporation and amended and restated bylaws will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action, suit, or proceeding brought on our behalf; (ii) any action, suit, or proceeding asserting a claim of breach of fiduciary duty owed by any of our directors, officers or stockholders to us or to our stockholders; (iii) any action, suit, or proceeding asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws (as either may be amended from time to time); or (iv) any action, suit, or proceeding asserting a claim against us that is governed by the internal affairs doctrine. As a result, any action brought by any of our stockholders with regard to any of these matters will need to be filed in the Court of Chancery of the State of Delaware and cannot be filed in any other jurisdiction; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction; and provided further that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. Our amended and restated certificate of incorporation and amended and restated bylaws will also provide that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause or causes of action against us or any defendant arising under the Securities Act. Such provision is intended to benefit and may be enforced by us, our officers and directors, employees and agents, including the underwriters and any other professional or entity who has prepared or certified any part of this prospectus. Nothing in our amended and restated certificate of incorporation and amended and restated bylaws preclude stockholders that assert claims under the Exchange Act from bringing such claims in state or federal court, subject to applicable law.
If any action the subject matter of which is within the scope described above is filed in a court other than a court located within the State of Delaware (a “Foreign Action”), in the name of any stockholder, such stockholder shall be deemed to have consented to the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the applicable provisions of our amended and restated certificate of incorporation and amended and restated bylaws and having service of process made upon such stockholder in any such action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder. Although our amended and restated certificate of incorporation and amended and restated bylaws will contain the choice of forum provision described above, it is possible that a court could find that such a provision is inapplicable for a particular claim or action or that such provision is unenforceable.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims or make such lawsuits more costly for stockholders, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder.
Limitations on Liability and Indemnification Matters
Our amended and restated certificate of incorporation will limit the liability of our directors and executive officers to the fullest extent permitted by the Delaware General Corporation Law, and our amended and restated bylaws will provide that we will indemnify them to the fullest extent permitted by such law. We expect to enter into indemnification agreements with our current directors and executive officers prior to the completion of this offering and expect to enter into a similar agreement with any new directors or executive officers. Further, pursuant to our indemnification agreements and directors’ and officers’ liability insurance, our directors and executive officers will be indemnified and insured against the cost of defense, settlement or payment of a judgment under certain circumstances. In addition, as permitted by Delaware law, our amended and restated certificate of incorporation will include provisions that eliminate the personal liability of our directors and executive officers for monetary damages resulting from breaches of certain fiduciary duties as a director or officer. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director or officer for breach of fiduciary duties as a director or officer.
These provisions may be held not to be enforceable for violations of the federal securities laws of the United States.
Listing
We have applied to list our Class A common stock on the New York Stock Exchange under the symbol “RDDT.”
Transfer Agent and Registrar
Upon completion of this offering, the transfer agent and registrar for our Class A and Class B common stock will be Computershare Trust Company, N.A. The address of the transfer agent and registrar is 250 Royall Street, Canton, Massachusetts 02021.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our Class A common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our Class A common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future.
Based on the number of shares of our capital stock outstanding as of December 31, 2023, upon completion of this offering, we will have shares of our Class A common stock (or shares of Class A common if the underwriters exercise their over-allotment option in full) and shares of our Class B common stock outstanding, after giving effect to (i) the Preferred Stock Conversion; (ii) the Class B Conversion; (iii) the Option Exercise; (iv) the RSU Net Settlement; and (v) the filing and effectiveness of our amended and restated certificate of incorporation, which will be in effect immediately prior to the completion of this offering, and assuming no exercise of any options or settlement of additional RSUs subsequent to December 31, 2023, except for the Option Exercise and the RSU Net Settlement. Of these shares, all of the Class A common stock sold in this offering by us or the selling stockholders, plus any shares sold by us upon exercise, if any, of the underwriters’ over-allotment option will be freely transferable without restriction or registration under the Securities Act, except for any shares purchased by one of our existing “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining shares of our Class B common stock outstanding will bear “restricted shares” as defined in Rule 144. Restricted shares and the shares of Class A common stock into which such securities are convertible may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 of the Securities Act, which rules are summarized below. There will be no shares of Class C common stock outstanding upon the completion of this offering.
As a result of the lock-up agreements and market standoff agreements described below and subject to the provisions of Rules 144 or 701 of the Securities Act, these restricted securities will be available for sale in the public market beginning on the opening of trading on the third trading day immediately following our public release of earnings for the quarter ending , 2024.
In addition, pursuant to certain exceptions to the lock-up agreements and market standoff agreements, certain shares of our Class A common stock will be eligible for sale in the open market during the Lock-up Period in sell-to-cover transactions in order to satisfy tax withholding obligations in connection with the settlement of RSUs and PRSUs for shares of our Class A and Class B common stock (in the case of RSUs and PRSUs covering shares of our Class B common stock, a portion will be converted to shares of our Class A common stock that will be eligible for sale in the open market in connection with such tax withholding obligations) as follows:
| | | | | | | | | | | | | | | | | | | | |
Date First Available for Sale Into the Market | | Number of RSUs and PRSUs for Shares of Our Class A Common Stock Eligible to Vest | | Number of RSUs and PRSUs for Shares of Our Class B Common Stock Eligible to Vest | | Approximate Number of Shares to be Sold in Sell-to-Cover Transactions(1) |
| , 2024 (representing a quarterly vesting of service-based RSUs) | | | | | | |
| Any time subject to the achievement of certain performance-related conditions | | | | | | |
________________
(1)Assumes a 53% tax withholding rate and, where applicable, the conversion of a portion of shares of Class B common stock to shares of Class A common stock to be sold to cover such tax withholding obligations.
The dates and numbers in the above table are estimates. We expect the settlement of the quarterly vesting event to extend over a multi-day period based on trading volumes. In addition, the exact number of shares of our Class A common stock eligible for sale in the open market in connection with such tax withholding obligations may differ based on our stockholders’ personal tax rates.
Furthermore, our Chief Operating Officer, Jennifer Wong, holds 20,000 PRSUs for shares of our Class A common stock that are issuable upon achievement of vesting conditions that will be deemed satisfied based on our attaining a $25.0 billion market capitalization valuation on the tenth trading day following this offering. For more information about the vesting criteria of these awards, see “Executive and Director Compensation—Outstanding Equity Awards at Year-End.”
To the extent these PRSUs vest, then under the lock-up agreement with the underwriters, Ms. Wong will be permitted to sell shares of Class A common stock in the open market in sell-to-cover transactions to cover tax withholding obligations related to the vesting of her PRSUs. Assuming a 53% tax withholding rate, we would expect approximately the following number of shares would be sold in sell-to-cover transactions shortly following any vesting of her PRSUs:
| | | | | | | | | | | | | | |
| Market Capitalization Vesting Criteria | | Number of PRSUs Eligible to Vest | | Approximate Number of Shares of Our Class A Common Stock to be Sold in Sell-to-Cover Transactions |
| $25.0 billion | | 20,000 | | 10,600 |
In addition, we expect that up to service-based RSUs will be eligible to vest on , 2024, after the expiration of the Lock-up Period (as defined below). In connection with that quarterly vesting event, we expect shares to be sold into the open market to cover tax withholding obligations.
Because the purpose of the sell-to-cover transactions is to generate proceeds sufficient to satisfy tax withholding obligations, the exact number of shares sold will depend on the sale prices of the Class A common stock in such transactions.
Rule 144
In general, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell such securities, provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale; and (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:
•1% of the number of shares of our Class A common stock then outstanding, which will equal approximately shares immediately after this offering, assuming no exercise of the underwriters’ over-allotment option; or
•the average weekly trading volume of our Class A common stock on the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale;
provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information, and notice provisions of Rule 144 to the extent applicable.
Rule 701
In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who acquired common stock from us in connection with a written compensatory stock or option plan or other written agreement in compliance with Rule 701 before the effective date of the registration statement of which this prospectus is a part (to the extent such common stock is not subject to a lock-up agreement) and who are not our “affiliates” as defined in Rule 144 during the immediately preceding 90 days, is entitled to rely on Rule 701 to resell such shares beginning 90 days after the date of this prospectus in reliance on Rule 144, but without complying with the notice, manner of sale, public information requirements or volume limitation provisions of Rule 144. Persons who are our “affiliates” may resell those shares beginning 90 days after the date of this prospectus without
compliance with minimum holding period requirements under Rule 144 (subject to the terms of the lock-up agreement referred to below, if applicable).
Lock-Up Agreements/Market Standoff Agreements
In connection with this offering, we and all of our directors and executive officers, the selling stockholders, and certain other record holders that together represent approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to lock-up agreements with the underwriters agreeing that, subject to certain exceptions, without the prior written consent of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC, on behalf of the underwriters, we and they will not, in accordance with the terms of such agreements, during the period ending on the opening of trading on the third trading day immediately following our public release of earnings for the quarter ending , 2024 (such period, the “Lock-up Period”):
(1)offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, make any short sale, or otherwise transfer or dispose of, directly or indirectly, any shares of our Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock;
(2)enter into any swap, hedging transaction, or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our Class A common stock, whether any such transaction described above is to be settled by delivery of our Class A common stock or such other securities, in cash or otherwise;
(3)publicly disclose the intention to take any of the actions restricted by clause (1) or (2) above; or
(4)make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.
Furthermore, (i) an additional approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to the market standoff provisions in our amended and restated investors’ rights agreement, pursuant to which such holders agreed to not lend, offer, 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 our common stock or any securities convertible into or exercisable or exchangeable for our common stock held immediately prior to the effectiveness of this registration statement, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such common stock during the Lock-up Period and (ii) an additional approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to restrictions contained in market standoff agreements with us that include restrictions on the sale, transfer, or other disposition of shares during the Lock-up Period. The forms and specific restrictive provisions within these market standoff provisions vary among security holders. For example, although some of these market standoff agreements do not specifically restrict hedging transactions and others may be subject to different interpretations between us and security holders as to whether they restrict hedging, our insider trading policy prohibits hedging by all of our current directors, officers, employees, contractors, and consultants. Sales, short sales, or hedging transactions involving our equity securities, whether before or after this offering and whether or not we believe them to be prohibited, could adversely affect the price of our Class A common stock.
As a result of the foregoing, substantially all of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to a lock-up agreement or market standoff provisions during the Lock-up Period. We have agreed to enforce all such market standoff restrictions on behalf of the underwriters and not to amend or waive any such market standoff provisions during the Lock-up Period without the prior consent of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC, on behalf of the underwriters, provided that we may release shares from such restrictions to the extent such shares would be entitled to release under the form of lock-up agreement with the
underwriters signed by our directors, executive officers, and certain other record holders of our securities as described herein.
The restrictions imposed by the lock-up agreements and market standoff provisions are subject to certain exceptions, including with respect to:
1.any sales of our Class A common stock to the underwriters pursuant to the underwriting agreement;
2.transactions relating to shares of Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock acquired in this offering or in open market transactions after the completion of this offering, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made during the Lock-up Period in connection with such transactions;
3.transfers of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock (A) as a bona fide gift or for bona fide estate planning purposes, (B) upon death or by will, testamentary document, or intestate succession, (C) to an immediate family member of the lock-up party or to any trust for the direct or indirect benefit of the lock-up party or the immediate family of the lock-up party, or (D) if the lock-up party is a trust, to any beneficiary of the lock-up party or the estate of any such beneficiary, provided such transfer does not involve a disposition for value and that such securities remain subject to the restrictions set forth above;
4.distributions, transfers, or dispositions of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock to another corporation, partnership, limited liability company, trust, or other business entity that is an affiliate, or to an investment fund or other entity controlled or managed by an affiliate, or to the stockholders, current or former partners, members, beneficiaries, or other equity holders, or to their estates, provided such distribution, transfer, or distribution does not involve a disposition for value and that such securities remain subject to the restrictions set forth above;
5.(A) the exercise of options, settlement of RSUs, or other equity awards, or the exercise of warrants outstanding as of the date of this prospectus and disclosed in this prospectus, provided that any common stock received upon such exercise or settlement would be subject to the restrictions set forth above, or (B) transfers of Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock to us in connection with the net exercise of options, settlement of RSUs or warrants to cover tax withholding, provided that any filing under Section 16(a) of the Exchange Act shall clearly indicate in the footnotes thereto (X) the filing relates to the circumstances described in (A) or (B), as the case may be, (Y) no shares were sold by the reporting person, and (Z) in the case of (A), the shares of common stock received upon exercise or settlement of the option, RSU, or warrant are subject to a lock-up agreement with the underwriters;
6.the establishment of trading plans under Rule 10b5-1 under the Exchange Act, provided that such plans do not provide for the transfer of Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock during the Lock-up Period (except as permitted by clause (9) below) and to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the lock-up party or us regarding the establishment of such plans during the Lock-up Period, such announcement or filing shall include a statement to the effect that no transfer of shares of Class A common stock may be made under such plans during the Lock-up Period;
7.transfers of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock that occur by operation of law pursuant to a qualified domestic order in connection with a divorce settlement or other court order, provided such transfer does not involve a disposition for value and that such securities remain subject to the restrictions set forth above;
8.the conversion of outstanding preferred stock into shares of common stock, or warrants to purchase preferred stock into warrants to purchase shares of our common stock, or the conversion of any shares of any class of our common stock into shares of our Class A common stock, provided that any such shares of common stock or warrants received upon such conversion will remain subject to the restrictions set forth above;
9.sales in open market transactions during the Lock-up Period to generate net proceeds up to the total amount of taxes or estimated taxes that become due as a result of the vesting or settlement of equity awards issued pursuant to a plan or arrangement described in this prospectus that vest or settle during the Lock-up Period, other than (A) RSUs that will vest upon the completion of this offering and (B) Mr. Huffman’s 662,447 PRSUs covering shares of Class B common stock described in the section titled “Capitalization—Vesting of Outstanding CEO Equity Award at Certain Trading Prices”;
10.transfers of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock in connection with a bona fide third-party tender offer, merger, consolidation, or other similar transaction involving a change of control that is approved by our board of directors, provided that if such transaction is not completed, all such securities would remain subject to the restrictions set forth above;
11.transfers of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock to us pursuant to arrangement under which we have the option to repurchase such securities or a right of first refusal with respect such securities; and
12.transactions as permitted by the prior written consent of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC;
provided, in the case of any transfer pursuant to clauses (3) or (4) that any public announcement or filing under Section 16(a) of the Exchange Act, or any other public filing or disclosure reporting a reduction in beneficial ownership of shares of our Class A common stock, shall clearly indicate in the footnotes thereto the nature of the transaction; provided further, in the case of any transfer pursuant to clauses (7) or (11), that no public announcement or filing under Section 16(a) of the Exchange Act, or any other public filing or disclosure shall be made during the Lock-up Period, unless such filing is required and clearly indicates in the footnotes thereto that the transfer is by operation of law, court order, or in connection with a divorce settlement, or a repurchase by us, as the case may be; and provided further that in the case of any sale pursuant to clause (9), filings under Section 16(a) of the Exchange Act shall only be permissible if such filing clearly indicates in the footnotes thereto that the filing relates to securities being sold to generate net proceeds solely to cover taxes or estimated taxes (as applicable) that became due as a result of the vesting and/or settlement of equity awards.
See “Underwriters” for information about exceptions to the lock-up agreements and market standoff agreements described above and a further description of these agreements. Upon the expiration of the Lock-up Period, substantially all of the securities subject to such transfer restrictions will become eligible for sale, subject to the limitations discussed above.
Registration Rights
Pursuant to our amended and restated investors’ rights agreement, the holders of up to 107,123,949 shares of our common stock (including shares issuable upon the conversion of our outstanding convertible preferred stock), or their transferees, will be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. See “Description of Capital Stock—Registration Rights” for a description of these registration rights. If the offer and sale of these shares is registered, the shares will be freely tradable without restriction under the Securities Act, and a large number of shares may be sold into the public market.
Equity Incentive Plans
We intend to file one or more registration statements on Form S-8 under the Securities Act to register all of the shares of our Class A common stock issuable under the 2012 Plan and 2017 Plan, and issuable and reserved for
issuance under the 2023 Plan and ESPP. Shares covered by such registration statement will be eligible for sale in the public market, subject to the Rule 144 limitations and vesting restrictions.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
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 Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service (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 of our Class A common stock. 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 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 all substantial decisions of which are subject to 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 “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 under “—Sale or Other Taxable Disposition” below.
Subject to the discussion below regarding 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 tax treaties.
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
A Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our Class A common stock unless:
•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 (“USRPI”) by reason of our status as a U.S. real property holding corporation (“USRPHC”) for U.S. federal income tax purposes.
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular 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 certain U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition of our Class A common stock by a Non-U.S. Holder will not be subject to U.S. federal income tax if our Class A common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market and such Non-U.S. Holder owned, actually and constructively, 5% or less of our Class A common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holder’s holding period.
Non-U.S. Holders should consult their tax advisors regarding any applicable 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 Non-U.S. Holder 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 or the Non-U.S. 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 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 our Class A common stock beginning on 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.
UNDERWRITERS
Under the terms and subject to the conditions in an underwriting agreement to be dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC are acting as representatives, will severally agree to purchase, and we and the selling stockholders will agree to sell to them, severally, the number of shares of our Class A common stock indicated below:
| | | | | | | | |
| Name | | Number of Shares |
| Morgan Stanley & Co. LLC | | |
| Goldman Sachs & Co. LLC | | |
| J.P. Morgan Securities LLC | | |
| BofA Securities, Inc. | | |
| Citigroup Global Markets Inc. | | |
Deutsche Bank Securities Inc. | | |
| MUFG Securities Americas Inc. | | |
| Citizens JMP Securities, LLC | | |
| Needham & Company, LLC | | |
| Piper Sandler & Co. | | |
Raymond James & Associates, Inc. | | |
| Academy Securities, Inc. | | |
| Loop Capital Markets LLC | | |
| Samuel A. Ramirez & Company, Inc. | | |
| Roth Capital Partners, LLC | | |
| Telsey Advisory Group LLC | | |
| Total: | | |
The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and the selling stockholders and subject to prior sale. The underwriting agreement will provide that the obligations of the several underwriters to pay for and accept delivery of the shares of Class A common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters will be obligated to take and pay for all of the shares of Class A common stock offered by this prospectus if any such shares are taken. However, the underwriters will not be required to take or pay for the shares covered by the underwriters’ over-allotment option described below.
The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. After the initial offering of the shares of Class A common stock, the offering price and other selling terms may from time to time be varied by the representatives.
We will grant to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of Class A common stock from us at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Class A common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of Class A common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the preceding table.
The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us and the selling stockholders. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional shares of Class A common stock from us.
| | | | | | | | | | | | | | | | | | | | |
| | | | Total |
| | Per Share | | No Exercise | | Full Exercise |
| Public offering price | | $ | | $ | | $ |
| Underwriting discounts and commissions to be paid by us | | $ | | $ | | $ |
| Underwriting discounts and commissions to be paid by the selling stockholders | | $ | | $ | | $ |
| Proceeds, before expenses, to us | | $ | | $ | | $ |
| Proceeds, before expenses, to the selling stockholders | | $ | | $ | | $ |
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ . We will agree to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority in an amount up to $ .
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of Class A common stock offered by them.
We have applied to list our Class A common stock on the NYSE under the symbol “RDDT.”
We and all of our directors and executive officers, the selling stockholders, and certain other record holders that together represent approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to lock-up agreements with the underwriters agreeing that, subject to certain exceptions, without the prior written consent of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC, on behalf of the underwriters, we and they will not, in accordance with the terms of such agreements, during the period ending on the opening of trading on the third trading day immediately following our public release of earnings for the quarter ending , 2024 (such period, the “Lock-up Period”):
(1)offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, make any short sale, or otherwise transfer or dispose of, directly or indirectly, any shares of our Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock;
(2)enter into any swap, hedging transaction, or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our Class A common stock, whether any such transaction described above is to be settled by delivery of our Class A common stock or such other securities, in cash or otherwise;
(3)publicly disclose the intention to take any of the actions restricted by clause (1) or (2) above; or
(4)make any demand for, or exercise any right with respect to, the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.
Furthermore, (i) an additional approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to the market standoff provisions in our amended and restated investors’ rights agreement, in which such holders agreed to not lend, offer, 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 this registration statement, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such common stock and
(ii) an additional approximately % of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to restrictions contained in market standoff agreements with us which include restrictions on the sale, transfer, or other disposition of shares. The forms and specific restrictive provisions within these market standoff provisions vary between security holders. For example, although some of these market standoff agreements do not specifically restrict hedging transactions and others may be subject to different interpretations between us and security holders as to whether they restrict hedging, our insider trading policy prohibits hedging by all of our current directors, officers, employees, contractors, and consultants. Sales, short sales, or hedging transactions involving our equity securities, whether before or after this offering and whether or not we believe them to be prohibited, could adversely affect the price of our Class A common stock.
As a result of the foregoing, substantially all of our outstanding Class A common stock and securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock are subject to a lock-up agreement or market standoff provisions during the Lock-up Period. We have agreed to enforce all such market standoff restrictions on behalf of the underwriters and not to amend or waive any such market standoff provisions during the Lock-up Period without the prior consent of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC, on behalf of the underwriters, provided that we may release shares from such restrictions to the extent such shares would be entitled to release under the form of lock-up agreement with the underwriters signed by our directors and executive officers, the selling stockholders, and certain other record holders of our securities as described herein.
The restrictions imposed by the lock-up agreements and market standoff provisions are subject to certain exceptions, including with respect to:
1.any sales of our Class A common stock to the underwriters pursuant to the underwriting agreement to be entered into in connection with this offering;
2.transactions relating to shares of Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock acquired in this offering or in open market transactions after the completion of this offering, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made during the Lock-up Period in connection with such transactions;
3.transfers of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock (A) as a bona fide gift or for bona fide estate planning purposes, (B) upon death or by will, testamentary document, or intestate succession, (C) to an immediate family member of the lock-up party or to any trust for the direct or indirect benefit of the lock-up party or the immediate family of the lock-up party, or (D) if the lock-up party is a trust, to any beneficiary of the lock-up party or the estate of any such beneficiary, provided such transfer does not involve a disposition for value and that such securities remain subject to the restrictions set forth above;
4.distributions, transfers, or dispositions of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock to another corporation, partnership, limited liability company, trust, or other business entity that is an affiliate, or to an investment fund or other entity controlled or managed by an affiliate, or to the stockholders, current or former partners, members, beneficiaries, or other equity holders, or to their estates, provided such distribution, transfer, or distribution does not involve a disposition for value and that such securities remain subject to the restrictions set forth above;
5.(A) the exercise of options, settlement of RSUs, or other equity awards, or the exercise of warrants outstanding as of the date of this prospectus and disclosed in this prospectus, provided that any common stock received upon such exercise or settlement would be subject to the restrictions set forth above, or (B) transfers of Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock to us in connection with the net exercise of options, settlement of RSUs or warrants to cover tax withholding, provided that any filing under
Section 16(a) of the Exchange Act shall clearly indicate in the footnotes thereto (X) the filing relates to the circumstances described in (A) or (B), as the case may be, (Y) no shares were sold by the reporting person, and (Z) in the case of (A), the shares of common stock received upon exercise or settlement of the option, RSU, or warrant are subject to a lock-up agreement with the underwriters;
6.the establishment of trading plans under Rule 10b5-1 under the Exchange Act, provided that such plans do not provide for the transfer of Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock during the Lock-up Period (except as permitted by clause (9) below) and to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the lock-up party or us regarding the establishment of such plans during the Lock-up Period, such announcement or filing shall include a statement to the effect that no transfer of shares of Class A common stock may be made under such plans during the Lock-up Period;
7.transfers of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock that occur by operation of law pursuant to a qualified domestic order in connection with a divorce settlement or other court order, provided such transfer does not involve a disposition for value and that such securities remain subject to the restrictions set forth above;
8.the conversion of outstanding preferred stock into shares of common stock, or warrants to purchase preferred stock into warrants to purchase shares of our common stock, or the conversion of any shares of any class of our common stock into shares of our Class A common stock, provided that any such shares of common stock or warrants received upon such conversion will remain subject to the restrictions set forth above;
9.sales in open market transactions during the Lock-up Period to generate net proceeds up to the total amount of taxes or estimated taxes that become due as a result of the vesting or settlement of equity awards issued pursuant to a plan or arrangement described in this prospectus that vest during the Lock-up Period, other than (A) RSUs that will vest upon the completion of this offering and (B) Mr. Huffman’s 662,447 PRSUs covering shares of Class B common stock described in the section titled “Capitalization—Vesting of Outstanding CEO Equity Award at Certain Trading Prices”;
10.transfers of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock in connection with a bona fide third-party tender offer, merger, consolidation, or other similar transaction involving a change of control that is approved by our board of directors, provided that if such transaction is not completed, all such securities would remain subject to the restrictions set forth above;
11.transfers of our Class A common stock or any securities directly or indirectly convertible into or exchangeable or exercisable for our Class A common stock to us pursuant to arrangement under which we have the option to repurchase such securities or a right of first refusal with respect such securities; and
12.transactions as permitted by the prior written consent of Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC;
provided, in the case of any transfer pursuant to clauses (3) or (4) that any public announcement or filing under Section 16(a) of the Exchange Act, or any other public filing or disclosure reporting a reduction in beneficial ownership of shares of our Class A common stock, shall clearly indicate in the footnotes thereto the nature of the transaction; provided further, in the case of any transfer pursuant to clauses (7) or (11), that no public announcement or filing under Section 16(a) of the Exchange Act, or any other public filing or disclosure shall be made during the Lock-up Period, unless such filing is required and clearly indicates in the footnotes thereto that the transfer is by operation of law, court order, or in connection with a divorce settlement, or a repurchase by us, as the case may be; and provided further that in the case of any sale pursuant to clause (9), filings under Section 16(a) of the Exchange Act shall only be permissible if such filing clearly indicates in the footnotes thereto that the filing relates to securities
being sold to generate net proceeds solely to cover taxes or estimated taxes (as applicable) that became due as a result of the vesting and/or settlement of equity awards.
The restrictions on issuances by us during the Lock-up Period are subject to certain exceptions, including with respect to:
1.the sale of our Class A common stock to the underwriters pursuant to the underwriting agreement;
2.the issuance of shares of our Class A common stock or securities convertible into or exercisable or exchangeable for shares of our Class A common stock pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of options or warrants or the settlement of RSUs or other equity awards (including net settlement), in each case outstanding on the date of the underwriting agreement and described in this prospectus;
3.grants of stock options, stock awards, restricted stock, RSUs, or other equity awards and the issuance of shares of Class A common stock or any securities convertible into or exercisable or exchangeable for shares of our Class A common stock (whether upon the exercise of stock options or otherwise) to our employees, officers, directors, advisors, or consultants pursuant to the terms of an equity compensation plan in effect as of the completion of this offering and described in this prospectus, provided that such recipients of equity awards, to the extent not bound by a market standoff agreement with us that is at least as restrictive as the lock-up restrictions described above, enter into a lock-up agreement with the underwriters covering the remainder of the Lock-up Period upon the vesting, settlement, or exercise, as applicable of such equity awards;
4.our establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of our Class A common stock, provided that (A) such plan does not provide for the transfer of shares of our Class A common stock during the Lock-up Period (except as otherwise permitted under the exceptions described in the lock-up agreements) and (B) to the extent we are required to or voluntarily make a public announcement or filing under the Exchange Act regarding the establishment of such plan, such announcement or filing must include a statement to the effect that no transfer of our Class A common stock may be made under such plan during the Lock-up Period;
5.our issuance of up to % of the outstanding shares of our Class A common stock, or securities convertible into, exercisable for, or which are otherwise exchangeable for or represent the right to receive up to % of the outstanding shares of our Class A common stock, immediately following the completion of this offering including any shares issued to the underwriters pursuant to their over-allotment option, in one or more mergers, acquisitions of securities, businesses, property, or other assets, products or technologies, joint ventures, commercial relationships, or other strategic corporate transactions or alliances, provided that such recipients of our Class A common stock or securities convertible into, exercisable for, or otherwise exchangeable for shares of our Class A common stock, to the extent not bound by a market standoff agreement with us, enter into a lock-up agreement with the underwriters covering the remainder of the Lock-up Period; and
6.our filing of any registration statement on Form S-8 (including any resale registration statement on Form S-8) relating to securities granted or to be granted pursuant to any plan in effect on the date of the underwriting agreement and described in this prospectus or any assumed benefit plan pursuant to an acquisition or similar strategic transaction.
Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC, in their sole discretion, may release the securities subject to the lock-up agreements with the underwriters or the market standoff agreements with us described above in whole or in part at any time.
Record holders of our securities are typically the parties to the lock-up agreements with the underwriters and the market standoff agreements with us referred to above, while holders of beneficial interests in our shares who are not also record holders in respect of such shares are not typically subject to any such agreements or other similar restrictions. Accordingly, we believe that holders of beneficial interests who are not record holders and are not
bound by market standoff or lock-up agreements could enter into transactions with respect to those beneficial interests that negatively impact our stock price. In addition, a security holder who is neither subject to a market standoff agreement with us nor a lock-up agreement with the underwriters may be able to sell, short sell, transfer, hedge, pledge, or otherwise dispose of or attempt to sell, short sell, transfer, hedge, pledge, or otherwise dispose of their equity interests at any time.
In order to facilitate the offering of our Class A common stock, the underwriters may engage in transactions that stabilize, maintain, or otherwise affect the price of our Class A common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our Class A common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of our Class A common stock in the open market to stabilize the price of our Class A common stock. These activities may raise or maintain the market price of our Class A common stock above independent market levels or prevent or retard a decline in the market price of our Class A common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We, the selling stockholders, and the underwriters will agree to indemnify each other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments we, the selling stockholders, or the underwriters may be required to make in respect of those liabilities.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members participating in this offering. The representatives may agree to allocate a number of shares of Class A common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make internet distributions on the same basis as other allocations.
Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses. For example, affiliates of J.P. Morgan Securities LLC, BofA Securities, Inc., Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, and Citibank Global Markets Inc. serve as agents and/or arrangers and bookrunners of our revolving credit agreement. Furthermore, Steven Huffman, our President, Chief Executive Officer, and a member of our board of directors, has entered into a term loan agreement and pledge and security agreement (the “loan agreement”) with an affiliate of one of the underwriters of this offering. The loan to Mr. Huffman is secured by 1,510,784 shares of our Class B common stock beneficially owned by Mr. Huffman. We are not a party to the loan agreement.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views
in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.
Pricing of the Offering
Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price will be determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price will be our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.
Directed Share Program
At our request, the underwriters have reserved up to shares of our Class A common stock, or approximately % of the shares offered in this offering, for sale at the initial public offering price through a directed share program to:
•eligible Reddit users and moderators;
•certain members of our board of directors; and
•friends and family members of certain of our employees and directors.
Users and moderators who created an account on or before January 1, 2024 are potentially eligible for the directed share program. Eligible participants must reside in the United States and be at least 18 years of age. Further, eligible users and moderators must be in good standing on our platform and cannot be a current or former Reddit employee.
We will invite users and moderators to participate in the directed share program in six phased priority tiers. We will assign each eligible participant to a tier based on that participant’s contributions to Reddit. User contributions will be measured in karma (a user’s reputation score that reflects their community contributions). Moderator contributions will be measured by membership and moderator actions on our platform. Tier 1 will include certain users and moderators identified by us who have meaningfully contributed to Reddit community programs. Tier 2 will include users who hold at least 200,000 karma and moderators who have performed at least 5,000 moderator actions. Tier 3 will include users who hold at least 100,000 karma and moderators who have performed at least 2,500 moderator actions. Tier 4 will include users who hold at least 50,000 karma and moderators who have performed at least 1,000 moderator actions. Tier 5 will include users who hold at least 25,000 karma and moderators who have performed at least 500 moderator actions. Tier 6 will include all other eligible users and moderators.
If demand for the directed share program in an earlier tier exceeds capacity, eligible users and moderators will have the option to join a waitlist. An invitation to participate in the directed share program does not guarantee that the participant will receive an allocation of shares. Accordingly, we cannot provide any assurance that any eligible participant will receive an invitation or an allocation in the directed share program.
Shares purchased through the directed share program will not be subject to the terms of the lock-up agreement or market standoff restrictions.
The number of shares of Class A common stock available for sale to the general public will be reduced to the extent that such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. Other than the underwriting discount described on the front cover of this prospectus, the underwriters will not be entitled to any commission with respect to shares of Class A common stock sold pursuant to the directed share program. We will agree to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with sales of the shares reserved for the directed share program. will administer our directed share program.
Sales to Retail Investors
In addition to allocations made to retail investors by the underwriters and through our directed share program discussed above, we anticipate that a portion of the Class A common stock offered hereby will, at our request, be offered to retail investors through Fidelity Brokerage Services LLC, SoFi Securities, Inc., and Robinhood Financial LLC, as selling group members for this offering, through their respective brokerage platforms. These platforms are not affiliated with us. Purchases made through such platforms will be subject to the terms, conditions, and requirements set by each respective entity. The Class A common stock offered in this offering through these brokerage platforms will initially be offered at the offering price listed on the cover page of this prospectus. Information contained on, or that can be accessed through, such brokerage platforms does not constitute part of this prospectus.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area (each, a “Member State”), no shares of our Class A common stock have been offered or will be offered pursuant to the offering to the public in that Member State prior to the publication of a prospectus in relation to our Class A common stock which has been approved by the competent authority in that Member State or, where appropriate, approved in another Member State and notified to the competent authority in that Member State, all in accordance with the Prospectus Regulation, except that offers of our Class A common stock may be made to the public in that Member State at any time under the following exemptions under the Prospectus Regulation:
(a)to any legal entity which is a qualified investor as defined in the Prospectus Regulation;
(b)to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Regulation), subject to obtaining the prior consent of the representatives; or
(c)in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of shares shall require us or any of the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation, and each person who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the representatives and us that it is a “qualified investor” within the meaning of Article 2(e) in the Prospectus Regulation.
In the case of any shares being offered to a financial intermediary as that term is used in Article 5 of the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged, and agreed that the shares acquired by it in the offer have not been acquired on a nondiscretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares of our Class A common stock to be offered so as to enable an investor to decide to purchase or subscribe for any shares of our Class A common stock, the expression “Prospectus Regulation” means Regulation (EU) 2017/1129 (as amended).
United Kingdom
No shares of our Class A common stock have been offered or will be offered pursuant to the offering to the public in the UK prior to the publication of a prospectus in relation to the shares of Class A common stock which (i) has been approved by the Financial Conduct Authority or (ii) is to be treated as if it had been approved by the Financial Conduct Authority in accordance with the transitional provisions in Article 74 (transitional provisions) of
the Prospectus Amendment etc. (EU Exit) Regulations 2019/1234, except that shares of our Class A common stock may be offered to the public in the UK at any time:
(a) to any legal entity which is a qualified investor as defined under Article 2 of the UK Prospectus Regulation;
(b) to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the UK Prospectus Regulation), subject to obtaining the prior consent of underwriters for any such offer; or
(c) in any other circumstances falling within Section 86 of the Financial Services and Markets Act 2000 (“FSMA”),
provided that no such offer of shares of our Class A common stock shall require us or any underwriter to publish a prospectus pursuant to Section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation. For the purposes of this provision, the expression an “offer to the public” in relation to the shares of our Class A common stock in the UK means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our Class A common stock to be offered so as to enable an investor to decide to purchase or subscribe for any shares of our Class A common stock and the expression “UK Prospectus Regulation” means Regulation (EU) 2017/1129 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended by the European Union (Withdrawal Agreement) Act 2020.
In addition, in the UK, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Regulation) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the shares of our Class A common stock in the UK within the meaning of the FSMA.
Any person in the UK that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the UK, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.
Japan
No registration pursuant to Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) (the “FIEL”) has been made or will be made with respect to the solicitation of the application for the acquisition of the shares of Class A common stock.
Accordingly, the shares of Class A common stock have not been, directly or indirectly, offered or sold and will not be, directly or indirectly, offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements, and otherwise in compliance with, the FIEL and the other applicable laws and regulations of Japan.
For Qualified Institutional Investors (“QII”)
Please note that the solicitation for newly issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the shares of Class A common stock constitutes either a “QII only private placement” or a “QII only secondary distribution” (each as described in Paragraph 1, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of Class A common stock. The shares of Class A common stock may only be transferred to QIIs.
For Non-QII Investors
Please note that the solicitation for newly issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the shares of Class A common stock constitutes either a “small number private placement” or a “small number private secondary distribution” (each as is described in Paragraph 4, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of Class A common stock. The shares of Class A common stock may only be transferred en bloc without subdivision to a single investor.
Brazil
The offer and sale of our shares of Class A common stock has not been, and will not be, registered (or exempted from registration) with the Brazilian securities commission, Comissão de Valores Mobiliários (“CVM”), and, therefore, will not be carried out by any means that would constitute a public offering in Brazil under CVM resolution No. 160, dated July 13, 2022, as amended (“CVM Resolution 160”) or unauthorized distribution under Brazilian laws and regulations. The shares of our Class A common stock will be authorized for trading on organized non-Brazilian securities markets and may only be offered to Brazilian professional investors (as defined by applicable CVM regulation), who may only acquire our shares of Class A common stock through a non-Brazilian account, with settlement outside Brazil in non-Brazilian currency. The trading of these securities on regulated securities markets in Brazil is prohibited.
Switzerland
Shares of our Class A common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”), or on any other stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaning of, and has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares of our Class A common stock or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, us or the shares of our Class A common stock have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of our Class A common stock will not be supervised by, the Swiss Financial Market Supervisory Authority, and the offer of common stock has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the shares of our Class A common stock.
Canada
Shares of our Class A common stock may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Any resale of the shares of Class A common stock must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
Shares of our Class A common stock may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to shares of our Class A common stock may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares of our Class A common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares of our Class A common stock may not be circulated or distributed, nor may the shares of our Class A common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor pursuant to Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where shares of our Class A common stock are subscribed or purchased under Section 275 by a relevant person which is:
(a)a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
(b)a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (each as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable within six months after that corporation or that trust has acquired shares of our Class A common stock under Section 275 of the SFA except:
(1)to an institutional investor or to a relevant person, or to any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA;
(2)where no consideration is or will be given for the transfer;
(3)where the transfer is by operation of law;
(4)as specified in Section 276(7) of the SFA; or
(5)as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities based Derivatives Contracts) Regulation 2018.
Solely for purposes of the notification requirements under Section 309B(1)(c) of the SFA, we have determined, and hereby notify all relevant persons, that the shares are “prescribed capital markets products” (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (the “DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares of our Class A common stock to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus, you should consult an authorized financial advisor.
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be passed upon for us by Latham & Watkins LLP, Menlo Park, California. Davis Polk & Wardwell LLP, Menlo Park, California, has acted as counsel for the underwriters in connection with certain legal matters related to this offering. Whalen LLP, Newport Beach, California, has acted as counsel for the selling stockholders in connection with certain legal matters related to this offering.
EXPERTS
The consolidated financial statements of Reddit, Inc. as of December 31, 2022 and 2023, and for each of the years in the two-year period ended December 31, 2023, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
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 our Class A common stock, 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 may read our SEC filings, including this registration statement, over the internet at the SEC’s website at www.sec.gov. Upon the completion of this offering, 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 review at the SEC’s website referred to above. We also maintain a corporate website at www.redditinc.com, at which, following the completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Reddit, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Reddit, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2023, the related consolidated statements of operations, comprehensive income (loss), convertible preferred stock and stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2019.
San Francisco, California
February 5, 2024
Reddit, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2023 |
| | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 435,810 | | | $ | 401,176 | |
| Marketable securities | 830,734 | | | 811,946 | |
| Accounts receivable, net | 191,987 | | | 245,279 | |
| Prepaid expenses and other current assets | 25,396 | | | 21,286 | |
| Total current assets | 1,483,927 | | | 1,479,687 | |
| Property and equipment, net | 7,192 | | | 14,946 | |
| Operating lease right-of-use assets, net | 23,352 | | | 24,008 | |
| Intangible assets, net | 41,237 | | | 32,147 | |
| Goodwill | 26,299 | | | 26,299 | |
| Other noncurrent assets | 17,704 | | | 19,380 | |
| Total assets | $ | 1,599,711 | | | $ | 1,596,467 | |
| LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 32,944 | | | $ | 46,514 | |
| Operating lease liabilities | 7,802 | | | 3,707 | |
| Accrued expenses and other current liabilities | 65,711 | | | 83,349 | |
| Total current liabilities | 106,457 | | | 133,570 | |
| Operating lease liabilities, noncurrent | 11,690 | | | 22,040 | |
| Other noncurrent liabilities | 7,136 | | | 287 | |
| Total liabilities | 125,283 | | | 155,897 | |
| Commitments and contingencies (Note 11) | | | |
Convertible preferred stock, par value $0.0001 per share; 86,864,781 and 86,864,781 shares authorized as of December 31, 2022 and December 31, 2023, respectively; 73,021,449 and 73,021,449 shares issued and outstanding as of December 31, 2022 and December 31, 2023, respectively; aggregate liquidation preference of $1,847,993 and $1,847,993 as of December 31, 2022 and December 31, 2023, respectively | 1,853,492 | | | 1,853,492 | |
| Stockholders’ deficit: | | | |
Class A common stock, par value $0.0001 per share; 189,000,000 and 189,000,000 shares authorized as of December 31, 2022 and December 31, 2023, respectively; 6,381,936 and 7,099,700 shares issued and outstanding as of December 31, 2022 and December 31, 2023, respectively | — | | | — | |
Class B common stock, par value $0.0001 per share; 142,000,000 and 142,000,000 shares authorized as of December 31, 2022 and December 31, 2023, respectively; 51,410,111 and 53,904,204 shares issued and outstanding as of December 31, 2022 and December 31, 2023, respectively | 6 | | | 6 | |
| Additional paid-in capital | 250,460 | | | 302,820 | |
| Accumulated other comprehensive income (loss) | (3,792) | | | 814 | |
| Accumulated deficit | (625,738) | | | (716,562) | |
| Total stockholders’ deficit | (379,064) | | | (412,922) | |
| Total liabilities, convertible preferred stock, and stockholders’ deficit | $ | 1,599,711 | | | $ | 1,596,467 | |
The accompanying notes are an integral part of these financial statements.
Reddit, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| Revenue | $ | 666,701 | | | $ | 804,029 | |
| Costs and expenses: | | | |
| Cost of revenue | 104,799 | | | 111,011 | |
| Research and development | 365,164 | | | 438,346 | |
| Sales and marketing | 225,078 | | | 230,175 | |
| General and administrative | 143,822 | | | 164,658 | |
| Total costs and expenses | 838,863 | | | 944,190 | |
| Income (loss) from operations | (172,162) | | | (140,161) | |
| Other income (expense), net | 14,234 | | | 53,138 | |
| Income (loss) before income taxes | (157,928) | | | (87,023) | |
| Income tax expense (benefit) | 622 | | | 3,801 | |
| Net income (loss) | $ | (158,550) | | | $ | (90,824) | |
| Net income (loss) per share attributable to Class A and Class B common stock, basic and diluted (Note 4) | $ | (2.77) | | | $ | (1.54) | |
| Weighted-average shares of Class A and Class B common stock used to compute net income (loss) per share attributable to common stockholders, basic and diluted | 57,251,112 | | 59,138,086 |
The accompanying notes are an integral part of these financial statements.
Reddit, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands) | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| Net income (loss) | $ | (158,550) | | | $ | (90,824) | |
| Change in other comprehensive income (loss), net of tax: | | | |
| Unrealized holding gains (losses) on marketable securities | (3,554) | | | 4,606 | |
| Net comprehensive income (loss) | $ | (162,104) | | | $ | (86,218) | |
The accompanying notes are an integral part of these financial statements.
Reddit, Inc.
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Convertible
Preferred
Stock | | | Common Stock | | Additional
Paid-in
Capital | | Accumulated
Other
Comprehensive
Income
(Loss) | | Accumulated
Deficit | | Total
Stockholders’
Deficit | | |
| | | Class A | | Class B | | | | | | |
| Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | | | | | |
| Balance as of December 31, 2021 | 73,021,449 | | $ | 1,853,492 | | | | 5,166,855 | | $ | — | | | 51,212,674 | | $ | 6 | | | $ | 181,407 | | | $ | (238) | | | $ | (467,188) | | | $ | (286,013) | | | |
| Issuance of common stock upon exercise of stock options, net | — | | — | | | | 976,178 | | — | | | 197,437 | | — | | | 7,034 | | | — | | | — | | | 7,034 | | | |
| Issuance of restricted stock awards | — | | — | | | | 174,056 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | |
| Issuance of common stock upon settlement of restricted stock units, net | — | | — | | | | 2,786 | | | — | | | — | | | — | | | (105) | | | — | | | — | | | (105) | | | |
| Issuance of Class A common stock in connection with acquisitions | — | | — | | | | 62,061 | | | — | | | — | | | — | | | 4,522 | | | — | | | — | | | 4,522 | | | |
| Stock-based compensation expense | — | | — | | | | — | | | — | | | — | | | — | | | 55,310 | | | — | | | — | | | 55,310 | | | |
| Vesting of early exercised stock options | — | | — | | | | — | | | — | | | — | | — | | | 2,292 | | | — | | | — | | | 2,292 | | | |
| Net income (loss) | — | | — | | | | | | | | — | | | — | | | — | | | — | | | (158,550) | | | (158,550) | | | |
| Change in other comprehensive income (loss) | — | | — | | | | — | | — | | | — | | — | | | — | | | (3,554) | | | — | | | (3,554) | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2022 | 73,021,449 | | $ | 1,853,492 | | | | 6,381,936 | | $ | — | | | 51,410,111 | | $ | 6 | | | $ | 250,460 | | | $ | (3,792) | | | $ | (625,738) | | | $ | (379,064) | | | |
| Issuance of common stock upon exercise of stock options, net | — | | — | | | | 489,959 | | | — | | | 2,494,093 | | | — | | | 8,390 | | | — | | | — | | | 8,390 | | | |
| Issuance of common stock upon settlement of restricted stock units, net | — | | — | | | | 227,805 | | | — | | | — | | | — | | | (4,320) | | | — | | | — | | | (4,320) | | | |
| Stock-based compensation expense | — | | — | | | | — | | | — | | | — | | | — | | | 47,598 | | | — | | | — | | | 47,598 | | | |
| Vesting of early exercised stock options | — | | — | | | | — | | | — | | | — | | | — | | | 692 | | | — | | | — | | | 692 | | | |
| Net income (loss) | — | | — | | | | | | | | — | | | — | | | — | | | — | | | (90,824) | | | (90,824) | | | |
| Change in other comprehensive income (loss) | — | | — | | | | — | | | — | | | — | | | — | | | — | | | 4,606 | | | — | | | 4,606 | | | |
| Balance as of December 31, 2023 | 73,021,449 | | $ | 1,853,492 | | | | 7,099,700 | | | $ | — | | | 53,904,204 | | | $ | 6 | | | $ | 302,820 | | | $ | 814 | | | $ | (716,562) | | | $ | (412,922) | | | |
The accompanying notes are an integral part of these financial statements.
Reddit, Inc.
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| Cash flows from operating activities | | | |
| Net income (loss) | $ | (158,550) | | | $ | (90,824) | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
| Depreciation and amortization | 8,000 | | | 13,702 | |
| | | |
| | | |
| Non-cash operating lease cost | 10,464 | | | 11,359 | |
| Amortization of premium (accretion of discount) on marketable securities, net | (3,264) | | | (27,442) | |
| Stock-based compensation | 55,310 | | | 47,598 | |
| | | |
| | | |
| Other adjustments | 4,099 | | | 484 | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | (30,230) | | | (53,318) | |
| Prepaid expenses and other assets | (1,911) | | | 3,878 | |
| Operating lease right-of-use assets and liabilities | (10,325) | | | (5,758) | |
| Accounts payable | 10,905 | | | 12,470 | |
| Accrued expenses and other liabilities | 21,481 | | | 12,737 | |
Net cash provided by (used in) operating activities | $ | (94,021) | | | $ | (75,114) | |
| Cash flows from investing activities | | | |
| Purchases of property and equipment | (6,233) | | | (9,724) | |
| | | |
| Purchases of marketable securities | (1,430,589) | | | (1,259,854) | |
| Maturities of marketable securities | 674,399 | | | 1,273,159 | |
| Proceeds from sale of marketable securities | 500 | | | 37,538 | |
| Cash paid for acquisitions, net of cash acquired | (42,196) | | | — | |
| Other investing activities | (64) | | | 172 | |
Net cash provided by (used in) investing activities | $ | (804,183) | | | $ | 41,291 | |
| Cash flows from financing activities | | | |
| | | |
| Proceeds from exercise of employee stock options | 7,034 | | | 8,428 | |
| | | |
| Taxes paid related to net share settlement of restricted stock units | — | | | (4,320) | |
| Payments of deferred offering costs | (9,796) | | | (1,441) | |
| Other financing activities | (1,022) | | | (3,478) | |
Net cash provided by (used in) financing activities | $ | (3,784) | | | $ | (811) | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | (901,988) | | | (34,634) | |
Cash, cash equivalents, and restricted cash at the beginning of the period | 1,337,848 | | | 435,860 | |
Cash, cash equivalents, and restricted cash at the end of the period | $ | 435,860 | | | $ | 401,226 | |
| Cash and cash equivalents | 435,810 | | | 401,176 | |
| Restricted cash | 50 | | | 50 | |
Total cash, cash equivalents, and restricted cash | $ | 435,860 | | | $ | 401,226 | |
| | | |
| | | |
| Supplemental disclosure of noncash financing and investing activities: | | | |
| Value of equity consideration for acquisitions | $ | 4,522 | | | $ | — | |
| | | |
| Operating lease right-of-use assets recognized in exchange for lease liabilities | $ | 16,357 | | | $ | 12,014 | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of these financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of the Business
Description of Business
Reddit, Inc. (“Reddit,” “we,” “our,” or “us”) was incorporated in the state of Delaware. Our mission is to bring community, belonging, and empowerment to everyone in the world. We built Reddit with the belief that communities unlock the power of human creativity and create a sense of belonging and empowerment for their members. We believe the world needs community more than ever, and that this represents our greatest opportunity to further enrich the lives of everyone in the world. We are headquartered in San Francisco, California, and have several offices around the world.
Advance Magazine Publishers Inc.
As of December 31, 2023, Advance Magazine Publishers Inc. (“Advance”), a subsidiary of Advance Publications, Inc., holds all of the Series A preferred stock and 34% of the combined voting rights of our outstanding preferred and common stock. For as long as Advance holds the Series A preferred stock, Advance will have the ability to appoint the majority of the board of directors, and the affirmative vote or written consent of Advance will be required for certain corporate actions, including fundamentally changing our business, entering into new lines of business, appointing or removing the Chief Executive Officer, adoption of the annual, or any longer term, business plan or budget, any determinations with respect to mergers or other business combinations involving us, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, adopting, modifying or changing the terms of equity compensation plans, and the payment of dividends with respect to our outstanding stock.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Our consolidated financial statements include the accounts of Reddit, Inc. and our wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Management’s estimates are based on historical information available as of the date of the consolidated financial statements and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ materially from those estimates.
Significant estimates relate primarily to determining the fair value of stock-based awards, the fair value of assets and liabilities assumed in business combinations, and the incremental borrowing rate used to determine operating lease right-of-use assets and lease liabilities. On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.
Advertising Revenue
We generate substantially all of our revenue through the sale of advertising on our mobile applications and website. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a cost per click (“CPC”) basis, views an ad contracted on a cost per thousand impressions (“CPM”) basis, views a video ad contracted on a cost per view (“CPV”) basis, or on a fixed fee basis, based upon ad delivery over the service period, which is typically less than 30 days in duration. Generally, we recognize advertising revenue on a gross basis since we control the advertising units before being transferred to our users. In arrangements where another party is involved in providing specified services to a customer, we evaluate whether we are the principal or agent. In this evaluation, we consider if we obtain control of the specified
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
goods or services before they are transferred to the customer. For advertising revenue arrangements where we are not the principal, we recognize revenue on a net basis. For the periods presented, revenue for arrangements where we are the agent was not material.
The transaction price in advertising arrangements is generally calculated as the number of advertising units delivered multiplied by the contractually agreed upon CPC, CPM, or CPV, or on a fixed fee basis and revenue is recognized based on the number of clicks, impressions, or views, or ratable over the service period, respectively. Payments for advertising arrangements are due based on the contractually stated payment terms, usually within 30 to 60 days. Sales and other similar taxes are excluded from revenue.
Other Revenue
Other revenue consists of revenue from data licensing, Reddit Premium subscriptions, and products within our user economy.
In our data licensing arrangements, we provide customers with the right to access data from our platform over the contractual period. The transaction price in data licensing arrangements is generally a fixed fee or usage-based fee. We recognize data licensing revenue as our data partners consume and benefit from their use of the licensed data, which is generally ratably over the license period. Payments for data licensing revenue arrangements are due based on the contractually stated payment terms, usually within 30 days.
Payments for Reddit Premium subscriptions are received upfront, are non-refundable, and are recognized ratably over the subscription period, which is generally less than one year. Products within our user economy include Reddit Gold and Collectible Avatars. Revenue from Reddit Gold and Collectible Avatars was not material for the years ended December 31, 2022 and 2023.
Cost of Revenue
Cost of revenue consists primarily of payments to third parties for the cost of hosting and supporting our mobile applications and website. In addition, cost of revenue includes expenses directly associated with the delivery of our advertising and other services, including advertising measurement services and credit card and other transaction processing fees. Cost of revenue also consists of personnel-related costs, including salaries, benefits, and stock-based compensation.
Research and Development Expenses
Research and development expenses consist primarily of personnel-related costs including salaries, benefits, and stock-based compensation for engineers and other employees engaged in the research, design, and development of new and existing products. Research and development expenses also include consulting services and hosting costs associated with internal research and development activities, as well as allocated facilities and other supporting overhead costs.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel-related costs including salaries, benefits, and stock-based compensation for employees engaged in sales, sales support, business and brand development, marketing, and customer service functions. Sales commissions are expensed as incurred in sales and marketing expenses as the expected period of benefit is one year or less. Sales and marketing expenses also include costs incurred for advertising, market research, branding, professional services, marketing, and promotional expenditures, as well as allocated facilities and other supporting overhead costs.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs including salaries, benefits, and stock-based compensation for certain executives as well as employees engaged in finance, legal, human resources, information technology, communications, and other administrative teams. General and administrative
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
expenses also include costs incurred for professional services, including outside legal and accounting services, cryptocurrency impairment, as well as allocated facilities and other supporting overhead costs.
Advertising Costs
Advertising costs are expensed as incurred and were $34.4 million and $8.2 million for the years ended December 31, 2022 and 2023, respectively.
Stock-Based Compensation
We measure and recognize compensation expense for stock-based awards, including restricted stock units (“RSUs”), restricted stock awards (“RSAs”), and stock options granted to employees and non-employees based on the grant date fair value of the awards granted. For secondary sale transactions with existing investors, we recognize stock-based compensation expense representing the excess of the purchase price over the fair value of our common stock on the date of the transaction.
Income Taxes
We account for income taxes using an asset and liability approach. Under this method, the tax provision includes taxes currently due plus the net change in deferred tax assets and liabilities. Deferred tax assets and liabilities arise from temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will be paid or refund received, as provided for under currently enacted tax law. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is recorded. Should there be a change in the ability to recover deferred tax assets, the income tax provision would increase or decrease in the period in which the assessment is changed.
We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that has a greater than 50% likelihood of being realized. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Any interest and penalties related to unrecognized tax benefits are recognized as income tax expense in the consolidated statements of operations.
Functional Currency
The U.S. dollar is the functional currency for all subsidiaries, and therefore, foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at exchange rates at the balance sheet date and foreign currency denominated non-monetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Gains or losses from foreign currency remeasurement and settlements are included in other income (expense), net in the consolidated statements of operations. Net foreign exchange gains and losses were not material for the years ended December 31, 2022 and 2023.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents consist of highly liquid investments with original maturities of 90 days or less from the date of purchase. We define restricted cash as cash that cannot be withdrawn or used for general operating activities. Restricted cash is classified as current or noncurrent assets based on the contractual or estimated term of the remaining restriction. As of December 31, 2022 and 2023, restricted cash included in other noncurrent assets in the consolidated balance sheets was not material.
Marketable Securities
We hold investments in marketable securities consisting of U.S. and non-U.S. government securities, investment-grade corporate and government agency securities, certificates of deposit, and commercial paper. We classify our marketable securities as available-for-sale investments in current assets because they represent
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
investments available for current operations. Our available-for-sale investments are carried at fair value with any unrealized gains and losses included in accumulated other comprehensive income (loss) in stockholders’ deficit. Expected losses from credit related impairment, if any, are recognized through an allowance for credit losses and adjusted each period for changes in credit risk. Gains or losses on the sale or maturities of marketable securities are determined using the specific identification method and recorded in other income (expense), net in our consolidated statements of operations.
Fair Value Measurements
Certain financial instruments are required to be recorded at fair value. Other financial instruments, including cash, cash equivalents, and restricted cash, are recorded at cost, which approximates fair value. Additionally, the carrying amounts of accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, and other current liabilities approximate fair value due to their short-term nature.
Accounts Receivable, Net
Accounts receivable are recorded at the invoiced amount, net of any allowance for doubtful accounts due to expected credit losses and potentially uncollectible receivables. We apply a “single loss” rate approach to the overall accounts receivable portfolio and also evaluate the aging, historical write-offs, and collectability of accounts receivable on a customer-by-customer basis. The allowance for doubtful accounts was immaterial as of December 31, 2022 and 2023.
Property and Equipment, Net
Property and equipment are stated at cost, less accumulated depreciation. We compute depreciation using the straight-line method over the estimated useful lives of the assets, which is generally three to five years for computer equipment, furniture, and fixtures. Leasehold improvements are depreciated over the shorter of the lease term or the useful life of the assets. Maintenance and repairs are expensed as incurred.
Software Development Costs
Software development costs include costs to develop software to be used to meet internal needs and applications used to deliver our services. We capitalize development costs related to these software applications once the preliminary project stage is complete, it is probable that the project will be completed, and the software will be used to perform the function intended. Due to the iterative process of our development projects, development costs meeting our capitalization criteria were not material for the periods presented.
Leases
Leases arise from contractual obligations that convey the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. We determine if a contract is, or contains, a lease at contract inception. All of our leases are operating leases and are included in operating lease right-of-use assets, net, operating lease liabilities, and operating lease liabilities, non-current on the consolidated balance sheets.
Operating lease right-of-use assets and operating lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term discounted using our incremental borrowing rate. Operating lease right-of-use assets also include any lease payments made and exclude lease incentives. As our leases do not provide an implicit rate, the incremental borrowing rate used is estimated based on what we would have to pay on a collateralized basis over a similar term as the lease. Lease payments include fixed payments and any variable payments based on an index or rate, and are recognized as lease expense on a straight-line basis over the term of the lease.
Deferred Offering Costs
Deferred offering costs, which consist of direct incremental legal, accounting, consulting, and other fees related to our planned initial public offering (“IPO”) are capitalized in other noncurrent assets on the consolidated balance sheets. The deferred offering costs will be offset against IPO proceeds upon the consummation of an IPO. In the
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
event the planned IPO is terminated, the deferred offering costs will be immediately expensed in the consolidated statements of operations. Deferred offering costs were $14.4 million and $16.5 million as of December 31, 2022 and 2023, respectively.
Business Combinations
We include the results of operations of the businesses that we acquire from the date of acquisition. We determine the fair value of the assets acquired and liabilities assumed based on their estimated fair values as of the respective date of acquisition. The excess purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenues and cash flows, discount rates, and selection of comparable companies. Our estimates of fair value are based on assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
When we issue payments or grants of equity to selling stockholders in connection with an acquisition, we evaluate whether the payments or awards are compensatory. This evaluation includes whether cash payments or stock award vesting is contingent on the continued employment of the selling stockholder beyond the acquisition date. If continued employment is required for the cash to be paid or stock awards to vest, the award is treated as compensation for post-acquisition services and is recognized as compensation expense.
Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in our consolidated statements of operations.
Goodwill
Goodwill represents the excess of the aggregate purchase consideration over the fair value of net assets acquired in a business combination. We perform our annual impairment test on October 1. We also test for impairment whenever events or circumstances indicate that the fair value of goodwill has been impaired. Our impairment tests are based on a single operating segment and reporting unit structure. No impairment charges were recorded during the years ended December 31, 2022 and 2023.
Acquired Intangible Assets
Identifiable acquired intangible assets consist primarily of acquisition-related developed technology. We determine the appropriate useful life of our intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized on a straight-line basis over the estimated useful life of up to five years.
Cryptocurrency
We account for cryptocurrency investments, and cryptocurrency received in exchange for goods and services, as intangible assets with indefinite useful lives, which are measured at cost, net of any impairment losses incurred since acquisition, on the consolidated balance sheets. Cryptocurrency accounted for as intangible assets are not amortized, but assessed for impairment quarterly, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. In determining if an impairment has occurred, we compare the carrying value to the lowest market price quoted on our principal market for cryptocurrencies since acquiring the cryptocurrency and record the difference as cryptocurrency impairment in general and administrative expenses in our consolidated statements of operations. After an impairment loss is recognized, the adjusted carrying value becomes its new cost basis. A subsequent reversal of a previously recognized impairment loss is prohibited until the sale or disposal of the cryptocurrency.
The computation of gains or losses on the sale of cryptocurrency, or use of cryptocurrency to settle any obligations, is based on the difference between the market price quoted on our principal market for cryptocurrencies at the time of sale or settlement and the cost basis of the cryptocurrency, which is determined on a first-in, first-out
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
basis. Gains and losses realized upon the sale or settlement of cryptocurrencies are also recorded in general and administrative expenses in our consolidated statements of operations.
Impairment of Long-Lived Assets
We evaluate recoverability of our property and equipment and definite-lived intangible assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Events and changes in circumstances considered in determining whether the carrying value of long-lived assets may not be recoverable include significant changes in performance relative to expected operating results, significant changes in asset use, significant negative industry or economic trends, and changes in our business strategy. Recoverability of these assets is measured by comparison of their carrying amount to future undiscounted cash flows to be generated. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount exceeds the fair value of the assets. We determined that there were no events or changes in circumstances that indicated our long-lived assets were impaired during the years ended December 31, 2022 and 2023.
Concentration of Business Risk
We primarily use Amazon Web Services and Google Cloud Platform for our hosting requirements. A disruption or loss of service from Amazon Web Services or Google Cloud Platform could harm our ability to operate. Although we believe there are other qualified providers that can provide these services, a transition to a new provider could create a disruption to our business and negatively impact our operating results.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, marketable securities, and accounts receivable. We maintain cash and cash equivalents with several financial institutions. We believe that the financial institutions that hold our cash and cash equivalents are financially sound and, accordingly, minimal credit risks exist with respect to these balances. We maintain investments in U.S. and non-U.S. government securities, investment-grade corporate and government agency securities, certificates of deposit, commercial paper, and money market accounts that carry high credit ratings and accordingly, minimal credit risk exists with respect to these balances.
No customer accounted for greater than 10% of our revenues for the years ended December 31, 2022 and 2023. No customer accounted for greater than 10% of our accounts receivable as of December 31, 2022 and 2023.
We perform ongoing credit evaluations of our customers and generally do not require collateral.
Segments
We have determined that we have a single operating segment. Our Chief Executive Officer is our chief operating decision maker who evaluates performance and makes operating decisions about allocating resources based on consolidated financial data. As of December 31, 2022 and 2023, substantially all of our long-lived assets were located within the United States.
Emerging Growth Company Status
We are 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.
We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies through December 31, 2022. As a result, our financial statements for the year ended December 31, 2022 may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Beginning January 1, 2023, we have elected to irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, we will
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
comply with new or revised accounting standards at the time when adoption of such standards is required for public companies that are non-emerging growth companies.
We will remain an emerging growth company until the earliest of (i) the last day of the first fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which our total annual gross revenue is at least $1.235 billion, or (c) when we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard amends guidance related to impairment of financial instruments by replacing the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. The standard is effective for us beginning January 1, 2023, with early adoption permitted. We have elected to apply a “single loss” rate approach to the overall accounts receivable portfolio. We determine the allowance for credit loss rate based on an evaluation of the aging and collectability of accounts receivable on a customer-by-customer basis. We will periodically assess the credit loss rate by taking into consideration the aging of our receivables, historical write-offs, probability of collection, and other relevant data. For available-for-sale securities where fair value is less than cost, credit related impairment, if any, will be recognized through an allowance for credit losses and adjusted each period for changes in credit risk. We early adopted ASU No. 2016-13 during the year ended December 31, 2022 and the adoption did not have a material impact on our consolidated financial statements.
In March 2022, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 121 (“SAB 121”), which provides interpretive guidance regarding the accounting for and disclosure of the obligation to safeguard crypto-assets that an entity holds on behalf of its platform users. SAB 121 states that when an entity concludes that it has an obligation to safeguard crypto-assets for platform users, it should recognize a liability, and a corresponding asset, representing that obligation. This guidance is effective from the first interim period after June 15, 2022 and applies retrospectively. We provide non-custodial digital wallet software to users on our platform whereby users generate and control their private key information. We do not provide custody or safeguarding services, do not maintain the private keys or have the ability to recover the private keys, do not perform recordkeeping but rely on public blockchain data to display limited transaction history on our platform, and do not protect from risk of theft or loss. Therefore, we have not recognized a safeguarding liability and corresponding safeguarding asset. We adopted SAB 121 during the year ended December 31, 2022 with no impact on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients for a limited period of time for accounting for contracts, hedging relationships, and other transactions affected by the London Interbank Offered Rate (LIBOR) or other reference rates expected to be discontinued. These optional expedients can be applied from March 2020 through December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the date through which these expedients can be applied to December 31, 2024. We adopted ASU No. 2020-04 and ASU No. 2022-06 during the year ended December 31, 2022 with no impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 250-60): Accounting for and Disclosure of Crypto Assets, which requires an entity to measure crypto assets at fair value at each reporting period with changes recognized in net income. This standard also requires additional disclosures about the types of crypto assets held by entities and the changes in those holdings. The
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
standard is effective for us beginning January 1, 2025, with early adoption permitted. We are currently evaluating the impact the adoption will have on our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires an entity to disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. This standard also requires certain disaggregated disclosures related to income from continuing operations, income tax expense, and income taxes paid. The standard is effective for us beginning January 1, 2025, with early adoption permitted. We are currently evaluating the impact the adoption will have on our consolidated financial statements.
3. Revenue
The following table represents our revenue disaggregated by source:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| (in thousands) |
| Advertising revenue | $ | 652,562 | | | $ | 788,782 | |
| Other revenue | 14,139 | | | 15,247 | |
| Total revenue | $ | 666,701 | | | $ | 804,029 | |
The following table represents our revenue disaggregated by geography based on the billing address of the customer:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| (in thousands) |
| United States | $ | 548,964 | | | $ | 651,378 | |
Rest of world(1) | 117,737 | | | 152,651 | |
| Total revenue | $ | 666,701 | | | $ | 804,029 | |
______________(1)Other than the United States, no individual country represented 10% or more of total revenue during the years ended December 31, 2022 and 2023.
We recognized substantially all of the deferred revenue as of December 31, 2022 as revenue in 2023. As of December 31, 2023, remaining performance obligations that have a duration of more than one year are immaterial.
4. Net Income (Loss) per Share
We compute net income (loss) per share of Class A and Class B common stock using the two-class method required for multiple classes of common stock and participating securities. Our participating securities include Series A, Series A-1, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1 convertible preferred stock, as the holders of these series of preferred stock are entitled to receive noncumulative dividends subject to certain requirements at an annual rate of 8% of the respective original issue price then in effect in the event that a dividend is paid on common stock.
The holders of Series A, Series A-1, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1 convertible preferred stock do not have a contractual obligation to share in our losses. As such, our net losses for the years ended December 31, 2022 and 2023 were not allocated to these participating securities.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the calculation of basic and diluted net income (loss) per share attributable to common stock:
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Class A | | Class B | | Consolidated |
| (in thousands, except share and per share data) |
| Numerator: | | | | | |
| Net income (loss) attributable to common stockholders | $ | (16,272) | | | $ | (142,278) | | | $ | (158,550) | |
| Denominator: | | | | | |
| Basic weighted-average common shares outstanding | 5,875,656 | | 51,375,456 | | 57,251,112 |
| Diluted weighted-average common shares outstanding | 5,875,656 | | 51,375,456 | | 57,251,112 |
| Basic and diluted income (loss) per share attributable to common stockholders: | $ | (2.77) | | | $ | (2.77) | | | $ | (2.77) | |
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Class A | | Class B | | Consolidated |
| (in thousands, except share and per share data) |
| Numerator: | | | | | |
| Net income (loss) attributable to common stockholders | $ | (11,033) | | | $ | (79,791) | | | $ | (90,824) | |
| Denominator: | | | | | |
| Basic weighted-average common shares outstanding | 7,183,723 | | 51,954,363 | | 59,138,086 |
| Diluted weighted-average common shares outstanding | 7,183,723 | | 51,954,363 | | 59,138,086 |
| Basic and diluted income (loss) per share attributable to common stockholders: | $ | (1.54) | | | $ | (1.54) | | | $ | (1.54) | |
As of December 31, 2022 and 2023, basic and diluted shares are the same as there were no securities that are dilutive.
The following outstanding potentially dilutive shares, including stock options which have been exercised prior to vesting, were excluded from the computation of diluted net income (loss) per share attributable to common stock for the periods presented because the impact of including them would have been anti-dilutive.
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Class A | | Class B | | Consolidated |
| Stock options | 16,290,463 | | 8,228,797 | | 24,519,260 |
| Unvested RSUs & RSAs | 12,953,243 | | 4,362,661 | | 17,315,904 |
| Preferred shares | 5,104,017 | | 67,917,432 | | 73,021,449 |
| 34,347,723 | | 80,508,890 | | 114,856,613 |
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Class A | | Class B | | Consolidated |
| Stock options | 22,600,876 | | 7,213,522 | | 29,814,398 |
| Unvested RSUs & RSAs | 24,166,383 | | 2,720,150 | | 26,886,533 |
| Preferred shares | 5,104,017 | | 67,917,432 | | 73,021,449 |
| 51,871,276 | | 77,851,104 | | 129,722,380 |
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
•Level 1: Quoted market prices in active markets for identical assets or liabilities
•Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
•Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets
We classify our cash equivalents and marketable securities within Level 1 or Level 2 because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. There were no transfers between levels during the periods presented.
The following table sets forth our financial assets that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| Fair value
hierarchy
level | | Cost or
amortized
cost | | Gross
unrealized
gains | | Gross
unrealized
losses | | Fair
value |
| | | (in thousands) |
| Cash equivalents: | | | | | | | | | |
| Money market funds | Level 1 | | $ | 380,346 | | | $ | — | | | $ | — | | | $ | 380,346 | |
| Commercial paper | Level 2 | | 5,060 | | | — | | | (1) | | | 5,059 | |
| Marketable securities: | | | | | | | | | |
| U.S. treasury securities | Level 1 | | 475,813 | | | 49 | | | (1,988) | | | 473,874 | |
| U.S. agency bonds | Level 2 | | 98,831 | | | 35 | | | (371) | | | 98,495 | |
| Non-U.S. government securities | Level 2 | | 42,872 | | | — | | | (117) | | | 42,755 | |
| Corporate bonds | Level 2 | | 137,770 | | | — | | | (1,280) | | | 136,490 | |
| Certificates of deposit | Level 2 | | 5,815 | | | — | | | (32) | | | 5,783 | |
| Commercial paper | Level 2 | | 73,424 | | | — | | | (87) | | | 73,337 | |
| Total | | | $ | 1,219,931 | | | $ | 84 | | | $ | (3,876) | | | $ | 1,216,139 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2023 |
| Fair value
hierarchy
level | | Cost or
amortized
cost | | Gross
unrealized
gains | | Gross
unrealized
losses | | Fair
value |
| | | (in thousands) |
| Cash equivalents: | | | | | | | | | |
| Money market funds | Level 1 | | $ | 345,555 | | | $ | — | | | $ | — | | | $ | 345,555 | |
| | | | | | | | | |
| Commercial paper | Level 2 | | 9,994 | | | — | | | (9) | | | 9,985 | |
| Marketable securities: | | | | | | | | | |
| U.S. treasury securities | Level 1 | | 426,734 | | | 697 | | | (188) | | | 427,243 | |
| U.S. agency bonds | Level 2 | | 77,535 | | | 13 | | | (34) | | | 77,514 | |
| Non-U.S. government securities | Level 2 | | 21,723 | | | 10 | | | (27) | | | 21,706 | |
| Corporate bonds | Level 2 | | 94,725 | | | 310 | | | (81) | | | 94,954 | |
| Certificates of deposit | Level 2 | | 2,810 | | | — | | | (1) | | | 2,809 | |
| Commercial paper | Level 2 | | 187,596 | | | 148 | | | (24) | | | 187,720 | |
| Total | | | $ | 1,166,672 | | | $ | 1,178 | | | $ | (364) | | | $ | 1,167,486 | |
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Gross unrealized gains (losses) within accumulated other comprehensive income (loss) were immaterial as of December 31, 2022 and 2023. There were no impairment charges due to credit losses during the years ended December 31, 2022 and 2023.
As of December 31, 2023, the amortized cost of marketable securities with maturities less than one year was $627.8 million. The amortized cost of marketable securities with maturities between one and five years was $183.3 million.
6. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2023 |
| (in thousands) |
| Prepaid expenses | $ | 17,053 | | | $ | 11,930 | |
| Other receivables | 4,275 | | | 4,695 | |
| Interest receivable | 2,819 | | | 3,071 | |
| Other | 1,249 | | | 1,590 | |
| Total prepaid expenses and other current assets | $ | 25,396 | | | $ | 21,286 | |
Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2023 |
| (in thousands) |
| Computer equipment, furniture, and fixtures | $ | 9,582 | | | $ | 14,136 | |
| Leasehold improvements | 3,908 | | | 7,597 | |
| Construction-in-progress | 83 | | | — | |
| Total property and equipment | 13,573 | | | 21,733 | |
| Less: accumulated depreciation | (6,381) | | | (6,787) | |
| Total property and equipment, net | $ | 7,192 | | | $ | 14,946 | |
Depreciation expense was $3.7 million and $4.7 million for the years ended December 31, 2022 and 2023, respectively.
Other Noncurrent Assets
Other noncurrent assets consisted of the following:
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2023 |
| (in thousands) |
Prepaid expenses | $ | 1,329 | | | $ | 962 | |
| | | |
Deferred offering costs | 14,362 | | | 16,484 | |
| Debt issuance costs (Note 10) | 1,292 | | | 949 | |
Other | 721 | | | 985 | |
Total other noncurrent assets | $ | 17,704 | | | $ | 19,380 | |
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2023 |
| (in thousands) |
| Accrued compensation and benefits | $ | 31,418 | | | $ | 37,964 | |
| Deferred revenue | 8,020 | | | 7,250 | |
| Accrued expenses | 21,013 | | | 26,740 | |
| Holdback liability from acquisitions | 3,565 | | | 6,111 | |
| Other | 1,695 | | | 5,284 | |
| Total accrued expenses and other current liabilities | $ | 65,711 | | | $ | 83,349 | |
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following:
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2023 |
| (in thousands) |
| Holdback liability from acquisitions | $ | 6,088 | | | $ | — | |
| Other | 1,048 | | | 287 | |
| Total other noncurrent liabilities | $ | 7,136 | | | $ | 287 | |
7. Operating Leases
We have entered into various non-cancellable operating leases agreements, primarily for the use of office space, expiring at various dates through 2029. Our lease terms include options to extend or terminate the lease when it is reasonably certain they will be exercised. We consider these options in determining the lease term on a lease-by-lease basis. We account for lease components and non-lease components as a single lease component for all leases. None of our lease agreements contain material non-lease components, material residual value guarantees, or restrictive covenants. We have elected an accounting policy to not recognize short-term leases, which have a lease term of twelve months or less, on the consolidated balance sheets.
Lease Cost
The components of lease cost were as follows:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| (in thousands) |
| Operating lease cost | $ | 11,077 | | | $ | 13,062 | |
| Short-term lease cost | 4,291 | | | 3,857 | |
| Variable lease cost | 781 | | | 749 | |
| Total lease costs | $ | 16,149 | | | $ | 17,668 | |
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Lease Term and Discount Rate
The weighted-average remaining lease term and discount rate related to the operating leases were as follows:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| Weighted-average remaining lease term (in years) | 3.97 | | 4.84 |
| Weighted-average discount rate | 5.28 | % | | 6.65 | % |
Maturity of Lease Liabilities
The present value of our operating lease liabilities as of December 31, 2023 was as follows:
| | | | | |
| (in thousands) |
| 2024 | $ | 5,304 | |
| 2025 | 6,086 | |
| 2026 | 6,064 | |
| 2027 | 6,408 | |
| 2028 | 5,339 | |
Thereafter | 1,254 | |
Total undiscounted lease payments | 30,455 | |
Less: imputed interest | (4,708) | |
Present value of lease liabilities | $ | 25,747 | |
Operating lease liabilities | 3,707 | |
Operating lease liabilities, noncurrent | 22,040 | |
Total | $ | 25,747 | |
Other Information
Right-of-use assets obtained in exchange for lease liabilities were $16.4 million and $12.0 million for the years ended December 31, 2022 and 2023, respectively. Cash payments included in the measurement of our operating lease liabilities were $9.6 million and $8.9 million for the years ended December 31, 2022 and 2023, respectively.
8. Acquisitions
2022 Acquisitions
In the year ended December 31, 2022, we made several acquisitions to enhance our technology and workforce. The aggregate purchase consideration was $60.2 million, which consisted of $55.7 million of cash consideration and $4.5 million related to the fair value of equity consideration. Additional consideration with a fair value of $11.8 million was determined to relate to post-combination expenses, primarily stock-based compensation for future employment services.
Of the aggregate purchase consideration, $42.4 million was allocated to developed technology with useful lives of five years, $0.6 million was allocated to other intangible assets with useful lives of 18 months, $19.8 million was allocated to goodwill, and $(2.6) million was allocated to other assets acquired, net of liabilities assumed. The goodwill amount represents synergies from utilizing the acquired technologies across our business and from the assembled workforces. Goodwill recorded in connection with the acquisitions is not deductible for income tax purposes.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. Goodwill and Intangible Assets
Goodwill
The change in the carrying amount of goodwill for the year ended December 31, 2022 was as follows:
| | | | | |
| (in thousands) |
| Balance as of December 31, 2021 | $ | 6,471 | |
| Goodwill acquired | 19,828 | |
| Balance as of December 31, 2022 | $ | 26,299 | |
There was no change in the carrying amount of goodwill during the year ended December 31, 2023.
Acquired Intangible Assets
Acquired intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Gross carrying
value | | Accumulated
amortization | | Net carrying
value | | Weighted-average remaining useful life (years) |
| (in thousands, except year data) |
| Developed technology | $ | 43,160 | | | $ | 4,341 | | | $ | 38,819 | | | 4.5 |
| Other intangible assets | 600 | | | 67 | | | 533 | | | 1.3 |
| Total acquired intangible assets | $ | 43,760 | | | $ | 4,408 | | | $ | 39,352 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Gross carrying
value | | Accumulated
amortization | | Net carrying
value | | Weighted-average remaining useful life (years) |
| (in thousands, except year data) |
| Developed technology | $ | 43,160 | | | $ | 12,973 | | | $ | 30,187 | | | 3.6 |
| Other intangible assets | 600 | | | 467 | | | 133 | | | 0.3 |
| Total acquired intangible assets | $ | 43,760 | | | $ | 13,440 | | | $ | 30,320 | | | |
Amortization expense was $4.1 million and $9.0 million for the years ended December 31, 2022 and 2023, respectively.
The estimated future amortization expense related to acquired intangible assets as of December 31, 2023 was as follows:
| | | | | |
| (in thousands) |
| 2024 | 8,613 |
| 2025 | 8,480 |
| 2026 | 8,480 |
| 2027 | 4,747 |
| |
| Total | $ | 30,320 |
Cryptocurrency
The net carrying value of our cryptocurrencies, which consisted primarily of Bitcoin and Ether, as well as all related cryptocurrency activity, was immaterial for the periods presented.
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. Debt
Revolving Line of Credit
On October 8, 2021, we entered into a five-year, $750.0 million, revolving loan and standby letter of credit facility agreement (“Revolving Credit Facility”) of which $100.0 million can be issued as letters of credit. As of December 31, 2023, we have issued two letters of credit, one of which is denominated in a foreign currency, for an aggregate of $4.9 million, which reduces the letter of credit borrowings available under the Revolving Credit Facility to $95.1 million. The available Revolving Credit Facility balance as of December 31, 2023 was $745.1 million.
On May 23, 2023, we amended the terms of the Revolving Credit Facility to replace LIBOR with Term SOFR as the interest rate benchmark. Under the amended terms of the Revolving Credit Facility, borrowings can be either ABR Loans, Term Benchmark Loans, or SONIA Loans. Outstanding ABR Loans bear interest at a rate equal to the greatest of (A) the Prime Rate, (B) the NYFRB Rate plus 0.5%, (C) the Adjusted Term SOFR Rate plus 1.0%, or (D) 1.0% (each as defined in the amended Revolving Credit Facility), in each case plus 0.25%. Outstanding Term Benchmark Loans bear interest at the Adjusted Term SOFR Rate, the Adjusted EURIBOR Rate, the Adjusted AUD Rate, or the Adjusted CDOR Rate (each as defined in the amended Revolving Credit Facility), as applicable, in each case, plus 1.25%. Outstanding SONIA Loans bear interest at a rate equal to the Adjusted Daily Simple SONIA (as such term is defined in the amended Revolving Credit Facility) plus 1.25%. We are required to pay a quarterly commitment fee that accrues at 0.15% per annum on the unused portion of the aggregate commitments under the credit facility.
The Revolving Credit Facility contains customary conditions on our borrowing, including events of default and covenants. Covenants include restrictions on our and certain of our subsidiaries’ ability to incur indebtedness, grant liens, make distributions to holders of our preferred and common stock, make investments, or engage in transactions with our affiliates, and require us to maintain a minimum liquidity. The obligations under the Revolving Credit Facility are secured by liens on substantially all of our assets, including intellectual property assets. We were in compliance with all covenants as of December 31, 2023.
11. Commitments and Contingencies
Purchase Obligations
We enter into contracts with non-cancellable purchase obligations, primarily related to third-party cloud infrastructure agreements under which we are granted access to certain cloud services. During the year ended December 31, 2023, we signed addenda to extend our cloud services agreements through 2026. We are committed under these arrangements to spend at least $385.0 million through September 2026, before consideration of any credits that may be earned during the term. We have met all minimum purchase commitments under these agreements for the years ended December 31, 2022 and 2023.
As of December 31, 2023, future payments under non-cancellable purchase obligations were as follows:
| | | | | |
| (in thousands) |
| 2024 | $ | 106,003 | |
| 2025 | 137,712 | |
| 2026 | 94,509 | |
Total | $ | 338,224 | |
Legal Matters
From time to time, we may become involved in claims and other legal matters arising in the normal course of business. We record a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We also disclose material contingencies when we believe a loss is not probable but reasonably possible. Accounting for contingencies requires us to use judgment related to both the likelihood of a loss
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
and the estimate of the amount or range of loss. We are not aware of any pending matters, individually or in the aggregate, that are expected to have a material adverse impact on our results of operations, financial position, or cash flows as of December 31, 2022 and 2023. Legal fees and other expenses associated with such matters are expensed as incurred.
Indemnification
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees, and other parties with respect to certain matters. Indemnification may include losses from our breach of such agreements, services we provide, or third-party intellectual property infringement claims. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future indemnification payments may not be subject to a cap. We have not incurred material costs to defend lawsuits or settle claims related to these indemnifications during the years ended December 31, 2022 and 2023. We believe the fair value of these liabilities is immaterial and accordingly have no liabilities recorded for these agreements at December 31, 2022 and 2023.
12. Convertible Preferred Stock
Convertible preferred stock outstanding consisted of the following as of December 31, 2022 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Shares
authorized | | Shares issued and outstanding | | Original issue price per share | | Aggregate
liquidation
preference | | Net carrying value |
| (in thousands, except share and per share data) |
| Series A | 7,500,000 | | 7,500,000 | | $ | 2.67 | | | $ | 35,000 | | | $ | 21,670 | |
| Series A-1 | 114,746 | | 114,746 | | 5.93 | | | 680 | | | 680 | |
| Series B | 17,564,937 | | 17,564,937 | | 6.26 | | | 110,011 | | | 130,567 | |
| Series C | 10,073,589 | | 10,073,589 | | 15.77 | | | 158,900 | | | 158,048 | |
| Series D | 13,833,617 | | 10,290,493 | | 21.69 | | | 223,163 | | | 223,092 | |
| Series D-1 | 13,833,617 | | 3,543,124 | | 21.69 | | | 76,837 | | | 76,687 | |
| Series E | 12,195,638 | | 12,195,638 | | 42.47 | | | 518,002 | | | 517,577 | |
| Series F | 6,634,905 | | 6,634,905 | | 61.79 | | | 410,000 | | | 409,862 | |
| Series F-1 | 5,113,732 | | 5,104,017 | | 61.79 | | | 315,400 | | | 315,309 | |
| Total | 86,864,781 | | 73,021,449 | | | | $ | 1,847,993 | | | $ | 1,853,492 | |
Dividends
The holders of Series A, Series A-1, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1 convertible preferred stock (collectively referred to as “Preferred Stock”) are entitled to noncumulative dividends at an annual rate of 8% of the respective original issue price then in effect (approximately $0.21, $0.47, $0.50, $1.26, $1.73, $1.73, $3.40, $4.94, and $4.94 per share, respectively). Such dividends shall be payable only when, and if, declared by our board of directors. There were no dividends declared or paid through December 31, 2023.
Liquidation Preference
In the event of any (i) liquidation, dissolution or winding up of Reddit, (ii) the consummation of certain mergers or consolidations, (iii) certain change of control transactions, or (iv) other disposition of all or substantially all of our assets or intellectual property (each, a “liquidation event”), the holders of Series A, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1 are entitled to receive, prior and in preference to the holders of Series A-1, Class A common stock and Class B common stock, an amount per share equal to their full preferential amounts plus any declared and unpaid dividends. If the assets available for distribution are insufficient to pay such amounts, then the available assets will be distributed ratably among the holders of Series A, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1 in proportion to the full amount each holder is otherwise entitled to receive. After payment to the holders of Series A, Series B, Series C, Series D, Series D-1, Series E,
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Series F, and Series F-1 of their full preferential amounts, the holders of Series A-1 are entitled to receive, prior and in preference to the holders of Class A common stock and Class B common stock, an amount per share equal to its full preferential amount plus all declared and unpaid dividends. If the remaining assets available for distribution are insufficient to pay such amounts, then the remaining assets will be distributed ratably among the holders of Series A-1 in proportion to the full amount each holder is otherwise entitled to receive. After payment to the holders of Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1, and Series A and Series A-1 of their full preferential amounts, our remaining assets will be distributed ratably among the holders of Class A common stock and Class B common stock in proportion to the number of shares of common stock held by each holder. The preferential amounts per share of the Series A, Series A-1, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1 convertible preferred stock were approximately $4.67, $5.93, $6.26, $15.77, $21.69, $21.69, $42.47, $61.79, and $61.79 as of December 31, 2023.
Voting Rights
The holders of each share of Series A, Series A-1, Series B, Series C, Series D, Series D-1, Series E, and Series F are entitled to the number of votes equal to the number of shares of Class B common stock in which their respective shares are convertible. The holders of each share of Series F-1 are entitled to the number of votes equal to the number of shares of Class A common stock in which their respective shares are convertible. The holders of Series B convertible preferred stock, voting as a separate class on an as-converted basis, have the right to elect one director. The holders of Series A convertible preferred stock, voting as a separate class on an as-converted basis, have the right to elect three directors. The holders of Class A common stock and Class B common stock, voting together as a single class, have the right to elect one director. The holders of Series A preferred stock, Series B preferred stock, Series C preferred Stock, Series D preferred Stock, Class A common stock, and Class B common stock, voting together as a single class on an as-converted basis, have the right to elect two directors and any additional directors.
Conversion
The holders of each share of convertible preferred stock have the option to convert each share of Preferred Stock at any time into a number of shares of Class B common stock determined by dividing the original issue price per share by the then-current conversion price for such series, except for Series F-1, which is convertible 1:1 into shares of Class A common stock. The original issue prices per share for Series A, Series A-1, Series B, Series C, Series D, Series D-1, Series E, Series F, and Series F-1 convertible preferred stock are approximately $2.67, $5.93, $6.26, $15.77, $21.69, $21.69, $42.47, $61.79, and $61.79, respectively, and subject to adjustments for certain dilutive issuances, splits, combinations, and other recapitalizations or reorganizations. The conversion ratio was 1:1 for each series of convertible preferred stock into shares of Class B common stock, except for Series F-1, which is convertible into shares of Class A common stock. The holders of Series D convertible preferred stock have the option to convert each share of preferred stock into a number of shares of Series D-1 convertible preferred stock determined by the original issue price of Series D divided by the original issue price of Series D-1. The holders of Series D-1 convertible preferred stock have the option to convert each share of Preferred Stock into a number of shares of Series D convertible preferred stock determined by the original issue price of Series D-1 divided by the original issue price of Series D. The conversion ratio was 1:1 for Series D and Series D-1 preferred stock. In addition, each share of Series A and Series A-1 convertible preferred stock will automatically be converted into Class B common stock immediately upon the earlier of (i) the closing of an initial public offering that results in aggregate net proceeds to us of at least $100.0 million (“Qualified IPO”), (ii) the affirmative election of the holders of at least a majority of the then-outstanding shares of Series A, voting as a separate series, or (iii) a liquidation event in which we are valued at more than $240.0 million. Each share of Series B convertible preferred stock will automatically be converted into Class B common stock immediately upon the earlier of (i) a Qualified IPO or (ii) the affirmative election of the holders of at least a majority of the then-outstanding shares of Series B, voting as a separate series. Each share of Series C convertible preferred stock will automatically be converted into Class B common stock immediately upon the earlier of (i) a Qualified IPO or (ii) the affirmative election of the holders of at least a majority of the then-outstanding shares of Series C, voting as a separate series. Each share of Series D convertible preferred stock will automatically be converted into Class B common stock immediately upon the earlier of (i) a Qualified IPO or (ii) the affirmative election of the holders of at least a majority of the then-outstanding shares of Series D, voting as a separate series. Each share of Series D-1 convertible preferred stock will
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
automatically be converted into Class B common stock immediately upon the earlier of (i) a Qualified IPO or (ii) the affirmative election of the holders of at least a majority of the then-outstanding shares of Series D-1, voting as a separate series. Each share of Series E convertible preferred stock will automatically be converted into Class B common stock immediately upon the earlier of (i) a Qualified IPO or (ii) the affirmative election of the holders of at least a majority of the then-outstanding shares of Series E, voting as a separate series. Each share of Series F convertible preferred stock will automatically be converted into Class B common stock immediately upon the earlier of (i) a Qualified IPO or (ii) the affirmative election of the holders of at least a majority of the then-outstanding shares of Series F, voting as a separate series. Each share of Series F-1 convertible preferred stock will automatically be converted into Class A common stock immediately upon the earlier of (i) a Qualified IPO or (ii) the affirmative election of the holders of at least a majority of the then-outstanding shares of Series F-1, voting as a separate series. Upon such automatic conversion, any declared and unpaid dividends shall be paid.
Redemption
The holders of convertible preferred stock have no rights to redeem shares. The convertible preferred stock is redeemable upon the occurrence of a deemed liquidation event that is not solely within the control of Reddit. Therefore, convertible preferred stock is classified as mezzanine equity on the consolidated balance sheets. The carrying values of convertible preferred stock have not been adjusted to their liquidation preferences as these events have not occurred through December 31, 2023. Carrying values will be adjusted to their liquidation preferences if and when it becomes probable that such events will occur.
13. Common Stock
Class A and Class B Common Stock
We have two classes of authorized common stock, Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted to Class A common stock at any time at the option of the stockholder. Shares of Class B common stock will automatically convert to Class A common stock upon the date specified by vote of the holders of at least 80% of the then-outstanding shares of Class B common stock, voting as a separate class.
Common Stock Reserved for Issuance
The total number of shares reserved for grant and issuance under the Reddit, Inc. 2017 Equity Incentive and Grant Plan (as amended, the “2017 Plan”) includes the authorized shares not issued under the Reddit, Inc. 2012 Stock Option and Grant Plan (as amended, the “2012 Plan”) as of the adoption of the 2017 Plan on July 10, 2017. Further, any shares subject to issuance under the 2012 Plan that are canceled, forfeited, or reacquired by us prior to vesting will be included in the total number of shares available for grant under the 2017 Plan.
During the year ended December 31, 2023, our board of directors approved an increase to the number of shares reserved and available for issuance under the 2017 Plan by 4,274,001 shares.
We have reserved the following shares of common stock, on an as-converted basis, for future issuance:
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2023 |
| Outstanding stock options | 24,413,803 | | | 29,795,909 | |
| Outstanding RSUs | 17,517,850 | | | 27,627,171 | |
| Conversion of outstanding convertible preferred stock | 73,021,449 | | | 73,021,449 | |
| Remaining shares reserved for future issuances under the 2017 Plan | 22,348,283 | | | 7,919,000 | |
| Total shares of common stock reserved | 137,301,385 | | | 138,363,529 | |
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The remaining shares reserved for future issuance under the 2017 Plan relate to Class A and Class B common stock.
14. Stock-Based Compensation
2017 Plan and 2012 Plan
Our board of directors adopted, and our stockholders approved, the 2017 Plan and the 2012 Plan. Under the 2017 Plan and 2012 Plan, the board of directors may grant equity-based awards to eligible employees and directors. Our restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) vest based on the terms in the grant agreements and generally vest ratably over three to four years from the vesting commencement date. Stock options vest based on terms in the stock option agreement and generally vest over five years quarterly or four years with 25% of the award vesting one year from the vesting commencement date then ratably over the following 36 months.
2023 CEO/COO Equity Awards
In 2020, 2022, and 2023, we granted our Chief Executive Officer and Chief Operating Officer RSUs with a liquidity-based performance condition combined with other performance-based or market-based vesting conditions. As the performance conditions of these awards are not probable, no shares have vested and no expense has been recorded to date. In December 2023, certain of these awards were canceled and we concurrently granted the 2023 CEO/COO equity awards. The remaining awards are discussed in the Market-based RSUs section below.
As part of the 2023 CEO/COO equity awards, we granted our Chief Executive Officer 2,990,511 RSUs covering 1,495,255 shares of our Class A common stock and 1,495,256 shares of our Class B common stock, and our Chief Operating Officer 1,462,028 RSUs covering shares of our Class A common stock (collectively, the “CEO/COO RSUs”). The CEO/COO RSUs have both service-based and performance-based vesting conditions. The service-based vesting condition for 50% of these awards was satisfied on the grant date. The service-based vesting condition of the remaining awards is satisfied by rendering continuous service for five years, during which time the grants will vest quarterly. The performance-based vesting condition is satisfied upon the sale of our common stock upon the consummation of a firm commitment underwritten initial public offering pursuant to an effective registration statement under the Securities Act or a sale event, which constitutes a change in the ownership or effective control of Reddit or in the ownership of a substantial portion of the assets of Reddit (each, a “Liquidity Event”).
Additionally, we granted our Chief Executive Officer stock options to purchase 4,485,766 shares of our Class A common stock, and 1,495,256 shares of our Class B common stock and our Chief Operating Officer a stock option to purchase 2,924,056 shares of our Class A common stock (collectively, the “CEO/COO Options”) as part of the 2023 CEO/COO equity awards. The per share exercise price for 4,452,539 of the shares underlying the CEO/COO Options is $25.29, and for the remaining 4,452,539 shares underlying the CEO/COO Options, the per share exercise price is $45.00, $60.00, and $90.00 for each one-third of the shares underlying such CEO/COO Options. The CEO/COO Options vest quarterly over five years and have a contractual term of ten years. See the Stock Options section below for additional discussion regarding these awards.
As of December 31, 2023, the total unrecognized stock-based compensation expense for the 2023 CEO/COO equity awards was $269.0 million, including unrecognized stock-based compensation expense of $129.9 million related to the CEO/COO RSUs, and unrecognized stock-based compensation expense of $139.1 million related to the CEO/COO Options. If the performance-based vesting condition related to the CEO/COO RSUs had been satisfied on December 31, 2023, we would have recognized stock-based compensation expense of $65.9 million related to awards for which the service-based vesting condition had been satisfied, and unrecognized stock-based compensation expense of $64.0 million would have been recognized over a weighted-average remaining requisite service period of 2.53 years.
We accounted for the cancellation and concurrent grant of replacement awards as a modification of the terms of the canceled awards. At the time of the modification, all of the canceled awards were improbable of vesting. The 2023 CEO/COO RSUs are subject to a Liquidity Event performance-based vesting condition and are therefore
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
improbable of vesting. The 2023 CEO/COO Options are not subject to a Liquidity Event performance-based vesting condition and are therefore probable of vesting.
RSUs and RSAs
Service-based RSUs
We grant service-based RSUs to our employees, all of which relate to Class A common stock. The service-based RSUs have both service-based and performance-based vesting conditions (“Double Trigger RSUs”). Double Trigger RSUs generally expire seven years from the date of grant. The service-based vesting condition for these awards is generally satisfied by rendering continuous service, generally for three to four years, during which time the grants will vest either quarterly or with a cliff vesting period of one year and continued vesting quarterly thereafter. The performance-based vesting condition is satisfied upon the completion of a Liquidity Event.
We record stock-based compensation expense in connection with these Double Trigger RSUs, including the CEO/COO RSUs, based on the fair market value of our common stock on the grant date using the accelerated attribution method when it is probable the performance-based vesting condition will be achieved. As of December 31, 2023, no stock-based compensation expense was recognized for the Double Trigger RSUs as a Liquidity Event had not occurred.
The total unrecognized stock-based compensation expense related to these Double Trigger RSUs, including the CEO/COO RSUs, was $740.3 million as of December 31, 2023. If the performance-based vesting condition had been satisfied on December 31, 2023, we would have recognized stock-based compensation expense of $472.3 million related to awards for which the service-based vesting condition has been satisfied, and unrecognized stock-based compensation expense of $268.0 million would have been recognized over a weighted-average remaining requisite service period of 1.63 years.
We also grant RSUs with a service-based vesting condition only, covering shares of our Class A common stock (“Single Trigger RSUs”). The service-based vesting condition for these awards is generally satisfied by rendering continuous service, generally for one to three years, during which time the grants will vest either with a cliff vesting period of one year and continued vesting quarterly thereafter or quarterly from the vesting commencement date. As a result, we record stock-based compensation expense related to these awards on a straight-line basis over the requisite service period.
The total fair value of Single Trigger RSUs vested during the years ended December 31, 2022 and 2023 was $32.2 million and $25.8 million, respectively. Total unrecognized stock-based compensation expense related to Single Trigger RSUs was $41.3 million as of December 31, 2023 and is expected to be recognized over a weighted-average period of 2.29 years.
Service-based RSAs
We grant, in certain circumstances, RSAs with a service-based vesting condition, covering shares of our Class A common stock. The service-based vesting condition for these awards is generally satisfied by rendering continuous service, generally for three years, during which time the grants will vest with a cliff vesting period of one year and continued vesting quarterly thereafter. As a result, we record stock-based compensation expense related to these awards on a straight-line basis over the requisite service period.
Market-based RSUs
As of December 31, 2023, we had outstanding 1,344,894 RSUs covering 120,000 shares of our Class A common stock and 1,224,894 shares of our Class B common stock with certain performance-based or market-based vesting conditions (“Market RSUs”). The awards are dependent upon continuous service. The performance conditions are satisfied upon the completion of a Liquidity Event and upon achieving certain metrics, including active user count and revenue targets, depending on the terms of the grant. The market condition is contingent upon the achievement of the Liquidity Event with the company achieving a market capitalization ranging from $5.0 billion to $25.0 billion, depending on the terms of the grant.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
We determined the fair value of the Market RSUs expected to vest under the performance condition based on a third-party valuation of our common stock. For Market RSUs expected to vest under the market condition, we determined the fair value using a model based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates the valuation targets. Once the Liquidity Event occurs, stock-based compensation expense will be recognized over the derived service period, regardless of whether, and the extent to which, the market condition is ultimately satisfied.
As of December 31, 2023, no stock-based compensation expense had been recognized for the Market RSUs, as a Liquidity Event had not occurred. If the Liquidity Event had occurred on December 31, 2023, we would have recognized stock-based compensation expense of $20.7 million, and the remaining unrecognized stock-based compensation expense would be immaterial.
RSUs and RSAs
The following table summarizes the RSU and RSA activity for the year ended December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service-
based
RSUs | | RSAs | | | | Market and Performance-
based
RSUs | | Total RSUs and RSAs | | Weighted-
average grant
date fair
value |
| Unvested as of December 31, 2022 | 12,679,187 | | | 174,056 | | | | | 4,462,661 | | | 17,315,904 | | | $ | 28.20 | |
| Granted | 15,074,932 | | | — | | | | | 181,041 | | | 15,255,973 | | | $ | 26.71 | |
Vested | (837,628) | | | (87,026) | | | | | — | | | (924,654) | | | $ | 45.31 | |
Canceled/Forfeited | (1,510,434) | | | — | | | | | (3,250,256) | | | (4,760,690) | | | $ | 14.63 | |
| Unvested as of December 31, 2023 | 25,406,057 | | | 87,030 | | | | | 1,393,446 | | | 26,886,533 | | | $ | 29.17 | |
Stock Options
Stock option grants generally expire ten years from the date of the grant. Certain stock option grants allow for the exercise of unvested options to acquire shares. Upon termination of service, we have the right to repurchase, at the original exercise price, any unvested (but issued) common stock. Shares subject to stock awards granted under the 2017 and 2012 Plans that are forfeited, canceled, or repurchased generally are returned to the pool of shares of common stock available for issuance.
The grant date fair value of stock options, including the CEO/COO Options, is estimated using a Black-Scholes option-pricing model. Calculating the fair value of stock options using the Black-Scholes model requires certain highly subjective inputs and assumptions including the fair value of the underlying common stock, the expected term of the stock option, and the expected volatility of the price of the underlying common stock. Forfeitures are accounted for as they occur. For awards that vest based only on continuous service, stock-based compensation expense is recognized on a straight-line basis over the requisite service period, which is generally four years.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the stock option activity and activity regarding shares available for grant under our equity incentive plans during the year ended December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding
stock
options | | Weighted-
average
exercise
price | | Weighted-
average
remaining
contractual
life
(years) | | Aggregate
intrinsic
value |
| (in thousands, except share, per share, and year data) |
| Balance as of December 31, 2022 | 24,413,803 | | | $ | 5.94 | | | 5.11 | | | $ | 523,626 | |
Granted | 8,905,078 | | | 45.15 | | | 10 | | $ | 17,721 | |
Exercised | (2,997,697) | | | 2.81 | | | | | |
Canceled/Forfeited | (525,275) | | | 13.86 | | | | | |
| Balance as of December 31, 2023 | 29,795,909 | | | $ | 17.83 | | | 6.00 | | | $ | 500,472 | |
| Vested as of December 31, 2023 | 20,031,033 | | | $ | 5.97 | | | 4.18 | | $ | 467,190 | |
| Vested and expected to vest as of December 31, 2023 | 29,795,909 | | | $ | 17.83 | | | 6.00 | | $ | 500,472 | |
As of December 31, 2023, we had outstanding stock options for 29,795,909 common shares, of which 22,582,387 relate to Class A common stock and 7,213,522 relate to Class B common stock. As of December 31, 2023, total unrecognized compensation expense of $147.4 million related to unvested stock options, including the CEO/COO Options, is expected to be recognized on a straight-line basis over a weighted-average period of 4.77 years.
Aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of our common stock. The intrinsic value of options exercised during the years ended December 31, 2022 and 2023 was $43.6 million and $72.5 million, respectively. The weighted-average grant date fair value per share of options granted during the years ended December 31, 2022 and 2023 was $27.52 and $15.67, respectively. The total grant date fair value of options vested during the years ended December 31, 2022 and 2023 was $21.9 million and $14.0 million, respectively.
Determination of Fair Value
We estimate the fair value of stock options using the Black-Scholes option-pricing model, which is dependent upon several variables, such as the fair value of our common stock, expected term of the option, expected volatility of the stock price, risk-free interest rate, and expected dividend rate.
The assumptions used in the Black-Scholes option pricing model were determined as follows:
Fair Value of Common Stock—Prior to the completion of an IPO, the board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of the fair value of our common stock, including but not limited to the prices of recent issuances of our convertible preferred stock, third-party valuations of our common stock, the price paid by us to repurchase outstanding shares of common stock, the prices paid for our common stock in secondary market transactions, our performance and market position relative to our competitors or similar publicly traded companies, the likelihood and timing of achieving a liquidity event, the lack of marketability of our common stock, and U.S. and global capital market conditions.
Expected Term—The expected term of options represents the period that our stock-based awards are expected to be outstanding and is calculated using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options.
Volatility—We determine the price volatility factor based on the historical and implied volatilities of our peer group as we do not have a sufficient trading history for our common stock. When considering which companies to include in our comparable industry peer companies, we focused on publicly-traded companies with businesses similar to ours.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Risk Free Interest Rates—These rates are based on the implied yield currently available on U.S. Treasury notes with terms approximately equal to the expected life of the option.
Expected Dividend Yield—We have not and do not expect to pay cash dividends on our common stock.
The following weighted-average assumptions were used to determine the fair value of employee stock options granted during the year ended December 31, 2023:
| | | | | | | |
| | | |
| | | |
| Expected term (in years) | 6.31 | | |
| Expected volatility | 60.66 | % | | |
| Risk-free interest rate | 3.83 | % | | |
| Expected dividend yield | 0 | % | | |
Early Exercised Options
Option holders have the right to exercise unvested options, which are subject to our repurchase rights at the original exercise price in the event of a voluntary or involuntary termination of employment of the stockholder prior to vesting. As of December 31, 2022 and 2023, there were 105,457 and 18,489 early exercised options, respectively, all of which relate to Class A common stock. As of December 31, 2022 and 2023, the aggregate repurchase price of early exercised options was immaterial. The proceeds related to early exercised options are recorded as other current liabilities on the consolidated balance sheets until the options vest, at which point they are reclassified to additional paid-in capital within stockholders’ deficit.
Shares issued for early exercised options are included in issued and outstanding shares as they are legally issued and outstanding but are not deemed outstanding for accounting purposes until the shares vest.
Secondary Sales
During the year ended December 31, 2023, certain former employees sold an aggregate of 183,677 shares of Class A common stock and 3,960,560 shares of Class B common stock to existing shareholders at purchase prices ranging from $25.00 to $31.50 per share, for an aggregate purchase price of $114.1 million. We estimated the fair value of the common stock purchased in the secondary sales based on several factors, including taking into account the amounts paid by third parties for our common stock. As the purchase price for the secondary sales paid by our existing shareholder was in excess of the fair value of such shares at the time of the transactions, we recognized stock-based compensation expense of $5.7 million in connection with these transactions during the year ended December 31, 2023.
Stock-Based Compensation
The following table summarizes the components of stock-based compensation expense recognized in the consolidated statements of operations for all periods presented:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| (in thousands) |
| Cost of revenue | $ | 133 | | | $ | 101 | |
| Research and development | 35,641 | | | 23,825 | |
| Sales and marketing | 7,576 | | | 5,555 | |
| General and administrative | 11,960 | | | 18,117 | |
Stock-based compensation(1) | $ | 55,310 | | | $ | 47,598 | |
_______________
(1)During the year ended December 31, 2023, we recorded $5.7 million of stock-based compensation expense related to secondary sales of our common stock.
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. Employee Benefit Plans
We have a defined contribution 401(k) plan (the “401(k) Plan”) for our United States-based employees. The 401(k) Plan is for all full-time employees who meet certain eligibility requirements. Eligible employees may contribute up to 100% of their annual compensation, but are limited to the maximum annual dollar amount allowable under the Internal Revenue Code of 1986, as amended (the “Code”). We match 100% of each participant’s contribution up to $3,000 and 25% of each participant’s contribution thereafter, subject to the IRS annual contribution limits. During the years ended December 31, 2022 and 2023, we recognized expense related to matching contributions of $8.7 million and $10.1 million, respectively.
16. Income Taxes
For the years ended December 31, 2022 and 2023, the geographical breakdown of our income (loss) before income taxes is as follows:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| (in thousands) |
| Domestic income (loss) | $ | (162,330) | | | $ | (92,627) | |
| Foreign income (loss) | 4,402 | | | 5,604 | |
| Income (loss) before income taxes | $ | (157,928) | | | $ | (87,023) | |
For the years ended December 31, 2022 and 2023, income tax expense (benefit) consisted of the following:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| (in thousands) |
| Current income tax expense (benefit): | | | |
| Federal | $ | 859 | | | $ | 1,290 | |
| State | 610 | | | 1,133 | |
| Foreign | 1,231 | | | 1,468 | |
| Total current income tax expense (benefit) | 2,700 | | | 3,891 | |
| Deferred income tax expense (benefit): | | | |
| Federal | (1,767) | | | — | |
| State | — | | | — | |
| Foreign | (311) | | | (90) | |
| Total deferred income tax expense (benefit) | (2,078) | | | (90) | |
| Total income tax expense (benefit) | $ | 622 | | | $ | 3,801 | |
The current income tax expense for the years ended December 31, 2022 and 2023 were primarily attributable to the mandatory capitalization of research and experimental expenditures, as required by the 2017 Tax Cuts and Jobs Act. The deferred tax benefit for the year ended December 31, 2022 was primarily attributable to a partial valuation allowance release due to deferred tax liabilities acquired in business combinations during the year.
Our effective tax rate, as a percentage of pre-tax income, differs from the statutory federal rate as follows:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| Statutory federal income tax rate | 21.0 | % | | 21.0 | % |
| State income taxes, net of federal benefit | 2.3 | | | 1.2 | |
| Stock-based compensation | 0.6 | | | 3.9 | |
| Research and development credits | 14.1 | | | 13.5 | |
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | |
| Change in valuation allowance | (37.4) | | | (41.1) | |
| Other | (1.0) | | | (2.9) | |
| Effective tax rate | (0.4) | % | | (4.4) | % |
Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and the amounts used for tax purposes. The major components of deferred tax assets and liabilities were as follows:
| | | | | | | | | | | |
| December 31,
2022 | | December 31,
2023 |
| (in thousands) |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 75,127 | | | $ | 56,938 | |
| Stock-based compensation | 21,061 | | | 21,364 | |
| Lease liability | 4,535 | | | 5,819 | |
| Capitalized research and development costs | 55,640 | | | 98,267 | |
| | | |
| Research and development credits | 46,131 | | | 53,946 | |
| Other | 6,374 | | | 4,216 | |
| Gross deferred tax assets | 208,868 | | | 240,550 | |
| Valuation allowance | (194,122) | | | (228,001) | |
| Total deferred tax assets, net of valuation allowance | 14,746 | | | 12,549 | |
| Deferred tax liabilities: | | | |
| Right-of-use asset | (5,434) | | | (5,426) | |
| Acquired intangibles | (9,174) | | | (6,895) | |
| Total deferred tax liabilities | (14,608) | | | (12,321) | |
| Net deferred tax assets (liabilities) | $ | 138 | | | $ | 228 | |
As of December 31, 2023, we had $216.7 million and $177.1 million, respectively, of federal and state net operating loss carryforwards available to reduce future taxable income. The federal net operating loss carryforwards are able to be carried forward indefinitely but are limited to 80% of taxable income. The state carryforwards will begin to expire in 2026.
As of December 31, 2023, we had federal research and development credit carryforwards of $49.3 million that will begin to expire in 2038 and state research and development credit carryforwards of $26.4 million that do not expire.
Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by Section 382 of the Code and similar state tax regulations. Under Section 382 of the Code, substantial changes in our ownership and in the ownership of acquired companies may limit the amount of net operating loss and tax credit carryforwards that are available to offset taxable income. The annual limitation may result in the expiration of net operating losses and tax credits before utilization. Accordingly, our ability to utilize these carryforwards may be limited as a result of such ownership change.
We assessed the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use our existing federal and state deferred tax assets. Based on the weight of the available evidence, including our history of losses, we provided a full valuation allowance against our federal and state deferred tax assets as of December 31, 2023. The amount of the deferred tax asset considered realizable could be adjusted in future periods if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2023, we had an immaterial amount of unremitted earnings related to foreign subsidiaries. We intend to reinvest these foreign earnings indefinitely and do not expect to incur any significant taxes related to such amounts.
Uncertain Tax Positions
The following table summarizes the activity related to our gross unrecognized tax benefits during the years ended December 31, 2022 and 2023:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2023 |
| (in thousands) |
Beginning balance of unrecognized tax benefits | $ | 8,982 | | | $ | 16,428 | |
Increases/(decreases) related to prior year tax positions | 1,925 | | | (1,750) | |
Increases/(decreases) related to current year tax positions | 5,521 | | | 4,558 | |
Ending balance of unrecognized tax benefits | $ | 16,428 | | | $ | 19,236 | |
Substantially all of the unrecognized tax benefits were recorded as reductions in our gross deferred tax assets, offset by a corresponding reduction in our valuation allowance. The unrecognized tax benefits, if recognized, would not affect the effective tax rate due to the full valuation allowance recorded against our federal and state deferred tax assets.
Our policy is to recognize interest and penalties associated with unrecognized tax benefits as income tax expense. During the year ended December 31, 2023, we had no interest expense or penalties related to uncertain tax positions. As of December 31, 2023, we had no accrued balances of interest and penalties related to uncertain tax positions.
Due to our net operating loss carryforwards, we are subject to examination by taxing authorities in the United States for all tax years. In our foreign jurisdictions, we are subject to examination for tax years ending on or after December 31, 2019. As of December 31, 2023, we had not identified any gross unrecognized tax benefits where it was reasonably possible we would recognize a significant increase or decrease within the next 12 months.
17. Related-Party Transactions
As of December 31, 2023, Advance holds all of the Series A preferred stock and 34% of the combined voting rights of our outstanding preferred and common stock. We currently sublease office space in New York and Chicago from Advance. Total lease cost and other related expenses for our subleases were immaterial for the years ended December 31, 2022 and 2023.
18. Subsequent Events
We have evaluated subsequent events through February 5, 2024, which is the date the consolidated financial statements were available to be issued.
Data Licensing Arrangements
In January 2024, we entered into certain data licensing arrangements with performance obligations in contracts with an original expected duration exceeding one year. Under such arrangements, we deliver our content over time through continuous access to our data API as well as quarterly transfers of Reddit data over the term of the arrangement. The aggregate transaction price of such arrangements totaled $203.0 million. We expect a minimum of $66.4 million of revenue to be recognized during the year ending December 31, 2024 and the remaining thereafter.
19. Subsequent Events (unaudited)
We have evaluated subsequent events through February 22, 2024, which is the date the consolidated financial statements were available to be issued.
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Reddit, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
On February 7, 2024, our board of directors granted to certain of our employees RSUs with a service-based vesting condition covering 1,636,151 shares of Class A common stock. The grant date fair value of the RSUs will be determined based on a third-party valuation of our common stock during the three months ending March 31, 2024. The service-based vesting condition for these awards is generally satisfied by rendering continuous service for one to three years, during which time the service-based vesting condition will be satisfied quarterly from the vesting commencement date.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the Class A common stock being registered. All amounts are estimates except for the Securities and Exchange Commission (the “SEC”) registration fee, the Financial Industry Regulatory Authority (“FINRA”) filing fee, and the New York Stock Exchange listing fee.
| | | | | |
| Amount to Be Paid |
SEC registration fee | $ | 14,760 | |
FINRA filing fee | 15,500 |
New York Stock Exchange listing fee | 25,000 |
Transfer agent’s fees and expenses | * |
Printing and engraving expenses | * |
Legal fees and expenses | * |
Accounting fees and expenses | * |
Blue Sky fees and expenses | * |
Miscellaneous expenses | * |
Total | $ * |
____________
*To be completed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending, or completed actions, suits, or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee, or agent to the registrant. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. Article 9 of the registrant’s amended and restated certificate of incorporation provides for indemnification by the registrant of its directors, officers, and employees to the fullest extent permitted by the Delaware General Corporation Law. The registrant has entered into indemnification agreements with each of its current directors, executive officers, and certain other officers to provide these directors and officers additional contractual assurances regarding the scope of the indemnification set forth in the registrant’s amended and restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the registrant for which indemnification is sought.
Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director or officer of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, except for liability (i) for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in the case of directors, for unlawful payments of dividends or unlawful stock repurchases, redemptions, or other distributions, or (iv) for any transaction from which the director or officer derived an improper personal benefit, provided that officers may not be indemnified for actions by or in the right of the corporation. The registrant’s amended and restated certificate of incorporation provides for such limitation of liability.
The registrant maintains standard policies of insurance under which coverage is provided (a) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (b) to the registrant with respect to payments that may be made by the registrant to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.
The proposed form of underwriting agreement to be filed as Exhibit 1.1 to this registration statement provides for indemnification of directors and officers of the registrant by the underwriters against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
Since January 1, 2021, the Registrant made sales of the following unregistered securities:
Option, Class A Common Stock, and Class B Common Stock Issuances
Since January 1, 2021, the registrant granted to its employees, consultants, and other service providers options to purchase an aggregate of 8,875,687 shares of its Class A common stock under its 2017 Equity Incentive and Grant Plan (the “2017 Plan”), at exercise prices ranging from $20.76 to $90.00 per share.
Since January 1, 2021, the registrant granted to its employees, consultants, and other service providers options to purchase an aggregate of 195,944 shares of its Class A common stock under equity plans assumed in acquisitions, at exercise prices ranging from $1.14 to $28.31 per share.
Since January 1, 2021, the registrant issued and sold to its employees, consultants, and other service providers an aggregate of 6,281,365 shares of its Class A common stock upon the exercise of stock options under its 2017 Plan, at exercise prices ranging from $5.35 to $38.08 per share, for a weighted-average exercise price of $7.23.
Since January 1, 2021, the registrant issued and sold to its employees, consultants, and other service providers an aggregate of 62,772 shares of its Class A common stock upon the exercise of stock options under equity plans assumed in acquisitions, at an exercise price of $1.14 per share, for a weighted-average exercise price of $1.14.
Since January 1, 2021, the registrant issued and sold to its employees, consultants, and other service providers an aggregate of 8,864,306 shares of its Class B common stock upon the exercise of stock options under its 2012 Stock Option and Grant Plan, at exercise prices ranging from $0.13 to $1.94 per share, for a weighted-average exercise price of $1.71.
Since January 1, 2021, the registrant granted to its employees, consultants, and other service providers RSUs covering an aggregate of 27,776,273 shares of its Class A common stock and 1,607,745 shares of its Class B common stock under its 2017 Plan.
Preferred Issuances
In February 2021 through June 2021, the registrant sold an aggregate of 12,195,638 shares of its Series E convertible preferred stock to 57 accredited investors at a purchase price of $42.4742 per share, for an aggregate purchase price of $518.0 million.
In August 2021 through September 2021, the registrant sold an aggregate of 11,738,922 shares of its Series F and Series F-1 convertible preferred stock to 47 accredited investors at a purchase price of $61.7944 per share, for an aggregate purchase price of $725.4 million.
Other Issuances
In June 2022, the registrant issued 236,117 shares of its Class A common stock at $61.79 per share for aggregate consideration of $14.6 million, in connection with its acquisition of Spell, Inc.
The registrant believes these transactions were exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in
each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with the registrant, to information about the registrant.
Item 16. Exhibits and Financial Statement Schedules
See the Exhibit Index attached to this registration statement, which Exhibit Index is incorporated herein by reference.
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings
(a)Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, 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 of 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.
(b)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.
EXHIBIT INDEX
| | | | | | | | |
Exhibit
Number | | Exhibit Description |
| 1.1* | | Form of Underwriting Agreement |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
| 3.4 | | |
4.1* | | Reference is made to Exhibits 3.1 through 3.4 |
4.2* | | Form of Class A Common Stock Certificate |
| 5.1* | | Opinion of Latham & Watkins LLP |
| 10.1 | | |
| 10.2 | | |
10.3* | | Form of Governance Agreement by and among the Registrant, Advance Magazine Publishers Inc., and Steven Huffman |
| 10.4 | | |
10.5† | | |
10.6† | | |
10.7(a)# | | |
10.7(b)# | | |
10.7(c)# | | |
10.7(d)# | | |
10.7(e)# | | |
10.7(f)# | | |
10.8(a)# | | |
10.8(b)# | | |
10.8(c)# | | |
10.9(a)# | | |
10.9(b)# | | |
10.9(c)# | | |
10.10# | | |
10.11*# | | Amended and Restated Non-Employee Director Compensation Program |
10.12# | | |
10.13*# | | Amended and Restated Employment Offer Letter by and between the Registrant and Steven Huffman |
10.14*# | | Amended and Restated Employment Offer Letter by and between the Registrant and Jennifer Wong |
10.15*# | | Amended and Restated Employment Offer Letter by and between the Registrant and Andrew Vollero |
10.16*# | | Amended and Restated Change in Control and Severance Agreement by and between the Registrant and Steven Huffman |
| | | | | | | | |
Exhibit
Number | | Exhibit Description |
10.17*# | | Change in Control and Severance Agreement by and between the Registrant and Jennifer Wong |
10.18*# | | Change in Control and Severance Agreement by and between the Registrant and Andrew Vollero |
10.19*# | | Executive Change in Control and Severance Plan |
| 21.1 | | |
| 23.1 | | |
| 23.2* | | Consent of Latham & Watkins LLP (included in Exhibit 5.1) |
| 24.1 | | |
99.1* | | Form of Voting Agreement by and between Advance Magazine Publishers, Inc. and Steven Huffman |
| 99.2 | | |
| 107.1 | | |
________________
*To be filed by amendment.
# Indicates management contract or compensatory plan.
†Portions of this exhibit have been omitted in accordance with Item 601(a)(5) of Regulation S-K. The Registrant undertakes to furnish a copy of all omitted schedules and exhibits to the SEC upon its request.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on the 22nd day of February, 2024.
| | | | | | | | |
| REDDIT, INC. |
| | |
| By: | /s/ Steven Huffman |
| Name: | Steven Huffman |
| Title: | Chief Executive Officer and President |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven Huffman and Andrew Vollero, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and any and all additional registration statements pursuant to Rule 462(b) of the Securities Act of 1933, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their 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.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
/s/ Steven Huffman | | Chief Executive Officer, President and Director
(Principal Executive Officer) | | February 22, 2024 |
| Steven Huffman | | |
| | | | |
/s/ Andrew Vollero | | Chief Financial Officer
(Principal Financial Officer) | | February 22, 2024 |
| Andrew Vollero | | |
| | | | |
/s/ Michelle Reynolds | | Chief Accounting Officer
(Principal Accounting Officer) | | February 22, 2024 |
| Michelle Reynolds | | |
| | | | |
/s/ Patricia Fili-Krushel | | Director | | February 22, 2024 |
| Patricia Fili-Krushel | | |
| | | | |
/s/ Porter Gale | | Director | | February 22, 2024 |
| Porter Gale | | |
| | | | |
/s/ David Habiger | | Director | | February 22, 2024 |
David Habiger | | |
| | | | |
/s/ Robert A. Sauerberg | | Director | | February 22, 2024 |
| Robert A. Sauerberg | | |
| | | | |
/s/ Michael Seibel | | Director | | February 22, 2024 |
| Michael Seibel | | |
Calculation of Filing Fee Tables
Form S-1
(Form Type)
Reddit, Inc.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Security Type | Security Class Title | Fee Calculation Rule | Amount Registered | Proposed Maximum Offering Price Per Unit | Maximum Aggregate Offering Price(1)(2) | Fee Rate | Amount of Registration Fee |
| Fees to be Paid | Equity | Class A common stock, $0.000001 par value per share | Rule 457(o) | – | – | $100,000,000 | $147.60 per $1,000,000 | $14,760.00 |
| | Total Offering Amounts | | | | $100,000,000 | | $14,760.00 |
| | Total Fees Previously Paid | | | | | | – |
| | Total Fee Offsets | | | | | | – |
| | Net Fee Due | | | | | | $14,760.00 |
| | | | | | | | |
(1) Includes the aggregate offering price of additional shares that the underwriters have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
REDDIT, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Reddit, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “DGCL”),
DOES HEREBY CERTIFY:
ONE: The name of this corporation is Reddit, Inc., and this corporation was originally incorporated pursuant to the DGCL on May 13, 2011 under the name Reddit, Inc.
TWO: The Board of Directors (the “Board”) duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, as heretofore amended, 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:
THREE: That the Certificate of Incorporation of this corporation, as heretofore amended, be further amended and restated in its entirety to read as follows:
I.
The name of this company is Reddit, Inc. (the “Company”).
II.
The address of the registered office of this Company in the State of Delaware is 251 Little Falls Drive, City of Wilmington, Delaware 19808, County of New Castle, and the name of the registered agent of this Company in the State of Delaware at such address is Corporation Service Company.
III.
The purpose of the Company is to engage in any lawful act or activity for which a corporation may be organized under the DGCL.
IV.
A. The Company is authorized to issue three classes of stock to be designated, respectively, “Class A Common Stock,” “Class B Common Stock” and “Preferred Stock.” The total number of shares which the Company is authorized to issue is 417,864,781 shares, 189,000,000 shares of which shall be Class A Common Stock, with a par value of $0.0001 (the “Class A Common Stock”), 142,000,000 shares of which shall be Class B Common Stock, with a par value of $0.0001 (the “Class B Common Stock” and together with the Class A Common Stock, the “Common Stock”) and 86,864,781 shares of which shall be Preferred Stock, with a par value of $0.0001 (the “Preferred Stock”).
B. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by the affirmative vote of the holders of a majority of the voting power of the stock of the Company entitled to vote (voting together as a single class).
C. 7,500,000 of the authorized shares of Preferred Stock are hereby designated “Series A Preferred Stock” (the “Series A Preferred”), 114,746 of the authorized shares of Preferred Stock are hereby designated “Series A-1 Preferred Stock” (the “Series A-1 Preferred”), 17,564,937 of the authorized shares of Preferred Stock are hereby designated “Series B Preferred Stock” (the “Series B Preferred,”), 10,073,589 of the authorized shares of Preferred Stock are hereby designated “Series C Preferred Stock” (the “Series C Preferred”), 13,833,617 of the authorized shares of Preferred Stock are hereby designated “Series D Preferred Stock” (the “Series D Preferred”), 13,833,617 of the authorized shares of Preferred Stock are hereby designated “Series D-1 Preferred Stock” (the “Series D-1 Preferred”), 12,195,638 of the authorized shares of the Preferred Stock are hereby designated “Series E Preferred Stock” (the “Series E Preferred”), 6,634,905 of the authorized shares of the Preferred Stock are hereby designated “Series F Preferred Stock” (the “Series F Preferred”), and 5,113,732 of the authorized shares of the Preferred Stock are hereby designated “Series F-1 Preferred Stock” (the “Series F-1 Preferred” and together with the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred and the Series F Preferred, the “Voting Preferred”).
D. The terms, rights, powers, preferences, privileges, restrictions and other matters relating to Common Stock are as follows:
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, out of any assets of this Company legally available therefor, any dividends as may be declared from time to time by the Board. Shares of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share basis, with respect to any such dividends, provided, however, that in the event a dividend is paid in the form of shares of Common Stock (or rights to acquire such shares), then holders of Class A Common Stock shall receive shares of Class A Common Stock (or rights to acquire such shares, as the case may be) and holders of Class B Common Stock shall receive shares of Class B Common Stock (or rights to acquire such shares, as the case may be), with holders of shares of Class A Common Stock and Class B Common Stock receiving, on a per share basis, an identical number of shares of Class A Common Stock or Class B Common Stock, as applicable. Notwithstanding the foregoing, the Board may pay or make a disparate dividend or distribution per share of Class A Common Stock or Class B Common Stock (whether in the amount of such dividend or distribution payable per share, the form in which such dividend or distribution is payable, the timing of the payment, or otherwise) if such disparate dividend or distribution is approved in advance by the affirmative vote of the holders of a majority of the voting power of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
2. LIQUIDATION RIGHTS. Upon a Liquidation Event (as defined in Section IV.E.4(a) below), the Proceeds shall be distributed as provided in Section IV.E.3(c) hereof.
3. VOTING RIGHTS. Except as otherwise provided herein or required by law, the holders of shares of Class A Common Stock and Class B Common Stock shall (i) at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Company, (ii) be entitled to notice of any stockholders’ meeting in accordance with
the Bylaws of this Company (the “Bylaws”), and (iii) be entitled to vote upon such matters and in such manner as may be provided by law, provided, however, that the number of authorized shares of Class A Common Stock and Class B Common Stock may each 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 voting power of the stock of this Company entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL. Except as otherwise expressly provided herein or required by applicable law, each holder of Class A Common Stock shall be entitled to one (1) vote per share of Class A Common Stock held by such holder and each holder of Class B Common Stock shall be entitled to ten (10) votes per share of Class B Common Stock held by such holder. Unless required by law, there shall be no cumulative voting.
4. CONVERSION OF CLASS B COMMON STOCK.
(a) Right to Convert. Any holder of shares of Class B Common Stock, at the option of such holder, may convert any share of Class B Common Stock held by such holder at any time after the date of issuance of such share, at the office of the Company or any transfer agent for such stock, into one fully paid and nonassessable share of Class A Common Stock.
(b) Automatic Conversion. Upon the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least eighty percent (80%) of the outstanding shares of Class B Common Stock at the time of such vote or consent, voting as a separate class (such date, the “Class B Mandatory Conversion Time”), each outstanding share of Class B Common Stock shall automatically, without further action by the Company or the holder thereof, be converted into one fully paid and nonassessable share of Class A Common Stock.
(c) Transfers other than to a Permitted Transferee. This Section IV.D.4(c) shall become effective immediately prior to the closing of a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) in which all outstanding shares of Preferred Stock convert (or will convert within 180 days thereafter) into Class B Common Stock, provided that the Class B Common Stock is then a “covered security” pursuant to Section 18 of the Securities Act (the “Covered Security Date”). On and after the Covered Security Date each share of Class B Common Stock shall automatically, without further action by the Company or the holder thereof, be converted into one (1) fully paid and nonassessable share of Class A Common Stock upon the occurrence of a Transfer (as defined below), other than to a Permitted Transferee (as defined below), of such share of Class B Common Stock.
(d) Definitions.
(i) “Family Member” shall mean with respect to any natural person, the spouse, domestic partner or spousal equivalent, parents, grandparents, lineal descendants, siblings and lineal descendants of siblings of such natural person. Lineal descendants shall include adopted persons, but only so long as they are adopted during minority. Family member shall further include any other of such natural person’s family members as defined in Rule 701 of the Securities Act.
(ii) “Permitted Entity” shall mean with respect to a Qualified Stockholder:
(A) a Permitted Trust solely for the benefit of (1) such Qualified Stockholder, (2) one or more Family Members of such Qualified Stockholder and/or (3) any other Permitted Entity of such Qualified Stockholder;
(B) any general partnership, limited partnership, limited liability company, corporation or other entity that (1) directly or indirectly controls, is controlled by or is under common control with such Qualified Stockholder, and/or (2) is directly or indirectly exclusively owned by one or more Family Members of such Qualified Stockholder;
(C) a revocable living trust, which revocable living trust is itself both a Permitted Trust and a Qualified Stockholder, (1) during the lifetime of the natural person grantor of such trust, or (2) following the death of the natural person grantor of such trust, solely to the extent that such shares are held in such trust pending distribution to the beneficiaries designated in such trust; and
(D) the personal representative of the estate of such Qualified Stockholder upon the death of such Qualified Stockholder solely to the extent the executor is acting in the capacity as personal representative of such estate.
Except as explicitly provided for herein, a Permitted Entity of a Qualified Stockholder shall not cease to be a Permitted Entity of that Qualified Stockholder solely by reason of the death of that Qualified Stockholder.
(iii) “Permitted Transferee” shall mean:
(A) a Family Member of a Qualified Stockholder;
(B) a Permitted Entity of a Qualified Stockholder; and
(C) in the case of Transfer by a Permitted Entity of a Qualified Stockholder, such Qualified Stockholder or a Family Member or other Permitted Entity of such Qualified Stockholder.
(iv) “Permitted Trust” shall mean a bona fide trust where each trustee is (A) a Qualified Stockholder, (B) a Family Member of a Qualified Stockholder or (C) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies and bank trust departments.
(v) “Qualified Stockholder” shall mean: (A) the registered holder of a share of Class B Common Stock or Preferred Stock as of the Covered Security Date or of a share of Class B Common Stock or Preferred Stock which was approved for issuance pursuant to Section IV.D.7 hereof; (B) the initial registered holder of any shares of Class B Common Stock that are originally issued by the Company after the Covered Security Date pursuant to the exercise or conversion of options or warrants or settlement of restricted stock units (“RSUs”) that, in each case, are outstanding as of the Covered Security Date or were approved for issuance in accordance with Section IV.D.7 hereof; (C) each natural person who Transferred shares of or equity awards for Class B Common Stock or Preferred Stock (including any option or warrant exercisable or convertible into, or any RSU settled in, shares of Class B Common Stock) to an entity that (i) would be a Permitted Entity of such natural person if such person had made such Transfer after the Covered Security Date and (ii) is or becomes a Qualified Stockholder pursuant to subclauses (A), (B) or (C) of this definition; and (D) a Permitted Transferee.
(vi) “Transfer” of a share of Class B Common Stock shall mean any direct or indirect sale, exchange, redemption, assignment, distribution, encumbrance, hypothecation, gift,
pledge, retirement, transfer, conveyance or other disposition or alienation in any way (whether or not for value and whether voluntarily, involuntarily or by operation of law), including without limitation:
(A) assignments and distributions resulting from death, incompetency, bankruptcy, liquidation and dissolution;
(B) a transfer to a broker or other nominee (regardless of whether there is a corresponding change in beneficial ownership); and
(C) the transfer of, or entering into a binding agreement with respect to the transfer of, Voting Control (as defined below).
Notwithstanding anything to the contrary herein, the term Transfer shall not include the following:
(A) granting of a revocable proxy to officers or directors at the request of the Board in connection with actions to be taken at an annual or special meeting of stockholders;
(B) entering into a voting trust, agreement or other arrangement (with or without granting a proxy) solely with holders of Class B Common Stock, that is (i) disclosed in a Schedule 13D filed with the SEC or in writing to the company, (ii) either has a term not exceeding one (1) year or is terminable by the stockholder, and (iii) does not involve the payment of cash, securities, property or other consideration to the stockholder, other than the mutual promise to the vote shares in a designated manner;
(C) entering into a support or similar voting agreement (with or without granting a proxy) in connection with a Liquidation Event or any voluntary tender of shares pursuant to an agreement governed by Section 251(h) of the DGCL; or
(D) the pledge of shares of Class B Common Stock by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or other financing transaction, including without limitation, any form of margin loan, for so long as such stockholder continues to exercise Voting Control over such shares; provided that a foreclosure on such shares shall constitute a Transfer.
A Transfer shall also be deemed to have occurred with respect to a share of Class B Common Stock beneficially held by an entity if there occurs a Transfer on a cumulative basis, from and after the Covered Security Date, of a majority of the voting power of the voting securities of such entity or any direct or indirect Parent of such entity, other than a Transfer to parties that are Permitted Transferees. The “Parent” of an entity shall mean any entity that directly or indirectly owns or controls a majority of the voting power of the voting securities of such entity.
(vii) “Voting Control” shall mean, with respect to a share of Class B Common Stock, the power (whether exclusive or shared) to vote or direct the voting of such share.
(e) Mechanics of Conversion. Before any holder of Class B Common Stock shall be entitled voluntarily to convert the same into shares of Class A Common Stock, or upon the occurrence of an automatic conversion of the Class B Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, or shall surrender any uncertificated shares and provide appropriate instructions therefor at the office of the Company or of any transfer agent for such stock, and
shall, in the event of an optional conversion pursuant to Section IV.D.4(a), give written notice to the Company at such office that such holder elects to convert the same and shall state therein the name or names in which such holder wishes the certificate or certificates for shares of Class A Common Stock or uncertificated shares to be issued. The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder, or to the nominee or nominees of such holder, a certificate or certificates or uncertificated shares for the number of shares of Class A Common Stock to which such holder shall be entitled as aforesaid. In the event of an optional conversion pursuant to Section IV.D.4(a), such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Class B Common Stock to be converted, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock on such date. If the conversion is in connection with the automatic conversion provisions set forth in Sections IV.D.4(b) or (c), such conversion shall be deemed to have been made, in the case of Section IV.D.4(b), at the Class B Mandatory Conversion Time or, in the case of Section IV.D.4(c), the applicable date of Transfer, and the persons entitled to receive shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holders of such shares of Class A Common Stock as of the applicable date. Such notices shall be provided by any means then permitted by the DGCL; provided, however, that no failure to give such notice nor any defect therein shall affect the validity of any automatic conversion.
(f) Status of Converted Stock. In the event any shares of Class B Common Stock are converted into shares of Class A Common Stock pursuant to this Section IV.D.4, the shares of Class B Common Stock so converted shall be retired and cancelled and may not be reissued by the Company, and the Company may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Class B Common Stock accordingly.
(g) Reservation of Class A Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of the Class B Common Stock, such number of its shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock. If at any time the number of authorized but unissued shares of Class A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Class B Common Stock, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purpose.
5. REDEMPTION. The Common Stock is not redeemable at the option of the holder.
6. SUBDIVISIONS, COMBINATIONS OR RECLASSIFICATIONS. Shares of Class A Common Stock or Class B Common Stock may not be subdivided, combined or reclassified unless the shares of the other class are concurrently therewith proportionately subdivided, combined or reclassified in a manner that maintains the same proportionate equity ownership between the holders of the outstanding Class A Common Stock and Class B Common Stock on the date of such subdivision, combination or reclassification; provided, however, that shares of one such class may be subdivided, combined or reclassified in a different or disproportionate manner if such subdivision, combination or reclassification is approved in advance by the affirmative vote of the holders of a majority of the
outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
7. ISSUANCE FOLLOWING THE DATE HEREOF. After the date on which this Amended and Restated Certificate of Incorporation (the “Restated Certificate”) is accepted for filing by the Secretary of State of the State of Delaware (the “Effective Time”), unless such issuance is approved by (i) the holders of a majority of the then-outstanding shares of Class B Common Stock, voting as a separate class and (ii) each holder of Class B Common Stock holding twenty percent (20%) or more of the then-outstanding shares of Class B Common Stock (each, a “Major Class B Stockholder”), no further shares of Class B Common Stock may be issued by the Company and no further Options or Convertible Securities pursuant to which Class B Common Stock is issuable may be issued by the Company, except for the issuance of shares of Class B Common Stock upon the exercise, conversion, exchange or settlement of Options (as defined below) outstanding as of the Effective Time and Convertible Securities (as defined below) outstanding as of the Effective Time.
8. NOTICES. Except as otherwise provided herein, any notice required or permitted by the provisions of this Section IV.D to be given to a holder of shares of Common Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Company for such holder, given by the holder to the Company for the purpose of notice or given by electronic communication in compliance with the provisions of the DGCL, and shall be deemed sent upon such mailing or electronic transmission.
9. PROTECTIVE PROVISION. Except as otherwise provided herein, the Company shall not, whether by merger, consolidation or otherwise, amend, alter, repeal or waive any provision of this Section IV.D (or adopt any provision inconsistent therewith), without first obtaining the affirmative vote (or written consent if action by written consent of stockholders is permitted at such time) of (i) the holders of a majority of the then outstanding shares of Class B Common Stock, voting as a separate class, and (ii) each Major Class B Stockholder in addition to any other vote required by applicable law, this Restated Certificate or the Bylaws.
E. The rights, preferences, privileges, restrictions and other matters relating to the Preferred Stock are as follows:
1. DIVIDEND RIGHTS.
(a) Holders of Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred, pari passu and in preference to the holders of Series A Preferred, Series A-1 Preferred, Class A Common Stock and Class B Common Stock, shall be entitled to receive, when, as and if declared by the Board in a given calendar year, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred or Series F-1 Preferred, as applicable. Such dividends shall be non-cumulative.
(b) After payment of dividends to holders of Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred as set forth above, holders of Series A Preferred, in preference to the holders of Series A-1 Preferred, Class A Common Stock and Class B Common Stock, shall be entitled to receive, when, as and if declared by the Board in a given calendar year, but only out of funds that are legally available therefor,
cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Series A Preferred. Such dividends shall be non-cumulative. No dividend shall be declared or paid on the Series A Preferred unless all declared and unpaid dividends (if any) on the Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred and accrued dividends pursuant to Section IV.E.l(a) have been paid on the Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred.
(c) After payment of dividends to holders of Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred, Series F-1 Preferred and Series A Preferred as set forth above, holders of Series A-1 Preferred, in preference to the holders of Class A Common Stock and Class B Common Stock, shall be entitled to receive, when, as and if declared by the Board in a given calendar year, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Series A-1 Preferred. Such dividends shall be non-cumulative. No dividend shall be declared or paid on the Series A-1 Preferred unless all declared and unpaid dividends (if any) on the Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred, Series F-1 Preferred and Series A Preferred, and accrued dividends pursuant to Sections IV.E.1(a) and (b), have been paid on the Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred, Series F-1 Preferred and Series A Preferred, respectively.
(d) The “Original Issue Price” of the Series A Preferred shall be $2.6667 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The “Original Issue Price” of the Series A-1 Preferred shall be $5.9259 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The “Original Issue Price” of the Series B Preferred shall be $6.2631 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The “Original Issue Price” of the Series C Preferred shall be $15.7739 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The “Original Issue Price” of the Series D Preferred and Series D-1 Preferred shall be $21.6863 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The “Original Issue Price” of the Series E Preferred shall be $42.4742 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The “Original Issue Price” of the Series F Preferred shall be $61.7944 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof). The “Original Issue Price” of the Series F-1 Preferred shall be $61.7944 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof).
(e) So long as any shares of Preferred Stock are outstanding, the Company shall not pay or declare any dividend, whether in cash or property, or make any other distribution on the Class A Common Stock or Class B Common Stock or any other class or series of stock, or purchase, redeem or otherwise acquire for value any shares of Class A Common Stock or Class B Common Stock
until all dividends as set forth in Section IV.E.l(a) through (c) above on the Preferred Stock shall have been paid or declared and set apart, except for (collectively, the “Excepted Dividends”):
(i) acquisitions of Class A Common Stock or Class B Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares at cost (or the lesser of cost or fair market value) upon termination of services to the Company;
(ii) acquisitions of Class A Common Stock or Class B Common Stock upon exercise of the Company’s right of first refusal to repurchase such shares; or
(iii) distributions to holders of Class A Common Stock or Class B Common Stock in accordance with Section IV.E.3.
(f) In the event dividends other than Excepted Dividends are paid on any share of Class A Common Stock or Class B Common Stock after the preferential rights of the holders of Preferred Stock as set forth in this Section IV.E.l, the Company shall pay an additional dividend on all outstanding shares of Preferred Stock in a per share amount equal (on an as-if-converted to Class B Common Stock basis) to the amount paid or set aside for each share of Class A Common Stock or Class B Common Stock, as applicable.
(g) The provisions of Section IV.E.1(e) and (f) shall not apply to a dividend payable solely in Class A Common Stock or Class B Common Stock, or any repurchase of any outstanding securities of the Company that is approved by (i) the Board, (ii) holders of a majority of the outstanding shares of Series A Preferred, (iii) holders of a majority of the outstanding shares of Series B Preferred, (iv) the holders of a majority of the outstanding shares of Series C Preferred, (v) the holders of a majority of the outstanding shares of Series D Preferred, (vi) the holders of a majority of the outstanding shares of Series E Preferred and (vii) the holders of a majority of the voting power of the outstanding shares of Series F Preferred and Series F-1 Preferred (voting together as a single series) (with respect to clauses (ii), (iii), (iv), (v), (vi) and (vii), each voting as a separate series).
2. VOTING RIGHTS.
(a) General Rights. Except as expressly provided herein or as required by law, each holder of shares of the Voting Preferred, as such, shall be entitled to that number of votes equal to the number of votes represented by the number of whole shares of Class A Common Stock or Class B Common Stock into which such shares of Voting Preferred could then be directly converted (pursuant to Section IV.E.5) immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent, and with respect to such vote, shall have voting rights and powers equal to the voting rights and powers of the Class A Common Stock or Class B Common Stock into which such shares of Voting Preferred are directly convertible and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws. Solely for purposes of illustration, if the shares of Voting Preferred held by a holder are convertible into ten (10) shares of Class A Common Stock as of any record date, such holder, as such, would be entitled to ten (10) votes on any matter as to which such holder is entitled to vote and if the shares of Voting Preferred held by a holder are convertible into ten (10) shares of Class B Common Stock as of any record date, such holder, as such, would be entitled to one hundred (100) votes on any matter as to which such holder is entitled to vote. Except as otherwise provided herein or as required by law, the Voting Preferred shall vote together with the Class A Common Stock and Class B Common Stock as a single class, with the Voting Preferred voting on an as-converted to Common Stock basis, at any annual or special meeting of the stockholders, and may act by written
consent in the same manner as the Class A Common Stock and Class B Common Stock. The Series A-1 Preferred and the Series D-1 Preferred shall not be entitled to any voting powers, except as (and then only to the extent) otherwise required by applicable law.
(b) Election of Directors. As long as at least a majority of the shares of Series B Preferred originally issued remain outstanding, the holders of such shares of Series B Preferred shall be entitled to elect one (1) director of this Company at any election of directors. As long as at least a majority of the shares of Series A Preferred originally issued remain outstanding, the holders of such shares of Series A Preferred shall be entitled to elect three (3) directors of this Company at any election of directors. The holders of outstanding Class A Common Stock and Class B Common Stock, voting together as a single, separate class, shall be entitled to elect one (1) director of this Company at any election of directors. The holders of the Voting Preferred (excluding the Series E Preferred, the Series F Preferred and the Series F-1 Preferred), Class A Common Stock and Class B Common Stock (voting together as a single class and not as separate series, with the Voting Preferred (excluding the Series E Preferred, the Series F Preferred and Series F-1 Preferred) voting on an as-converted to Common Stock basis) shall be entitled to elect two (2) directors of this Company and any other remaining directors of this Company.
Notwithstanding the provisions of Section 223(a)(l) and 223(a)(2) of the DGCL, any vacancy, including newly created directorships resulting from any increase in the authorized number of directors or amendment of this Restated Certificate, 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 or classes or series of stock, the holders of shares of such class or series or classes or series may override the Board’s action to fill such vacancy by (i) voting for their own designee to fill such vacancy at a meeting of the Company’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 called for the election of such designee. 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 or classes 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 such class or series or classes or series of stock represented at the meeting or pursuant to written consent.
(c) Separate Vote of the Series A Preferred. For so long as any shares of the Series A Preferred remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the voting power of outstanding shares of the Series A Preferred shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):
(i) Any amendment, alteration, or repeal of any provision of this Restated Certificate or the Bylaws (including, but not limited to, any filing of a Certificate of Designation);
(ii) An action by the Company terminating, reducing or enlarging the responsibilities of, or electing, appointing or removing, the Chief Executive Officer of the Company;
(iii) Adopting the annual, or any longer term, business plan or budget of the Company and authorizing any material deviation therefrom or amendments thereto;
(iv) Increasing or decreasing the authorized number of members of the Company’s Board, or creating any committees thereof;
(v) Fundamentally changing the business of the Company or any subsidiary thereof, including entering the Company into any new line of business;
(vi) (A) Any authorization, creation, designation or issuance, or obligation to issue, whether by reclassification or otherwise, of any new class or series of stock, or any other securities convertible into equity securities of the Company, or (B) any increase in the authorized or designated number of any such new class or series of Common Stock or Preferred Stock, or (C) offering any security of the Company or any of its subsidiaries that would constitute a “public offering” within the meaning of the Securities Act;
(vii) Redeeming any equity securities of the Company, provided, however, that this restriction shall not apply to the repurchasing of shares of Common Stock issued pursuant to a plan, the adoption or modification of which was approved pursuant to Section IV.E.2(c)(viii);
(viii) Adopting, modifying, increasing the number of securities that may be granted thereunder, or otherwise changing the terms of any equity compensation plan of the Company, or adopting the form for awards to be issued under any such equity compensation plan or issuing any awards containing terms different from those in the form so adopted;
(ix) Declaring or paying any dividend on, or making any distribution to holders of equity securities of the Company or any subsidiary of the Company;
(x) Incurring Indebtedness (as defined below) after the filing date of this Restated Certificate, by or on behalf of the Company or any of its subsidiaries, if (1) such Indebtedness, together with all other Indebtedness of the Company, would be in excess of $500,000, over the amounts permitted under the Company’s annual business plan. For purposes of this subsection, “Indebtedness” means any indebtedness or obligations, direct or indirect, secured or unsecured, contingent or otherwise, for borrowed money, and any deposits or advances of any kind held by the Company, and all obligations with respect to which interest charges are customarily paid, and all obligations evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property or payment for any services (other than accounts payable to suppliers incurred in the ordinary course of business and paid in the ordinary course of business), if and to the extent any of the foregoing obligations or indebtedness would appear as a liability upon a balance sheet of the Company or any subsidiary prepared in accordance with GAAP, and will also include, to the extent not otherwise included (but without duplication), (i) any capitalized lease obligations, (ii) obligations secured by a lien to which the property or assets owned or held are subject, whether or not the obligation or obligations secured thereby will have been assumed, (iii) any obligations, contingent or otherwise, guaranteeing or having the economic effect of guaranteeing any debt or obligation of any other person (including any other entity), (iv) the face value of any letters of credit and bankers acceptances less amounts drawn thereunder and for which reimbursement has been made, (v) the amount of any obligations under conditional sales and title retention agreements and (vi) obligations under any interest rate agreement applicable to any of the foregoing.
(xi) Pledging, mortgaging or otherwise encumbering any of the Company’s material assets, whether as security for loans or otherwise; provided, that for purposes of this subsection, Company assets subject to a pledge, mortgage or other encumbrance shall be viewed together in order to determine “materiality”;
(xii) Merging, consolidating or otherwise effecting a business combination by the Company into or with any other entity, other than any transaction involving only the Company and/or one or more direct or indirect wholly owned subsidiaries of the Company;
(xiii) Taking actions resulting in the acquisition by the Company or any of its subsidiaries of any assets or properties (including stock or other equity interests of a third party), in one transaction or a series of related transactions, which assets or properties have an aggregate value or funding commitment by the Company in excess of $500,000, or which would result in consequence of such acquisition, in an action or state of facts, which if taken by or affecting the Company would require consent of the Series A Preferred under the other provisions of this Section IV.E.2(c);
(xiv) Taking any action resulting in the disposition (by way of sale, distribution to stockholders of the Company of any securities or assets, or any other means) by the Company of any assets or properties (including stock or other equity interests of a third party) in one transaction or a series of related transactions, which assets or properties have an aggregate value constituting a material portion of the Company’s assets;
(xv) Acquiring, selling, transferring, licensing, becoming licensed to use, or abandoning, through one transaction or other act or a series of transactions or other acts, any intellectual property, know-how, or other intangible property having an aggregate value of over $500,000;
(xvi) Taking actions that result in the Company or any of its subsidiaries entering into, in any one year, any agreement or transactions (including any capital expenditures) concerning a total value in excess of $500,000;
(xvii) Taking actions that result in any transaction between (x) the Company or any of its subsidiaries, on the one hand, and (y) any shareholder, director, or other related party of the Company, on the other hand, including the amendment of any agreement between the Company or any of its subsidiaries and any related party of the Company as in effect on the issue date of the Series A Preferred;
(xviii) Taking actions resulting in the establishment of any material subsidiaries of the Company or other legal entities related to the Company;
(xix) Disposing of any material interests of the Company in any subsidiary thereof or any other legal entity, or dissolving or winding up any such entity;
(xx) Taking any action resulting in the voluntary liquidation, dissolution or winding up of the Company or any material subsidiary of the Company;
(xxi) Taking any action resulting in the filing of a petition under the U.S. Bankruptcy Code or any similar state law, making any assignment for the benefit of creditors of the Company, or consenting to the appointment of a receiver of the Company or its assets;
(xxii) Taking any action resulting in the adoption of policies governing investment or lending of the Company’s funds, or making any investment or loan not otherwise permitted by such policies;
(xxiii) Taking any action resulting in the selection of an independent auditor, or establishment or change of the Company’s accounting practices; and
(xxiv) Allowing any subsidiary (A) to take any action or (B) possess any attribute, which if taken by the Company would require consent of the Series A Preferred under this Section IV.E.2(c).
(d) Separate Vote of the Series B Preferred. For so long as 3,000,000 shares of the Series B Preferred remain outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof), in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the voting power of outstanding shares of the Series B Preferred shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):
(i) Any authorization or issuance of any shares of Series B Preferred other than pursuant to warrants issued pursuant to that certain Series B Preferred Stock and Warrant Purchase Agreement, dated as of September 19, 2014;
(ii) Any amendment, alteration, or repeal of any provision of this Restated Certificate or the Bylaws (including, but not limited to, any filing of a Certificate of Designation) so as to adversely affect the rights, preferences, privileges or powers of the Series B Preferred, in a manner that would require a separate series vote of the Series B Preferred pursuant to Section 242(b)(2) of the DGCL; and
(iii) Any automatic conversion of the Series B Preferred pursuant to clause (B) of the second sentence of Section IV.E.5(p)(i).
(e) Separate Vote of the Series C Preferred. For so long as 3,000,000 shares of the Series C Preferred remain outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof), in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the voting power of outstanding shares of the Series C Preferred shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):
(i) Any authorization or issuance of any shares of Series C Preferred other than pursuant to that certain Series C Preferred Stock Purchase Agreement, dated on or around July 10, 2017, as the same may be amended from time to time;
(ii) Any amendment, alteration, or repeal of any provision of this Restated Certificate or the Bylaws (including, but not limited to, any filing of a Certificate of Designation) so as to adversely affect the rights, preferences, privileges or powers of the Series C Preferred, in a manner that would require a separate series vote of the Series C Preferred pursuant to Section 242(b)(2) of the DGCL; and
(iii) Any automatic conversion of the Series C Preferred pursuant to clause (B) of the third sentence of Section IV.E.5(p)(i).
(f) Separate Vote of the Series D Preferred. For so long as 3,000,000 shares of the Series D Preferred remain outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof), in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the voting power of outstanding shares of the Series D Preferred shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):
(i) Any amendment, alteration, or repeal of any provision of this Restated Certificate or the Bylaws (including, but not limited to, any filing of a Certificate of Designation) so as to adversely affect the rights, preferences, privileges or powers of the Series D Preferred, in a manner that would require a separate series vote of the Series D Preferred pursuant to Section 242(b)(2) of the DGCL; and
(ii) Any automatic conversion of the Series D Preferred pursuant to clause (B) of the fourth sentence of Section IV.E.5(p)(i).
(g) Separate Vote of the Series E Preferred. For so long as 3,000,000 shares of the Series E Preferred remain outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof), in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the voting power of outstanding shares of the Series E Preferred shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):
(i) Any authorization or issuance of any shares of Series E Preferred other than pursuant to that certain Series E Preferred Stock Purchase Agreement, dated on or around February 8, 2021, as the same may be amended from time to time (the “Series E Purchase Agreement”);
(ii) Any amendment, alteration, or repeal of any provision of this Restated Certificate or the Bylaws (including, but not limited to, any filing of a Certificate of Designation) so as to adversely affect the rights, preferences, privileges or powers of the Series E Preferred, in a manner that would require a separate series vote of the Series E Preferred pursuant to Section 242(b)(2) of the DGCL; and
(iii) Any automatic conversion of the Series E Preferred pursuant to clause (B) of the sixth sentence of Section IV.E.5(p)(i).
(h) Separate Vote of the Series F Preferred and Series F-1 Preferred. For so long as 3,000,000 shares of the Series F Preferred or Series F-1 Preferred remain outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof), in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the voting power of outstanding shares of the Series F Preferred and Series F-1 Preferred, voting together as a single series, shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):
(i) Any authorization or issuance of any shares of Series F Preferred or Series F-1 Preferred other than pursuant to that certain Series F Preferred Stock Purchase Agreement, dated on or around August 11, 2021, as the same may be amended from time to time (the “Series F Purchase Agreement”);
(ii) Any amendment, alteration, or repeal of any provision of this Restated Certificate or the Bylaws (including, but not limited to, any filing of a Certificate of Designation) so as to adversely affect the rights, preferences, privileges or powers of the Series F Preferred or Series F-1 Preferred, in a manner that would require a separate series vote of the Series F Preferred or Series F-1 Preferred pursuant to Section 242(b)(2) of the DGCL; and
(iii) Any automatic conversion of the Series F Preferred or Series F-1 Preferred pursuant to clause (B) of the sixth sentence of Section IV.E.5(p)(i).
(i) Separate Vote of the Preferred Stock. For so long as 3,000,000 shares of the Preferred Stock remain outstanding (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date hereof), in addition to any other vote or consent required herein or by law, the vote or written consent of both (i) the holders of at least a majority of the voting power of outstanding shares of the Series A Preferred and (ii) the holders of at least fifty-five percent (55%) of the voting power of outstanding shares of the Voting Preferred (voting together as a single class), shall be necessary for effecting or validating the following actions (whether by merger, recapitalization or otherwise):
(i) Any authorization, creation, designation or issuance, or obligation to issue, whether by reclassification or otherwise, of any new class or series of stock, or any other securities convertible into such new class or series of stock, that ranks senior to or on par with the Preferred Stock with respect to dividends, liquidation or redemption, or having voting rights that are more favorable than those granted to the Preferred Stock; and
(ii) Any authorization or effecting of a Liquidation Event and any waiver of the treatment of an event as a Liquidation Event.
3. LIQUIDATION RIGHTS.
(a) Upon any Liquidation Event in which the Company is valued at more than $240,000,000, all outstanding shares of Series A Preferred and Series A-1 Preferred shall automatically convert into shares of Class B Common Stock pursuant to Section IV.E.5(p) below. Subject to the foregoing sentence, upon any Liquidation Event, the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred 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 Series A-1 Preferred, Class A Common Stock and Class B Common Stock by reason of their ownership thereof, an amount per share equal to: (i) with respect to each share of Series A Preferred, the sum of one and three-quarters times (1.75x) the Original Issue Price of the Series A Preferred plus all declared and unpaid dividends on such share, (ii) with respect to each share of Series B Preferred, the sum of one times (1x) the Original Issue Price of the Series B Preferred plus all declared and unpaid dividends on such share, (iii) with respect to each share of Series C Preferred, the sum of one times (1x) the Original Issue Price of the Series C Preferred plus all declared and unpaid dividends on such share, (iv) with respect to each share of Series D Preferred, the sum of one times (1x) the Original Issue Price of the Series D Preferred plus all declared and unpaid dividends on such share, (v) with respect to each share of Series D-1 Preferred, the sum of one times (1x) the Original Issue Price of the Series D-1 Preferred plus all declared and unpaid dividends on such share, (vi) with respect to each share of Series E Preferred, the sum of one times (1x) the Original Issue Price of the Series E Preferred plus all declared and unpaid dividends on such share, (vii) with respect to each share of Series F Preferred, the sum of one times (1x) the Original Issue Price of the Series
F Preferred plus all declared and unpaid dividends on such share and (viii) with respect to each share of Series F-1 Preferred, the sum of one times (1x) the Original Issue Price of the Series F-1 Preferred plus all declared and unpaid dividends on such share. If, upon the occurrence of such Liquidation Event, the Proceeds thus distributed among the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred 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 Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this Section 3(a).
(b) Subject to the first sentence of Section IV.E.3(a), upon any Liquidation Event, after the payment of the full liquidation preference of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred, Series F Preferred and Series F-1 Preferred as set forth in Section IV.E.3(a) above, and before any distribution of Proceeds shall be made to the holders of any Class A Common Stock or Class B Common Stock, the holders of Series A-1 Preferred shall be entitled to be paid out of the Proceeds legally available for distribution for each share of Series A-1 Preferred held by them, an amount per share equal to the sum of one times (1x) the Original Issue Price of the Series A-1 Preferred plus all declared and unpaid dividends on such share. If, upon any such Liquidation Event, the Proceeds shall be insufficient to make payment in full to all holders of Series A-1 Preferred of the liquidation preference set forth in this Section 3(b), then the entire Proceeds legally available for distribution, after payment of the amounts set forth in Section IV.E.3(a), shall be distributed ratably among the holders of the Series A-1 Preferred in proportion to the full preferential amount that each such holder is otherwise entitled to receive under this Section 3(b).
(c) Subject to the first sentence of Section IV.E.3(a), after the payment of the full liquidation preference of the Series F-1 Preferred, Series F Preferred, Series E Preferred, Series D-1 Preferred, Series D Preferred, Series C Preferred, Series B Preferred, Series A Preferred and Series A-1 Preferred as set forth in Sections IV.E.3(a) and (b) above, the remaining Proceeds legally available for distribution, if any, shall be distributed ratably to the holders of the Class A Common Stock and Class B Common Stock in proportion to the number of shares of Class A Common Stock and Class B Common Stock held by them, respectively; provided however that in the event the Proceeds legally available for distribution consist in any part of voting securities (or options or rights to acquire voting securities or securities convertible into or exchangeable for voting securities), then the holders of Class A Common Stock or Class B Common Stock may receive, on a per share basis, voting securities with a vote comparable to the voting rights associated with such class of Common Stock hereunder (or options or rights to acquire voting securities, or securities convertible into or exchangeable for voting securities, with a vote comparable to the voting rights associated with such class of Common Stock).
(d) 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 the applicable class 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 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 such applicable class of Common Stock. If any such holder shall be deemed to have converted shares of Preferred Stock into the applicable class of 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 the applicable class of Common Stock.
4. LIQUIDATION EVENT.
(a) A “Liquidation Event” shall include (i) the closing of the sale, transfer or other disposition of all or substantially all of this Company’s assets or intellectual property, (ii) the consummation of the merger or consolidation of this Company with or into another entity (except a merger or consolidation in which the holders of capital stock of this Company immediately prior to such merger or consolidation continue to hold at least 50% of the voting power of the capital stock of this Company or the surviving or acquiring entity), (iii) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an underwriter of this Company’s securities), of this Company’s securities if, after such closing and as a result of such closing, such person or group of affiliated persons would hold 50% or more of the voting power of the capital stock of the Company (or the surviving or acquiring entity) (in the interest of clarity, this clause (iii) shall not apply to a transfer in which an existing holder of 50% or more of the voting power of the capital stock of the Company (or the surviving or acquiring entity) acquires additional voting power), or (iv) a liquidation, dissolution or winding up of this Company; provided, however, that a transaction shall not constitute a Liquidation Event if its sole purpose is to change the state of this Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held this Company’s securities immediately prior to such transaction. 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 (a) the holders of a majority of the outstanding Series A Preferred, (b) the holders of a majority of the outstanding Series B Preferred, (c) the holders of a majority of the outstanding Series C Preferred, (d) the holders of a majority of the outstanding Series D Preferred, (e) the holders of a majority of the outstanding Series E Preferred and (f) the holders of a majority of the outstanding voting power of the Series F Preferred and Series F-1 Preferred (voting together as a single series), each voting as a separate series.
(b) In any Liquidation Event, if the Proceeds received by the Company or its stockholders are securities of a corporation or other property other than cash, the value of such Proceeds will be deemed its fair market value as determined in good faith by the Board on the date such determination is made.
5. CONVERSION RIGHTS. The holders of the Preferred Stock shall have the following rights with respect to the conversion of the Preferred Stock into shares of the applicable class of Common Stock:
(a) Optional or Voluntary Conversion. Each share of Series F-1 Preferred shall be convertible, at the option of the holder thereof, without payment of additional consideration, and at any time after the date of issuance of such share, into such number of fully paid and nonassessable shares of Class A Common Stock as is determined by the applicable Conversion Rate (as defined below) in effect on the date the certificate is surrendered for conversion. Each share of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series D-1 Preferred, Series E Preferred and Series F Preferred shall be convertible, at the option of the holder thereof, without payment of additional consideration, and at any time after the date of issuance of such share, into such number of fully paid and nonassessable shares of Class B Common Stock as is determined by the applicable Conversion Rate (as defined below) in effect on the date the certificate is surrendered for conversion. Each share of Series D Preferred shall be convertible, at the option of the holder thereof and with the prior
written consent of the Company, without payment of additional consideration, and at any time after the date of issuance of such share, into such number of fully paid and nonassessable shares of Series D-1 Preferred, as is determined multiplying such share of Series D Preferred by the fraction of (i) the Series D Preferred Conversion Rate divided by (ii) the Series D-1 Preferred Conversion Rate, on the date the certificate is surrendered for conversion. Each share of Series D-1 Preferred shall be convertible, at the option of the holder thereof and with the prior written consent of the Company, without payment of additional consideration, and at any time after the date of issuance of such share, into such number of fully paid and nonassessable shares of Series D Preferred, as is determined multiplying such share of Series D-1 Preferred by the fraction of (i) the Series D-1 Preferred Conversion Rate divided by (ii) the Series D Preferred Conversion Rate, on the date the certificate is surrendered for conversion. Any holder of shares of Series D-1 Preferred who is a Foreign Person shall be entitled to convert from time to time any such shares of Series D-1 Preferred into such number of fully paid and nonassessable shares of Series D Preferred pursuant to the conversion rights set forth in this Section IV.E.5(a) to the extent the sum of the voting power of all of the shares of the capital stock of the Company held by such Foreign Person as a result of such conversion does not exceed 9.9% of the voting power of all of the then-outstanding shares of the capital stock of the Company. “Foreign Person” means any holder of capital stock of the Company who is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended).
(b) Series F-1 Preferred and Series F Preferred Conversion Rate; Conversion Price. The conversion rate in effect at any time for conversion of any share of Series F-1 Preferred (the “Series F-1 Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the Series F-1 Preferred by the then applicable “Series F-1 Preferred Conversion Price,” calculated as provided in this Section IV.E.5. The conversion price for any share of Series F-1 Preferred shall initially be the Original Issue Price of the Series F-1 Preferred (the “Series F-1 Preferred Conversion Price”). Such initial Series F-1 Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series F-1 Preferred Conversion Price herein shall mean the applicable Series F-1 Preferred Conversion Price as so adjusted. The conversion rate in effect at any time for conversion of any share of Series F Preferred (the “Series F Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the Series F Preferred by the then applicable “Series F Preferred Conversion Price,” calculated as provided in this Section IV.E.5. The conversion price for any share of Series F Preferred shall initially be the Original Issue Price of the Series F Preferred (the “Series F Preferred Conversion Price”). Such initial Series F Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series F Preferred Conversion Price herein shall mean the applicable Series F Preferred Conversion Price as so adjusted.
(c) Series E Preferred Conversion Rate; Conversion Price. The conversion rate in effect at any time for conversion of any share of Series E Preferred (the “Series E Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the Series E Preferred by the then applicable “Series E Preferred Conversion Price,” calculated as provided in this Section IV.E.5. The conversion price for any share of Series E Preferred shall initially be the Original Issue Price of the Series E Preferred (the “Series E Preferred Conversion Price”). Such initial Series E Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series E Preferred Conversion Price herein shall mean the applicable Series E Preferred Conversion Price as so adjusted.
(d) Series D-1 Preferred and Series D Preferred Conversion Rate; Conversion Price. The conversion rate in effect at any time for conversion of any share of Series D-1
Preferred (the “Series D-1 Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the Series D-1 Preferred by the then applicable “Series D-1 Preferred Conversion Price,” calculated as provided in this Section IV.E.5. The conversion price for any share of Series D-1 Preferred shall initially be the Original Issue Price of the Series D-1 Preferred (the “Series D-1 Preferred Conversion Price”). Such initial Series D-1 Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series D-1 Preferred Conversion Price herein shall mean the applicable Series D-1 Preferred Conversion Price as so adjusted. The conversion rate in effect at any time for conversion of any share of Series D Preferred (the “Series D Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the Series D Preferred by the then applicable “Series D Preferred Conversion Price,” calculated as provided in this Section IV.E.5. The conversion price for any share of Series D Preferred shall initially be the Original Issue Price of the Series D Preferred (the “Series D Preferred Conversion Price”). Such initial Series D Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series D Preferred Conversion Price herein shall mean the applicable Series D Preferred Conversion Price as so adjusted.
(e) Series C Preferred Conversion Rate; Conversion Price. The conversion rate in effect at any time for conversion of any share of Series C Preferred (the “Series C Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the Series C Preferred by the then applicable “Series C Preferred Conversion Price,” calculated as provided in this Section IV.E.5. The conversion price for any share of Series C Preferred shall initially be the Original Issue Price of the Series C Preferred (the “Series C Preferred Conversion Price”). Such initial Series C Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series C Preferred Conversion Price herein shall mean the applicable Series C Preferred Conversion Price as so adjusted.
(f) Series B Preferred Conversion Rate; Conversion Price. The conversion rate in effect at any time for conversion of any share of Series B Preferred (the “Series B Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the Series B Preferred by the applicable “Series B Preferred Conversion Price,” calculated as provided in this Section IV.E.5. The conversion price for any share of Series B Preferred shall initially be the Original Issue Price of the Series B Preferred (the “Series B Preferred Conversion Price”). Such initial Series B Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series B Preferred Conversion Price herein shall mean the applicable Series B Preferred Conversion Price as so adjusted.
(g) Series A Preferred Conversion Rate; Conversion Price. The conversion rate in effect at any time for conversion of any share of Series A Preferred (the “Series A Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the Series A Preferred by the applicable “Series A Preferred Conversion Price,” calculated as provided in this Section IV.E.5. The conversion price for any share of Series A Preferred shall initially be the Original Issue Price of the Series A Preferred (the “Series A Preferred Conversion Price”). Such initial Series A Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series A Preferred Conversion Price herein shall mean the applicable Series A Preferred Conversion Price as so adjusted.
(h) Series A-1 Preferred Conversion Rate; Conversion Price. The conversion rate in effect at any time for conversion of any share of Series A-1 Preferred (the “Series A-1 Preferred Conversion Rate”) shall be the quotient obtained by dividing the Original Issue Price of the
Series A-1 Preferred by the applicable “Series A-1 Preferred Conversion Price,” calculated as provided in this section. The conversion price for any share of Series A-1 Preferred shall initially be the Original Issue Price of the Series A-1 Preferred (the “Series A-1 Preferred Conversion Price”). Such initial Series A-1 Preferred Conversion Price shall be adjusted from time to time in accordance with this Section IV.E.5. All references to the Series A-1 Preferred Conversion Price herein shall mean the applicable Series A-1 Preferred Conversion Price as so adjusted. The Series F-1 Conversion Price, the Series F Preferred Conversion Price, the Series E Preferred Conversion Price, the Series D-1 Preferred Conversion Price, the Series D Preferred Conversion Price, the Series C Preferred Conversion Price, the Series B Preferred Conversion Price, the Series A Preferred Conversion Price and the Series A-1 Preferred Conversion Price may be referred to collectively as the “Preferred Conversion Price”, as applicable. Each of the Series F-1 Preferred Conversion Rate, the Series F Preferred Conversion Rate, the Series E Preferred Conversion Rate, the Series D-1 Preferred Conversion Rate, the Series D Preferred Conversion Rate, the Series C Preferred Conversion Rate, the Series B Preferred Conversion Rate, the Series A Preferred Conversion Rate and the Series A-1 Preferred Conversion Rate may be referred to as the “Conversion Rate”.
(i) Mechanics of Conversion. Each holder of Preferred Stock who converts the same into shares of Class B Common Stock or Class A Common Stock, as applicable, pursuant to this Section IV.E.5 shall surrender the certificate or certificates therefor, duly endorsed, or uncertificated shares with appropriate instructions, at the office of the Company or any transfer agent for the Preferred Stock. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates or uncertificated shares for the number of shares of Class B Common Stock or Class A Common Stock, as applicable, to which such holder is entitled and shall promptly pay (i) in cash or, to the extent sufficient funds are not then legally available therefor, in Class B Common Stock or Class A Common Stock, as applicable (at such Common Stock’s fair market value determined by the Board as of the date of such conversion), any declared and unpaid dividends on the shares of Preferred Stock being converted and (ii) in cash (at such Common Stock’s fair market value determined by the Board as of the date of conversion) the value of any fractional share of Class B Common Stock or Class A Common Stock, as applicable, otherwise issuable to any holder of Preferred Stock. The person entitled to receive the shares of Class B Common Stock or Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Class B Common Stock or Class A Common Stock on such date.
(j) Adjustment for Stock Splits and Combinations. If at any time or from time to time on or after the date that the first share of a series of Preferred Stock is issued (the “Original Issue Date”) the Company effects a subdivision of the outstanding Class A Common Stock or Class B Common Stock, the applicable Preferred Conversion Price for such series in effect immediately before that subdivision shall be proportionately decreased. Conversely, if at any time or from time to time after the Original Issue Date for a series of Preferred Stock the Company combines the outstanding shares of Class A Common Stock or Class B Common Stock into a smaller number of shares, the applicable Preferred Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 5(j) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(k) Adjustment for Common Stock Dividends and Distributions. If at any time or from time to time on or after the Original Issue Date for a series of Preferred Stock the Company pays to holders of Class A Common Stock or Class B Common Stock a dividend or other distribution in additional shares of Class A Common Stock or Class B Common Stock, the Preferred
Conversion Price for such series then in effect shall be decreased as of the time of such issuance, as provided below:
(i) The Preferred Conversion Price shall be adjusted by multiplying the Preferred Conversion Price then in effect by a fraction equal to:
(A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance, and
(B) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution;
(ii) If the Company fixes a record date to determine which holders of Class A Common Stock or Class B Common Stock are entitled to receive such dividend or other distribution, the Preferred Conversion Price shall be fixed as of the close of business on such record date and the number of shares of Common Stock shall be calculated immediately prior to the close of business on such record date; and
(iii) If such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Preferred Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Preferred Conversion Price shall be adjusted pursuant to this Section 5(k) to reflect the actual payment of such dividend or distribution.
(l) Adjustment for Reclassification, Exchange, Substitution, Reorganization, Merger or Consolidation. If at any time or from time to time on or after the Original Issue Date for a series of Preferred Stock the Class B Common Stock or Class A Common Stock issuable upon the conversion of such series of Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, merger, consolidation or otherwise (other than a Liquidation Event or a subdivision or combination of shares or stock dividend provided for elsewhere in this Section IV.E.5), in any such event each holder of Preferred Stock shall then have the right to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, merger, consolidation or other change by holders of the maximum number of shares of Class B Common Stock or Class A Common Stock into which such shares of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification, merger, consolidation or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section IV.E.5 with respect to the rights of the holders of Preferred Stock after the capital reorganization to the end that the provisions of this Section IV.E.5 (including adjustment of the Preferred Conversion Price then in effect and the number of shares issuable upon conversion of the Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable.
(m) Sale of Shares Below Preferred Conversion Price.
(i) If at any time or from time to time on or after the Original Issue Date for a series of Preferred Stock the Company issues or sells, or is deemed by the express provisions of this Section 5(m) to have issued or sold, Additional Shares of Common Stock (as defined below), other than as provided in Sections IV.E.5(i), (k) or (l) above, without consideration or for an Effective Price (as
defined below) less than the then effective Preferred Conversion Price for the applicable series of Preferred Stock (a “Qualifying Dilutive Issuance”), then, in the case of a Qualifying Dilutive Issuance, the then existing Preferred Conversion Price for each affected series of Preferred Stock shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the applicable Preferred Conversion Price in effect immediately prior to such issuance or sale by a fraction:
(A) the numerator of which shall be (1) the number of shares of Class A Common Stock and Class B Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale, plus (2) the number of shares of Class A Common Stock which the Aggregate Consideration (as defined below) received or deemed received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such then-existing Preferred Conversion Price, and
(B) the denominator of which shall be (1) the number of shares of Class A Common Stock and Class B Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale, plus (2) the total number of Additional Shares of Common Stock so issued.
For the purposes of the preceding sentence, the number of shares of Class A Common Stock and Class B Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Class A Common Stock and Class B Common Stock outstanding, (B) the number of shares of Class B Common Stock into which the then outstanding shares of Preferred Stock (excluding the Series F-1 Preferred) could be converted if fully converted on the day immediately preceding the given date, (C) the number of shares of Class A Common Stock into which the then outstanding shares of Series F-1 Preferred could be converted if fully converted on the day immediately preceding the given date, (D) the number of shares of Class B Common Stock which are directly issuable upon the exercise, conversion or settlement of all other Options and Convertible Securities outstanding on the day immediately preceding the given date and (E) the number of shares of Class A Common Stock which are directly issuable upon the exercise, conversion or settlement of all other Options and Convertible Securities outstanding on the day immediately preceding the given date (excluding, in the interest of clarity, all Options and Convertible Securities covered by clause (D) above), but excluding from such calculation any additional shares of Class A Common Stock or Class B Common Stock issuable with respect to shares of Preferred Stock, Convertible Securities or Options solely as a result of the adjustment of the respective Preferred Conversion Price (or other applicable conversion ratios) resulting from the issuance of the Additional Shares of Common Stock causing such adjustment.
(ii) No adjustment shall be made to any Preferred Conversion Price in an amount less than one cent per share. Any adjustment required by this Section 5(m) shall be rounded to the nearest one cent ($0.01) per share. Any adjustment otherwise required by this Section 5(m) that is not required to be made due to the preceding two sentences shall be included in any subsequent adjustment to the applicable Preferred Conversion Price.
(iii) For the purpose of making any adjustment required under this Section 5(m), the aggregate consideration received by the Company for any issue or sale of securities (the “Aggregate Consideration”) shall be defined as: (A) to the extent it consists (in whole or in part) of cash, be computed at the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable by the Company, but excluding any amounts paid or payable for accrued interest or accrued dividends; (B) to the extent it consists (in whole
or in part) of property other than cash, be computed at the fair value of that property as determined in good faith by the Board, and (C) if Additional Shares of Common Stock, Convertible Securities or Options to purchase Additional Shares of Common Stock, Convertible Securities or Options are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or Options.
(iv) For the purpose of the adjustment required under this Section 5(m), if the Company issues or sells (x) Preferred Stock or other stock, options, warrants, purchase rights or other securities convertible into, Additional Shares of Common Stock, including RSUs (such convertible stock, options, warrants, purchase rights, RSUs or securities being herein referred to as “Convertible Securities”) or (y) rights, warrants or options for the purchase of Additional Shares of Common Stock or Convertible Securities (such rights, warrants or options being referred to herein as “Options”) and if the Effective Price of such Additional Shares of Common Stock, Convertible Securities or Options (as applicable) is less than the then effective Preferred Conversion Price for any series of the Preferred Stock, then with respect to the each series of Preferred Stock, the Company shall be deemed to have issued, at the time of the issuance of such Options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon conversion, exercise, settlement and/or exchange thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such Options or Convertible Securities plus:
(A) in the case of Options, the minimum amounts of consideration, if any, payable to the Company upon the exercise or settlement of such Options; and
(B) in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses.
(C) If the minimum amount of consideration payable to the Company upon the exercise, settlement or conversion of Options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further, that if the minimum amount of consideration payable to the Company upon the exercise, settlement or conversion of such Options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise, settlement or conversion of such Options or Convertible Securities.
(D) No further adjustment of the applicable Preferred Conversion Price, as adjusted upon the issuance of such Options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock or the exercise or settlement of any such Options or the conversion of any such Convertible Securities. If any such Options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised or settled, the applicable Preferred Conversion Price as adjusted upon the issuance of such
Options or Convertible Securities shall be readjusted to the applicable Preferred Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise or settlement of such Options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise or settlement, plus the consideration, if any, actually received by the Company for the granting of all such Options, whether or not exercised or settled, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Preferred Stock.
(v) For the purpose of making any adjustment to the Preferred Conversion Price of any series of Preferred Stock required under this Section 5(m), “Additional Shares of Common Stock” shall mean all shares of Class A Common Stock or Class B Common Stock issued by the Company or deemed to be issued pursuant to this Section 5(m) (including shares of Class A Common Stock or Class B Common Stock subsequently reacquired or retired by the Company), in each case, after the filing date hereof, other than the following (the “Carve-Out Stock”):
(A) shares of Class A Common Stock or Class B Common Stock issued upon conversion of the Preferred Stock;
(B) shares of Class A Common Stock or Class B Common Stock, or Options or Convertible Securities exercisable therefor, issued to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board;
(C) shares of Class A Common Stock or Class B Common Stock actually issued upon the exercise or settlement of Options or shares of Class A Common Stock or Class B Common Stock actually issued pursuant to the conversion or exercise of Convertible Securities;
(D) shares of Class A Common Stock or Class B Common Stock, Options or Convertible Securities issued pursuant to a merger, consolidation, acquisition, strategic alliance or similar business combination approved by the Board, including at least one of the representatives elected solely by holders of the Series A Preferred;
(E) shares of Class A Common Stock or Class B Common Stock, Options or Convertible Securities issued pursuant to a transaction described in Sections IV.E.5(j), (k) or (l) hereof;
(F) shares of Class A Common Stock or Class B Common Stock, Options or Convertible Securities issued or deemed issued pursuant to Section IV.E.5(m)(iv) as a result of a decrease in the Conversion Price of any series of Preferred Stock resulting from the operation of this Section 5(m);
(G) shares of Class A Common Stock, Class B Common Stock, Options or Convertible Securities issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution; provided that the issuance of shares was approved by the Board, including at least one of the representatives elected solely by holders of the Series A Preferred;
(H) any Class A Common Stock, Class B Common Stock, Options or Convertible Securities issued in connection with strategic transactions involving the Company and other entities, including (i) joint ventures, collaboration, development, manufacturing, marketing or distribution arrangements or (ii) technology transfer, license or development arrangements; provided that the issuance of shares therein has been approved by the Board, including at least one of the representatives elected solely by holders designated by the Series A Preferred;
(I) shares of Class A Common Stock, Class B Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board;
(J) any Class A Common Stock or Class B Common Stock issued in connection with an underwritten public offering; and
(K) shares of Class A Common Stock issued or issuable upon conversion of Class B Common Stock.
References to Class A Common Stock and Class B Common Stock in the this Section (5)(m)(v) above shall mean all shares of Class A Common Stock and Class B Common Stock issued by the Company or deemed to be issued pursuant to this Section 5(m). The “Effective Price” of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section 5(m), into the Aggregate Consideration received, or deemed to have been received by the Company for such issue under this Section 5(m), for such Additional Shares of Common Stock. In the event that the number of shares of Additional Shares of Common Stock or the Effective Price cannot be ascertained at the time of issuance, such Additional Shares of Common Stock shall be deemed issued immediately upon the occurrence of the first event that makes such number of shares or the Effective Price, as applicable, ascertainable.
(vi) No adjustment in the Preferred Conversion Price for any series of Preferred Stock shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Company receives written consent from the holders of at least a majority of the then outstanding shares of such series of Preferred Stock voting together as a separate class agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
(vii) In the event that the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock in a Qualifying Dilutive Issuance (the “First Dilutive Issuance”), then in the event that the Company issues or sells, or is deemed to have issued or sold, Additional Shares of Common Stock in a Qualifying Dilutive Issuance other than the First Dilutive Issuance as a part of the same transaction or series of related transactions as the First Dilutive Issuance (a “Subsequent Dilutive Issuance”), then and in each such case upon a Subsequent Dilutive Issuance the applicable Preferred Conversion Price shall be reduced to the Preferred 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, as applicable.
(n) Certificate of Adjustment. In each case of an adjustment or readjustment of the Preferred Conversion Price for the number of shares of Class A Common Stock, Class B Common Stock or other securities issuable upon conversion of any Preferred Stock, if such Preferred
Stock is then convertible pursuant to this Section IV.E.5, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and shall, upon request, prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of such series of Preferred Stock so requesting at the holder’s address as shown in the Company’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (ii) the applicable Preferred Conversion Price at the time in effect, (iii) the number of Additional Shares of Common Stock and (iv) the type and amount, if any, of other property which at the time would be received upon conversion of such Preferred Stock. Failure to request or provide such notice shall have no effect on any such adjustment.
(o) Notices of Record Date. Upon (i) any taking by the Company of record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Liquidation Event or other capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, the Company shall mail to each holder of Preferred Stock at least ten (10) days prior to (x) the record date, if any, specified therein; or (y) if no record date is specified, the date upon which such action is to take effect (or, in either case, such shorter period approved by the holders of a majority of the voting power of the outstanding Voting Preferred) a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Liquidation Event is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Liquidation Event.
(p) Automatic Conversion.
(i) Each share of Series A Preferred and Series A-1 Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Preferred Conversion Price for each such series of Preferred Stock, immediately upon the earliest to occur of (A) the closing of a firm commitment underwritten public offering lead managed by an underwriter of national standing for listing on the New York Stock Exchange or the Nasdaq Global Market pursuant to an effective registration statement under the Securities Act, covering the offer and sale of Class A Common Stock and/or Class B Common Stock for the account of the Company in which the cash proceeds to the Company (after underwriting discounts, commissions and fees) are at least $100,000,000 (a “Qualified Public Offering”), (B) the affirmative election of the holders of a majority of the then outstanding shares of Series A Preferred voting as a separate series, (C) a Liquidation Event in which the Company is valued at more than $240,000,000, (D) the effectiveness of the registration statement for the initial listing of Class A Common Stock on the New York Stock Exchange, the Nasdaq Global Market or a similar national securities exchange by means of a registration statement on Form S-1 filed by the Company with the Securities and Exchange Commission that registers shares of existing capital stock of the Company for resale not pursuant to an underwritten offering (a “Direct Listing”) and (E) the closing of a merger, acquisition or other business combination involving the Company and a publicly traded special purpose acquisition company or other similar entity that does not constitute a Deemed Liquidation Event (a “SPAC Transaction”) pursuant to which at least $100,000,000 of cash is added to the Company’s balance sheet. Each share of Series B Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series B Preferred Conversion Price, immediately
upon the earlier to occur of (A) a Qualified Public Offering, (B) a Direct Listing, (C) a SPAC Transaction, and (D) the affirmative election of the holders of a majority of the then outstanding shares of Series B Preferred voting as a separate series. Each share of Series C Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series C Preferred Conversion Price, immediately upon the earlier to occur of (A) a Qualified Public Offering, (B) a Direct Listing, (C) a SPAC Transaction, and (D) the affirmative election of the holders of a majority of the then outstanding shares of Series C Preferred voting as a separate series. Each share of Series D Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series D Preferred Conversion Price, immediately upon the earlier to occur of (A) a Qualified Public Offering, (B) a Direct Listing, (C) a SPAC Transaction, and (D) the affirmative election of the holders of a majority of the then outstanding shares of Series D Preferred voting as a separate series. Each share of Series D-1 Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series D-1 Preferred Conversion Price, immediately upon the earlier to occur of (A) a Qualified Public Offering, (B) a Direct Listing, (C) a SPAC Transaction, and (D) the affirmative election of the holders of a majority of the then outstanding shares of Series D-1 Preferred voting as a separate series. Each share of Series E Preferred shall automatically be converted into shares of Class B Common Stock, based on the then-effective Series E Preferred Conversion Price, immediately upon the earlier to occur of (A) a Qualified Public Offering, (B) a Direct Listing, (C) a SPAC Transaction, and (D) the affirmative election of the holders of a majority of the then outstanding shares of Series E Preferred voting as a separate series. Each share of Series F Preferred and Series F-1 Preferred shall automatically be converted into shares of Class B Common Stock or Class A Common Stock, as applicable, based on the then-effective Series F Preferred Conversion Price or Series F-1 Preferred Conversion Price, as applicable, immediately upon the earlier to occur of (A) a Qualified Public Offering, (B) a Direct Listing, (C) a SPAC Transaction, and (D) the affirmative election of the holders of a majority of the voting power of the then outstanding shares of Series F Preferred and Series F-1 Preferred voting together as a separate series. Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section IV.E.5(f).
(ii) Upon the occurrence of any of the events specified in Section IV.E.5(p)(i) above, the outstanding shares of the applicable Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Class A Common Stock, Class B Common Stock or uncertificated shares issuable upon such conversion unless the certificates evidencing such shares of the applicable Preferred Stock are either delivered to the Company or its transfer agent as provided below (or the uncertificated shares are surrendered with appropriate instructions), or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of any series of the Preferred Stock, the holders of such Preferred Stock shall surrender the certificates representing such shares (or uncertificated shares with appropriate instructions) at the office of the Company or any transfer agent for such Preferred Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates or uncertificated shares, a certificate or certificates or uncertificated shares for the number of shares of Class A Common Stock or Class B Common Stock into which the shares of Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section IV.E.5(i).
(q) Fractional Shares. No fractional shares of Class A Common Stock or Class B Common Stock shall be issued upon conversion of Preferred Stock. All shares of Class A Common Stock or Class B Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the fair market value of one share of Class A Common Stock or Class B Common Stock, as applicable (as determined by the Board) on the date of conversion.
(r) Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock and Class B Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Class A Common Stock and Class B Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock. If at any time the number of authorized but unissued shares of Class A Common Stock or Class B Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock and Class B Common Stock to such number of shares as shall be sufficient for such purpose.
(s) Notices. Any notice required by the provisions of this Section IV.E.5 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 verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company.
(t) Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Class A Common Stock and Class B Common Stock upon conversion of shares of Preferred Stock, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Class A Common Stock and Class B Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered.
6. NO REISSUANCE OF PREFERRED STOCK. Any share or shares of Preferred Stock redeemed, purchased, converted, exchanged or otherwise acquired by the Company shall be cancelled and retired and shall not be reissued or transferred and this Restated Certificate shall be appropriately amended to effect the corresponding reduction of the Company’s authorized stock.
7. REDEMPTION. The Preferred Stock is not redeemable at the option of the holder.
V.
A. The personal liability of the directors of the Company for breach of fiduciary duty as a director for monetary damages shall be eliminated to the fullest extent permitted by the DGCL, as the
same exists or may hereafter be amended. The Company shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an “Indemnified Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that such person, or a person for whom such person is the legal representative, is or was a director of the Company or, while serving as a director of the Company, is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Indemnified Person in such Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in the next sentence, the Company shall be required to indemnify an Indemnified Person in connection with a Proceeding (or part thereof) commenced by such Indemnified Person only if the commencement of such Proceeding (or part thereof) by the Indemnified Person was authorized in advance by the Board of Directors. If a claim for indemnification under this Article V is not paid in full within sixty (60) days, or a claim for advancement of expenses under this Article V is not paid in full within twenty (20) days, after a written claim therefor by the Indemnified Person has been received by the Company, the Indemnified Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Company shall have the burden of proving that the Indemnified Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
B. The Company is authorized to provide rights to indemnification and advancement of expenses to all other persons whom the Company may provide such rights under the DGCL through bylaw provisions, agreements with such person, through resolutions of the Board or stockholders, or otherwise.
C. The Company shall pay the expenses (including attorneys’ fees) incurred by an Indemnified Person in defending any Proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Indemnified Person to repay all amounts advanced if it should be ultimately determined that the Indemnified Person is not entitled to be indemnified under this Article V or otherwise.
D. The rights conferred on any person by this Article V shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Restated Certificate, the Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, and the terms of this Article V shall not be construed or interpreted to limit or eliminate any rights provided through any such instrument, vote or otherwise.
E. The Company shall have the power to purchase and maintain insurance on behalf of any person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Company would have the power to indemnity such person against such liability under the DGCL or otherwise.
F. Any repeal or modification of this Article V shall only be prospective and shall not affect the rights granted under this Article V in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability.
VI.
For the management of the business and for the conduct of the affairs of the Company, and in further definition, limitation and regulation of the powers of the Company, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the Company shall be vested in its Board. The number of directors which shall constitute the whole Board shall be fixed by the Board in the manner provided in the Bylaws, subject to any restrictions which may be set forth in this Restated Certificate.
B. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws. In addition, the stockholders shall also have the power to adopt, amend or repeal the Bylaws; provided however, that, in addition to any vote of the holders of any class or series of stock of the Company required by law or by this Restated Certificate, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to adopt, amend or repeal any provision of the Bylaws.
C. The directors of the Company need not be elected by written ballot unless the Bylaws so provide.
VII.
Subject to the requirements specifically set forth herein, the Company reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
VIII.
The Company renounces, to the fullest extent permitted by law, any interest or expectancy of the Company 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 Company who is not an employee of the Company or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee, affiliate or agent of any such holder, other than someone who is an employee of the Company or any of its subsidiaries (collectively, the persons referred to in clauses (i) and (ii) are “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 Company while such Covered Person is performing services in such capacity. Any repeal or modification of this Article VIII will only be prospective and will not affect the rights under this Article VIII in effect at the time of the occurrence of any actions or omissions to act giving rise to liability. Notwithstanding anything to the contrary contained elsewhere in this Restated Certificate, the affirmative vote of the holders of at least a majority
of the voting power of all of the then-outstanding shares of Preferred Stock, will be required to amend or repeal, or to adopt any provisions inconsistent with this Article VIII.
IX.
Unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or the Company’s certificate of incorporation or bylaws or (iv) any action asserting a claim against the Company, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article IX shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article IX (including, without limitation, each portion of any sentence of this Article IX containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.
* * * *
FOUR: That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this Company in accordance with Section 228 of the DGCL.
FIVE: That this Restated Certificate, which restated and integrates and further amends the provisions of this Company’s existing Certificate of Incorporation, has been duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL by the stockholders of the Company.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Amended and Restated Certificate of Incorporation to be signed by its Chief Executive Officer this 1st day of September, 2021.
| | | | | | | | |
| REDDIT, INC. |
| | |
| | |
| /s/ Steve Huffman | |
| Steve Huffman, Chief Executive Officer |
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
REDDIT, INC.
Reddit, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify as follows:
1. The name of the Corporation is Reddit, Inc. The Corporation was incorporated by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on May 13, 2011 under the name Reddit, Inc.
2. This Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), which amends, restates and further integrates the certificate of incorporation of the Corporation as heretofore in effect, has been adopted by the Corporation in accordance with Sections 242 and 245 of the DGCL, and has been adopted by the written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL.
3. The text of the certificate of incorporation of the Corporation, as heretofore amended, is hereby amended and restated by this Certificate of Incorporation to read in its entirety as set forth in EXHIBIT A attached hereto.
IN WITNESS WHEREOF, Reddit, Inc. has caused this Certificate of Incorporation to be signed by a duly authorized officer of the Corporation, on [__________ __], 2024.
Reddit, Inc., a Delaware corporation
| | | | | | | | | | | | | | |
| By: | | | |
| Name: | Steven Huffman |
| Title: | Chief Executive Officer |
[Signature Page to Reddit, Inc. Certificate of Incorporation]
EXHIBIT A
ARTICLE I
The name of the corporation is Reddit, Inc. (the “Corporation”).
ARTICLE II
The address of the Corporation’s registered office in the State of Delaware is 251 Little Falls Drive, in the City of Wilmington, County of New Castle, Delaware, 19808. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”) as it now exists or may hereafter be amended and supplemented.
ARTICLE IV
The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 2,340,000,000 shares, consisting of 2,000,000,000 shares of Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”), 140,000,000 shares of Class B Common Stock, par value $0.0001 per share (“Class B Common Stock”), 100,000,000 shares of Class C Common Stock, par value $0.0001 per share (“Class C Common Stock” and together with the Class A Common Stock and Class B Common Stock, the “Common Stock”), and 100,000,000 shares of Preferred Stock, par value $0.0001 per share (“Preferred Stock”).
The number of authorized shares of Class A Common Stock, Class B Common Stock, Class C Common Stock, or Preferred Stock may be increased or decreased (but not below (i) the number of shares thereof then outstanding and (ii) with respect to the Class A Common Stock, the number of shares of Class A Common Stock reserved pursuant to Section 8 of Part A of Article V) by the affirmative vote of the holders of capital stock representing a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote thereon, irrespective of the provisions of Section 242(b)(2) of the DGCL.
ARTICLE V
The designations and the powers, preferences, privileges and rights, and the qualifications, limitations, or restrictions thereof in respect of each class of capital stock of the Corporation are as follows:
A.Common Stock.
1. Equal Status; General. Except as otherwise provided herein or required by law, shares of Common Stock shall have the same rights, privileges, preferences, and powers, rank equally (including as to dividends and distributions, and upon any liquidation, dissolution, distribution of assets, or winding up of the Corporation), share ratably and be identical in all respects and as to all matters. The voting, dividend, liquidation and other rights, preferences, and powers of the holders of Common Stock are subject to, and qualified by, the rights, powers, and preferences of any series of Preferred Stock as may be designated by the Board of Directors of the Corporation (the “Board of Directors”) and outstanding from time to time.
2. Voting. Except as otherwise provided herein or expressly required by a nonwaivable provision of the DGCL, at all meetings of stockholders and on all matters submitted to a vote of stockholders of the Corporation generally, each holder of Class A Common Stock, as such, shall have one (1) vote per share of Class A Common Stock held of record by such holder, each holder of Class B Common Stock, as such, shall have ten (10) votes per share of Class B Common Stock held of record by such holder, and each holder of Class C Common Stock, as such, shall have no votes per share of Class C Common Stock held of record by such holder; provided, however, that, except as otherwise required by law, holders of Class A Common Stock and Class B Common Stock, as such, shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designation (as defined herein)) or pursuant to the DGCL. Except as otherwise provided herein or required by a nonwaivable provision of the DGCL, the holders of shares of Class A Common Stock and Class B Common Stock shall at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Corporation generally. There shall be no cumulative voting.
3. Dividend Rights. Subject to the preferential or other rights of any holders of Preferred Stock then outstanding, shares of Common Stock shall be treated equally, identically, and ratably, on a per share basis, with respect to any dividends as may be declared and paid from time to time by the Board of Directors out of any assets of the Corporation legally available therefor; provided, however, that in the event a dividend is paid in the form of shares of Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares), then holders of Class A Common Stock shall be entitled to receive shares of Class A Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be), holders of Class B Common Stock shall be entitled to receive shares of Class B Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be), and holders of Class C Common Stock shall be entitled to receive shares of Class C Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be), with holders of shares of Class A Common Stock, Class B Common Stock, and Class C Common Stock receiving, on a per share basis, an identical number of shares of Class A Common Stock, Class B Common Stock, or Class C Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be), as applicable. Notwithstanding the foregoing, the Board of Directors may pay or make a disparate dividend per share of Class A Common Stock, Class B Common Stock, or Class C Common Stock (whether in the amount of such dividend payable per share, the form in which such dividend is payable, the timing of the payment, or otherwise) if such disparate dividend is approved by the affirmative vote of the holders of a majority of the then-outstanding shares of Class A Common Stock, Class B Common Stock, and Class C Common Stock, each voting separately as a class.
4. Subdivisions, Combinations, or Reclassifications. Shares of Class A Common Stock, Class B Common Stock, or Class C Common Stock may not be subdivided, combined, or reclassified unless the shares of the other classes are concurrently therewith proportionately subdivided, combined, or reclassified in a manner that maintains the same proportionate equity ownership between the holders of the then-outstanding Class A Common Stock, Class B Common Stock, and Class C Common Stock on the record date for such subdivision, combination, or reclassification; provided, however, that shares of one such class may be subdivided, combined, or reclassified in a different or disproportionate manner if such subdivision, combination, or reclassification is approved by the affirmative vote of the holders of a majority of the then-outstanding shares of Class A Common Stock, Class B Common Stock, and Class C Common Stock, each voting separately as a class.
5. Liquidation, Dissolution, or Winding Up. Subject to the preferential or other rights of any holders of Preferred Stock then outstanding, upon the dissolution, distribution of assets, liquidation, or winding up of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive ratably all assets of the Corporation available for distribution to its stockholders unless disparate or different treatment of the shares of each such class with respect to distributions upon any such liquidation, dissolution, distribution of assets, or winding up is approved by the affirmative vote of the holders of a majority of the then-outstanding shares of Class A Common Stock, Class B Common Stock, and Class C Common Stock, each voting separately as a class.
6. Merger, Consolidation, or Other Transaction. In the case of any distribution or payment in respect of the shares of Common Stock, or any consideration into which such shares are converted, upon the merger or consolidation of the Corporation with or into any other entity, or in the case of any other transaction having an effect on stockholders substantially similar to that resulting from a merger or consolidation of the Corporation with or into any other entity, such distribution, payment, or consideration that the holders of shares of Common Stock have the right to receive, or the right to elect to receive, shall be made ratably on a per share basis among the holders of the Common Stock as a single class; provided, however, that shares of such classes may (but shall not be required to) receive, or have the right to elect to receive, different or disproportionate consideration in connection with such merger, consolidation, or other transaction if (i) the only difference in the per share consideration to the holders of the Class A Common Stock, Class B Common Stock, and Class C Common Stock is that any securities distributed to the holder of, or issuable upon the conversion of, a share of Class B Common Stock have ten (10) times the voting power of any securities distributed to the holder of, or issuable upon the conversion of, a share of Class A Common Stock, and that any securities distributed to the holder of, or issuable upon the conversion of, a share of Class C Common Stock have no voting rights or power, or (ii) such merger, consolidation, or other transaction is approved by the affirmative vote of the holders of a majority of the then-outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class. In the event that the holders of shares of Common Stock are granted rights to elect to receive one of two or more alternative forms of consideration in connection with such merger, consolidation, or other transaction, then such consideration shall be deemed to have been made ratably on a per share basis among the holders of the Class A Common Stock, Class B Common Stock, and Class C Common Stock as a single class if the holders of all of such shares are granted identical election rights; provided that if the alternative forms of consideration include securities or securities issuable upon the conversion of Class A Common Stock, Class B Common Stock, and Class C Common Stock, any such securities that a holder of Class B Common Stock may elect to receive may (but shall not be required to) have ten (10) times the voting power of securities that a holder of Class A Common Stock may elect to receive and any securities that a holder of Class C Common Stock may elect to receive may (but shall not be required to) have no voting rights or power.
7. Conversion.
7.1. Optional Conversion of Class B Common Stock. Each share of Class B Common Stock shall be convertible into one (1) fully paid and nonassessable share of Class A Common Stock at the option of the holder thereof at any time upon written notice to the Corporation (an “Optional Class B Conversion Event”). Before any holder of Class B Common Stock shall be entitled to convert any shares of Class B Common Stock into shares of Class A Common Stock, such holder shall surrender the certificate or certificates therefor (if any), duly endorsed, at the principal corporate office of the Corporation or of any transfer agent for the Class B Common Stock, and shall provide written notice to the Corporation at its principal corporate office, of such conversion election and shall state therein the name or names (i) in which the certificate or certificates representing the shares of Class A Common Stock into which
the shares of Class B Common Stock are so converted are to be issued (if such shares of Class A Common Stock are certificated) or (ii) in which such shares of Class A Common Stock are to be registered in book-entry form (if such shares of Class A Common Stock are uncertificated). If the shares of Class A Common Stock into which the shares of Class B Common Stock are to be converted are to be issued in a name or names other than the name of the holder of the shares of Class B Common Stock being converted, such notice shall be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder, or to the nominee or nominees of such holder, a certificate or certificates representing the number of shares of Class A Common Stock to which such holder shall be entitled upon such conversion (if such shares of Class A Common Stock are certificated) or shall register such shares of Class A Common Stock in book-entry form (if such shares of Class A Common Stock are uncertificated). Such conversion shall be deemed to be effective immediately prior to the close of business on the date of such surrender of the shares of Class B Common Stock to be converted following or contemporaneously with the provision of written notice of such conversion election as required by this Subsection 7.1, the shares of Class A Common Stock issuable upon such conversion shall be deemed to be outstanding as of such time, and the Person or Persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be deemed to be the record holder or holders of such shares of Class A Common Stock as of such time. Notwithstanding anything herein to the contrary, shares of Class B Common Stock represented by a lost, stolen, or destroyed stock certificate may be converted pursuant to an Optional Class B Conversion Event if the holder thereof notifies the Corporation or its transfer agent that such certificate has been lost, stolen, or destroyed and makes an affidavit of that fact acceptable to the Corporation and executes an agreement acceptable to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificate.
7.2. Automatic Conversion of Class B Common Stock. Each share of Class B Common Stock shall automatically convert into one (1) fully paid and nonassessable share of Class A Common Stock upon the occurrence of an event described below (each, a “Mandatory Class B Conversion Event”):
i. Reduction in Voting Power. Each then-outstanding share of Class B Common Stock shall automatically, without further action by the Corporation or the holder thereof, convert into one (1) fully paid and nonassessable share of Class A Common Stock upon the first date on which the aggregate number of then-outstanding shares of Class B Common Stock ceases to represent at least seven and one-half percent (7.5%) of the aggregate of the then-outstanding shares of Class A Common Stock and Class B Common Stock.
ii. Transfers. Each share of Class B Common Stock shall automatically, without further action by the Corporation or the holder thereof, convert into one (1) fully paid and nonassessable share of Class A Common Stock upon the occurrence of a Transfer (as defined in Section 10), other than to a Permitted Transferee (as defined in Section 10), of such share of Class B Common Stock.
7.3. Conversion of Class C Common Stock. Subject to the approval rights granted pursuant to the Governance Agreement, dated as of [ ], 2024, by and among the Corporation, Steven Huffman, and Advance Magazine Publishers Inc. (as the same may be amended, restated, supplemented, and/or otherwise modified from time to time in accordance with its terms, the “Governance Agreement”), following the date on which no shares of Class B Common Stock remain outstanding (including pursuant to the conversion or other exchange of all then-outstanding shares of Class B Common Stock into, or for shares of, Class A Common Stock), and upon the date and time, or occurrence of an event, specified by the vote of the holders of a majority of the then-outstanding shares of Class A Common Stock, voting as a
separate class (the “Class C Conversion Vote”), each outstanding share of Class C Common Stock shall automatically, without further action by the Corporation or the holder thereof, convert into one (1) fully paid and nonassessable share of Class A Common Stock (the “Mandatory Class C Conversion Event”).
7.4. Certificates. Each then-outstanding stock certificate (if shares are in certificated form) that, immediately prior to the occurrence of a Mandatory Class B Conversion Event or a Mandatory Class C Conversion Event, represented one or more shares of Class B Common Stock subject to such Mandatory Class B Conversion Event or Class C Common Stock subject to such Mandatory Class C Conversion Event, as applicable, shall, upon such Mandatory Class B Conversion Event or Mandatory Class C Conversion Event, be deemed to represent an equal number of shares of Class A Common Stock, without the need for surrender or exchange thereof. The Corporation shall, upon the request of any holder whose shares of Class B Common Stock or Class C Common Stock have been converted into shares of Class A Common Stock as a result of an Optional Class B Conversion Event, Mandatory Class B Conversion Event, or Mandatory Class C Conversion Event (any of the foregoing, a “Conversion Event”) and upon surrender by such holder to the Corporation of the outstanding certificate(s) formerly representing such holder’s shares of Class B Common Stock or Class C Common Stock, if any (or, in the case of any lost, stolen, or destroyed certificate, upon such holder providing an affidavit of that fact acceptable to the Corporation and executing an agreement acceptable to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificate), issue and deliver to such holder (or such other Person specified pursuant to Subsection 7.1) certificate(s) representing the shares of Class A Common Stock into which such holder’s shares of Class B Common Stock or Class C Common Stock, as applicable, were converted as a result of such Conversion Event (if such shares are certificated) or, if such shares are uncertificated, register such shares in book-entry form. Each share of Class B Common Stock or Class C Common Stock that is converted pursuant to Subsections 7.1, 7.2, or 7.3 shall thereupon automatically be retired and shall not be available for reissuance.
7.5. Policies and Procedures. The Corporation may, from time to time, establish such policies and procedures, not in violation of applicable law or the other provisions of this Certificate of Incorporation or the Bylaws of the Corporation (the “Bylaws”), relating to the conversion of the Class B Common Stock into Class A Common Stock and the conversion of Class C Common Stock into Class A Common Stock, as it may deem necessary or advisable in connection therewith. If the Corporation has reason to believe that a Transfer or other Conversion Event giving rise to a conversion of shares of Class B Common Stock into Class A Common Stock has occurred but has not theretofore been reflected on the books of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation), the Corporation may request that the holder of such shares furnish affidavits or other evidence to the Corporation as the Corporation deems necessary to determine whether a conversion of shares of Class B Common Stock to Class A Common Stock has occurred, and if such holder does not within ten (10) days after the date of such request furnish sufficient evidence to the Corporation (in the manner provided in the request) to enable the Corporation to determine that no such conversion has occurred, any such shares of Class B Common Stock, to the extent not previously converted, shall be automatically, unless otherwise determined by the Corporation, converted into shares of Class A Common Stock and the same shall thereupon be registered on the books and records of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation). In connection with any action of stockholders taken at a meeting, the stock ledger of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation) shall be presumptive evidence as to who are the stockholders entitled to vote in person or by proxy at any meeting of stockholders and the class or classes or series of shares held by each such stockholder and the number of shares of each class or classes or series held by such stockholder.
8. Reservation of Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of Class B Common Stock and Class C Common Stock, as applicable, such number of shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all then-outstanding shares of Class B Common Stock and Class C Common Stock, as applicable, into shares of Class A Common Stock; and if at any time the number of authorized but unissued shares of Class A Common Stock will not be sufficient to effect the conversion of all then-outstanding shares of Class B Common Stock and Class C Common Stock, as applicable, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as will be sufficient for such purpose.
9. Redemption. The Common Stock is not redeemable at the option of the holder thereof.
10. Definitions.
“Advance” means Advance Magazine Publishers Inc.
“Advance Entity” means (i) Advance, (ii) any Newhouse Person, and (iii) any Affiliate of any of the foregoing, until such time as such Person is not an Affiliate of any of the foregoing. For the avoidance of doubt, references to the ownership or beneficial ownership by any Advance Entity of any securities or control of any voting power will be deemed to refer to the ownership (whether of record or book-entry through a brokerage account held in the name of such Advance Entity) or beneficial ownership of such securities or control of such voting power by the Advance Entities collectively.
“Affiliate” means, 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, officer, director, or manager of such Person and any venture capital 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.
“beneficially own” has the meaning set forth in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); “beneficially owns,” “beneficially owned,” and “beneficial ownership” will have corresponding meanings.
“Change of Control Event” means, with respect to the Corporation, (i) the closing of the sale, transfer, or other disposition of all or substantially all of the Corporation’s assets or intellectual property (determined on a consolidated basis), (ii) the consummation of the merger or consolidation of the Corporation with or into another entity (except a merger or consolidation in which the holders of capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least fifty percent (50%) of the then-outstanding Voting Securities of the Corporation (or voting securities of the surviving or acquiring entity)), (iii) any Person or group of Persons within the meaning of Section 13(d)(3) of the Exchange Act becomes the beneficial owner, directly or indirectly, of fifty percent (50%) or more of the then-outstanding Voting Securities of the Company, or (iv) the closing of the transfer (whether by merger, consolidation, or otherwise), in one transaction or a series of related transactions, to a Person or group of affiliated Persons (other than an underwriter of the Corporation’s securities), of the Corporation’s securities if, after such closing and as a result of such closing, such Person or group of affiliated Persons would hold fifty percent (50%) or more of the then-outstanding Voting Securities of the Corporation (or voting securities of the surviving or acquiring entity);
provided, however, that a transaction shall not constitute a Change of Control Event if its sole purpose is to change the state of incorporation of the Corporation or to create a holding company that will be owned in substantially the same proportions by the Persons who held the Corporation’s securities immediately prior to such transaction.
“control” as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of Voting Securities, by agreement, or otherwise. The terms “controls,” “controlled,” and “controlling” will have corresponding meanings.
“Convertible Security” shall mean any evidences of indebtedness, shares of Preferred Stock, or other securities (other than shares of Class B Common Stock or Class C Common Stock) convertible into or exchangeable for shares of Class A Common Stock or Class B Common Stock, either directly or indirectly.
“Family Member” shall mean, with respect to any natural person, the spouse, domestic partner or spousal equivalent, parents, grandparents, lineal descendants, siblings, and lineal descendants of siblings of such natural person. Lineal descendants shall include adopted persons, but only so long as they are adopted while a minor. Family member shall further include any of such natural person’s family members as defined in Rule 701 of the Securities Act of 1933, as amended (the “Securities Act”).
“IPO Date” means [ ], 2024.
“Newhouse Person” means any (i) individual that is a lineal descendent (including adoptees) of Meyer and Rose Newhouse, a spouse or surviving spouse of any such descendants, or the estate of any of the foregoing individuals, and (ii) any trust, corporation, limited liability company, partnership, or other entity which is primarily, directly or indirectly, owned, controlled, or established for the benefit of one or more individuals or estates described by the foregoing clause (i).
“Option” shall mean rights, options, restricted stock units, or warrants to subscribe for, purchase, or otherwise acquire shares of Class A Common Stock, Class B Common Stock, Class C Common Stock, or Convertible Securities (as defined above).
“Permitted Entity” shall mean (i) with respect to a Qualified Stockholder:
(a) a Permitted Trust solely for the benefit of (1) such Qualified Stockholder, (2) one or more Family Members of such Qualified Stockholder, and/or (3) any other Permitted Entity of such Qualified Stockholder;
(b) any Affiliate of, or general partnership, limited partnership, limited liability company, corporation, or other entity that (1) directly or indirectly controls, is controlled by, or is under common control with such Qualified Stockholder, and/or (2) is directly or indirectly exclusively owned by one or more Family Members of such Qualified Stockholder;
(c) a revocable living trust, which revocable living trust is itself both a Permitted Trust and a Qualified Stockholder, (1) during the lifetime of the natural person grantor of such trust, or (2) following the death of the natural person grantor of such trust, solely to the extent that such shares are held in such trust pending distribution to the beneficiaries designated in such trust; and
(d) the personal representative of the estate of such Qualified Stockholder upon the death of such Qualified Stockholder solely to the extent the executor is acting in the capacity as a personal representative of such estate; and
(ii) with respect to Advance, any Advance Entity.
Except as explicitly provided for herein, a Permitted Entity of a Qualified Stockholder shall not cease to be a Permitted Entity of that Qualified Stockholder solely by reason of the death of that Qualified Stockholder.
“Permitted Transferee” shall mean:
(i) a Family Member of a Qualified Stockholder;
(ii) a Permitted Entity of a Qualified Stockholder;
(iii) in the case of a Transfer by a Permitted Entity of a Qualified Stockholder, such Qualified Stockholder or a Family Member or other Permitted Entity of such Qualified Stockholder; and
(iv) with respect to Advance, any Advance Entity.
“Permitted Trust” shall mean a bona fide trust where each trustee is (i) a Qualified Stockholder, (ii) a Family Member of a Qualified Stockholder, or (iii) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies, and bank trust departments.
“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or other form of business organization, whether or not regarded as a legal entity under applicable law, or any Governmental Authority or any department, agency, or political subdivision thereof.
“Qualified Stockholder” shall mean: (i) the record holder of a share of Class B Common Stock as of the IPO Date; (ii) the initial record holder of any shares of Class B Common Stock that are originally issued by the Corporation after the IPO Date pursuant to the exercise or conversion of any Option or Convertible Security that, in each case, was outstanding as of the IPO Date; (iii) each natural person who, prior to the IPO Date, Transferred shares of Class B Common Stock (including any Option exercisable or Convertible Security exchangeable for or convertible into shares of Class B Common Stock) to a Permitted Entity that is or becomes a Qualified Stockholder; (iv) each natural person who Transferred shares of, or equity awards for, Class B Common Stock (including any Option exercisable or Convertible Security exchangeable for or convertible into shares of Class B Common Stock) to a Permitted Entity that is or becomes a Qualified Stockholder; and (v) a Permitted Transferee.
“Transfer” of a share of Class B Common Stock shall mean any direct or indirect sale, exchange, redemption, assignment, distribution, encumbrance, hypothecation, gift, pledge, retirement, transfer, conveyance, or other disposition or alienation in any way (whether or not for value and whether voluntarily, involuntarily, or by operation of law), including, without limitation:
(i) assignments and distributions resulting from death, incompetency, bankruptcy, liquidation, and dissolution;
(ii) a transfer to a broker or other nominee (regardless of whether there is a corresponding change in beneficial ownership); and
(iii) the transfer of, or entering into a binding agreement with respect to the transfer of, Voting Control (as defined below).
Notwithstanding anything to the contrary herein, the term Transfer shall not include the following:
(i) the granting of a revocable proxy to officers or directors of the Corporation at the request of the Board of Directors in connection with actions to be taken at an annual or special meeting of stockholders;
(ii) entering into a voting trust, agreement, or arrangement (with or without granting a proxy) solely with stockholders who are holders of Class B Common Stock, that is (a) disclosed in a Schedule 13D filed with the Securities and Exchange Commission or in writing to the Corporation, (b) either has a term not exceeding one (1) year or is terminable by the stockholder, and (c) does not involve the payment of cash, securities, property, or other consideration to the stockholder of the shares subject thereto, other than the mutual promise to vote shares in a designated manner; for the avoidance of doubt, any voting trust, agreement, or arrangement entered into prior to the IPO Date shall not constitute a Transfer;
(iii) entering into a support or similar voting agreement (with or without granting a proxy and other customary provisions contained in such agreements, including, without limitation, restrictions on disposition and voting with respect to alternative transactions) in connection with a Change of Control Event that has been approved by the Board of Directors or any agreement to tender shares pursuant to a merger agreement governed by Section 251(h) of the DGCL that has been approved by the Board of Directors;
(iv) (A) the pledge of shares of Class B Common Stock by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or other financing transaction, including, without limitation, any form of margin loan, or (B) a bona fide hedging or other derivative transaction (including without limitation a swap, option or forward transaction (or combination thereof) and any related pledge), in each case, for so long as such stockholder continues to exercise Voting Control over such shares; provided, however, that (x) a foreclosure on such shares or other similar action by the pledgee and (y) the settlement of any hedging or derivative transaction by delivery of shares of Class B Common Stock shall constitute a Transfer;
(v) the fact that, as of the IPO Date or at any time after the IPO Date, the spouse of any holder of Class B Common Stock possesses or obtains an interest in such holder’s shares of Class B Common Stock arising solely by reason of the application of the community property laws of any jurisdiction, so long as no other event or circumstance shall exist or have occurred that constitutes a Transfer of such shares of Class B Common Stock; and
(vi) entering into a trading plan pursuant to Rule 10b5-1 under the Exchange Act, with a broker or other nominee; provided, however, that a sale of such shares of Class B Common Stock pursuant to such plan shall constitute a Transfer at the time of such sale.
“Voting Control” means, with respect to a share of Class B Common Stock, the power (whether exclusive or shared) to vote or direct the voting of such share by proxy, voting agreement, or otherwise.
“Voting Securities” means the Common Stock (excluding the Class C Common Stock) and any other securities of the Corporation entitled to vote generally in the election of directors of the Corporation.
B.Preferred Stock.
Shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the creation and issuance of such series adopted by the Board of Directors as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased, or acquired by the Corporation may be reissued except as otherwise provided by law.
Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issuance of the shares thereof and by filing a certificate of designation relating thereto in accordance with the DGCL (a “Certificate of Designation”), to determine and fix the number of shares of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative participating, optional, or other special rights, and qualifications, limitations, or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges, and liquidation preferences, all to the fullest extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, the resolution or resolutions providing for the creation and issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law and this Certificate of Incorporation (including any Certificate of Designation).
ARTICLE VI
For the management of the business and for the conduct of the affairs of the Corporation it is further provided that:
A.General Powers. Except as otherwise expressly provided by the DGCL or this Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
B.Number of Directors; Election of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect directors, and subject to the terms of the Governance Agreement, the number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors.
C.Term and Removal. Subject to the rights of the holders of any series of Preferred Stock to elect directors and the rights granted pursuant to the Governance Agreement, each director shall hold office until the next annual meeting of stockholders of the Corporation and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, disqualification, or removal; provided, however, that the term of any Director Designee (as defined in the Governance Agreement) shall expire or terminate as set forth in and in accordance with the terms in the Governance Agreement. No decrease in the number of directors shall shorten the term of any incumbent director. Subject to the rights of the holders of any series of Preferred Stock to elect directors and the rights granted pursuant to the Governance Agreement, the Board of Directors or any individual director may be removed from office at any time with or without cause by the affirmative vote of the holders of capital stock representing a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class.
D.Vacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock to elect directors and the rights granted pursuant to the Governance Agreement, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board of Directors that results from the death, disability, resignation, disqualification, or removal of any director or from any other cause shall be filled solely by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director, and shall not be filled by the stockholders unless the Board of Directors determines by resolution that any such vacancy or newly created directorship shall be filled by the stockholders. Subject to the rights granted pursuant to the Governance Agreement, any director elected to fill a newly created directorship or vacancy in accordance with the preceding sentence shall hold office until the next annual meeting of stockholders and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, disqualification, or removal.
E.Preferred Stock Directors. Whenever the holders of any series of Preferred Stock issued by the Corporation shall have the right as provided for herein (including any Certificate of Designation), voting separately as a series or separately as a class with one or more such other series, to elect directors, the election, term of office, removal, and other features of such directorships shall be governed by the terms of this Certificate of Incorporation (including any Certificate of Designation). Notwithstanding anything to the contrary in this Article VI and subject to the rights granted pursuant to the Governance Agreement, during the period when the holders of any series of Preferred Stock issued by the Corporation shall have the right to elect additional directors, the number of directors to be elected by the holders of any such series of Preferred Stock shall be in addition to the number fixed pursuant to Part B of this Article VI, and the total number of directors constituting the whole Board of Directors shall be automatically increased by such number of directors to be elected by the holders of any such series of Preferred Stock and each such additional director shall serve until such director’s successor shall have been duly elected and qualified, or until such director’s right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his or her earlier death, resignation, disqualification, or removal. Except as otherwise provided in the Certificate of Designation(s) in respect of any series of Preferred Stock, whenever the holders of any series of Preferred Stock having such right to elect additional directors are divested of such right pursuant to the provisions of this Certificate of Incorporation (including any Certificate of Designation), the terms of office of all such additional directors elected by the holders of such series of Preferred Stock, or elected to fill any vacancies resulting from the death, resignation, disqualification, or removal of such additional directors, shall forthwith terminate (in which case each such director thereupon shall cease to be qualified as, and shall cease to be, a director) and the total authorized number of directors of the Corporation shall automatically be reduced accordingly.
F.Vote by Ballot. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
ARTICLE VII
A.Consent of Stockholders In Lieu of Meeting. Subject to the rights of the holders of any series of Preferred Stock and the last sentence of this Part A of Article VII, at any time when the holders of Class B Common Stock beneficially own, in the aggregate, at least thirty percent (30%) of the voting power of all of the then-outstanding shares of capital stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation may be taken without a meeting, without prior notice, and without a vote, if a consent or consents, setting forth the action so taken, are (i) signed by the holders of the then-outstanding shares of the relevant class(es) or series of stock of the Corporation representing not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the Corporation then issued and outstanding (other than treasury
stock) entitled to vote thereon were present and voted, and (ii) delivered to the Corporation in accordance with applicable law; provided, however, that when stockholders seek to take action by consent in accordance with this Part A of Article VII, such stockholders shall give the Corporation written notice, setting forth in reasonable detail the action proposed to be taken, not less than ten (10) business days prior to the delivery of the consents taking such action to the Corporation in accordance with the DGCL. Subject to the rights of the holders of any series of Preferred Stock, at any time when the holders of Class B Common Stock beneficially own, in the aggregate, less than thirty percent (30%) of the voting power of all of the then-outstanding shares of capital stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation, and shall not be taken by consent in lieu of a meeting.
B.Special Meetings of Stockholders. Special meetings of stockholders of the Corporation may be called, for any purpose or purposes, at any time, only by or at the direction of (i) the Chairperson of the Board of Directors (if any), (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the Board of Directors, or (iv) if at such time the holders of Class B Common Stock beneficially own, in the aggregate, at least thirty percent (30%) of the voting power of all of the then-outstanding shares of capital stock of the Corporation, the Secretary of the Corporation, following his or her receipt of one or more written demands to call a special meeting of stockholders in accordance with, and subject to, the Bylaws, from stockholders of record as of the record date fixed in accordance with the Bylaws, who hold, in the aggregate, at least thirty percent (30%) of the voting power of all of the then-outstanding shares of capital stock of the Corporation, and shall not be called by any other Person or Persons; provided, however, that when stockholders seek to request a special meeting of stockholders in accordance with this Part B of Article VII, such stockholders shall set forth in reasonable detail, in their written request for the special meeting, the action proposed to be taken at such special meeting and shall otherwise deliver such request and provide the required information as set forth in the Bylaws.
C.Stockholder Nominations and Introduction of Business, Etc. Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the Bylaws.
ARTICLE VIII
No director or officer of the Corporation shall have any personal liability to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director or officer, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or hereafter may be amended. Any amendment, repeal, or modification of this Article VIII, or the adoption of any provision of the Certificate of Incorporation inconsistent with this Article VIII, shall not adversely affect any right or protection of a director or officer of the Corporation with respect to any act or omission occurring prior to such amendment, repeal, modification, or adoption. If the DGCL is amended after approval by the stockholders of this Article VIII to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director or officer of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.
ARTICLE IX
The Corporation shall have the power to provide rights to indemnification and advancement of expenses to its current and former officers, directors, employees, and agents and
to any Person who is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise.
ARTICLE X
Unless the Corporation consents in writing to the selection of an alternative forum, (i) the Court of Chancery (the “Chancery Court”) of the State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action, suit, or proceeding brought on behalf of the Corporation, (b) any action, suit, or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, or stockholder of the Corporation to the Corporation or to the Corporation’s stockholders, (c) any action, suit, or proceeding arising pursuant to any provision of the DGCL or the Bylaws or this Certificate of Incorporation (as either may be amended from time to time), or (d) any action, suit, or proceeding asserting a claim against the Corporation governed by the internal affairs doctrine; and (ii) subject to the preceding provisions of this Article X, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause or causes of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint. If any action, the subject matter of which is within the scope of this Article X, is filed in a court other than, in the case of clause (i) the courts located in the State of Delaware, and in the case of clause (ii) the federal district courts of the United States of America (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (x) the personal jurisdiction of the state and federal courts in the State of Delaware in connection with any action brought in any such court to enforce the provisions of this Article X and (y) having service of process made upon such stockholder in any such action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.
Any Person purchasing or otherwise acquiring or holding any interest in any security of the Corporation shall be deemed to have notice of and consented to this Article X. This Article X is intended to benefit and may be enforced by the Corporation, its officers and directors, the underwriters of, or financial advisors in connection with, any offering giving rise to such complaint, and any other professional or entity whose profession gives authority to a statement made by that Person and who has prepared or certified any part of the documents underlying the offering. Notwithstanding the foregoing, the provisions of this Article X shall not apply to suits brought to enforce any liability or duty created by the Exchange Act, or any other claim for which the federal courts of the United States have exclusive jurisdiction.
ARTICLE XI
A.Corporate Opportunities. To the fullest extent permitted by law, no potential transaction or business opportunity may be deemed to be a corporate opportunity of the Corporation or its subsidiaries unless (i) the Corporation or its subsidiaries would be permitted to undertake such transaction or opportunity in accordance with this Certificate of Incorporation, (ii) the Corporation or its subsidiaries at such time have sufficient financial resources to undertake such transaction or opportunity, (iii) the Corporation or its subsidiaries have an interest or expectancy in such transaction or opportunity, and (iv) such transaction or opportunity would be in the same or similar line of business in which the Corporation or its subsidiaries are then engaged or a line of business that is reasonably related to, or a reasonable extension of, such line of business.
B.Liability Waiver. To the fullest extent permitted by law, no stockholder and no director will be liable to the Corporation or its subsidiaries or stockholders for breach of any duty
solely by reason of any activities or omissions of the types referred to in this Article XI, except to the extent such actions or omissions are in breach of this Article XI.
C.Amendments to Article XI. Any amendment, repeal, or modification of this Article XI, or the adoption of any provision of the Certificate of Incorporation inconsistent with this Article XI, shall not adversely affect any right or protection of a director of the Corporation with respect to any act or omission occurring prior to such amendment, repeal, modification, or adoption.
ARTICLE XII
A.Section 203 of the DGCL. The Corporation shall not be governed by Section 203 of the DGCL (or any successor provision thereto) (“Section 203”), and the restrictions contained in Section 203 shall not apply to the Corporation, until immediately following the time at which all of the following conditions exist (if ever): (i) Section 203 by its terms would, but for the provisions of this Part A of Article XII, apply to the Corporation; (ii) Advance and its Affiliates and associates beneficially own less than fifteen percent (15%) of the voting power of the then-outstanding shares of Common Stock; and (iii) the Governance Agreement shall have terminated in accordance with its terms, whereupon the Corporation shall thereafter be governed by Section 203 if and for so long as Section 203 by its terms shall apply to the Corporation.
B.Limitations on Business Combinations. Notwithstanding the foregoing, unless and until all of the conditions set forth in clauses (i), (ii), and (iii) of Part A of this Article XII exist (if ever), the Corporation shall not engage in any Business Combination (as defined below), at any point in time at which any class of the Corporation’s Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, with any Interested Stockholder (as defined below) for a period of three years following the time that such stockholder became an Interested Stockholder, unless:
(i) prior to such time, the Board of Directors approved either the Business Combination or the transaction that resulted in the stockholder becoming an Interested Stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder becoming an Interested Stockholder, the Interested Stockholder owned at least eighty-five percent (85%) of the Voting Securities of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the Voting Securities outstanding (but not the outstanding Voting Securities owned by the Interested Stockholder) those shares owned by (a) Persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
(iii) 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 sixty-six and two-third percent (66 2/3%) of the outstanding Voting Securities of the Corporation which is not owned by the Interested Stockholder.
C.Exceptions to Prohibition on Interested Stockholder Transactions. The restrictions contained in Part B of this Article XII shall not apply if:
(i) a stockholder becomes an Interested Stockholder inadvertently and (a) as soon as practicable divests itself of ownership of sufficient shares so that the stockholder ceases to be an Interested Stockholder and (b) would not, at any time, within the three-year period
immediately prior to the Business Combination between the Corporation and such stockholder, have been an Interested Stockholder but for the inadvertent acquisition of ownership; or
(ii) the Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (a) constitutes one of the transactions described in the second sentence of this paragraph, (b) is with or by a Person who either was not an Interested Stockholder during the previous three years or who became an Interested Stockholder with the approval of the Board of Directors, and (c) is approved or not opposed by a majority of the directors then in office (but not less than one) who were directors prior to any Person becoming an Interested Stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. The proposed transactions referred to in the preceding sentence are limited to (x) a merger or consolidation of the Corporation (except for a merger in respect of which, pursuant to Section 251(f) of the DGCL, no vote of the stockholders of the Corporation is required), (y) a sale, lease, exchange, mortgage, pledge, transfer, or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation (other than to any direct or indirect wholly owned subsidiary or to the Corporation) having an aggregate market value equal to fifty percent (50%) or more of either that aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding capital stock of the Corporation, or (z) a proposed tender or exchange offer for fifty percent (50%) or more of the outstanding Voting Securities of the Corporation. The Corporation shall give not less than twenty (20) days’ notice to all Interested Stockholders prior to the consummation of any of the transactions described in clause (x) or (y) of the second sentence of this paragraph.
D.Definitions. For purposes of this Article XII, references to:
(i) “associate,” when used to indicate a relationship with any Person, means: (a) any corporation, partnership, unincorporated association, or other entity of which such Person is a director, officer, or partner or is, directly or indirectly, the owner of twenty percent (20%) or more of the voting power thereof; (b) any trust or other estate in which such Person has at least a twenty percent (20%) beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity; and (c) any relative or spouse of such Person, or any relative of such spouse, who has the same residence as such Person.
(ii) “Business Combination,” when used in reference to the Corporation and any Interested Stockholder of the Corporation, means:
(a) any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation (1) with the Interested Stockholder, or (2) with any other corporation, partnership, unincorporated association, or other entity if the merger or consolidation is caused by the Interested Stockholder and, as a result of such merger or consolidation, Part B of this Article XII is not applicable to the surviving entity;
(b) any sale, lease, exchange, mortgage, pledge, transfer, or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of the Corporation, to or with the Interested Stockholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets have an aggregate market value equal to ten percent (10%) or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding capital stock of the Corporation;
(c) any transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any capital stock of the Corporation or of such subsidiary to the Interested Stockholder, except: (1) pursuant to the exercise, exchange, or conversion of securities exercisable for, exchangeable for or convertible into capital stock of the Corporation or any such subsidiary which securities were outstanding prior to the time that the Interested Stockholder became such; (2) pursuant to a merger under Section 251(g) of the DGCL; (3) pursuant to a dividend or distribution paid or made, or the exercise, exchange, or conversion of securities exercisable for, exchangeable for, or convertible into capital stock of the Corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of capital stock of the Corporation subsequent to the time the Interested Stockholder became such; (4) pursuant to an exchange offer by the Corporation to purchase capital stock made on the same terms to all holders of said capital stock; or (5) any issuance or transfer of capital stock by the Corporation; provided, however, that in no case under clauses (1) through (5) of this paragraph shall there be an increase in the Interested Stockholder’s proportionate share of the capital stock of any class or series of the Corporation or of the Voting Securities of the Corporation (except as a result of immaterial changes due to fractional share adjustments);
(d) any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect, directly or indirectly, of increasing the proportionate share of the capital stock of any class or series, or securities convertible into the capital stock of any class or series, of the Corporation or of any such subsidiary which is owned by the Interested Stockholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of capital stock not caused, directly or indirectly, by the Interested Stockholder; or
(e) any receipt by the Interested Stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges, or other financial benefits (other than those expressly permitted in paragraphs (a) through (d) above) provided by or through the Corporation or any direct or indirect majority-owned subsidiary.
(iii) “Interested Stockholder” means any Person (other than the Corporation or any direct or indirect majority-owned subsidiary of the Corporation) that (a) is the owner of fifteen percent (15%) or more of the outstanding Voting Securities of the Corporation, or (b) is an Affiliate or associate of the Corporation and was the owner of fifteen percent (15%) or more of the outstanding Voting Securities of the Corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such Person is an Interested Stockholder; and the Affiliates and associates of such Person; but “Interested Stockholder” shall not include (x) any Advance Entity, or any other Person with whom any Advance Entity is acting as a group or in concert for the purpose of acquiring, holding, voting, or disposing of shares of Voting Securities of the Corporation; (y) any Person who would otherwise be an Interested Stockholder because of a transfer, sale, assignment, conveyance, hypothecation, encumbrance, or other disposition of five percent (5%) or more of the outstanding Voting Securities of the Corporation (in one transaction or a series of transactions) by an Advance Entity to such Person; or (z) any Person whose ownership of shares in excess of the fifteen percent (15%) limitation set forth herein is the result of any action taken solely by the Corporation; provided, further, that in the case of clause (z) such Person shall be an Interested Stockholder if thereafter such Person acquires additional shares of Voting Securities of the Corporation, except as a result of further corporate action not caused, directly or indirectly, by such Person. For the purpose of determining whether a person is an Interested Stockholder, the Voting Securities of the Corporation deemed to be outstanding shall include capital stock deemed to be owned by the Person through application of the definition of “owner” below but shall not include any other unissued capital stock of the Corporation which may be issuable pursuant to any agreement,
arrangement, or understanding, or upon exercise of conversion rights, warrants, or options, or otherwise.
(iv) “owner,” including the terms “own” and “owned,” when used with respect to any stock, means a Person that individually or with or through any of its Affiliates or associates:
(a) beneficially owns such stock, directly or indirectly;
(b) has (1) the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement, or understanding, or upon the exercise of conversion rights, exchange rights, warrants, or options, or otherwise; provided, however, that a Person shall not be deemed the owner of stock tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates or associates until such tendered stock is accepted for purchase or exchange; or (2) the right to vote such stock pursuant to any agreement, arrangement, or understanding; provided, however, that a Person shall not be deemed the owner of any stock because of such Person’s right to vote such stock if the agreement, arrangement, or understanding to vote such stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to ten (10) or more Persons; or
(c) has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in clause (2) of paragraph (b) above), or disposing of such stock with any other Person that beneficially owns, or whose Affiliates or associates beneficially own, directly or indirectly, such stock.
ARTICLE XIII
A.Amendment of the Certificate of Incorporation. The Corporation reserves the right to amend, alter, change, adopt, or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of shares of any class or series of capital stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision of this Certificate of Incorporation inconsistent with Articles V, VI, VII, VIII, XI, XII, and XIII; provided, however, for so long as any shares of Class B Common Stock remain outstanding, the Corporation shall not, without the prior affirmative vote of the holders of at least a majority of the voting power of the then-outstanding shares of Class B Common Stock, voting as a separate class, in addition to any other vote required by law or this Certificate of Incorporation and subject to the terms of the Governance Agreement, directly or indirectly, amend, alter, change, adopt, or repeal any provision inconsistent with Part A of Article V, Article VII, Article XI, or this proviso of this Part A of Article XIII.
B.Amendment of Bylaws. In furtherance and not in limitation of the powers conferred upon it by the DGCL, the Board of Directors shall have the power to amend, alter, change, adopt, or repeal the Bylaws. The stockholders may not amend, alter, change, adopt, or repeal the Bylaws unless such action is approved, in addition to any other vote required by this Certificate of Incorporation, by the affirmative vote of the holders of at least sixty-six and two-third percent (66 2/3%) of the voting power of all of the then-outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors, voting together as a single class; provided, however, for so long as any shares of Class B Common Stock remain outstanding, the stockholders shall not, without the prior affirmative vote of the holders of at least a majority of the voting power of the then-outstanding shares of Class B Common Stock, voting as a separate class, in addition to any other vote required by law or this Certificate of Incorporation and subject to the terms of the Governance Agreement, directly or indirectly, amend, alter, change, adopt, or repeal the Bylaws.
C.Severability. If any provision or provisions of this Certificate of Incorporation, including, without limitation, Article X, shall be held to be invalid, illegal, or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality, and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal, or unenforceable that is not itself held to be invalid, illegal, or unenforceable) shall not, to the fullest extent permitted by applicable law, in any way be affected or impaired thereby and (ii) to the fullest extent permitted by applicable law, the provisions of this Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal, or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees, and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
* * * * *
REDDIT, INC.
a Delaware Corporation
AMENDED AND RESTATED BYLAWS
As Adopted July 11, 2017
REDDIT, INC.
a Delaware Corporation
AMENDED AND RESTATED BYLAWS
TABLE OF CONTENTS
| | | | | | | | | | | |
| | | Page |
| | | |
Article I: STOCKHOLDERS | 1 |
| Section 1.1: | Annual Meetings | 1 |
| Section 1.2: | Special Meetings. | 1 |
| Section 1.3: | Notice of Meetings. | 2 |
| Section 1.4: | Adjournments. | 2 |
| Section 1.5: | Quorum. | 2 |
| Section 1.6: | Organization. | 2 |
| Section 1.7: | Voting; Proxies. | 3 |
| Section 1.8: | Fixing Date for Determination of Stockholders of Record. | 3 |
| Section 1.9: | List of Stockholders Entitled to Vote. | 4 |
| Section 1.10: | Action by Written Consent of Stockholders. | 4 |
| Section 1.11: | Inspectors of Elections. | 5 |
| | | |
Article II: BOARD OF DIRECTORS | 6 |
| Section 2.1: | Number; Qualifications. | 6 |
| Section 2.2: | Election; Resignation; Removal; Vacancies | 6 |
| Section 2.3: | Regular Meetings | 7 |
| Section 2.4: | Special Meetings | 7 |
| Section 2.5: | Remote Meetings Permitted | 7 |
| Section 2.6: | Quorum; Vote Required for Action | 7 |
| Section 2.7: | Organization | 7 |
| Section 2.8: | Written Action by Directors | 7 |
| Section 2.9: | Powers | 8 |
| Section 2.10: | Compensation of Directors. | 8 |
| | | |
Article III: COMMITTEES | 8 |
| Section 3.1: | Committees | 8 |
| Section 3.2: | Committee Rules | 8 |
| | | |
Article IV: OFFICERS | 8 |
| Section 4.1: | Generally | 8 |
| Section 4.2: | Chief Executive Officer | 9 |
| Section 4.3: | Chairperson of the Board | 9 |
| Section 4.4: | President | 9 |
| Section 4.5: | Vice President | 10 |
| Section 4.6: | Chief Financial Officer | 10 |
| | | | | | | | | | | |
| Section 4.7: | Treasurer | 10 |
| Section 4.8: | Chief Technology Officer | 10 |
| Section 4.9: | Secretary | 10 |
| Section 4.10: | Delegation of Authority | 10 |
| Section 4.11: | Removal | 10 |
| | | |
Article V: STOCK | 11 |
| Section 5.1: | Certificates | 11 |
| Section 5.2: | Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares | 11 |
| Section 5.3: | Other Regulations | 11 |
| | | |
Article VI: INDEMNIFICATION | 11 |
| Section 6.1: | Indemnification of Officers and Directors | 11 |
| Section 6.2: | Advance of Expenses | 12 |
| Section 6.3: | Non-Exclusivity of Rights | 12 |
| Section 6.4: | Indemnification Contracts | 12 |
| Section 6.5: | Right of Indemnitee to Bring Suit | 13 |
| Section 6.6: | Nature of Rights | 13 |
| | | |
Article VII: NOTICES | 14 |
| Section 7.1: | Notice | 14 |
| Section 7.2: | Waiver of Notice | 15 |
| | | |
Article VIII: INTERESTED DIRECTORS | 15 |
| Section 8.1: | Interested Directors | 15 |
| Section 8.2: | Quorum | 15 |
| | | |
Article IX: MISCELLANEOUS | 15 |
| Section 9.1: | Fiscal Year | 15 |
| Section 9.2: | Seal | 15 |
| Section 9.3: | Form of Records | 16 |
| Section 9.4: | Reliance upon Books and Records | 16 |
| Section 9.5: | Certificate of Incorporation Governs | 16 |
| Section 9.6: | Severability | 16 |
| | | |
Article X: AMENDMENT | 16 |
| | | |
Article XI: STOCK TRANSFERS | 16 |
| Section 11.1: | Restriction on Transfer | 16 |
| Section 11.2: | | 17 |
| Section 11.3: | Certain Definitions | 18 |
| Section 11.4: | Void Transfers | 18 |
| Section 11.5: | Termination of Restriction on Transfer | 18 |
| Section 11.6: | Fees | 18 |
| Section 11.7: | Legends | 18 |
| Section 11.8: | Effective Date | 18 |
REDDIT, INC.
a Delaware Corporation
AMENDED AND RESTATED BYLAWS
As Adopted July 11, 2017
ARTICLE I: STOCKHOLDERS
Section 1.1: Annual Meetings. Unless members of the Board of Directors of the Corporation (the “Board”) are elected by written consent in lieu of an annual meeting, as permitted by Section 211 of the Delaware General Corporation Law (the “DGCL”) and these Bylaws, an annual meeting of stockholders shall be held for the election of directors at such date and time as the Board shall each year fix. The meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine. Any proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any purpose or purposes shall be called by the Secretary at the request of directors representing a majority of the “Whole Board,” which shall mean the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships and, subject to following provisions of this Section 1.2, may be called by the Secretary at the written request, delivered to the Secretary at the principal place of business of the Corporation, of the Chairperson of the Board, the Chief Executive Officer, the President or the holders of shares of stock of the Corporation that, as of the date such request is made, represent not less than fifty percent (50%) of the total number of votes entitled to be cast by all stockholders at such meeting. Special meetings may not be called by any other person or persons. If a special meeting of stockholders is called by any person or persons other than by a majority of the Whole Board, then such person or persons shall request such meeting by delivering a written request to call such meeting to the Board, which request shall set forth a summary of the purpose for which the meeting is to be called (which purposes shall be limited to matters that may be properly brought before a meeting of stockholders under Delaware law), including, in the case of any resolution to be adopted at such meeting, the text of such resolution (which shall include, in the case of any proposed amendment to these Bylaws, the text of such amendment). The Secretary shall deliver any such written request to the Board promptly after receipt thereof. If the Board determines the request was properly made in accordance with these Bylaws, the Board shall, within a reasonable period after its receipt thereof, fix the time and date of such special meeting. The notice of such meeting shall include the purpose or purposes set forth in the request delivered in accordance herewith, together with any such other matters that the Board determines to bring before the meeting. The special meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine. The business brought before any special meeting of stockholder shall be limited to the purpose or purposes set forth in the notice.
Section 1.3: Notice of Meetings. Notice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided by law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation (as the same may be amended and/or restated from time to time, the “Certificate of Incorporation”), such notice shall be given not less than ten (10), nor more than sixty (60), days before the date of the meeting to each stockholder of record entitled to vote at such meeting.
Section 1.4: Adjournments. The chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any). Any meeting of stockholders may adjourn from time to time, and notice need not be given of any such adjourned meeting if the time, date and place (if any) thereof and 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 adjourned meeting are announced at the meeting at which the adjournment is taken. 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 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. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. The Board may cancel, postpone or reschedule any previously scheduled special or annual meeting of stockholders before it is to be held, in which case notice shall be provided to the stockholders of the new date, time and place, if any, of the meeting as provided in Section 1.3 above.
Section 1.5: Quorum. At each meeting of stockholders the holders of a majority of the voting power of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, unless otherwise required by applicable law, the Certificate of Incorporation or these Bylaws. If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the voting power of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporation’s stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation’s stock held by it in a fiduciary capacity and to count such shares for purposes of determining a quorum.
Section 1.6: Organization. Meetings of stockholders shall be presided over by such person as the Board may designate, or, in the absence of such a person, the Chairperson of the
Board, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the voting power of the shares entitled to vote who are present, in person or by proxy, at the meeting. Such person shall be chairperson of the meeting and, subject to Section 1.11 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Each stockholder entitled to vote at a meeting of stockholders, or to take corporate action by written consent without a meeting, may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the voting power of the shares of stock entitled to vote on such matter that are present in person or represented by proxy at the meeting and are voted for or against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
1.8.1 Meeting of Stockholders. In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, 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 meeting is held. 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 may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
1.8.2 Payment of Dividends; Other Lawful Action. In order that the Corporation may determine the stockholders 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 may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
1.8.3 Action by Written Consent. Unless otherwise restricted by the Certificate of Incorporation, in order that the Corporation may determine the stockholders entitled to express consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date for determining stockholders entitled to express consent to corporate action in writing without a meeting is fixed by the Board, (i) when no prior action of the Board is required by law, the record date for such purpose shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law, and (ii) if prior action by the Board is required by law, the record date for such purpose shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.
Section 1.9: List of Stockholders Entitled to Vote. The Corporation shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting (provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order and 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, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting, either on a reasonably accessible electronic network as permitted by law (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the principal place of business of the Corporation. If the meeting is held at a location where stockholders may attend in person, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. If the meeting is held solely by means of remote communication, then the list shall 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 the list shall be provided with the notice of the meeting.
Section 1.10: Action by Written Consent of Stockholders.
1.10.1 Procedure. Unless otherwise provided by the Certificate of Incorporation, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed in the manner permitted by law by the holders of outstanding stock having not less than the 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 in accordance with Section 228 of the DGCL.
1.10.2 Notice of Consent. Prompt notice of the taking of corporate action by stockholders without a meeting by less than unanimous written consent of the stockholders shall be given to those stockholders who have not consented thereto in writing and, who, if the action had been taken at a meeting, would have been entitled to notice of the meeting, if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation as required by law. If the action which is consented to is such as would have required the filing of a certificate under the DGCL if such action had been voted on by stockholders at a meeting thereof, then if the DGCL so requires, the certificate so filed shall state, in lieu of any statement required by the DGCL concerning any vote of stockholders, that written stockholder consent has been given in accordance with Section 228 of the DGCL.
Section 1.11: Inspectors of Elections.
1.11.1 Applicability. Unless otherwise required by the Certificate of Incorporation or by the DGCL, the following provisions of this Section 1.11 shall apply only if and when the Corporation has a class of voting stock that is: (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders. In all other cases, observance of the provisions of this Section 1.11 shall be optional, and at the discretion of the Board.
1.11.2 Appointment. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.
1.11.3 Inspector’s Oath. Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.
1.11.4 Duties of Inspectors. At a meeting of stockholders, the inspectors of election shall (a) ascertain the number of shares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
1.11.5 Opening and Closing of Polls. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the chairperson of the meeting at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
1.11.6 Determinations. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with any information provided pursuant to Section 211(a)(2)(B)(i) of the DGCL, or Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.11 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.
ARTICLE II: BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The total number of directors constituting the Board shall, at the time of adoption of these Bylaws, be seven (7). Thereafter, unless provided by the Certificate of Incorporation, the total number of directors shall be fixed from time to time by resolution of a majority of the Whole Board or by a resolution adopted by stockholders holding at least a majority of the voting power of the Corporation’s outstanding stock then entitled to vote at an election of directors. No decrease in the authorized number of directors constituting the Board shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. Unless otherwise provided by the Certificate of Incorporation, each director shall hold office until the next annual meeting of stockholders and until such director’s successor is duly elected and qualified, or until such director’s earlier death, resignation or removal. Any director may resign at any time upon written notice or notice by electronic transmission to the Corporation. Except as otherwise provided by the Certificate of Incorporation or applicable law, (a) any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors and (b) any vacancy occurring in the Board for any reason, and any newly created directorship resulting from any increase in the authorized number of directors to be elected by all stockholders having the right to vote as a single class, may be filled by the stockholders or by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as the Board may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board.
Section 2.4: Special Meetings. Special meetings of the Board may be called by the Chairperson of the Board, the President or a majority of the members of the Board then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally, in writing or by electronic transmission (including electronic mail), by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile, electronic mail or other means of electronic transmission. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Remote Meetings Permitted. Members of the Board, or any committee of the Board, may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or other communications equipment shall constitute presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. Subject to Section 2.2 above regarding the ability of the members of the Board to fill a vacancy or newly-created directorship on the Board, at all meetings of the Board, the presence of a majority of the Whole Board shall constitute a quorum for the transaction of business. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time without further notice thereof. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board.
Section 2.7: Organization. Meetings of the Board shall be presided over by the Chairperson of the Board, or in such person’s absence by the President, or in such person’s absence by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.
Section 2.8: Written Action by Directors. Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee, respectively, in the minute books of the Corporation. 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 2.9: Powers. The Board may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and manage and direct all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Members of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board.
ARTICLE III: COMMITTEES
Section 3.1: Committees. The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board, shall have and may exercise all the powers and authority of the Board 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 that may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving, adopting, or recommending to the stockholders any action or matter (other than the election or removal of members of the Board) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation.
Section 3.2: Committee Rules. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV: OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of a Chief Executive Officer (who may be the Chairperson of the Board or the President), a Secretary and a Treasurer and may consist of such other officers, including a Chief Financial Officer, Chief Technology Officer and one or more Vice Presidents, as may from time to time be appointed by the Board. All officers shall be elected by the Board; provided, however, that the Board may empower the Chief Executive Officer of the Corporation to appoint any officer other than the Chairperson of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until such person’s successor is appointed or until such person’s earlier resignation, death or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, may be filled by the Board.
Section 4.2: Chief Executive Officer. Subject to the control of the Board and such supervisory powers, if any, as may be given by the Board, the powers and duties of the Chief Executive Officer of the Corporation are:
(a) To act as the general manager and, subject to the control of the Board, to have general supervision, direction and control of the business and affairs of the Corporation;
(b) Subject to Article I, Section 1.6, to preside at all meetings of the stockholders;
(c) Subject to Article I, Section 1.2, to call special meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the Board shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board has not designated any other officer to be the Chief Executive Officer, then the Chairperson of the Board shall be the Chief Executive Officer.
Section 4.3: Chairperson of the Board. The Chairperson of the Board shall be chosen from among the members of the Board and shall have the power to preside at all meetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time to time prescribe.
Section 4.4: President. The Chief Executive Officer shall be the President of the Corporation unless the Board shall have designated one individual as the President and a different individual as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board to the Chairperson of the Board, and/or to any other officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board.
Section 4.5: Vice President. Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officer’s absence or disability.
Section 4.6: Chief Financial Officer. The Chief Financial Officer shall be the Treasurer of the Corporation unless the Board shall have designated another officer as the Treasurer of the Corporation. Subject to the direction of the Board and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all moneys and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board or the Chief Executive Officer may from time to time prescribe.
Section 4.8: Chief Technology Officer. The Chief Technology Officer shall have responsibility for the general research and development activities of the Corporation, for supervision of the Corporation’s research and development personnel, for new product development and product improvements, for overseeing the development and direction of the Corporation’s intellectual property development and such other responsibilities as may be given to the Chief Technology Officer by the Board, subject to: (a) the provisions of these Bylaws; (b) the direction of the Board; (c) the supervisory powers of the Chief Executive Officer of the Corporation; and (d) those supervisory powers that may be given by the Board to the Chairperson or Vice Chairperson of the Board.
Section 4.9: Secretary. The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board. The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or the Chief Executive Officer may from time to time prescribe.
Section 4.10: Delegation of Authority. The Board may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
Section 4.11: Removal. Any officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or without cause, by the Board; provided that if the Board has empowered the Chief Executive Officer to appoint any Vice Presidents of the Corporation, then such Vice Presidents may be removed by the Chief Executive Officer. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.
ARTICLE V: STOCK
Section 5.1: Certificates. The shares of capital stock of the Corporation shall be represented by certificates; provided, however, that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock may be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation (or the transfer agent or registrar, as the case may be). Notwithstanding the adoption of such resolution by the Board, every holder of stock that is represented by a certificate shall be entitled to have a certificate signed by or in the name of the Corporation by any two (2) authorized officers representing the number of shares owned by such stockholder in the Corporation registered in certificate form. Unless the Board by resolution directs otherwise, the Chairperson, any Vice-Chairperson of the Board, the President or any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Corporation shall be authorized to sign stock certificates. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have 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 such person were an officer, transfer agent or registrar at the date of issue.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares. The Corporation may issue a new certificate of stock, or uncertificated shares, in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
Section 5.3: Other Regulations. The issue, transfer, conversion and registration of stock certificates and uncertificated securities shall be governed by such other regulations as the Board may establish.
ARTICLE VI: INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was a member of the Board or officer of the Corporation or a Reincorporated Predecessor (as defined below) or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation or a Reincorporated Predecessor as a member of the board of directors, officer or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an “Indemnitee”), shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful. Such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer and shall inure to the benefit of such Indemnitees’ heirs, executors and administrators. Notwithstanding the foregoing, except as otherwise provided in these Bylaws, the Corporation shall indemnify any such Indemnitee seeking indemnity in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized in advance by the Board. As used herein, the term the “Reincorporated Predecessor” means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger; (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses (including attorneys’ fees) incurred by such an Indemnitee in defending any such Proceeding as they are incurred in advance of its final disposition; provided, however, the payment of such expenses incurred by such an Indemnitee 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 Indemnitee, to repay all amounts so advanced if it should be determined ultimately by final judicial decision from which there is no appeal that such Indemnitee is not entitled to be indemnified under this Article VI or otherwise.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification or advancement rights to such person. Such rights may be greater than those provided in this Article VI.
Section 6.5: Right of Indemnitee to Bring Suit. The following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 above.
6.5.1 Right to Bring Suit. If a claim under Section 6.1 or 6.2 of this Article VI is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Indemnitee has not met any applicable standard for indemnification set forth in applicable law.
6.5.2 Effect of Determination. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in applicable law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit.
6.5.3 Burden of Proof. In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI, or otherwise, shall be on the Corporation.
Section 6.6: Nature of Rights. The rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitee’s heirs, executors and administrators. Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of an Indemnitee or an Indemnitee’s successors shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII: NOTICES
Section 7.1: Notice.
7.1.1 Form and Delivery. Except as otherwise specifically required in these Bylaws (including, without limitation, Section 7.1.2 below) or by law, all notices required to be given pursuant to these Bylaws shall be in writing and may, (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, cablegram, overnight express courier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively be delivered to a stockholder when given by hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by the stockholder as described in Section 7.1.2 of this Article VII by sending such notice by telegram, cablegram, facsimile, electronic mail or other form of electronic transmission. Any such notice shall be addressed to the person to whom notice is to be given at such person’s address as it appears on the records of the Corporation. The notice shall be deemed given (a) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (b) in the case of delivery by mail, upon deposit in the mail, (c) in the case of delivery by overnight express courier, when dispatched, and (d) in the case of delivery via telegram, cablegram, facsimile, electronic mail or other form of electronic transmission, when dispatched.
7.1.2 Electronic Transmission. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given in accordance with Section 232 of the DGCL. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (a) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (b) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this Section 7.1.2 shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of such posting and the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.
7.1.3 Affidavit of Giving Notice. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given in writing or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
Section 7.2: Waiver of Notice. Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, a written waiver of notice, signed by the person entitled to notice, or waiver by electronic transmission by such person, 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 waiver of notice.
ARTICLE VIII: INTERESTED DIRECTORS
Section 8.1: Interested Directors. No contract or transaction between the Corporation and one or more of its members of the Board or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are members of the board of directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (b) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof, or the stockholders.
Section 8.2: Quorum. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.
ARTICLE IX: MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board.
Section 9.2: Seal. The Board may provide for a corporate seal, which may have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board.
Section 9.3: Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on or by means of, or be in the form of, diskettes, CDs, or any other information
storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the DGCL.
Section 9.4: Reliance upon Books and Records. A member of the Board, or a member of any committee designated by the Board shall, in the performance of such person’s duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.
ARTICLE X: AMENDMENT
Unless otherwise required by the Certificate of Incorporation, stockholders of the Corporation holding at least a majority of the voting power of the Corporation’s outstanding voting stock then entitled to vote at an election of directors shall have the power to adopt, amend or repeal Bylaws. To the extent provided in the Certificate of Incorporation, the Board shall also have the power to adopt, amend or repeal Bylaws of the Corporation.
ARTICLE XI: STOCK TRANSFERS
Section 11.1: Restriction on Transfer. No stockholder may sell, assign, transfer, pledge, encumber or in any manner dispose of (“Transfer”) any share of Class A Common Stock of the Corporation or Class B Common Stock of the Corporation (together, the “Common Stock”), 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 Article XI, this Article XI shall govern, and the remaining provision(s) of the Stockholder Agreement(s) that do not conflict with this Article XI shall continue in full force and effect.
Section 11.2: For purposes of this Article XI, a “Permitted Transfer” shall mean any of the following:
(i) any Transfer by a stockholder of any or all of such stockholder’s shares of Common Stock to the Corporation;
(ii) any Transfer by a stockholder of any or all of such stockholder’s shares of Common Stock for no consideration to such stockholder’s family members (as defined in Rule 701 of the Securities Act of 1933, as amended (the “Securities Act”)), to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners (to the extent such trusts or partnerships are considered “family members” for purposes of Rule 701 of the Securities Act);
(iii) any Transfer by a stockholder of any or all of such stockholder’s shares of Common Stock 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 of Common Stock to the partners, members, retired partners, retired members, stockholders, and/or Affiliates (as defined below) of such stockholder;
(v) a corporate stockholder’s Transfer of any or all of its shares of Common Stock pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares of capital reorganization of the corporate stockholder or pursuant to a sale of all or substantially all of the stock or assets of the corporate stockholder; and/or
(vi) any Transfer of shares of Common Stock approved by the Board. Notwithstanding the foregoing, if a Transfer is approved by the Board and the shares of Common Stock subject to the Transfer are also subject to co-sale rights pursuant to a stockholder agreement (the “Co-Sale Rights”), the stockholders entitled to the benefits of such Co-Sale Rights shall be permitted to exercise their respective Co-Sale Rights in conjunction with such Board approved Transfer without any additional approval of the Board.
Section 11.3: Certain Definitions. For purposes of this Article XI:
(i) “Affiliate” shall mean any person or entity who or which, directly or indirectly, controls, is controlled by, or is under common control with the relevant stockholder, including, without limitation, any
general partner, managing partner, officer or director of such stockholder or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such stockholder.
Section 11.4: Void Transfers. Any Transfer, or purported Transfer, of the Corporation’s Common Stock shall be null and void unless the terms, conditions and provisions of this Article XI are strictly observed and followed.
Section 11.5: Termination of Restriction on Transfer. The Transfer restrictions set forth in this Article XI shall immediately and automatically 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 first firm commitment underwritten public offering of its securities pursuant to a registration statement under the Securities Act.
Section 11.6: Fees. The Corporation may, in its sole discretion, require that any Transfers made pursuant to this Article XI be subject to an administrative fee, such amount to be determined in the Corporation’s sole discretion.
Section 11.7: Legends. The certificates representing shares of Common Stock of the Corporation shall bear on their face the following legend so 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 OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.”
Section 11.8: Effective Date. The transfer restrictions set forth in this Article XI shall only be applicable to shares of Common Stock originally issued by the Corporation after September 19, 2014.
CERTIFICATION OF RESTATED AMENDED AND RESTATED BYLAWS
OF
REDDIT, INC.
a Delaware Corporation
I, Melissa Tidwell, certify that I am Secretary of Reddit, Inc., a Delaware corporation (the “Corporation”), that I am duly authorized to make and deliver this certification, that the attached Bylaws are a true and complete copy of the Amended and Restated Bylaws of the Corporation in effect as of the date of this certificate.
Dated: July 11, 2017
| | | | | | | | |
| /s/ Melissa Tidwell | |
| Melissa Tidwell | |
Amended and Restated Bylaws of
Reddit, Inc.
(a Delaware corporation)
as of [ ]
Table of Contents
| | | | | | | | | | | |
| | | Page |
| | | |
| Article I - Corporate Offices | 3 |
| | | |
| 1.1 | Registered Office | 3 |
| 1.2 | Other Offices | 3 |
| | | |
| Article II - Meetings of Stockholders | 3 |
| | | |
| 2.1 | Place of Meetings | 3 |
| 2.2 | Annual Meeting | 3 |
| 2.3 | Special Meetings of Stockholders | 3 |
| 2.4 | Notice of Business to be Brought before a Meeting. | 7 |
| 2.5 | Notice of Nominations for Election to the Board. | 11 |
| 2.6 | Additional Requirements for Valid Nomination of Candidates to Serve as Director and, if Elected, to be Seated as Directors. | 13 |
| 2.7 | Notice of Stockholders’ Meetings | 15 |
| 2.8 | Quorum | 15 |
| 2.9 | Adjourned Meeting; Notice | 16 |
| 2.10 | Conduct of Business | 16 |
| 2.11 | Voting | 16 |
| 2.12 | Record Date for Stockholder Meetings and Other Purposes | 17 |
| 2.13 | Proxies | 17 |
| 2.14 | List of Stockholders Entitled to Vote | 18 |
| 2.15 | Inspectors of Election | 18 |
| 2.16 | Delivery to the Corporation. | 19 |
| | | |
| Article III - Directors | 19 |
| | | |
| 3.1 | Powers | 19 |
| 3.2 | Number; Term; Qualifications | 19 |
| 3.3 | Resignation; Removal; Vacancies | 19 |
| 3.4 | Place of Meetings; Meetings by Telephone. | 19 |
| 3.5 | Regular Meetings | 20 |
| 3.6 | Special Meetings; Notice | 20 |
| 3.7 | Quorum | 20 |
| 3.8 | Board Action without a Meeting | 21 |
| 3.9 | Fees and Compensation of Directors | 21 |
| | | |
| Article IV - Committees | 21 |
| | | |
| 4.1 | Committees of Directors | 21 |
| 4.2 | Committee Minutes | 21 |
| 4.3 | Meetings and Actions of Committees | 22 |
| 4.4 | Subcommittees. | 22 |
| | | |
Table of Contents
(continued)
| | | | | | | | | | | |
| | | Page |
| | | |
| Article V - Officers | 22 |
| | | |
| 5.1 | Officers | 22 |
| 5.2 | Appointment of Officers | 23 |
| 5.3 | Subordinate Officers | 23 |
| 5.4 | Removal and Resignation of Officers | 23 |
| 5.5 | Vacancies in Offices | 23 |
| 5.6 | Representation of Shares of Other Corporations | 23 |
| 5.7 | Authority and Duties of Officers | 23 |
| 5.8 | Compensation. | 24 |
| | | |
| Article VI - Records | 24 |
| | | |
| Article VII - General Matters | 24 |
| | | |
| 7.1 | Execution of Corporate Contracts and Instruments | 24 |
| 7.2 | Stock Certificates | 24 |
| 7.3 | Special Designation of Certificates. | 25 |
| 7.4 | Lost Certificates | 25 |
| 7.5 | Shares Without Certificates | 25 |
| 7.6 | Construction; Definitions | 25 |
| 7.7 | Dividends | 25 |
| 7.8 | Fiscal Year | 26 |
| 7.9 | Seal | 26 |
| 7.10 | Transfer of Stock | 26 |
| 7.11 | Stock Transfer Agreements | 26 |
| 7.12 | Registered Stockholders | 26 |
| 7.13 | Waiver of Notice | 27 |
| | | |
| Article VIII - Notice | 27 |
| | | |
| 8.1 | Delivery of Notice; Notice by Electronic Transmission | 27 |
| | | |
| Article IX - Indemnification | 28 |
| | | |
| 9.1 | Indemnification of Directors and Officers | 28 |
| 9.2 | Indemnification of Others | 28 |
| 9.3 | Prepayment of Expenses | 28 |
| 9.4 | Determination; Claim | 29 |
| 9.5 | Non-Exclusivity of Rights | 29 |
| 9.6 | Insurance | 29 |
| 9.7 | Continuation of Indemnification | 29 |
| 9.8 | Amendment or Repeal; Interpretation | 29 |
| | | |
| Article X - Amendments | 30 |
| | | |
| Article XI - Definitions | 30 |
Amended and Restated Bylaws of
Reddit, Inc.
Article I - Corporate Offices
1.1Registered Office.
The address of the registered office of Reddit, Inc. (the “Corporation”) in the State of Delaware, and the name of its registered agent at such address, shall be as set forth in the Corporation’s certificate of incorporation, as the same may be amended and/or restated from time to time (the “Certificate of Incorporation”).
1.2Other Offices.
The Corporation may have additional offices at any place or places, within or outside the State of Delaware, as the Corporation’s board of directors (the “Board”) may from time to time establish or as the business of the Corporation may require.
Article II - Meetings of Stockholders
2.1Place of Meetings.
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the Corporation’s principal executive office.
2.2Annual Meeting.
The Board shall designate the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly brought before the meeting in accordance with Section 2.4 of these Bylaws may be transacted. The Board may postpone, reschedule, or cancel any previously scheduled annual meeting of stockholders.
2.3Special Meetings of Stockholders.
(a)Special meetings of stockholders of the Corporation may be called, for any purpose or purposes, at any time, only by or at the direction of (i) the Chairperson of the Board (if any), (ii) the Chief Executive Officer, (iii) the Board pursuant to a resolution adopted by a majority of the Board, or (iv) if at such time the holders of shares of the Corporation’s Class B Common Stock beneficially own, in the aggregate, at least thirty percent (30%) of the voting power of all of the then-outstanding shares of capital stock of the Corporation, the Secretary of the Corporation, following his or her receipt of one or more written demands to call a special meeting of stockholders in accordance with, and subject to, this Section 2.3, from stockholders of record as of the record date fixed in accordance with Section 2.3(e) who hold, in
the aggregate, at least thirty percent (30%) of the voting power of all of the then-outstanding shares of capital stock of the Corporation (the “Requisite Percentage”). The notice of a special meeting shall state the purpose or purposes of the special meeting, and the business to be conducted at the special meeting shall be limited to the purpose or purposes stated in the notice. Except in accordance with this Section 2.3, stockholders shall not be permitted to propose business to be brought before a special meeting of stockholders. Stockholders who properly nominate persons for election to the board of directors at a special meeting must also comply with the requirements set forth in Section 2.5 and Section 2.6.
(b)No stockholder may demand that the Secretary of the Corporation call a special meeting of stockholders pursuant to Section 2.3(a) unless a stockholder of record has first submitted a written request that the Board fix a record date (a “Demand Record Date”) for the purpose of determining the stockholders entitled to demand that the Secretary of the Corporation call such special meeting, which request shall be in proper form and delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation.
(c)To be in proper form for purposes of this Section 2.3, a request by a stockholder for the Board to fix a Demand Record Date shall set forth:
(i)As to each Requesting Person (as defined below), the Stockholder Information (as defined in Section 2.4(c)(i), except that for purposes of this Section 2.3 the term “Requesting Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(i));
(ii)As to each Requesting Person, any Disclosable Interests (as defined in Section 2.4(c)(ii), except that for purposes of this Section 2.3 the term “Requesting Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(ii) and the disclosure with respect to the business to be brought before the meeting in Section 2.4(c)(ii) shall be made with respect to the business proposed to be conducted at the special meeting or the proposed election of directors at the special meeting, as the case may be);
(iii)As to the purpose or purposes of the special meeting, (A) a brief description of the purpose or purposes of the special meeting and the business proposed to be conducted at the special meeting, the reasons for conducting such business at the special meeting, and any material interest in such business of each Requesting Person, and (B) a reasonably detailed description of all agreements, arrangements, and understandings (1) between or among any of the Requesting Persons or (2) between or among any Requesting Person and any other person or entity (including their names) in connection with the request for the special meeting or the business proposed to be conducted at the special meeting; provided, however, that the disclosures required by this paragraph (iii) shall not include any disclosures with respect to any broker, dealer, commercial bank, trust company, or other nominee who is a Requesting Person solely as a result of being the stockholder directed to prepare and submit the request required by these Bylaws on behalf of a beneficial owner; and
(iv)If directors are properly proposed to be elected at the special meeting, the Nominee Information (as defined in Section 2.5(c)(iii), except that for purposes of this Section 2.3 the term “Requesting Person” shall be substituted for the term “Nominating Person” in all places that it appears in Section 2.5(c)(iii)) for each person whom a Requesting Person expects to nominate for election as a director at the special meeting.
(d)For purposes of this Section 2.3, the term “Requesting Person” shall mean (i) the stockholder or stockholders making the request to fix a Demand Record Date for the purpose of
determining the stockholders entitled to demand that the Secretary call a special meeting, and (ii) the beneficial owner or beneficial owners, if different, on whose behalf such request is made.
(e)The Board may request that any Requesting Person furnish such additional information as may be reasonably requested by the Board. Such Requesting Person shall provide such additional information within ten (10) days after it has been requested by the Board.
(f)Within ten (10) days after receipt of a request to fix a Demand Record Date in proper form and otherwise in compliance with this Section 2.3 from any stockholder of record, the Board may adopt a resolution fixing a Demand Record Date for the purpose of determining the stockholders entitled to demand that the Secretary of the Corporation call a special meeting, which date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board. If no resolution fixing a Demand Record Date has been adopted by the Board within the ten (10) day period after the date on which such a request to fix a Demand Record Date was received, the Demand Record Date in respect thereof shall be deemed to be the twentieth (20th) day after the date on which such a request is received. Notwithstanding anything in this Section 2.3 to the contrary, no Demand Record Date shall be fixed if the Board determines that the demand or demands that would otherwise be submitted following such Demand Record Date could not comply with the requirements set forth in clauses (ii), (iv), (v), or (vi) of Section 2.3(g).
(g)Without qualification, a special meeting of stockholders shall not be called pursuant to Section 2.3(a) unless stockholders of record as of the Demand Record Date who hold the Requisite Percentage timely provide one or more written demands to call such special meeting in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation. Only stockholders of record on the Demand Record Date shall be entitled to demand that the Secretary of the Corporation call a special meeting of stockholders pursuant to Section 2.3(a). To be timely, a stockholder’s demand to call a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than the fifteenth (15th) day following the Demand Record Date. To be in proper form for purposes of this Section 2.3, a demand to call a special meeting shall set forth (i) the business proposed to be conducted at the special meeting or the proposed election of directors at the special meeting, as the case may be, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration), if applicable, (iii) with respect to any stockholder or stockholders submitting a demand to call a special meeting (except for any stockholder that has provided such demand in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by way of a solicitation statement filed on Schedule 14A (a “Solicited Stockholder”)) the information required to be provided pursuant to this Section 2.3 of a Requesting Person, and (iv) proof of ownership of the shares of capital stock of the Corporation held by such stockholder. A stockholder may revoke a demand to call a special meeting by written revocation delivered to the Secretary at any time prior to the special meeting. For purposes of this Section 2.3(f), a shareholder shall also be deemed to have revoked a demand to call a special meeting by disposing of any shares of capital stock of the Corporation held by such stockholder as of the date the demand to call a special meeting was first provided to the Secretary. If any such revocation(s) are received by or made aware to the Secretary after the Secretary’s receipt of written demands from stockholders holding the Requisite Percentage, and as a result of such revocation(s) there no longer are unrevoked demands to call a special meeting from stockholders holding the Requisite Percentage, the Board shall have the discretion to determine whether or not to proceed with the special meeting.
(h)The Secretary of the Corporation shall not accept, and shall consider ineffective, a written demand from a stockholder to call a special meeting (i) that does not comply with this Section 2.3, (ii)
that relates to an item of business to be transacted at such meeting that is not a proper subject for stockholder action under applicable law, (iii) that includes an item of business to be transacted at such meeting that did not appear on the written request that resulted in the determination of the Demand Record Date, (iv) that relates to an item of business (other than the election of directors) that is identical or substantially similar to an item of business (a “Similar Item”) for which a record date for notice of a stockholder meeting (other than the Demand Record Date) was previously fixed and such demand is delivered between the time beginning on the sixty-first (61st) day after such previous record date, (v) if a Similar Item will be submitted for stockholder approval at any stockholder meeting to be held on or before the ninetieth (90th) day after the Secretary receives such demand, or (vi) if a Similar Item has been presented at the most recent annual meeting or at any special meeting held within one (1) year prior to receipt by the Secretary of such demand to call a special meeting.
(i)After receipt of demands in proper form and in accordance with this Section 2.3 from a stockholder or stockholders holding the Requisite Percentage, the Secretary of the Corporation or the Board, as the case may be, shall duly call, and determine the place, date, and time of, a special meeting of stockholders for the purpose or purposes and to conduct the business specified in the demands received by the Corporation. Notwithstanding anything in these Bylaws to the contrary, the Board may submit its own proposal or proposals for consideration at such a special meeting. The record date for notice and voting for such a special meeting shall be fixed in accordance with Section 2.12, and the Board shall provide written notice of such special meeting to the stockholders in accordance with Section 2.7.
(j)In connection with a special meeting called in accordance with this Section 2.3, any Requesting Person or any stockholder or stockholders who delivered a demand to call a special meeting to the Secretary of the Corporation (except for any Solicited Stockholder) shall further update and supplement the information previously provided to the Corporation in connection with such request or demand, if necessary, so that the information provided or required to be provided in such request or demand pursuant to this Section 2.3 shall be true and correct as of the record date for stockholders entitled to vote at the special meeting and as of the date that is ten (10) business days prior to the special meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for stockholders entitled to vote at the special meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the special meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the special meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the special meeting or any adjournment or postponement thereof). For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any request or demand provided by a stockholder, extend any applicable deadlines hereunder, or enable or be deemed to permit a stockholder who has previously submitted a request or demand hereunder to amend or update any such request or demand, including by changing or adding nominees, matters, business, or resolutions proposed to be brought before a meeting of the stockholders.
(k)Notwithstanding anything in these Bylaws to the contrary, the Secretary of the Corporation shall not be required to call a special meeting pursuant to this Section 2.3 except in accordance with this Section 2.3. If the Board shall determine that any request to fix a record date for notice and voting for the special meeting or demand to call and hold a special meeting was not properly made in accordance with this Section 2.3, or shall determine that a Requesting Person or the stockholder or stockholders submitting a demand to call the special meeting have not otherwise complied with this
Section 2.3, then the Board or Secretary, as the case may be, shall not be required to fix such record date or to call and hold the special meeting. In addition to the requirements of this Section 2.3, each Requesting Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to any request to fix a record date for notice and voting for the special meeting or demand to call a special meeting.
2.4Notice of Business to be Brought before a Meeting.
This Section 2.4 shall apply to any business that may be brought before an annual meeting of stockholders other than nominations for election to the Board at such meeting, which shall be governed by Section 2.5 and Section 2.6. Stockholders seeking to nominate persons for election to the Board must comply with Section 2.5 and Section 2.6 and this Section 2.4 shall not be applicable to nominations except as expressly provided in Section 2.5 and Section 2.6.
(a)At an annual meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in a notice of meeting given by or at the direction of the Board, (ii) if not specified in a notice of meeting, otherwise brought before the meeting by the Board or the Chairperson of the Board, if any, or (iii) otherwise properly brought before the meeting by a stockholder present in person who (A) (1) was a record owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.4 and at the time of the meeting, (2) is entitled to vote at the meeting, and (3) has complied with this Section 2.4 in all applicable respects or (B) properly made such proposal in accordance with Rule 14a-8 under the Exchange Act. The foregoing clause (iii) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of stockholders. For purposes of this Section 2.4, “present in person” shall mean that the stockholder proposing that the business be brought before the annual meeting of the Corporation, or a qualified representative of such proposing stockholder, appear at such annual meeting, and a “qualified representative” of such proposing stockholder shall be a duly authorized officer, manager, or partner of such stockholder or any other person authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(b)Without qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (i) provide Timely Notice (as defined below) thereof in writing and in proper form to the Secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.4. To be timely, a stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the one-year anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered, or mailed and received, not more than the one hundred twentieth (120th) day prior to such annual meeting and not later than the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosure of the date of such annual meeting was first made by the Corporation (such notice within such time periods, “Timely Notice”); provided, further, that for the purposes of calculating Timely Notice for the first annual meeting held after the Corporation’s initial public offering of its Class A Common Stock pursuant to a registration statement on Form S-1, the date of the immediately preceding annual meeting shall be deemed to be [ ]. In no event shall any adjournment or postponement of an annual meeting or the
announcement thereof commence a new time period (or extend any time period) for the giving of Timely Notice as described above.
(c)To be in proper form for purposes of this Section 2.4, a stockholder’s notice to the Secretary of the Corporation shall set forth:
(i)As to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records); (B) the class or series and number of shares of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future; (C) the date or dates such shares were acquired; and (D) the investment intent of such acquisition (the disclosures to be made pursuant to the foregoing clauses (A) through (D) are referred to as “Stockholder Information”);
(ii)As to each Proposing Person, (A) the material terms and conditions of any “derivative security” (as such term is defined in Rule 16a-1(c) under the Exchange Act) that constitutes a “call equivalent position” (as such term is defined in Rule 16a-1(b) under the Exchange Act) or a “put equivalent position” (as such term is defined in Rule 16a-1(h) under the Exchange Act) or other derivative or synthetic arrangement in respect of any class or series of shares of the Corporation (“Synthetic Equity Position”) that is, directly or indirectly, held or maintained by, held for the benefit of, or involving such Proposing Person, including, without limitation, (1) any option, warrant, convertible security, stock appreciation right, future, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, (2) any derivative or synthetic arrangement having the characteristics of a long position or a short position in any class or series of shares of the Corporation, including, without limitation, a stock loan transaction, a stock borrow transaction, or a share repurchase transaction, or (3) any contract, derivative, swap, or other transaction or series of transactions designed to (x) produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the Corporation, (y) mitigate any loss relating to, reduce the economic risk (of ownership or otherwise) of, or manage the risk of share price decrease in, any class or series of shares of the Corporation, or (z) increase or decrease the voting power in respect of any class or series of shares of the Corporation of such Proposing Person, including, without limitation, due to the fact that the value of such contract, derivative, swap, or other transaction or series of transactions is determined by reference to the price, value, or volatility of any class or series of shares of the Corporation, whether or not such instrument, contract, or right shall be subject to settlement in the underlying class or series of shares of the Corporation, through the delivery of cash or other property, or otherwise, and without regard to whether the holder thereof may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract, or right, or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the price or value of any class or series of shares of the Corporation; provided that, for the purposes of the definition of “Synthetic Equity Position,” the term “derivative security” shall also include any security or instrument that would not otherwise constitute a “derivative security” as a result of any feature that would make any conversion, exercise, or similar right or privilege of such security or instrument becoming determinable only at some future date or upon the happening of a future occurrence, in which case the determination of the amount of securities into which such security or instrument would be convertible or exercisable shall be made assuming that such security or instrument is immediately convertible or exercisable at the time of such determination; and, provided, further, that any Proposing Person satisfying the requirements of Rule
13d-1(b)(1) under the Exchange Act (other than a Proposing Person that so satisfies Rule 13d-1(b)(1) under the Exchange Act solely by reason of Rule 13d-1(b)(1)(ii)(E)) shall not be required to disclose any Synthetic Equity Position that is, directly or indirectly, held or maintained by, held for the benefit of, or involving such Proposing Person as a hedge with respect to a bona fide derivatives trade or position of such Proposing Person arising in the ordinary course of such Proposing Person's business as a derivatives dealer, (B) any rights to dividends on the shares of any class or series of shares of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (C) any material pending or threatened legal proceeding in which such Proposing Person is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, (D) any other material relationship between such Proposing Person, on the one hand, and the Corporation or any affiliate of the Corporation, on the other hand, (E) any direct or indirect material interest in any material contract or agreement of such Proposing Person with the Corporation or any affiliate of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement, or consulting agreement), (F) any proportionate interest in shares of the Corporation or a Synthetic Equity Position held, directly or indirectly, by a general or limited partnership, limited liability company, or similar entity in which any such Proposing Person (1) is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership or (2) is the manager, managing member or, directly or indirectly, beneficially owns an interest in the manager or managing members of such limited liability company or similar entity, (G) a representation that such Proposing Person intends, or is part of a group which intends, to deliver a proxy statement or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or otherwise solicit proxies from stockholders in support of such proposal, and (H) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (H) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company, or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner; and
(iii)As to each item of business that the stockholder proposes to bring before the annual meeting, (A) a brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting, and any material interest in such business of each Proposing Person, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the Bylaws, the language of the proposed amendment), (C) a reasonably detailed description of all agreements, arrangements, and understandings (1) between or among any of the Proposing Persons or (2) between or among any Proposing Person and any other person or entity (including their names) in connection with the proposal of such business by such stockholder, and (D) any other information relating to such item of business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act; provided, however, that the disclosures required by this paragraph (iii) shall not include any disclosures with respect to any broker, dealer, commercial bank, trust company, or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner.
(d)For purposes of this Section 2.4, the term “Proposing Person” shall mean (i) the stockholder providing the notice of business proposed to be brought before an annual meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual meeting is made, and (iii) any participant (as defined in paragraphs (a)(ii)-(vi) of Instruction 3 to Item 4 of Schedule 14A) with such stockholder in such solicitation.
(e)The Board may request that any Proposing Person furnish such additional information as may be reasonably required by the Board. Such Proposing Person shall provide such additional information within ten (10) days after it has been requested by the Board.
(f)A Proposing Person shall update and supplement its notice to the Corporation of its intent to propose business at an annual meeting, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4 shall be true and correct as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof). For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder, or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any proposal or to submit any new proposal, including by changing or adding matters, business, or resolutions proposed to be brought before a meeting of stockholders.
(g)Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting that is not properly brought before the meeting in accordance with this Section 2.4. The presiding officer of the meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with this Section 2.4, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
(h)This Section 2.4 is expressly intended to apply to any business proposed to be brought before an annual meeting of stockholders other than any proposal made in accordance with Rule 14a-8 under the Exchange Act and included in the Corporation’s proxy statement. In addition to the requirements of this Section 2.4 with respect to any business proposed to be brought before an annual meeting, each Proposing Person shall comply with all applicable requirements of the Exchange Act with respect to any such business. Nothing in this Section 2.4 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(i)For purposes of these Bylaws, “public disclosure” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14, or 15(d) of the Exchange Act.
2.5Notice of Nominations for Election to the Board.
(a)Nominations of any person for election to the Board at an annual meeting or at a special meeting (but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) may be made at such meeting only (i) as provided in that certain governance agreement, dated as of [ ], 2024, by and among the Corporation, Steven Huffman and Advance Magazine Publishers Inc. (as may be amended from time to time, the “Governance Agreement”), (ii) by or at the direction of the Board, including by any committee or persons authorized to do so by the Board or these Bylaws, or (iii) by a stockholder present in person who (A) was a record owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.5 and at the time of the meeting, (B) is entitled to vote at the meeting, and (C) has complied with this Section 2.5 and Section 2.6 as to such notice and nomination. For purposes of this Section 2.5, “present in person” shall mean that the stockholder nominating any person for election to the Board at the meeting of the Corporation, or a qualified representative of such stockholder, appear at the such meeting, and a “qualified representative” of such proposing stockholder shall be a duly authorized officer, manager, or partner of such stockholder or any other person authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder at the meeting of stockholders and such person must produce such writing or electronic transmission, at the meeting of stockholders. Other than nominations made in accordance with the Governance Agreement, the foregoing clause (iii) shall be the exclusive means for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting or special meeting.
(b)(i) Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting, the stockholder must (A) provide Timely Notice (as defined in Section 2.4) thereof in writing and in proper form to the Secretary of the Corporation, (B) provide the information, agreements, and questionnaires with respect to such stockholder and its candidate for nomination as required to be set forth by this Section 2.5 and Section 2.6, and (C) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5 and Section 2.6.
(ii)Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling a special meeting, then for a stockholder to make any nomination of a person or persons for election to the Board at a special meeting, the stockholder must (A) provide timely notice thereof in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, (B) provide the information with respect to such stockholder and its candidate for nomination as required by this Section 2.5 and Section 2.6, and (C) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the one hundred twentieth (120th) day prior to such special meeting and not later than the ninetieth (90th) day prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (as defined in Section 2.4) of the date of such special meeting was first made.
(iii)In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(iv)In no event may a Nominating Person provide Timely Notice with respect to a greater number of director candidates than are subject to election by stockholders at the applicable
meeting. If the Corporation shall, subsequent to such notice, increase the number of directors subject to election at the meeting, such notice as to any additional nominees shall be due on the later of (A) (1) the conclusion of the time period for Timely Notice for an annual meeting or (2) the date set forth in Section 2.5(b)(ii) for a special meeting, and (B) the tenth (10th) day following the date of public disclosure (as defined in Section 2.4) of such increase.
(c)To be in proper form for purposes of this Section 2.5, a stockholder’s notice to the Secretary of the Corporation shall set forth:
(i)As to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(c)(i), except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(i));
(ii)As to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(c)(ii), except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(ii) and the disclosure with respect to the business to be brought before the meeting in Section 2.4(c)(ii) shall be made with respect to the nomination of persons for election to the Board at the meeting), and, provided that, in lieu of including the information set forth in Section 2.4(c)(ii)(G), the Nominating Person’s notice for purposes of this Section 2.5 shall include a representation as to whether the Nominating Person intends, or is part of a group which intends, to deliver a proxy statement and solicit the holders of shares representing at least sixty-seven percent (67%) of the voting power of shares entitled to vote on the election of directors in support of director nominees other than the Corporation’s nominees in accordance with Rule 14a-19 promulgated under the Exchange Act; and
(iii)As to each candidate whom a Nominating Person proposes to nominate for election as a director, (A) all information relating to such candidate for nomination that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including such candidate’s written consent to being named in a proxy statement and accompanying proxy card relating to the Corporation’s next meeting of stockholders at which directors are to be elected and to serving as a director for a full term if elected), (B) a description of any direct or indirect material interest in any material contract or agreement between or among any Nominating Person, on the one hand, and each candidate for nomination or his or her respective associates or any other participants in such solicitation, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the candidate for nomination were a director or executive officer of such registrant (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are referred to as “Nominee Information”), and (C) a completed and signed questionnaire, representation, and agreement as provided in Section 2.6(a).
(d)For purposes of this Section 2.5, the term “Nominating Person” shall mean (i) the stockholder providing the notice of the nomination proposed to be made at the meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meeting is made, and (iii) any participant (as defined in paragraphs (a)(ii)-(iv) of Instruction 3 to Item 4 of Schedule 14A) with such stockholder in such solicitation.
(e)The Board may request that any Nominating Person furnish such additional information as may be reasonably required by the Board. Such Nominating Person shall provide such additional information within ten (10) days after it has been requested by the Board.
(f)A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.5 shall be true and correct as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof). For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder, or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any nomination or to submit any new nomination.
(g)In addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Nominating Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations. Notwithstanding the foregoing provisions of this Section 2.5, unless otherwise required by law, (i) no Nominating Person shall solicit proxies in support of director nominees other than the Corporation’s nominees unless such Nominating Person has complied with Rule 14a-19 promulgated under the Exchange Act in connection with the solicitation of such proxies, including the provision to the Corporation of notices required thereunder in a timely manner, and (ii) if any Nominating Person (A) provides notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act and (B) subsequently fails to comply with the requirements of Rule 14a-19(a)(2) or Rule 14a-19(a)(3) promulgated under Exchange Act, including the provision to the Corporation of notices required thereunder in a timely manner, or fails to timely provide reasonable evidence sufficient to satisfy the Corporation that such Nominating Person has met the requirements of Rule 14a-19(a)(3) promulgated under the Exchange Act in accordance with the following sentence, then the nomination of each such proposed nominee shall be disregarded, notwithstanding that the nominee is included as a nominee in the Corporation’s proxy statement, notice of meeting, or other proxy materials for any annual meeting (or any supplement thereto) and notwithstanding that proxies or votes in respect of the election of such proposed nominees may have been received by the Corporation (which proxies and votes shall be disregarded). If any Nominating Person provides notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act, such Nominating Person shall deliver to the Corporation, no later than seven (7) business days prior to the applicable meeting, reasonable evidence that it has met the requirements of Rule 14a-19(a)(3) promulgated under the Exchange Act.
2.6Additional Requirements for Valid Nomination of Candidates to Serve as Director and, if Elected, to be Seated as Directors.
(a)To be eligible to be a candidate for election as a director of the Corporation at an annual or special meeting, a candidate must be nominated in the manner prescribed in Section 2.5 and the
candidate for nomination must have previously delivered (with respect to nominations by stockholders pursuant to Section 2.5, within the time period for delivery of the stockholder’s notice pursuant to Section 2.5), to the Secretary of the Corporation at the principal executive offices of the Corporation, (i) a completed written questionnaire (in the form provided by the Corporation upon written request of any stockholder of record therefor) with respect to the background, qualifications, stock ownership, and independence of such proposed nominee and (ii) a written representation and agreement (in the form provided by the Corporation upon written request of any stockholder of record therefor) that such candidate for nomination (A) is not and, if elected as a director during his or her term of office, will not become a party to (1) any agreement, arrangement, or understanding with, and has not given and will not give any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question that has not been disclosed to the Corporation (a “Voting Commitment”) or (2) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (B) is not, and will not become a party to, any agreement, arrangement, or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation or reimbursement for service as a director that has not been disclosed therein or otherwise to the Corporation, and (C) if elected as a director of the Corporation, will comply with all applicable corporate governance, conflict of interest, confidentiality, stock ownership, and trading and other policies and guidelines of the Corporation applicable to directors and in effect during such person’s term in office as a director (and, if requested by any candidate for nomination, the Secretary of the Corporation shall provide to such candidate for nomination all such policies and guidelines then in effect).
(b)The Board may also require any proposed candidate for nomination as a director to furnish such other information as may reasonably be requested by the Board in writing prior to the meeting of stockholders at which such candidate’s nomination is to be acted upon. Without limiting the generality of the foregoing, the Board may request such other information in order for the Board to determine the eligibility of such candidate for nomination to be an independent director of the Corporation or to comply with the director qualification standards and additional selection criteria in accordance with the Corporation’s Corporate Governance Guidelines. Such other information shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation (or any other office specified by the Corporation in any public announcement) not later than five (5) business days after the request by the Board has been delivered to, or mailed and received by, the Nominating Person.
(c)A candidate for nomination as a director shall further update and supplement the materials delivered pursuant to this Section 2.6, if necessary, so that the information provided or required to be provided pursuant to this Section 2.6 shall be true and correct as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation (or any other office specified by the Corporation in any public announcement) not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof). For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws
shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder, or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any nomination or to submit any new proposal, including by changing or adding nominees, matters, business, or resolutions proposed to be brought before a meeting of stockholders.
(d)No candidate shall be eligible for nomination as a director of the Corporation unless such candidate for nomination and the Nominating Person seeking to place such candidate’s name in nomination have complied with Section 2.5 and this Section 2.6, as applicable. The presiding officer at the meeting shall, if the facts warrant, determine that a nomination was not properly made in accordance with Section 2.5 and this Section 2.6, and if he or she should so determine, he or she shall so declare such determination to the meeting, the defective nomination shall be disregarded and any ballots cast for the candidate in question (but in the case of any form of ballot listing other qualified nominees, only the ballots cast for the nominee in question) shall be void and of no force or effect.
(e)Subject to Section 2.6(f) of these Bylaws, no candidate for nomination shall be eligible to be seated as a director of the Corporation unless nominated in accordance with Section 2.5 and this Section 2.6.
(f)Notwithstanding anything in these Bylaws to the contrary, for so long as any party to the Governance Agreement is entitled to nominate a Director pursuant to the Stockholders Agreement, such party shall not be subject to Section 2.5 or this Section 2.6.
2.7Notice of Stockholders’ Meetings.
Unless otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the notice of any meeting of stockholders shall be sent or otherwise given in accordance with Section 8.1 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date, and time of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.8Quorum.
Unless otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the holders of a majority in voting power of the stock issued and outstanding and entitled to vote, present in person, or by remote communication, if applicable, or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders. A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, a quorum is not present or represented at any meeting of stockholders, then either (i) the person presiding over the meeting or (ii) a majority in voting power of the stockholders entitled to vote at the meeting, present in person, or by remote communication, if applicable, or represented by proxy, shall have power to adjourn the meeting from time to time in the manner provided in Section 2.9 of these Bylaws until a quorum is present or represented. At any adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.9Adjourned Meeting; Notice.
When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and 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 adjourned meeting are announced at the meeting at which the adjournment is taken or are provided in any other manner permitted by the DGCL. At any adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. 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 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 entitled to vote at such meeting as of the record date so fixed for notice of such adjourned meeting.
2.10Conduct of Business.
The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations, and procedures (which need not be in writing) and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations, or procedures, whether adopted by the Board or prescribed by the person presiding over the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present (including, without limitation, rules and procedures for removal of disruptive persons from the meeting); (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies, or such other persons as the person presiding over the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting (including, without limitation, determinations with respect to the administration and/or interpretation of any of the rules, regulations, or procedures of the meeting, whether adopted by the Board or prescribed by the person presiding over the meeting), shall, if the facts warrant, determine and declare to the meeting that a matter of business was not properly brought before the meeting and, if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
2.11Voting.
Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one (1) vote for each share of capital stock held by such stockholder.
Except as otherwise provided by the Certificate of Incorporation, at all duly called or convened meetings of stockholders at which a quorum is present, for the election of directors, a plurality of the votes cast shall be sufficient to elect a director. Except as otherwise provided by the Certificate of Incorporation, these Bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, each other matter presented to the stockholders at a duly called or convened meeting at which a quorum is present shall be decided by the affirmative vote of the holders of a majority in voting power of the votes cast (excluding abstentions and broker non-votes) on such matter.
2.12Record Date for Stockholder Meetings and Other Purposes.
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment or postponement thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) days nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment or postponement of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned or postponed meeting; and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned or postponed meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned or postponed meeting.
In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion, or exchange of capital stock, or for the purposes of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
2.13Proxies.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law, including Rule 14a-19 promulgated under the Exchange Act, filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A proxy may be in the form of an electronic transmission which sets forth or is submitted with information from which it can be determined that the transmission was authorized by the stockholder. Any stockholder
directly or indirectly soliciting proxies from other stockholders must use a proxy card color other than white, which shall be reserved for the exclusive use by the Board.
2.14List of Stockholders Entitled to Vote.
The Corporation shall prepare, no later than the tenth (10th) day before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, that if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth (10th) day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of ten (10) days ending on the day before the meeting date: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the Corporation’s principal executive office. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. 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 2.14 or to vote in person or by proxy at any meeting of stockholders.
2.15Inspectors of Election.
Before any meeting of stockholders, the Corporation shall appoint an inspector or inspectors of election to act at the meeting or its adjournment or postponement and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If any person appointed as inspector or any alternate fails to appear or fails or refuses to act, then the person presiding over the meeting shall appoint a person to fill that vacancy.
Such inspectors shall:
(i)determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, and the validity of any proxies and ballots;
(ii)count all votes or ballots;
(iii)count and tabulate all votes;
(iv)determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspector(s); and
(v)certify its or their determination of the number of shares represented at the meeting and its or their count of all votes and ballots.
Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspection with strict impartiality and according to the best of such inspector’s ability. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein. The inspectors of election may appoint such persons to assist them in performing their duties as they determine.
2.16Delivery to the Corporation.
Whenever this Article II requires one or more persons (including a record or beneficial owner of stock) to deliver a document or information to the Corporation or any officer, employee, or agent thereof (including any notice, request, questionnaire, revocation, representation, or other document or agreement), such document or information shall be in writing exclusively (and not in an electronic transmission) and shall be delivered exclusively by hand (including, without limitation, overnight courier service) or by certified or registered mail, return receipt requested, and the Corporation shall not be required to accept delivery of any document not in such written form or so delivered. For the avoidance of doubt, the Corporation expressly opts out of Section 116 of the DGCL with respect to the delivery of information and documents to the Corporation required by this Article II.
Article III - Directors
3.1Powers.
Except as otherwise provided by the Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the Board.
3.2Number; Term; Qualifications.
The total number of directors constituting the Board shall be determined from time to time as provided in the Certificate of Incorporation, subject to the rights granted pursuant to the Governance Agreement. The Board shall be classified in the manner provided in the Certificate of Incorporation. Each director shall hold office until such time as provided in the Certificate of Incorporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires. Directors need not be stockholders to be qualified for election or service as a director of the Corporation. The Certificate of Incorporation or these Bylaws may prescribe qualifications for directors.
3.3Resignation; Removal; Vacancies.
Any director may resign at any time upon written or electronic transmission to the Secretary of the Corporation. Such resignation shall be effective upon delivery unless otherwise specified. Directors of the Corporation may be removed only as expressly provided in the Certificate of Incorporation. Newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board resulting from the death, resignation, disqualification, removal from office, or other cause shall be filled as set forth in the Certificate of Incorporation, subject to the rights granted pursuant to the Governance Agreement.
3.4Place of Meetings; Meetings by Telephone.
The Board may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this Section 3.4 shall constitute presence in person at the meeting.
3.5Regular Meetings.
Regular meetings of the Board may be held within or outside the State of Delaware and at such time and at such place as which has been designated by the Board and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph, or telex, or by electronic mail or other means of electronic transmission. No further notice shall be required for regular meetings of the Board.
3.6Special Meetings; Notice.
Special meetings of the Board for any purpose or purposes may be called at any time by the Chairperson of the Board, if any, the Chief Executive Officer, or a majority of the total number of directors constituting the Board.
Notice of the time and place of special meetings shall be:
(i)delivered personally by hand, by courier, or by telephone;
(ii)sent by United States first-class mail, postage prepaid;
(iii)sent by facsimile or electronic mail; or
(iv)sent by other means of electronic transmission,
directed to each director at that director’s address, telephone number, facsimile number, or electronic mail address, or other address for electronic transmission, as the case may be, as shown on the Corporation’s records.
If the notice is (i) delivered personally by hand, by courier, or by telephone, (ii) sent by facsimile or electronic mail, or (iii) sent by other means of electronic transmission, it shall be delivered or sent at least twenty-four (24) hours before the time of the holding of the meeting. If the notice is sent by U.S. mail, it shall be deposited in the U.S. mail at least four (4) days before the time of the holding of the meeting. The notice need not specify the place of the meeting (if the meeting is to be held at the Corporation’s principal executive office) nor the purpose of the meeting.
3.7Quorum.
At all meetings of the Board, unless otherwise provided by the Certificate of Incorporation, a majority of the total number of directors shall constitute a quorum for the transaction of business; provided that, solely for the purposes of filling vacancies pursuant to Section 3.3 of these Bylaws, a meeting of the Board may be held if a majority of the directors then in office participate in such meeting. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the Certificate of Incorporation, or these Bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat
may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
3.8Board Action without a Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission. After an action is taken, the consent or consents relating thereto shall be filed with the minutes of the proceedings of the Board, or the committee thereof, in the same paper or electronic form as the minutes are maintained. Such action by written consent or consent by electronic transmission shall have the same force and effect as a unanimous vote of the Board.
3.9Fees and Compensation of Directors.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board shall have the authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity. Any director of the Corporation may decline any or all such compensation payable to such director in his or her discretion.
Article IV - Committees
4.1Committees of Directors.
The Board may designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the Corporation. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. 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 such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent permitted by applicable law or provided in the resolution of the Board or in these Bylaws, shall have and may exercise all the powers and authority of the Board 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 that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval (other than the election of directors), or (ii) adopt, amend, or repeal any bylaw of the Corporation.
4.2Committee Minutes.
Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
4.3Meetings and Actions of Committees.
Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:
(i)Section 3.4 (place of meetings; meetings by telephone);
(ii)Section 3.5 (regular meetings);
(iii)Section 3.6 (special meetings; notice);
(iv)Section 3.8 (board action without a meeting); and
(v)Section 7.13 (waiver of notice);
with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board and its members. However:
(i)the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(ii)special meetings of committees may also be called by resolution of the Board or the chairperson of the applicable committee; and
(iii)the Board may adopt rules for the governance of any committee to override the provisions that would otherwise apply to the committee pursuant to this Section 4.3, provided that such rules do not violate the provisions of the Certificate of Incorporation or applicable law.
4.4Subcommittees.
Unless otherwise provided in the Certificate of Incorporation, these Bylaws, or the resolutions of the Board designating the committee, a committee may create one (1) or more subcommittees, each subcommittee to consist of one (1) or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
Article V - Officers
5.1Officers.
The officers of the Corporation shall include a Chief Executive Officer, President, and a Secretary. The Chief Executive Officer shall be the President of the Corporation unless the Board has designated one individual as the President and a different individual as the Chief Executive Officer of the Corporation. The Corporation may also have, at the discretion of the Board, a Chairperson of the Board, a Vice Chairperson of the Board, a Chief Financial Officer, a Treasurer, one (1) or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of these Bylaws. Any number of offices may be held by the same person. No officer need be a stockholder or director of the Corporation.
5.2Appointment of Officers.
The Board shall appoint the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws.
5.3Subordinate Officers.
The Board may appoint, or empower the Chief Executive Officer or, in the absence of any such Chief Executive Officer, the President, to appoint, such other officers and agents as the business of the Corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board may from time to time determine.
5.4Removal and Resignation of Officers.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board may fill the pending vacancy before the effective date if the Board provides that the successor shall not take office until the effective date. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.5Vacancies in Offices.
Any vacancy occurring in any office of the Corporation shall be filled by the Board or as provided in Section 5.2.
5.6Representation of Shares of Other Corporations.
The Chairperson of the Board, if any, the Chief Executive Officer, or the President, or any other person authorized by the Board, the Chief Executive Officer, or the President, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares or voting securities of any other corporation or other entity standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
5.7Authority and Duties of Officers.
All officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be provided herein or designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the oversight of the Board.
5.8Compensation.
The compensation of the officers of the Corporation for their services as such shall be fixed from time to time by or at the direction of the Board. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he or she is also a director of the Corporation.
Article VI - Records
A stock ledger consisting of one or more records in which the names of all of the Corporation’s stockholders of record, the address and number of shares registered in the name of each such stockholder, and all issuances and transfers of stock of the corporation are recorded in accordance with Section 224 of the DGCL shall be administered by or on behalf of the Corporation. Any records administered by or on behalf of the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device, or method, or one or more electronic networks or databases (including one or more distributed electronic networks or databases), provided that the records so kept can be converted into clearly legible paper form within a reasonable time and, with respect to the stock ledger, that the records so kept (i) can be used to prepare the list of stockholders specified in Sections 219 and 220 of the DGCL, (ii) record the information specified in Sections 156, 159, 217(a), and 218 of the DGCL, and (iii) record transfers of stock as governed by Article 8 of the Uniform Commercial Code as adopted in the State of Delaware.
Article VII - General Matters
7.1Execution of Corporate Contracts and Instruments.
The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances.
7.2Stock Certificates.
The shares of the Corporation shall be represented by certificates, provided that the Board by resolution may provide that some or all of the shares of any class or series of stock of the Corporation shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by a certificate shall be entitled to have a certificate signed by, or in the name of the Corporation by, any two (2) officers authorized to sign stock certificates representing the number of shares registered in certificate form. The Chairperson or Vice Chairperson of the Board, if any, Chief Executive Officer, President, Vice President, Treasurer, if any, Assistant Treasurer, if any, Secretary, or Assistant Secretary, if any, of the Corporation shall be specifically authorized to sign stock certificates. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent, or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Corporation in the
case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
7.3Special Designation of Certificates.
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 on the back of the certificate that the Corporation shall issue to represent such class or series of stock (or, in the case of uncertificated shares, set forth in a notice provided pursuant to Section 151 of the DGCL); provided, however, that except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face of back of the certificate that the Corporation shall issue to represent such class or series of stock (or, in the case of any uncertificated shares, included in the aforementioned notice) 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.
7.4Lost Certificates.
Except as provided in this Section 7.4, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Corporation may require the owner of the lost, stolen, or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
7.5Shares Without Certificates
The Corporation may adopt a system of issuance, recordation, and transfer of its shares of stock by electronic or other means not involving the issuance of certificates, provided the use of such system by the Corporation is permitted in accordance with applicable law.
7.6Construction; Definitions.
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural and the plural number includes the singular.
7.7Dividends.
The Board, subject to any restrictions contained in either (i) the DGCL or (ii) the Certificate of Incorporation, may declare and pay dividends upon the shares of the Corporation’s capital stock. Dividends may be paid in cash, in property, or in shares of the Corporation’s capital stock.
The Board may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
7.8Fiscal Year.
The fiscal year of the Corporation shall be fixed by resolution of the Board and may be changed by the Board.
7.9Seal.
The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The Corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
7.10Transfer of Stock.
Shares of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Shares of stock of the Corporation shall be transferred on the books of the Corporation only by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates representing such shares endorsed by the appropriate person or persons (or by delivery of duly executed instructions with respect to uncertificated shares), with such evidence of the authenticity of such endorsement or execution, transfer, authorization, and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing the names of the persons from and to whom it was transferred.
7.11Stock Transfer Agreements.
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes or series 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 DGCL.
7.12Registered Stockholders.
The Corporation:
(i)shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner; and
(ii)shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.
7.13Waiver of Notice.
Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, 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 stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws.
Article VIII - Notice
8.1Delivery of Notice; Notice by Electronic Transmission.
Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provisions of the DGCL, the Certificate of Incorporation, or these Bylaws may be given in writing directed to the stockholder’s mailing address (or by electronic transmission directed to the stockholder’s electronic mail address, as applicable) as it appears on the records of the Corporation and shall be given (i) if mailed, when the notice is deposited in the U.S. mail, postage prepaid, (ii) if delivered by courier service, the earlier of when the notice is received or left at such stockholder’s address, or (iii) 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. A notice by electronic mail must include a prominent legend that the communication is an important notice regarding the Corporation.
Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice or electronic transmission to the Corporation. Notwithstanding the provisions of this paragraph, the Corporation may give a notice by electronic mail in accordance with the first paragraph of this Section 8.1 without obtaining the consent required by this paragraph.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i)if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii)if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iii)if by any other form of electronic transmission, when directed to the stockholder.
Notwithstanding the foregoing, a notice may not be given by an electronic transmission from and after the time that (A) the Corporation is unable to deliver by such electronic transmission two (2)
consecutive notices given by the Corporation and (B) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to discover such inability shall not invalidate any meeting or other action.
An affidavit of the Secretary or an Assistant Secretary of the Corporation or of the transfer agent or other agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
Article IX - Indemnification
9.1Indemnification of Directors and Officers.
The Corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the Corporation (a “covered person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, enterprise, or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees, judgments, fines, ERISA excise taxes, or penalties and amounts paid in settlement) reasonably incurred by such person in connection with any such Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in Section 9.4, the Corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized in the specific case by the Board.
9.2Indemnification of Others.
The Corporation shall have the power to indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the Corporation who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, enterprise, or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.
9.3Prepayment of Expenses.
The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by any covered person, and may pay the expenses incurred by any employee or agent of the Corporation, in defending any Proceeding in advance of its final disposition; provided, however, that such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article IX or otherwise.
9.4Determination; Claim.
If a claim for indemnification (following the final disposition of such Proceeding) under this Article IX is not paid in full within sixty (60) days, or a claim for advancement of expenses under this Article IX is not paid in full within thirty (30) days, after a written claim therefor has been received by the Corporation, the claimant may thereafter (but not before) file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.
9.5Non-Exclusivity of Rights.
The rights conferred on any person by this Article IX shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors, or otherwise.
9.6Insurance.
The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, enterprise, or non-profit entity against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.
9.7Continuation of Indemnification.
The rights to indemnification and to prepayment of expenses provided by, or granted pursuant to, this Article IX shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees, and distributees of such person.
9.8Amendment or Repeal; Interpretation.
The provisions of this Article IX shall constitute a contract between the Corporation, on the one hand, and, on the other hand, each individual who serves or has served as a director or officer of the Corporation (whether before or after the adoption of these Bylaws), in consideration of such person’s performance of such services, and pursuant to this Article IX the Corporation intends to be legally bound to each such current or former director or officer of the Corporation. With respect to current and former directors and officers of the Corporation, the rights conferred under this Article IX are present contractual rights and such rights are fully vested, and shall be deemed to have vested fully, immediately upon adoption of theses Bylaws. With respect to any directors or officers of the Corporation who commence service following adoption of these Bylaws, the rights conferred under this provision shall be present contractual rights and such rights shall fully vest, and be deemed to have vested fully, immediately upon such director or officer commencing service as a director or officer of the Corporation. Any repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection (i) hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification or (ii) under any agreement providing for indemnification or advancement of
expenses to an officer or director of the Corporation in effect prior to the time of such repeal or modification.
Any reference to an officer of the Corporation in this Article IX shall be deemed to refer exclusively to the Chief Executive Officer, President, and Secretary, or other officer of the Corporation appointed by (i) the Board pursuant to Article V of these Bylaws or (ii) an officer to whom the Board has delegated the power to appoint officers pursuant to Article V of these Bylaws, and any reference to an officer of any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise shall be deemed to refer exclusively to an officer appointed by the Board (or equivalent governing body) of such other entity pursuant to the certificate of incorporation and bylaws (or equivalent organizational documents) of such other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. The fact that any person who is or was an employee of the Corporation or an employee of any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise has been given or has used the title of “Vice President” or any other title that could be construed to suggest or imply that such person is or may be an officer of the Corporation or of such other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise shall not result in such person being constituted as, or being deemed to be, an officer of the Corporation or of such other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise for purposes of this Article IX.
Article X - Amendments
The Board is expressly empowered to adopt, amend, or repeal the Bylaws. The stockholders also shall have power to adopt, amend, or repeal the Bylaws; provided, however, that such action by stockholders shall require, in addition to any other vote required by the Certificate of Incorporation or applicable law, the affirmative vote of the holders of at least sixty-six and two-third percent (66 2/3%) of the voting power of all the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
Article XI - Definitions
As used in these Bylaws, unless the context otherwise requires, the following terms shall have the following meanings:
An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
An “electronic mail” means an electronic transmission directed to a unique electronic mail address (which electronic mail shall be deemed to 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 and information).
An “electronic mail address” means a destination, commonly expressed as a string of characters, consisting of a unique user name or mailbox (commonly referred to as the “local part” of the address) and
a reference to an internet domain (commonly referred to as the “domain part” of the address), whether or not displayed, to which electronic mail can be sent or delivered.
The term “person” means any individual, general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative or association, or any other legal entity or organization of whatever nature, and shall include any successor (by merger or otherwise) of such entity.
REDDIT, INC.
AMENDED AND RESTATED
INVESTORS’ RIGHTS AGREEMENT
September 1, 2021
AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (the “Agreement”) is made as of the 1st day of September, 2021, by and among Reddit, Inc., a Delaware corporation (the “Company”), the investors listed on Schedule A hereto and any additional Investor that becomes a party to this Agreement in accordance with Section 6.10 hereof, each of which is herein referred to as an “Investor” and collectively as the “Investors,” the holders of Class A Common Stock of the Company, par value $0.0001 per share (the “Class A Common Stock”) and Class B Common Stock of the Company, par value $0.0001 per share (the “Class B Common Stock” and together with the Class A Common Stock, the “Common Stock”) and holders of options or restricted stock units to acquire shares of the Common Stock listed on Schedule B hereto and any additional Common Holder that becomes a party to this Agreement in accordance with Section 6.10 hereof, each of which is herein referred to as a “Common Holder,” and together with the Investors, the “Stockholders” and Steve Huffman. RECITALS
WHEREAS, certain of the Investors hold shares of the Company’s Series A Preferred Stock, par value $0.0001 per share (“Series A Stock”), Series A-1 Preferred Stock, par value $0.0001 per share (“Series A-1 Stock”), Series B Preferred Stock, par value $0.0001 per share (“Series B Stock”), Series C Preferred Stock, par value $0.0001 per share (“Series C Stock”), Series D Preferred Stock, par value $0.0001 per share (“Series D Stock”), Series D-1 Preferred Stock, par value $0.0001 per share (“Series D-1 Stock”), Series E Preferred Stock, par value $0.0001 per share (“Series E Stock”), and/or Series F Preferred Stock, par value $0.0001 per share (“Series F Stock”) (such Investors, the “Existing Investors”);
WHEREAS, the Existing Investors, the Common Holders and the Company are party to that certain Investors’ Rights Agreement dated as of August 11, 2021 (the “Prior Agreement”);
WHEREAS, pursuant to Section 6.7 of the Prior Agreement, the Prior Agreement may be amended with the written consent of (i) the Company, (ii) the holders of at least a majority of the voting power of the outstanding Registrable Securities of the Company (as defined in the Prior Agreement), (iii) Major Investors (as defined in the Prior Agreement) holding at least a majority of the voting power of the outstanding Registrable Securities held by Major Investors, (iv) the holders of at least a majority of the voting power of the shares of Common Stock issued or issuable upon conversion of Series A Stock held by all Existing Investors, (v) the holders of at least a majority of the voting power of the shares of Common Stock issued or issuable upon conversion of Series B Stock held by all Existing Investors, (vi) Steve Huffman (items (ii) through (vi), collectively, the “Required Preferred Holders”) and the Common Holders holding at least a majority of the voting power of the then-outstanding shares of Common Stock held by Common holders who are past or present service providers of the Company (the “Required Common Holders”);
WHEREAS, the undersigned represent the Required Preferred Holders and the Required Common Holders;
WHEREAS, the Company and certain of the Investors are parties to that certain Amended and Restated Series F Preferred Stock Purchase Agreement as of even date herewith (the “Series F SPA”), under which such Investors’ obligations to purchase shares of Series F Stock and/or shares of Series F-1 Preferred Stock of the Company, par value $0.0001 per share (“Series F-1 Stock”) are conditioned upon
the execution and delivery of this Agreement by such Investors, the Required Preferred Holders, the Required Common Holders and the Company; and
WHEREAS, the Existing Investors, the Common Holders and the Company hereby agree that the Prior Agreement shall be amended and restated in its entirety by this Agreement and the parties to this Agreement further agree as follows:
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1. Definitions. For purposes of this Agreement:
(a) The term “Act” means the Securities Act of 1933, as amended.
(b) The term “Affiliate” means, 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, officer, director or manager of such person and any venture capital 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.
(c) The term “Form S-3” means 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.
(d) The term “Free Writing Prospectus” means a free-writing prospectus, as defined in Rule 405 of the Act.
(e) The term “Holder” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.11 hereof.
(f) The term “Initial Offering” means the Company’s first firm commitment underwritten public offering of its Common Stock under the Act (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 transaction under Rule 145 of the Act).
(g) The term “Liquidation Event” shall have the same meaning as set forth in the Restated Certificate.
(h) The term “1934 Act” means the Securities Exchange Act of 1934, as amended.
(i) The term “Preferred Stock” means the Company’s Series A Stock, Series A-1 Stock, Series B Stock, Series C Stock, Series D Stock, Series D-1 Stock, Series E Stock, Series F Stock and Series F-1 Stock.
(j) 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.
(k) The term “Registrable Securities” means (i) the Class B Common Stock issuable or issued upon conversion of the Series A Stock, Series A_1 Stock, Series B Stock, Series C Stock, Series D Stock, Series D-1 Stock, Series E Stock and Series F Stock held by the Investors as well as the Class A Common Stock actually issued upon conversion of such Class B Common Stock, (ii) the Class A Common Stock issuable or issued upon conversion of the Series F-1 Stock, (iii) any Common Stock of the Company 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) and (ii) above and (iv) the 34,102,500 shares of Class B Common Stock (subject to adjustment for any stock split, dividend, combination or other recapitalization) (the “Advance Common Shares”) held by Advance Magazine Publishers Inc. (“Advance”) as of the date hereof or the shares of Class A Common Stock issued upon conversion thereof; excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned, and excluding for purposes of this Section 1 any shares for which registration rights have terminated pursuant to Section 1.14. In addition, the number of shares of Registrable Securities outstanding shall equal the aggregate of the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities. Notwithstanding the foregoing, the Advance Common Shares shall not be considered “Registrable Securities” with respect to Sections 2 and 3 of this Agreement and Sections 6.7 and 6.9 of this Agreement for purposes of amending or waiving the provisions of Sections 2 or 3 of this Agreement.
(l) The term “Restated Certificate” shall mean the Company’s Amended and Restated Certificate of Incorporation, as amended and/or restated from time to time.
(m) The term “Rule 144” shall mean Rule 144 under the Act.
(n) 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.
(o) The term “Rule 405” shall mean Rule 405 under the Act.
(p) The term “SEC” shall mean the Securities and Exchange Commission.
(q) The term “VC Investor” shall mean any financial investment firm or collective investment vehicle, including, without limitation, VYC12 Limited together with its Affiliates (collectively, “Vy”), Inclusive Capital Partners Spring Master Fund, L.P. together with its Affiliates (collectively, “Inclusive”) and Tencent Cloud Europe B.V. together with its Affiliates (collectively, “Tencent”).
1.2. Request for Registration.
(a) Subject to the conditions of this Section 1.2, if the Company shall receive at any time after the earlier of (i) five (5) years after the date of this Agreement or (ii) six (6) months after the effective date of the Initial Offering, a written request from the Holders of the Registrable Securities representing fifty percent (50%) or more of the voting power of the Registrable Securities then outstanding (for purposes of this Section 1.2, 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 $30,000,000, 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 1.2, use all 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 (a).
(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 1.2, and the Company shall include such information in the written notice referred to in Section 1.2(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 Registrable Securities representing a majority of voting power of the Registrable Securities then held by all Initiating Holders). Notwithstanding any other provision of this Section 1.2, 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 outstanding 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 then 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 1.2:
(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 1.2, 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 eighty (180) days following the effective date of a Company-initiated registration subject to Section 1.3 below, provided that the Company is actively employing in good faith all 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 1.4 hereof; or
(v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board of Directors stating that in the good faith judgment of the Board of Directors of the Company (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 Initiating Holders, provided that such right shall be exercised by the Company not more than twice in any twelve (12) month period.
1.3. 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 1.2 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 6.5, the Company shall, subject to the provisions of Section 1.3(c), use all 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 1.3 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 1.7 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 1.3 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 no event shall any Registrable Securities be excluded from such offering unless all other stockholders’ securities have been first excluded. 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 then 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 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, retired partners and stockholders of such Holder, or the estates and family members of any such partners 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.
1.4. Form S-3 Registration. In case the Company shall receive from the Holders of Registrable Securities representing at least thirty percent (30%) of the voting power of the then outstanding Registrable Securities (for purposes of this Section 1.4, 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 all 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 1.4:
(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 $15,000,000;
(iii) if the Company shall furnish to all Holders requesting a registration statement pursuant to this Section 1.4 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 twice 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 1.4;
(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 one hundred twenty (120) 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 of the Act), provided that the Company is actively employing in good faith all 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 1.3 above, provided that the Company is actively employing in good faith all 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 1.4 and the Company shall include such information in the written notice referred to in Section 1.4(a). The provisions of Section 1.2(b) shall be applicable to such request (with the substitution of Section 1.4 for references to Section 1.2).
(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 1.4 shall not be counted as requests for registration effected pursuant to Section 1.2.
1.5. Obligations of the Company. Whenever required under this Section 1 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 all commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the voting power 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 all commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or “blue sky” securities 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 1 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 1, the Company shall be entitled to postpone or suspend, for a reasonable period of time, 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 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 1.5, 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.
1.6. Information from Holder. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 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.
1.7. Expenses of Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4, 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 (not to exceed $25,000) 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 1.2 or 1.4 if the registration request is subsequently withdrawn at the request of the Holders of Registrable Securities representing a majority of the voting power 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 1.2, the Holders of a majority of the voting power of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2 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 1.2 and 1.4.
1.8. 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 1.
1.9. Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1:
(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 and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, 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, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement 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 to state in such registration statement a material fact required to be stated therein, or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the 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 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 or action as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action 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 or action 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 in respect thereto) 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 Subsection 1.9(b) for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action 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 Subsection 1.9(b) exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action) 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 1.9, 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, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of liability to the indemnified party under this Section 1.9 to the extent of such prejudice, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 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 1.9(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 1.9(d), when combined with the amounts paid or payable by such Holder pursuant to Section 1.9(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) Unless otherwise superseded by an underwriting agreement entered into in connection with underwritten public offering, the obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1 and otherwise shall survive the termination of this Agreement.
1.10. 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.
1.11. Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 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 or stockholder of a Holder, (b) is a Holder’s family member or trust for the benefit of an individual Holder, or (c) after such assignment or transfer, holds at least 300,000 shares of Registrable Securities (appropriately adjusted for any stock split, dividend, combination or other recapitalization), 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 1.13 below; 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.
1.12. Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of Registrable Securities representing a majority of the voting power 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 1.2, 1.3 or 1.4 hereof, 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.
1.13. “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 Company’s Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (l80) days) (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 Initial 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 1.13 shall only be applicable to the Holders if all officers, directors and stockholders holding more than one percent (1%) of the Common Stock (after giving effect to the conversion into Common Stock of all outstanding Preferred Stock) are subject to similar restrictions. The underwriters in connection with the Company’s Initial Offering are intended third
party beneficiaries of this Section 1.13 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 Company’s Initial Offering that are consistent with this Section 1.13 or that are necessary to give further effect thereto.
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. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.
(b) Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 1.13):
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 ACT, 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.
1.14. Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1: (a) after five (5) years following the consummation of the Initial Offering, (b) five (5) years after a Reporting Event, (c) 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 in any three (3) month period without registration in compliance with Rule 144 or (d) after the consummation of a Liquidation Event, as that term is defined in the Restated Certificate.
2. Covenants of the Company.
2.1. Delivery of Financial Statements. The Company shall, upon request, deliver or otherwise make available to each Investor (or transferee of an Investor) that holds at least 630,000 shares of Preferred Stock (appropriately adjusted for any stock split, dividend, combination or other recapitalization) (a “Major Investor”), provided that the Board has not reasonably determined that such Major Investor is a competitor of the Company (provided that in no event shall a VC Investor be deemed a competitor for any purpose under this Agreement):
(a) as soon as practicable, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Company, an 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 (A) in reasonable detail, (B) prepared in accordance with generally accepted accounting principles (“GAAP”) and (C) following the Company’s fiscal year ending December 31, 2017, unless for any such fiscal year the Board makes a determination
not to obtain audited financial statements, audited and certified by independent public accountants of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) 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) 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;
(d) Upon the request of such Major Investor, a summary of the Company’s capitalization and such Investor’s ownership interest in the Company, provided, that such summary, shall not be required to include information regarding the specific ownership interests of any other Company security holders other than those of such Major Investor;
(e) such other information relating to the financial condition, business or corporate affairs of the Company as the Major Investor may from time to time request, provided, however, that the Company shall not be obligated under this subsection (e) or any other subsection of Section 2.1 to provide information that (i) it deems in good faith to be a trade secret, material non-public technical information or similar confidential information or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel; and
(f) If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries. Notwithstanding anything else in this Section 2.1 to the contrary, the Company may cease providing the information set forth in this Section 2.1 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 2.1 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.
In the interest of clarity, the Company may satisfy its obligations under this Section 2.1 by making the requested information available to Major Investors through a digital capitalization or information management system or platform, including, without limitation, the capitalization management platform provided by “Shareworks”.
2.2. Inspection. The Company shall permit each Major Investor (provided that the Board has not reasonably determined that such Major Investor is a competitor of the Company), at such Major Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information that it reasonably
considers to be a trade secret, material non-public technical information or similar confidential information or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
2.3. Observer Rights. As long as Inclusive owns not less than fifty percent (50%) of the Common Stock issuable or issued upon the conversion of the Series E Stock originally acquired by it pursuant to that certain Series E Preferred Stock Purchase Agreement, dated as of February 8, 2021, by and among the Company and certain investors (including any shares of Class A Common Stock issued upon the conversion of Class B Common Stock) (appropriately adjusted for any stock split, dividend, combination or other recapitalization), at any time when Inclusive is not represented on the Board, the Company shall invite a representative of Inclusive to attend all meetings of its 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; provided, however, that such representative shall agree to hold in confidence and trust with respect to all information so provided; 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 could adversely affect the attorney-client privilege between the Company and its counsel, contains material non-public technical information, or would result in disclosure of trade secrets or similar confidential information or result in a conflict of interest.
2.4. Termination of Information, Inspection and Observer Covenants. The covenants set forth in Sections 2.1, 2.2 and 2.3 shall terminate and be of no further force or effect upon the earlier to occur of (a) the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public (the “IPO”), (b) when the Company (or any parent or successor in interest following an acquisition or restructuring of the Company that does not qualify as a Liquidation Event in which the stockholders of the Company become stockholders of such parent or successor in interest) first becomes subject to the periodic reporting requirements of Sections 12(b), 12(g) or 15(d) of the 1934 Act, whichever event shall first occur (a “Reporting Event”) (c) the consummation of a Liquidation Event or (d) upon termination of the Agreement or such Sections 2.1, 2.2 and 2.3 pursuant to Section 6.7 below, provided, however, that the covenants set forth in Section 2.1 shall terminate upon a Liquidation Event only if the consideration received by the Investors in such Liquidation Event is in the form of cash or publicly traded securities, unless the Investors receive financial information from the acquiring company or other successor to the company comparable to those set forth in Section 2.1.
2.5. Right of First Offer. Subject to the terms and conditions specified in this Section 2.5, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.5, any general partner and Affiliate of a Major Investor may participate in the right of first offer granted hereby to such Major Investor (provided that the Board has not reasonably determined that such general partner or Affiliate is a competitor of the Company). Subject to the limitations in the foregoing sentence, a Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and Affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities convertible into or exchangeable or exercisable for any shares of, its capital stock (“Shares”), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice in accordance with Section 6.4 (“Notice”) to the Major Investors 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 ten (10) calendar days after the giving of Notice, each Major Investor 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 (assuming full conversion and exercise of all convertible and exercisable securities then outstanding) 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) (such Major Investor’s “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 do likewise. During the five (5) day period commencing after such information is given, each Fully-Exercising Investor may elect to purchase its Pro Rata Share of the Shares for which Major Investors were entitled to subscribe under this Section 2.5, but which were not subscribed for by the Major Investors.
(c) If all Shares that Major Investors are entitled to obtain pursuant to Subsection 2.5(b) are not elected to be obtained as provided in Subsection 2.5(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in Subsection 2.5(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 in accordance herewith.
(d) The right of first offer in this Section 2.5 shall not be applicable to (i) the issuance or sale of Carve-Out Stock (as defined in the Restated Certificate); (ii) the issuance and sale of Series F Stock and Series F-1 Stock pursuant to the Series F SPA, as the same may be amended from time to time; or (iii) the issuance of securities that are specifically deemed not to be subject to the right of first offer in this Section 2.5 by the written consent or affirmative vote of the Major Investors holding Registrable Securities representing at least a majority of the voting power of all Registrable Securities then held by all Major Investors. In addition to the foregoing, the right of first offer in this Section 2.5 shall not be applicable with respect to any Major Investor in any subsequent offering of Shares if (i) at the time of such offering, the Major Investor 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 2.5 may not be assigned or transferred by any Major Investor; provided, however, that a Major Investor may assign or transfer such rights to its Affiliates.
(f) The covenants set forth in this Section 2.5 shall terminate and be of no further force or effect upon the consummation of (a) the IPO, (b) a Liquidation Event, (c) a Reporting Event or (d) upon termination of the Agreement or such Section 2.5 pursuant to Section 6.7 below.
2.6. Proprietary Information and Inventions Agreements. The Company shall require all employees and consultants with access to confidential information to execute and deliver a standard Proprietary Information and Inventions Agreement.
2.7. Employee Agreements. Unless approved by the Board, all future employees of the Company who shall purchase, or receive options to purchase, shares of 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 and eighty (180)-day lockup period in connection with the Company’s IPO. Unless approved by the Board, all future employees of the Company who shall receive restricted stock units settleable for shares of Common Stock following the date hereof shall be required to execute restricted stock unit 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 quarterly installments over the following twelve (12) quarters thereafter and (b) a one hundred and eighty (180)-day lockup period in connection with the Company’s IPO. The Company shall retain a right of first refusal on transfers until the Company’s IPO and the right to repurchase unvested shares at cost. If the Board allows a holder of stock options to exercise such options prior to full vesting, the unvested shares shall be subject to a repurchase option in favor of the Company, which shall provide that upon termination of employment with or without cause, the Company may repurchase, at cost, any unvested shares held by such holder.
2.8. Indemnification Matters. The Company hereby acknowledges that one (1) or more of the directors nominated to serve on the Board by the Investors (each a “Fund Director”) may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Investors and certain of their affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (a) that it is the indemnitor of first resort (i.e., its obligations to any such Fund Director are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Fund Director are secondary), (b) that it shall be required to advance the full amount of expenses incurred by such Fund Director and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such Fund Director to the extent legally permitted and as required by the Restated Certificate or Bylaws of the Company (or any agreement between the Company and such Fund Director), without regard to any rights such Fund Director may have against the Fund Indemnitors and (c) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of any such Fund Director with respect to any claim for which such Fund Director has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Fund Director against the Company.
2.9. 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 for any information
obtained pursuant to this Agreement (including notice of the Company’s intention to file a registration statement) 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 (other than as a result of a breach of this Section 2.9 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 without a breach of any obligation of confidentiality such third party may have to the Company 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 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; provided, that, such Investor informs each of the foregoing parties that such information is confidential and directs each such party to maintain the confidentiality of such information. 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 2.9, disclose or otherwise make use of any proprietary or confidential information of the Company or any other information obtained pursuant to this Agreement in connection with such activities, or (ii) making any disclosures required by law, rule, regulation or court or other governmental order.
2.10. FCPA. The Company represents that it shall not (and shall not permit any of its subsidiaries or affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to) promise, authorize or make any payment to, or otherwise contribute any item of value, directly or indirectly, to any third party, including any Non-U.S. Official (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”)), in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) cease all of its or their respective activities, as well as remediate any actions taken by the Company, its subsidiaries or affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law.
2.11. Key Person Insurance. The Company shall maintain “key person” life insurance coverage on the life of Steve Huffman on reasonable and customary terms and in an amount to be determined by the Board in good faith if the Board determines that such coverage is appropriate and in the best interest of the Company and its stockholders. The Company would be named the sole beneficiary under any such policy.
2.12. Termination of Certain Covenants. The covenants set forth in Sections 2.6, 2.7 and 2.10 shall terminate and be of no further force or effect upon the consummation of (a) the IPO, (b) a Liquidation Event, (c) a Reporting Event or (d) upon termination of the Agreement or such Sections 2.6, 2.7 and 2.10 pursuant to Section 6.7 below.
3. Drag-Along.
3.1. Definitions. A “Sale of the Company” shall mean either: (a) a transaction or series of related transactions in which a party, or a group of related parties, acquires from stockholders of the Company shares representing more than fifty percent (50%) of the outstanding voting power of the Company (a “Stock Sale”); or (b) a transaction that otherwise qualifies as a Liquidation Event.
3.2. Actions to be Taken. In the event that (a) Steve Huffman, for so long as he is serving as the Chief Executive Officer of the Company, and if Mr. Huffman is no longer serving as the Chief Executive Officer, the holders of a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series C Stock, Series D Stock, Series E Stock, Series F Stock, and Series F-1 Stock (in each case, including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), voting together as a single class, (b) the holders of a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series B Stock (including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), (c) the holders of a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series A Stock (including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), (d) the holders of a majority of the voting power of the outstanding shares of Class A Common Stock and Class B Common Stock held by Common Holders who are past or present service providers of the Company (treating for this purpose all shares of Class A Common Stock and Class B Common Stock issuable upon exercise of or conversion of outstanding options, restricted stock units, warrants or convertible securities, as if exercised and/or converted or exchanged), which for purposes of clarity shall exclude Advance; and (e) the Board (collectively, the “Requisite Holders”) approve a Sale of the Company in writing, specifying that this Section 3 shall apply to such transaction, then each Stockholder and the Company hereby agree:
(a) if such transaction requires stockholder approval, with respect to all shares that each Stockholder owns or over which such Stockholder otherwise exercises voting power, to vote (in person, by proxy or by action by written consent, as applicable) all shares in favor of, and adopt, such Sale of the Company (together with any related amendment to the Restated Certificate required in order to implement such Sale of the Company) and to vote in opposition to any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale of the Company;
(b) if such transaction is a Stock Sale, to sell the number shares of capital stock of the Company beneficially held by such Stockholder in the proportion and on the other terms and conditions approved by the Requisite Holders, except as permitted in Section 3.3 below;
(c) to execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably be requested by the Company or the other Requisite Holders in order to carry out the terms and provision of this Section 3, including, without limitation, executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, indemnity agreement, escrow agreement, consent, waiver, governmental filing, share
certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances) and any similar or related documents;
(d) not to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any shares of the Company owned by such party or Affiliate in a voting trust or subject any shares to any arrangement or agreement with respect to the voting of such shares, unless specifically requested to do so by the acquiror in connection with the Sale of the Company;
(e) to refrain from exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect to such Sale of the Company;
(f) if the consideration to be paid in exchange for the shares pursuant to this Section 3 includes any securities and due receipt thereof by any Stockholder would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Act, the Company may cause to be paid to any such Stockholder in lieu thereof, against surrender of the shares which would have otherwise been sold by such Stockholder, an amount in cash equal to the fair value (as determined in good faith by the Company) of the securities which such Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the shares; and
(g) in the event that the Requisite Holders, in connection with such Sale of the Company, appoint a stockholder representative (the “Stockholder Representative”) with respect to matters affecting the Stockholders under the applicable definitive transaction agreements following consummation of such Sale of the Company, (x) to consent to (i) the appointment of such Stockholder Representative, (ii) the establishment of any applicable escrow, expense or similar fund in connection with any indemnification or similar obligations and (iii) the payment of such Stockholder’s pro rata portion (from the applicable escrow or expense fund or otherwise) of any and all reasonable fees and expenses to such Stockholder Representative in connection with such Stockholder Representative’s services and duties in connection with such Sale of the Company and its related service as the representative of the Stockholders and (y) not to assert any claim or commence any suit against the Stockholder Representative or any other Stockholder with respect to any action or inaction taken or failed to be taken by the Stockholder Representative in connection with its service as the Stockholder Representative, absent fraud or willful misconduct.
Notwithstanding anything herein to the contrary, in no event shall a Stockholder be required to comply with Section 3.2 in connection with any proposed Sale of the Company if doing so would require a vote on a matter set forth in Section 1.2 of the Holder Voting Agreements between certain Investors and Steve Huffman, dated on or around July 31, 2017, December 17, 2018 and April 28, 2020 (the “Series C Holder Voting Agreements”), on a matter set forth in Section 1.2 of the Holder Voting Agreements between certain Investors and Steve Huffman dated on or around January 25, 2019 (the “Series D Holder Voting Agreements”), on a matter set forth in Section 1.2 of the Holder Voting Agreements between certain Investors and Steve Huffman dated between February 8, 2021 and June 1, 2021 (the “Series E Holder Voting Agreements”), or on a matter set forth in Section 1.2 of the Holder Voting Agreements between certain Investors and Steve Huffman dated on or around the date hereof (the “Series F-1 Holder Voting Agreements”) and unless the Requisite Holders include the holders of a majority of the voting power (not voting by proxy) of the shares of Common Stock issuable or issued upon conversion of the Series C Stock, Series D Stock, Series E Stock, Series F Stock and Series F-1 Stock (in each case,
including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), voting together as a single class.
3.3. Exceptions. Notwithstanding the foregoing, a Stockholder will not be required to comply with Section 3.2 above in connection with any proposed Sale of the Company (the “Proposed Sale”), unless:
(a) any representations and warranties to be made by such Stockholder in connection with the Proposed Sale are limited to representations and warranties related to authority, ownership and the ability to convey title to such shares, including, but not limited to, representations and warranties that (i) the Stockholder holds all right, title and interest in and to the shares such Stockholder purports to hold, free and clear of all liens and encumbrances, (ii) the obligations of the Stockholder in connection with the transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Stockholder have been duly executed by the Stockholder and delivered to the acquirer and are enforceable against the Stockholder in accordance with their respective terms; and (iv) neither the execution and delivery of documents to be entered into in connection with the transaction, nor the performance of the Stockholder’s obligations thereunder, will cause a breach or violation of the terms of any agreement, law or judgment, order or decree of any court or governmental agency;
(b) the Stockholder shall not be liable for the inaccuracy of any representation or warranty made by any other person in connection with the Proposed Sale, other than the Company (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders);
(c) the liability for indemnification, if any, of such Stockholder in the Proposed Sale and for the inaccuracy of any representations and warranties made by the Company or its Stockholders in connection with such Proposed Sale, is several and not joint with any other person (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders), and is pro rata in proportion to, and does not exceed, the amount of consideration paid to such Stockholder in connection with such Proposed Sale;
(d) liability shall be limited to such Stockholder’s applicable share (determined based on the respective proceeds payable to each Stockholder in connection with such Proposed Sale in accordance with the provisions of the Restated Certificate) of a negotiated aggregate indemnification amount that applies equally to all Stockholders but that in no event exceeds the amount of consideration otherwise payable to such Stockholder in connection with such Proposed Sale, except with respect to claims related to fraud by such Stockholder, the liability for which need not be limited as to such Stockholder;
(e) upon the consummation of the Proposed Sale (i) each holder of each class or series of the Company’s stock will receive the same form of consideration for their shares of such class or series as is received by other holders in respect of their shares of such same class or series of stock, (ii) each holder of a series of Preferred Stock will receive the same amount of consideration per share of such series of Preferred Stock as is received by other holders in respect of their shares of such same series, (iii) each holder of Class A Common Stock or Class B Common Stock, as applicable, will receive the same amount of consideration per share of Class A Common Stock or Class B Common
Stock, as applicable, as is received by other holders in respect of their shares of Class A Common Stock or Class B Common Stock and (iv) unless the holders of a majority of the voting power of the Series A Stock (voting as a separate series), a majority of the voting power of the Series B Stock (voting as a separate series), a majority of the voting power of the Series C Stock (voting as a separate series), a majority of the voting power of the Series D Stock (voting as a separate series), a majority of the voting power of the Series E Stock (voting as a separate series), and a majority of the voting power of the Series F Stock and Series F-1 Stock (voting together as a separate series) elect to receive a lesser amount by written notice given to the Company at least ten (10) days prior to the effective date of any such Proposed Sale, the aggregate consideration receivable by all holders of the Preferred Stock and Common Stock shall be allocated among the holders of Preferred Stock and Common Stock on the basis of the relative liquidation preferences to which the holders of each respective series of Preferred Stock and the holders of Common Stock are entitled in a Liquidation Event in accordance with the Restated Certificate in effect immediately prior to the Proposed Sale; provided, however, that, notwithstanding the foregoing, if the consideration to be paid in exchange for shares of the Company, as applicable, pursuant to this Section 3 includes any securities and due receipt thereof by any Stockholder would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Act, the Company may cause to be paid to any such Stockholder in lieu thereof, against surrender of the Stockholder’s shares, which would have otherwise been sold by such Stockholder, an amount in cash equal to the fair value (as determined in good faith by the Company) of the securities which such Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the shares, as applicable;
(f) subject to clause (e) above, requiring the same form of consideration to be available to the holders of any single class or series of capital stock, if any holders of any capital stock of the Company are given an option as to the form and amount of consideration to be received as a result of the Proposed Sale, all holders of such capital stock will be given the same option; provided, however, that nothing in this Section 3.3(f) shall entitle any holder to receive any form of consideration that such holder would be ineligible to receive as a result of such holder’s failure to satisfy any condition, requirement or limitation that is generally applicable to the Company’s stockholders; and
(g) if such Stockholder is required to enter into a non-competition and/or non-solicitation arrangement, such Stockholder is not a VC Investor.
3.4. Remedies. The Company agrees to use its best efforts, within the requirements of applicable law, to ensure that the rights granted under this Agreement are effective and that the parties enjoy the benefits of this Agreement. Unless separately agreed between the Company and such Investors, each party to this Agreement hereby constitutes and appoints as the proxies of the party and hereby grants a power of attorney to the President of the Company, and a designee of the Requisite Holders, and each of them, with full power of substitution, with respect to the matters set forth in this Section 3, and hereby authorizes each of them to represent and vote, if and only if the party (i) fails to vote, or (ii) attempts to vote (whether by proxy, in person or by written consent), in a manner which is inconsistent with the terms of this Section 3, all of such party’s shares of Company capital stock in accordance with the terms and provisions of this Section 3 or to take any action necessary to effect this Section 3. Each of the proxy and power of attorney granted pursuant to the immediately preceding sentence is given in consideration of the agreements and covenants of the Company and the parties in connection with the transactions contemplated by this Agreement and, as such, each is coupled with an interest and shall be irrevocable unless and until this Section 3 terminates or expires pursuant to Section 3.5 hereof. Except for, and to the
extent they do not conflict with the proxy and power of attorney granted under this Section 3.4, the proxies granted pursuant to that certain Amended and Restated Right of First Refusal Agreement of even date herewith, that Side Letter Agreement, dated as of September 19, 2014 by and between certain Investors, the Series C Holder Voting Agreements, the Series D Holder Voting Agreements, the Series E Holder Voting Agreements, the Series F-1 Holder Voting Agreements, the Company’s Amended and Restated 2012 Stock Option and Grant Plan and the Company’s 2017 Equity Incentive and Grant Plan, each party hereto hereby revokes any and all previous proxies or powers of attorney with respect to the shares and shall not hereafter, unless and until this Section 3 terminates or expires, purport to grant any other proxy or power of attorney with respect to any of the shares, deposit any of the shares into a voting trust or enter into any agreement, arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of any of the shares, in each case, with respect to any of the matters set forth herein. Each party acknowledges and agrees that each party hereto will be irreparably damaged in the event any of the provisions of this Section 3 are not performed by the parties in accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that each of the Company and the Stockholders shall be entitled to an injunction to prevent breaches of this Section 3, and to specific enforcement of this Section 3 and its terms and provisions in any action instituted in any court of the United States or any state having subject matter jurisdiction. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
3.5. Term. This Section 3 shall continue in effect until and shall terminate upon the earliest to occur of (a) the consummation of the IPO, (b) the consummation of a Sale of the Company and distribution of proceeds to or escrow for the benefit of the Stockholders in accordance with the Restated Certificate, provided that this Section 3 will continue in effect after the closing of such Sale of the Company to the extent necessary to enforce the provisions of this Section 3 with respect to such Sale of the Company, (c) a Reporting Event or (d) upon termination of the Agreement or such Section 3 pursuant to Section 6.7 below.
3.6. Transfers. Each transferee or assignee of any shares subject to this Section 3 shall continue to be subject to the terms hereof, and, as a condition precedent to the Company’s recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Section 3 by executing and delivering an Adoption Agreement substantially in the form attached hereto as Exhibit A. Upon the execution and delivery of an Adoption Agreement by any transferee, such transferee shall be deemed to be a party hereto as if such transferee were the transferor and such transferee’s signature appeared on the signature pages of this Agreement and shall be deemed to be an Investor and Stockholder, or Common Holder and Stockholder, as applicable. The Company shall not permit the transfer of the shares subject to this Section 3 on its books or issue a new certificate representing any such shares unless and until such transferee shall have complied with the terms of this Section 3.6. Each certificate instrument, or book entry representing the shares subject to this Section 3 if issued on or after the date of this Agreement shall be notated by the Company with the following legend: THE SHARES REPRESENTED HEREBY ARE SUBJECT TO A CERTAIN AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT CONTAINING VOTING PROVISIONS, AS MAY BE AMENDED FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY SUCH VOTING PROVISIONS.
4. Special Rights of Tencent.
4.1. Restricted Person Approval. Notwithstanding any other provision to the contrary, for so long as Tencent holds at least 5,764,008 shares of the Series D Stock and/or Series D-1 Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the date hereof) (the “Holding Requirement”), Tencent shall have a right to prohibit any proposed Trade Sale by the Company (as defined below), or issuance by the Company of the Company’s securities, in each case, to any Restricted Persons (as defined below).
(a) “Restricted Persons” means any of the following:
(i) Alibaba Group Holding Limited;
(ii) Qihoo 360 Technology Co. Ltd. (三六零科技股份有限公司);
(iii) Ant Group Co., Ltd. (蚂蚁科技集团股份有限公司);
(iv) (x) Bytedance Ltd, Bytedance (HK) Limited or Beijing ByteDance Technology Co Ltd (北京字节跳动科技有限公司) (together, “Bytedance”); or (y) any other entity that owns or controls “今日头条”, “抖音” or “Tik Tok”, provided that at least fifty percent (50%) of the revenues generated by the ultimate parent company of such acquiring or controlling entity (the accounts of which would be consolidated with the subsidiaries of such ultimate parent company in its consolidated financial statements prepared in accordance with applicable accounting principles) shall be derived from the greater China market (including mainland China, Taiwan, Hong Kong and Macau) during any 12-month period in the three years preceding such proposed Trade Sale by the Company or issuance by the Company of the Company’s Securities, as applicable (a “Chinese Acquirer”);
(v) NetEase Inc.; and
(vi) any person or entity that directly or indirectly, controls, is controlled by, or is under common control with any of (i) to (v) above.
(b) “Trade Sale” means any merger, consolidation, transfer of shares or other form of restructuring of the Company that results in the Company’s shareholders not retaining at least 50% of the voting power of the surviving or resulting company, or a sale of all or substantially all the Company’s assets, or an exclusive license of all or substantially all of the Company’s intellectual property that constitutes the effective disposition of all or substantially all of the Company’s intellectual property.
(c) “control” (including the terms “controlling” and “controlled”), means, to the Company’s actual knowledge after reasonable inquiry, the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of such subject person through the ownership of a majority of voting securities of such subject person, or through contract or otherwise, such that the controlling person and such subject person would be in the same consolidated group under IFRS or US GAAP, as applicable.
(d) In the event that any entity other than Bytedance or a Chinese Acquirer owns or controls “今日头条”, “抖音” or “Tik Tok”, the Company will, if requested by Tencent, discuss modification of this Section 4.1 to include such acquiring party in the definition of Restricted Persons
above, but any modification will be subject to mutual agreement of the Company and Tencent in their respective discretion.
4.2. Term. This Section 4 shall continue in effect until and shall terminate upon the earliest to occur of (a) the consummation of the IPO, (b) the consummation of a Sale of the Company, (c) a Reporting Event, (d) the date that Tencent no longer satisfies the Holding Requirement, and (d) the termination of this Agreement or such Section 4 pursuant to Section 6.7 below.
5. Regulatory Compliance. If Tencent determines in good faith that, in connection with the exercise of any rights conferred or governed by this Agreement, the Amended and Restated Right of First Refusal Agreement, dated as of the date hereof, or the Restated Certificate (as they may be amended, supplemented or modified) (such rights being, the “Rights”), it is advisable and/or necessary to make a voluntary or mandatory filing or declaration with the Committee on Foreign Investment in the United States (a “CFIUS Filing”) or pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any other foreign applicable law designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (such filing an “HSR Filing”), in all cases based on then current law, then Tencent shall provide the Company with prompt notice of such determination and all material information relied on by Tencent to make the determination (including, but not limited to, any involved parties, the anticipated dollar value, the specific code section implicated, the calculations used to determine whether a filing is required, the material information considered by Tencent in the determination of whether a filing is required, and the information Tencent will require the Company to provide to complete a filing) (collectively, such material information, a “Determination Disclosure”). Similarly, if the Company reasonably believes that a CFIUS Filing or HSR Filing would be required in connection with Tencent’s exercise of any Rights and provides Tencent with a written notice thereof and all material information relied on by the Company to make such determination, then Tencent shall provide the Company with a statement as to whether it agrees with such notice, along with a Determination Disclosure as to the requirement for such filing(s) reasonably prior to completing such transaction. All time periods within which actions must be taken or Rights exercised shall be tolled from and including the date Tencent or the Company, as the case may be, delivers any notice in accordance with this Section 5 through and including last day of the Waiting Period (as defined herein). If the Company determines in good faith, within 10 business days of written delivery by Tencent to the Company of a Determination Disclosure in accordance with this Section 5 (such period, the “Waiting Period”), that any CFIUS Filing and/or HSR Filing proposed by Tencent or otherwise required in connection with the exercise of such Rights would impose an unreasonable burden, or would have a material detrimental impact on the Company (a “Company Refused Filing”), then Tencent shall waive, or agree not to exercise, as applicable, the specific right(s) giving rise to the need to make such filing (and only such specific right(s)) and only to the extent necessary to avoid the need or advisability of such filing. In addition to and without limitation of the immediately preceding sentence, Tencent shall refrain from exercising such right(s) or making such filing until the later of the expiration of the Waiting Period and the execution of any waivers or amendments required to give effect to the undertaking by Tencent in this sentence, in order to provide the Company with the opportunity to make a determination regarding whether the filing is a Company Refused Filing. Tencent and the Company agree that with respect to any non-expedited HSR Filing, the costs and time associated with the customary preparation and submission of any such filings are not an unreasonable burden. To the extent Tencent determines that a CFIUS Filing and/or HSR Filing is required (other than a Company Refused Filing), Tencent and the Company agree, to the extent permitted by applicable law and subject to all applicable privileges (e.g., attorney-client privilege), to cooperate and supply the other with relevant information necessary for evaluating any such government filings; provided that neither party shall be required to share with or disclose to the other,
information that is highly confidential or sensitive or, in the case of information to be shared by the Company with Tencent, is material non-public technical information.
6. Miscellaneous.
6.1. 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 shares of Registrable Securities); provided, however, that the rights provided to Tencent in Section 4 shall not inure to the benefit of, or transfer to, any other party that is not a similarly situated investment fund and Affiliate that is wholly owned directly or indirectly by the same ultimate parent of Tencent. 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.
6.2. Governing Law and Dispute Resolution. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of California and to the jurisdiction of the United States District Court for the Northern District of California for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of California or the United States District Court for the Northern District of California, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
6.3. Counterparts; Facsimile. This Agreement may be executed and delivered by facsimile or electronic signature and in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one (1) and the same instrument.
6.4. 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.
6.5. Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given upon the earlier to occur of actual receipt or: (a) upon personal delivery to the party to be notified, (b) when sent by electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) seven (7) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) three (3) business days after deposit with an internationally recognized courier, freight prepaid, specifying prompt delivery, with written verification of receipt, provided that any such notice provided under (c) or (d) above shall be accompanied by a copy to be delivered by electronic mail. Such time periods stated herein shall be calculated based on the time zone of the sender. 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 6.5).
6.6. 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.
6.7. Amendments and Waivers. This Agreement and any term hereof (other than Section 2.1, 2.2, 2.3, 2.4, 3, and 4) may be amended or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Investors holding Registrable Securities representing a majority of the voting power of the outstanding Registrable Securities. The provisions of Section 2.1, 2.2 and 2.4 may be amended, terminated 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 Registrable Securities representing a majority of the voting power of the outstanding Registrable Securities that are then held by all of the Major Investors. The last paragraph of Section 3.2 may be amended, terminated or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and Vy. Section 4 and 5 may be amended, terminated or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and Tencent. Section 2.3 may be amended, terminated or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and Inclusive. The provisions of Section 3 (other than the last paragraph) may be amended, terminated or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of (a) the holders of a majority of the voting power of the outstanding shares of Class A Common Stock and Class B Common Stock held by Common Holders who are past or present service providers of the Company (treating for this purpose all shares of Class A Common Stock and Class B Common Stock issuable upon exercise of or conversion of outstanding options, restricted stock units, warrants or convertible securities, as if exercised and/or converted or exchanged), which for purposes of clarity shall exclude Advance; (b) the Investors holding a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series A Stock held by all Investors (including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), (c) the Investors holding a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series B Stock held by all Investors (including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), (d) Steve Huffman for so long as he is serving as the Chief Executive Officer of the Company, and if Mr. Huffman is no longer serving as the Chief Executive Officer, the Investors holding a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series C Stock, Series D Stock, Series E Stock, Series F Stock and Series F-1 Stock held by all Investors (including in each case any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), voting together as a single class, and (e) the Company, provided that any amendment or waiver of the last paragraph of Section 3.2 or Section 3.3(e)(iv) shall also require the written consent of Investors holding a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series C Stock held by all Investors (including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series D Stock held by all Investors (including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series E Stock held by all Investors (including any shares of Class A Common Stock issued upon conversion of the Class B Common Stock), and a majority of the voting power of the shares of Common Stock issuable or issued upon conversion of the Series F Stock and Series F-1 Stock held by all Investors, voting together as a single class with respect to Section 3.2, and each series voting as separate series with respect to Section 3.3(e)(iv). 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.
6.8. 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.
6.9. Aggregation of Stock. All shares of Registrable Securities held or acquired by 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.
6.10. Additional Parties.
(a) Additional Investors. Notwithstanding Section 6.7, if the Company issues additional shares of Preferred Stock after the date hereof, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Stockholders shall be required for such joinder to this Agreement by such additional Investor.
(b) Additional Common Holders. Notwithstanding Section 6.7, in the event that after the date of this Agreement, the Company enters into an agreement with any person to issue shares of Common Stock or options or restricted stock units to acquire Common Stock to such person, following which such Person shall hold shares of Common Stock constituting one percent (1%) or more of the Company’s then outstanding capital stock (treating for this purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, restricted stock units, warrants or convertible securities, as if exercised and/or converted or exchanged), then, the Company shall cause such Person, as a condition precedent to entering into such agreement, to become a party to this Agreement by executing an Adoption Agreement in the form attached hereto as Exhibit A, agreeing to be bound by and subject to the terms of this Agreement as a Stockholder and thereafter such person shall be deemed a Common Holder and Stockholder for all purposes under this Agreement. No action or consent by the Stockholders shall be required for such joinder to this Agreement by such additional Common Holder.
6.11. Dual Class Common Stock. Any provision of this Agreement that provides for a consent right of the holders of Common Stock, Preferred Stock (on an as-converted basis) or shares of Common Stock issued or issuable upon conversion of outstanding shares of Preferred Stock shall be based on the voting power of such shares, which, in the case of Preferred Stock (on an as-converted basis) or shares of Common Stock issuable upon conversion of the outstanding shares of Preferred Stock shall be based on the class of Common Stock into which such shares of Preferred Stock are directly convertible as of the time of measurement
6.12. Entire Agreement. This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Upon the effectiveness of this Agreement, the Prior
Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement and shall be of no further force or effect.
(Signature page follows)
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | | | | |
| COMPANY: |
| | |
| Reddit, Inc. |
| | |
| By: | /s/ Steve Huffman |
| Name: | Steve Huffman |
| Title: | Chief Executive Officer |
| | |
| | |
| Address: | 1455 Market Street, Suite 1600 San
Francisco, CA 94041 |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | | | | |
| INVESTOR: | |
| | |
ADVANCE MAGAZINE PUBLISHERS INC. |
| | |
| | |
| By: | /s/ Steven O. Newhouse | |
| Steven O. Newhouse, Co-President |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | | | | |
| INVESTOR: | |
| | |
| ATREIDES FOUNDATION MASTER FUND LP |
| By: Atreides Foundation Fund GP, LLC, its General Partner |
| | |
| | |
| By: | /s/ Dunyelle Rosen | |
| Name: | Dunyelle Rosen | |
| Title: | General Counsel & CCO | |
| | |
| | |
| | |
| ATREIDES SPECIAL CIRCUMSTANCES FUND, LLC – SERIES J DIS |
| Series J DIs, a series of Atreides Special Circumstances Fund, LLC |
| By: Atreides Special Circumstances, LLC, its Managing Member |
| | |
| | |
| By: | /s/ Dunyelle Rosen | |
| Name: | Dunyelle Rosen | |
| Title: | General Counsel & CCO | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | | | | |
| INVESTOR: | |
| | |
| BASE10 ADVANCE INITIATIVE I, L.P. |
|
| | |
| By: Base10 Advancement Initiative I GP, LLC |
| its General Partner |
| | |
| | |
| By: | /s/ TJ Nahigian | |
| Name: | TJ Nahigian | |
| Title: | Managing Member | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | | | | |
| INVESTOR: | |
| | |
| Fidelity Contrafund: Fidelity Contrafund |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund Commingled Pool |
| By: Fidelity Management Trust Company, as Trustee |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund: Fidelity Contrafund K6 |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund: Fidelity Advisor New Insights Fund - Sub A |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Global Growth and Value Investment Trust - Sub A |
| By its manager Fidelity Investments Canada ULC |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Insights Investment Trust |
| By its manager Fidelity Investments Canada ULC |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund: Fidelity Flex Opportunistic Insights Fund |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund: Fidelity Series Opportunistic Insights Fund |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Variable Insurance Products Fund II: VIP Contrafund Portfolio – Subportfolio A |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Canadian Growth Company Fund |
| By its manager Fidelity Investments Canada ULC |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Global Innovators Investment Trust |
| By its manager Fidelity Investments Canada ULC |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Special Situations Fund |
| By its manager Fidelity Investments Canada ULC |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Blue Chip Growth Fund |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Blue Chip Growth Commingled Pool |
| By: Fidelity Management Trust Company, as Trustee |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Flex Large Cap Growth Fund |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Blue Chip Growth K6 Fund |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Blue Chip Growth Institutional Trust |
| By its manager Fidelity Investments Canada ULC |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| FIAM Target Date Blue Chip Growth Commingled Pool |
| By: Fidelity Institutional Asset Management Trust Company as Trustee |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Capital Trust: Fidelity Flex Small Cap Fund - Small Cap Growth Subportfolio |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Small Cap Growth Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Small Cap Growth K6 Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Advisor Series I: Fidelity Advisor Growth Opportunities Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| Fidelity U.S. Growth Opportunities Investment Trust |
| by its manager Fidelity Investments Canada ULC |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity NorthStar Fund – Sub D |
| by its manager Fidelity Investments Canada ULC |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Advisor Series VII: Fidelity Advisor Technology Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Variable Insurance Products Fund IV: VIP Technology Portfolio |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity OTC Portfolio |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
|
| Fidelity OTC Commingled Pool |
| By: Fidelity Management Trust Company, as Trustee |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Securities Fund: Fidelity OTC K6 Portfolio |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Central Investment Portfolios LLC: Fidelity U.S. Equity Central Fund - Communication Services Sub |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Select Portfolios: Select Communication Services Portfolio |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
|
| Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Mt. Vernon Street Trust: Fidelity Growth Company K6 Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Growth Company Commingled Pool |
| By: Fidelity Management Trust Company, as Trustee |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| FIAM Target Date Large Cap Stock Commingled Pool |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Advisor Series I: Fidelity Advisor Large Cap Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
|
| Fidelity Concord Street Trust: Fidelity Founders Fund |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Concord Street Trust: Fidelity Large Cap Stock Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Concord Street Trust: Fidelity Large Cap Stock K6 Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Destiny Portfolios: Fidelity Advisor Capital Development Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Destiny Portfolios: Fidelity Advisor Diversified Stock Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Fidelity Founders Investment Trust |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
|
| Fidelity Hastings Street Trust: Fidelity Series Large Cap Stock Fund |
|
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Large Cap Stock Institutional Trust |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Puritan Trust: Fidelity Puritan Fund - Equity Sub B |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | |
| | |
| Fidelity Select Portfolios: Select Technology Portfolio |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
| | | | | | | | |
| Variable Insurance Products Fund IV: Technology Portfolio |
| | |
| | |
| By: | /s/ Chris Maher | |
| Name: | Chris Maher | |
| Title: | Authorized Signatory | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTOR:
| | | | | | | | |
| HYDRAZINE CAPITAL II, L.P. |
| By: | Hydrazine Capital II GP, LLC | |
| Its General Partner | |
| | |
| | |
| By: | /s/ Sam Altman | |
| Name: | Sam Altman | |
| Title: | Managing Director | |
| | |
| | |
|
APOLLO PROJECTS, L.P. |
| By: Apollo Projects GP, LLC, its General Partner |
| | |
| | |
| By: | /s/ Sam Altman | |
| Name: | Sam Altman | |
| Title: | Managing Director | |
| | |
| | |
| APOLLO PROJECTS SPV-A, L.P. |
| By: Apollo Projects SPV-A GP, LLC, its General Partner |
| | |
| By: | /s/ Sam Altman | |
| Name: | Sam Altman | |
| Title: | Managing Director | |
| | |
| | |
| APOLLO PROJECTS SPV-B, L.P. |
| By: Apollo Projects SPV-A GP, LLC, its General Partner |
| | |
| | |
| By: | /s/ Sam Altman | |
| Name: | Sam Altman | |
| Title: | Managing Director | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTOR:
| | | | | | | | |
| INCLUSIVE CAPITAL PARTNERS SPRING MASTER FUND, L.P. |
| By: Spring GP I, L.P. | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Charles Siu | |
| Name: | Charles Siu | |
| Title: | Chief Financial Officer | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTOR:
| | | | | | | | |
| INCLUSIVE CAPITAL PARTNERS SPRING MASTER FUND II, L.P. |
| By: Spring GP II, L.P. | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Charles Siu | |
| Name: | Charles Siu | |
| Title: | Chief Financial Officer | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTOR:
| | | | | | | | |
| MODERNIST VENTURE CLUB X, LP |
| | |
| | |
| By: | /s/ Albert Chen | |
| Name: | Albert Chen | |
| Title: | Managing Member | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTOR:
| | | | | | | | |
| QUIET FUND II WAREHOUSE LLC |
| By: QUIET GROWTH II GP, LLC | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Carlos Lopez Enriquez | |
| Carlos Lopez Enriquez | |
| Authorized Signatory | |
| | |
| | |
| QUIET VENTURE II, L.P. |
| By: QUIET VENTURE II GP, LLC | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Carlos Lopez Enriquez | |
| Carlos Lopez Enriquez | |
| Authorized Signatory | |
| | |
| | |
| QUIET GROWTH I, LP |
| By: Quiet Growth I GP, LLC | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Carlos Lopez Enriquez | |
| Carlos Lopez Enriquez | |
| Authorized Signatory | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTOR:
| | | | | | | | |
| QUIET SPV R6, L.P. |
| By: QUIET SPV R6, LLC | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Carlos Lopez Enriquez | |
| Carlos Lopez Enriquez | |
| Authorized Signatory | |
| | |
| | |
| QUIET SPV R7, L.P. |
| By: QUIET SPV R6 , LLC | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Carlos Lopez Enriquez | |
| Carlos Lopez Enriquez | |
| Authorized Signatory | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTORS:
| | | | | | | | |
| TACIT CAPITAL FUND, LP – SERIES R1 |
| By: Tacit Capital, LLC its GP | |
| | |
| | |
| By: | /s/ Ben Mahdavi | |
| Name: | Ben Mahdavi | |
| Its: | Managing Member | |
| | |
| | |
| TACIT CAPITAL FUND, LP – SERIES R2 |
| By: Tacit Capital, LLC its GP | |
| | |
| | |
| By: | /s/ Ben Mahdavi | |
| Name: | Ben Mahdavi | |
| Its: | Managing Member | |
| | |
| | |
| TACIT CAPITAL FUND, LP – SERIES R3 |
| By: Tacit Capital, LLC its GP | |
| | |
| | |
| By: | /s/ Ben Mahdavi | |
| Name: | Ben Mahdavi | |
| Its: | Managing Member | |
| | |
| | |
| TACIT CAPITAL FUND, LP – SERIES R4 |
| By: Tacit Capital, LLC Its: General Partner | |
| | |
| | |
| By: | /s/ Ben Mahdavi | |
| Name: | Ben Mahdavi | |
| Its: | Managing Member | |
| | | | | | | | |
| TACIT CAPITAL FUND, LP – SERIES R5 |
| By: Tacit Capital, LLC | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Ben Mahdavi | |
| Name: | Ben Mahdavi | |
| Its: | Managing Member | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTOR:
| | | | | | | | |
| TENCENT CLOUD EUROPE B.V. |
| | |
| | |
| By: | /s/ Hai Tao Pu | |
| Name: | Hai Tao Pu | |
| Title: | Director | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTOR:
| | | | | | | | |
| VALOR REDDIT HOLDINGS L.P. |
| By: Valor Reddit GP Holdings, LLC | |
| Its: General Partner | |
| | |
| | |
| By: | /s/ Antonio Gracias | |
| Name: | Antonio Gracias | |
| Title: | Authorized Officer | |
|
| |
| VALOR R&D SERIES LLC – SERIES CW |
| | |
| | |
| By: | /s/ Antonio Gracias | |
| Name: | Antonio Gracias | |
| Title: | Authorized Officer | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | | | | |
| INVESTOR: |
| |
| VYC12 LIMITED | |
| | |
| | |
| By: | /s/ Daniel Schwarz | |
| Name: | Daniel Schwarz | |
| Title: | Director | |
| | |
| | |
| By: | /s/ Katja Lake | |
| Name: | Katja Lake | |
| Title: | Director | |
| | |
| | |
| VYC19 LIMITED | |
| | |
| | |
| By: | /s/ Daniel Schwarz | |
| Name: | Daniel Schwarz | |
| Title: | Director | |
| | |
| | |
| By: | /s/ Katja Lake | |
| Name: | Katja Lake | |
| Title: | Director | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | | | | |
| INVESTOR: |
| |
| VY FUND I, LP | |
| | |
| | |
| By: VY GP II Limited | |
| Its: General Partner | |
| | |
| | |
| | |
| By: | s/ Steven Sokohl | |
| Name: | Steven Sokohl | |
| Title: | Director | |
| | |
| | |
| Address: | |
| Trident Trust Company (Cayman) Limited, Fourth Floor, One Capital Place, P.O. Box 847, Grand Cayman, KY1-1103, Cayman Islands |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | |
| COMMON HOLDER: | |
| |
| STEVE HUFFMAN | |
| |
| /s/ Steve Huffman | |
| Steve Huffman | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | |
| COMMON HOLDER: | |
| |
| JENNIFER WONG | |
| |
| /s/ Jennifer Wong | |
| Jennifer Wong | |
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors’ Rights Agreement as of the date first above written.
| | | | | |
| COMMON HOLDER: | |
| |
| YISHAN WONG | |
| |
| /s/ Yishan Wong | |
| Yishan Wong | |
SCHEDULE A
SCHEDULE OF INVESTORS
| | |
| 500 Startups II, L.P. |
| A Capital Partners, L.P. for itself and as nominee for A Capital Parallel Fund A, L.P. and A Capital Parallel Fund B, L.P. |
| Advance Magazine Publishers Inc. |
| AH Parallel Fund IV, L.P., as nominee |
| Andreessen Horowitz Fund IV, L.P., as nominee |
| Apollo Projects, L.P. |
| Apollo Projects SPV-A, L.P. |
| Apollo Projects SPV-B, L.P. |
| Atreides Foundation Master Fund LP |
| Atreides Special Circumstances Fund, LLC – Series J DIs |
Base10 Advance Initiative I, L.P. Berggruen Holdings Ltd. |
| Bret Johnsen |
| CapitalB Private Holdings 5, LLC |
| Christopher Paik |
| CKE Associates, LLC |
| Claremount TW, L.P. |
| Collaborative I, LP |
| Craft Ventures I, L.P. |
| Craft Ventures I-A, L.P. |
| Craft Ventures I-B, L.P. |
| Ellen Pao Separate Property Revocable Trust |
| F&W INVESTMENTS LP - SERIES 2019 |
| FIAM Target Date Blue Chip Growth Commingled Pool |
| FIAM Target Date Large Cap Stock Commingled Pool |
| Fidelity Advisor Series I: Fidelity Advisor Growth Opportunities Fund |
| Fidelity Advisor Series I: Fidelity Advisor Large Cap Fund |
| Fidelity Advisor Series VII: Fidelity Advisor Technology Fund |
| Fidelity Blue Chip Growth Commingled Pool |
| Fidelity Blue Chip Growth Institutional Trust |
| Fidelity Canadian Growth Company Fund |
| Fidelity Capital Trust: Fidelity Flex Small Cap Fund - Small Cap Growth Subportfolio |
| Fidelity Central Investment Portfolios LLC: Fidelity U.S. Equity Central Fund - Communication Services Sub |
| Fidelity Concord Street Trust: Fidelity Founders Fund |
| Fidelity Concord Street Trust: Fidelity Large Cap Stock Fund |
| Fidelity Concord Street Trust: Fidelity Large Cap Stock K6 Fund |
| Fidelity Contrafund Commingled Pool |
| Fidelity Contrafund: Fidelity Advisor New Insights Fund - Sub A |
| Fidelity Contrafund: Fidelity Contrafund |
| Fidelity Contrafund: Fidelity Contrafund K6 |
| | |
| Fidelity Contrafund: Fidelity Flex Opportunistic Insights Fund |
| Fidelity Contrafund: Fidelity Series Opportunistic Insights Fund |
| Fidelity Destiny Portfolios: Fidelity Advisor Capital Development Fund |
| Fidelity Destiny Portfolios: Fidelity Advisor Diversified Stock Fund |
| Fidelity Founders Investment Trust |
| Fidelity Global Innovators Investment Trust |
| Fidelity Global Growth and Value Investment Trust - Sub A |
| Fidelity Growth Company Commingled Pool |
| Fidelity Hastings Street Trust: Fidelity Series Large Cap Stock Fund |
| Fidelity Insights Investment Trust |
| Fidelity Large Cap Stock Institutional Trust |
| Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund |
| Fidelity Mt. Vernon Street Trust: Fidelity Growth Company K6 Fund |
| Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund |
| Fidelity NorthStar Fund - Sub D |
| Fidelity OTC Commingled Pool |
| Fidelity Puritan Trust: Fidelity Puritan Fund - Equity Sub B |
| Fidelity Securities Fund: Fidelity Blue Chip Growth Fund |
| Fidelity Securities Fund: Fidelity Blue Chip Growth K6 Fund |
| Fidelity Securities Fund: Fidelity Flex Large Cap Growth Fund |
| Fidelity Securities Fund: Fidelity OTC K6 Portfolio |
| Fidelity Securities Fund: Fidelity OTC Portfolio |
| Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund |
| Fidelity Securities Fund: Fidelity Small Cap Growth Fund |
| Fidelity Securities Fund: Fidelity Small Cap Growth K6 Fund |
| Fidelity Select Portfolios: Select Communication Services Portfolio |
| Fidelity Select Portfolios: Select Technology Portfolio |
| Fidelity U.S. Growth Opportunities Investment Trust |
| Fidelity Special Situations Fund |
| FMZ Ventures Fund I, LP |
| Glean Tech Fund II LP |
| Glean Tech II LLC – Series A-RT |
| HH RSV-VI Holdings Limited |
| Hydrazine Capital II, L.P. |
| Ilya Sutskever |
| Inclusive Capital Partners Spring Master Fund, L.P. |
| Inclusive Capital Partners Spring Master Fund II, L.P. |
| Initialized Capital Special Opportunities Fund I, L.P. |
| Jawed Karim Investments, LLC |
| Jeremy Edberg |
| Jessica Livingston |
| Joshua Schachter |
| Keith Rabois |
| Larry Gadea |
| Mader-Naficy Revocable Trust UAD 11/21/2000 |
| | |
| Math+Magic II, LLC |
| Michael William Seibel Revocable Trust |
| Mithril LP |
| Modernist Venture Club X, LP |
| Montauk Ventures, LLC |
| Morgan Sawchuk |
| Paul Buchheit |
| PENSCO TRUST COMPANY LLC CUSTODIAN FBO RONALD C. CONWAY IRA |
| Quiet Fund II Warehouse LLC |
| Quiet Growth I, L.P. |
| Quiet SPV R6, L.P. |
| Quiet SPV R7, L.P. |
| Quiet Venture II, L.P. |
| Ralston Family Trust Geoffrey Ralston As Trustee |
| Robert A. Sauerberg, Jr. 2002 Revocable Trust |
| Robert Walters |
| Sayre E. Stevick |
| Sequoia Capital U.S. Growth Fund VI, L.P. |
| Sequoia Capital U.S. Growth VI Principals Fund, L.P. |
| Serkan Piantino |
| SOQRI Corporation |
| Storm King Ventures LLC |
| Tacit Capital Fund, LP — Series R1 |
| Tacit Capital Fund, LP — Series R2 |
| Tacit Capital Fund, LP — Series R3 |
| Tacit Capital Fund, LP — Series R4 |
| Tencent Cloud Europe B.V. |
| The Andreessen 1996 Living Trust |
| The Bain Revocable Trust DTD 4/3/13 |
| The Buchheit Family 2010 Trust DTD 6/30/2010 |
| The Conway Family Partnership, LP |
| The Hartz Family Revocable Trust |
| Thrive Capital Partners III, L.P. |
| Tikhon Bernstam |
| Valor R&D Series LLC – Series CW |
| Valor Reddit Holdings, L.P. |
| Variable Insurance Products Fund II: VIP Contrafund Portfolio - Subportfolio A |
| Variable Insurance Products Fund IV: Technology Portfolio |
| Variable Insurance Products Fund IV: VIP Technology Portfolio |
| VYC12 Limited |
| VYC19 Limited |
| VY Fund I, LP |
| Yishan Wong |
| Yun-Fang Juan |
SCHEDULE B
SCHEDULE OF COMMON HOLDERS
Yishan Wong
Steve Huffman
Alexis Ohanian
Jennifer Wong
EXHIBIT A
ADOPTION AGREEMENT
This Adoption Agreement (“Adoption Agreement”) is executed on __________________, 20__, by the undersigned (the “Holder”) pursuant to the terms of that certain Amended and Restated Investors’ Rights Agreement dated as of September 1, 2021 (the “Agreement”), by and among the Company and certain of its stockholders, as such Agreement may be amended or amended and restated hereafter. Capitalized terms used but not defined in this Adoption Agreement shall have the respective meanings ascribed to such terms in the Agreement. By the execution of this Adoption Agreement, the Holder agrees as follows.
1.1 Acknowledgement. Holder acknowledges that Holder is acquiring certain shares of the capital stock of the Company (the “Stock”), for one of the following reasons (Check the correct box):
| | | | | |
| o | As a transferee of the Stock from a party in such party’s capacity as an “Investor” bound by the Agreement, and after such transfer, Holder shall be considered an “Investor” and a “Stockholder” for purposes of Section 3, and the corresponding portion of Section 6.7, of the Agreement. |
| |
| o | As a transferee of the Stock from a party in such party’s capacity as a “Common Holder” bound by the Agreement, and after such transfer, Holder shall be considered a “Common Holder” and a “Stockholder” for purposes of Section 3, and the corresponding portion of Section 6.7, of the Agreement. |
| |
| o | In accordance with Section 6.10(b) of the Agreement, as a new party who is not a new Investor, in which case Holder will be an “Common Holder” and a “Stockholder” for all purposes of the Agreement. |
1.2 Agreement. Holder hereby (a) agrees that the Stock, and any other shares of capital stock or securities required by the Agreement to be bound thereby, shall be bound by and subject to the terms of Section 3 of the Agreement and (b) adopts the provisions of Section 3 of the Agreement with the same force and effect as if Holder were originally a party thereto.
1.3 Notice. Any notice required or permitted by the Agreement shall be given to Holder at the address or facsimile number listed below Holder’s signature hereto.
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HOLDER: | | ACCEPTED AND AGREED: |
| | | | | | | | | |
| By: | | | Reddit, Inc. |
| Name: | | | | | | |
Title: | | | | | | | |
| | | | | | | | | |
Address: | | | By: | | |
| | | | | | | | | |
| | | | | | | Title: | |
VOLUNTARY CONVERSION AGREEMENT
This VOLUNTARY CONVERSION AGREEMENT (this “Agreement”) is made and entered into as of August 11, 2021 (the “Effective Date”), by and among Reddit, Inc., a Delaware corporation (including any successor thereto, the “Company”), and each of the parties listed on the signature pages attached hereto, each of whom is purchasing shares of Series F Preferred Stock of the Company (“Series F Preferred”) pursuant to that certain Series F Preferred Stock Purchase Agreement by and among the Company and the Investors listed on Schedule A thereto (the “Purchase Agreement”) each hereafter individually referred to as a “Fidelity Investor” and collectively referred to as the “Fidelity Investors”).
RECITALS
A. Concurrent with the execution of this Agreement, the Fidelity Investors are purchasing an aggregate of 6,634,905 shares of Series F Preferred pursuant to the Purchase Agreement.
B. In addition to the shares of Series F Preferred to be purchased pursuant to the Purchase Agreement, certain of the Fidelity Investors also hold shares of the Company’s Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock (collectively, and together with the Series F Preferred, the “Preferred Stock”)
C. As a condition to the Company’s sale of the Series F Preferred to the Fidelity Investors, the Company and the Fidelity Investors are entering into this Agreement, pursuant to which each of the Fidelity Investors agrees to convert certain shares of Class B Common Stock of the Company ( “Class B Common”) to be issued upon conversion of the Preferred Stock held by such Fidelity Investors into shares of Class A Common Stock of the Company (“Class A Common”) at future dates as set forth in this Agreement and pursuant to Article IV, Part D Section 4(a) (or any successor provision) of the Company’s Amended and Restated Certificate of Incorporation, as may be amended restated or otherwise modified from time to time (“Restated Certificate”).
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements hereinafter set forth, the parties hereto agree as follows:
1. CONVERSION.
1.1 Obligation to Convert in Connection with a Public Offering. In the event the Company consummates a Public Offering (as defined below), the Fidelity Investors shall, upon the final expiration or waiver of any lock-up period applicable to shares of Class B Common in connection with such Public Offering (the “Initial Measurement Date”), be obligated to convert into shares of Class A Common the number of shares of Class B Common (on an as-converted to Class A Common basis) that equal (a) ten percent (10%) of the total shares of Class A Common outstanding as of the Initial Measurement Date as set forth in the Measurement Date Notice (as defined below) minus (b) the aggregate number of shares of Class A Common held by the Fidelity Investors and their Affiliates as of the date the Fidelity Investors convert shares of Class B Common pursuant to Section 1.3 below (such conversion, the “Initial Conversion”) in accordance with Section 1.3 below; provided, however, that only the expiration of such lock-up period in full with respect to shares of Class B Common held by the Fidelity Investors, and not any partial waiver, shall give rise to the obligations set forth in this Section 1.1.
1.2 Quarterly Conversions Following a Public Offering. Following the Initial Conversion, at the end of each fiscal quarter following the Initial Measurement Date (each, a “Quarterly Measurement Date” and together with the Initial Measurement Date, each a “Measurement Date”), the Fidelity Investors shall be obligated to convert into shares of Class A Common an additional
number of shares of Class B Common (on an as-converted to Class A Common basis) that equal (a) ten percent (10%) of the total shares of Class A Common outstanding as of such Quarterly Measurement Date as set forth in the Measurement Date Notice minus (b) the aggregate number of shares of Class A Common held by the Fidelity Investors and their Affiliates (as defined below) as of such date when the Fidelity Investors convert shares of Class B Common pursuant to Section 1.3 below (each such conversion, a “Quarterly Conversion” and together with the Initial Conversion, the “Conversions”) in accordance with Section 1.3 until such time an aggregate of 6,634,905 shares of Class B Common (as adjusted for stock splits, combinations, common stock dividends or distributions and other events set forth in Section IV.E.5 of the Restated Certificate (or any successor provision), whether before or at a Public Offering) have been converted to Class A Common by the Fidelity Investors and/or their Affiliates following the date hereof (“Conversion Share Obligation”), whether such conversion has occurred in compliance with this Agreement or otherwise (the date of such occurrence, the “Conversion Satisfaction Date”). Such number of shares converted pursuant to an Initial Conversion, Quarterly Conversion or otherwise shall be referred to as the “Conversion Shares”.
1.3 Conversion Procedure. Promptly following each Measurement Date, but in any event no later than five (5) business days following any such Measurement Date, the Company shall deliver to the Fidelity Investors written notice stating the number of shares of Class A Common outstanding as of such Measurement Date (a “Measurement Date Notice”). Within thirty (30) days following receipt by the Fidelity Investors of each Measurement Date Notice, the Fidelity Investors shall convert the applicable Conversion Shares pursuant to the voluntary conversion provisions of Article IV, Part D Section 4(a) (or any successor provision) of the Restated Certificate by delivering a conversion election in a form to be provided to the Fidelity Investors by the Company or its transfer agent and reasonably acceptable to the Fidelity Investors no later than thirty (30) days prior to the Initial Measurement Date. The obligation to convert the Conversion Shares following each Measurement Date may be apportioned amongst the Fidelity Investors in any manner the Fidelity Investors determine, provided that the total number of Conversion Shares converted at each Measurement Date equals the number of shares determined pursuant to Section 1.1 and 1.2, as applicable; and provided further that the Fidelity Investors shall only be required to convert shares pursuant to Sections 1.1 and 1.2, as applicable, if, on the applicable Conversion date elected by the Fidelity Investors pursuant to this Section 1.3,the aggregate number of shares of Class A Common held by the Fidelity Investors and their Affiliates is less than ten percent (10%) of the total shares of Class Common A outstanding as of the Measurement Date set forth in the Measurement Date Notice.. Promptly following the completion of each Conversion, as applicable, the Fidelity Investors shall inform the Company via electronic mail that they have complied with their obligations pursuant Section 1.1 or 1.2 in accordance with the terms of this Agreement. The Fidelity Investors shall promptly notify the Company of the date they have met the Conversion Share Obligation.
1.4 Surrender of Certificates. If any Conversion Shares are represented by original stock certificates, as soon as practicable after the effectiveness of the Conversion of such Conversion Shares, the Fidelity Investors shall surrender to the Company for cancellation, original stock certificate(s) representing such Conversion Shares, duly endorsed, or execute an agreement reasonably satisfactory to the Company that such certificate(s) have been lost, stolen or destroyed and that such Fidelity Investor agrees to indemnify, refund, protect and hold the Company and its agents harmless from any loss incurred by it in connection with the loss or destruction of such certificate(s) (the “Indemnity Agreement”). Notwithstanding the foregoing, the Conversions in accordance with this Section 1 shall be effective with respect to all Conversion Shares whether or not the certificates representing such Conversion Shares are surrendered to the Company.
1.5 Definitions. For the purposes of this Agreement:
(a) The term “Affiliate” means, 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, officer, director or manager of such person and any venture capital 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.
(b) The term “Direct Listing” shall mean the effectiveness of the registration statement for the initial listing of Class A Common on the New York Stock Exchange, the Nasdaq Global Market or a similar national securities exchange by means of a registration statement on Form S-1 filed by the Company with the Securities and Exchange Commission that registers shares of existing capital stock of the Company for resale not pursuant to an underwritten offering.
(c) The term “IPO: shall mean a sale of Class A Common pursuant to a registration statement on Form S-1 filed by the Company under the Securities Act of 1933, as amended, in connection with the firm commitment underwritten offering of its securities to the general public.
(d) The term “Public Offering” shall an IPO, Direct Listing or SPAC Transaction, which results in the conversion of all outstanding shares of Preferred Stock into Class B Common Stock pursuant to the Amended and Restated Certificate of Incorporation of the Company, as the same may be amended from time to time.
(e) The term “SPAC Transaction” shall mean the closing of a merger, acquisition or other business combination involving the Company and a publicly traded special purpose acquisition company or other similar entity that does not constitute a Liquidation Event (as defined in the Restated Certificate) the closing of a merger, acquisition or other business combination involving the Company and a publicly traded special purpose acquisition company or other similar entity that does not constitute a Liquidation Event.
2. GENERAL PROVISIONS.
2.1 Specific Performance. The rights of the parties under this Agreement are unique and, accordingly, the parties shall, in addition to such other remedies as may be available to any of them at law or in equity, have the right to enforce their rights hereunder by actions for specific performance to the extent permitted by law.
2.2 Successors and Assigns. Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives.
2.3 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws.
2.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
2.5 Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Agreement.
2.6 Amendments. It is expressly understood and agreed that this Agreement may not be altered, amended, modified or otherwise changed in any respect whatsoever except by a writing duly executed by the Company and the Fidelity Investors holding a majority of the shares of then- outstanding Class B Common issued or issuable upon conversion of the Series F Preferred held by the Fidelity Investors.
2.7 Termination. This Agreement shall terminate and be of no further force or effect upon the first to occur of (a) the Conversion Satisfaction Date as set forth in the notice to be delivered by Fidelity Investors to the Company; (b) the occurrence of a Liquidation Event (as defined in the Company’s Amended and Restated Certificate of Incorporation, as may be amended and/or restated from time to time); or (c) mutual consent of the parties.
2.8 Severability. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
2.9 Entire Agreement. This Agreement and the documents referred to herein, together with all the exhibits hereto, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede any and all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.
2.10 Facsimile Signatures. This Agreement may be executed and delivered by facsimile and upon such delivery the facsimile signature will be deemed to have the same effect as if the original signature had been delivered to the other party.
2.11 Notice. Any notices provided hereunder to the Fidelity Investors should be provided to DomesticEquities@fmr.com, with a copy (which shall not constitute notice) to ECMLegalTeam@fmr.com and FMRCOINTER@FMR.COM. Any notices provided hereunder to the Company should be provided to 1455 Market Street, Suite 1600, San Francisco, CA, 94103, Attn: General Counsel with a copy (which shall not constitute notice) to Fenwick & West LLP, 555 California Street, 12th Floor, San Francisco, CA 94104, Attn: Morgan Sawchuk. Any party providing notice under this Agreement other than via email shall simultaneously deliver such notice via email.
2.12 Massachusetts Business Trust. A copy of the Declaration of Trust of each Fidelity Investor, or any affiliate thereof, is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this Agreement is executed on behalf of the trustees of such Fidelity Investor or any affiliate thereof as trustees and not individually and that the obligations of
this Agreement are not binding on any of the trustees, officers or stockholders of such Fidelity Investor or any affiliate thereof individually but are binding only upon such Fidelity Investor or any affiliate thereof and its assets and property.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, each of the parties hereto has caused this Voluntary Conversion Agreement to be executed and acknowledged by one of its duly authorized officers on the date first above written.
| | | | | | | | |
| COMPANY: |
|
| REDDIT, INC. |
| a Delaware corporation |
| | |
| | |
| By: | /s/ Steve Huffman |
| | |
| Name: | Steve Huffman |
| | |
| Title: | Chief Executive Officer and President |
| | |
| Address: | 1455 Market Street, Suite 1600 |
| | San Francisco, CA 94103 |
SIGNATURE PAGE TO VOLUNTARY CONVERSION AGREEMENT
IN WITNESS WHEREOF, each of the parties hereto has caused this Voluntary Conversion Agreement to be executed and acknowledged by one of its duly authorized officers on the date first above written.
| | | | | | | | |
| FIDELITY INVESTORS: |
|
| Fidelity Contrafund: Fidelity Contrafund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund Commingled Pool |
| By: Fidelity Management Trust Company, as Trustee |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund: Fidelity Contrafund K6 |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund: Fidelity Advisor New Insights Fund - Sub A |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Global Growth and Value Investment Trust - Sub A |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
SIGNATURE PAGE TO VOLUNTARY CONVERSION
| | | | | | | | |
| Fidelity Insights Investment Trust |
| By its manager Fidelity Investments Canada ULC |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund: Fidelity Flex Opportunistic Insights Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Contrafund: Fidelity Series Opportunistic Insights Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Variable Insurance Products Fund II: VIP Contrafund Portfolio - Subportfolio A |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Canadian Growth Company Fund |
| by its manager Fidelity Investments Canada ULC |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Global Innovators Investment Trust |
| by its manager Fidelity Investments Canada ULC |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
SIGNATURE PAGE TO VOLUNTARY CONVERSION
| | | | | | | | |
| Fidelity Special Situations Fund |
| by its manager Fidelity Investments Canada ULC |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Blue Chip Growth Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Blue Chip Growth Commingled Pool |
| By: Fidelity Management Trust Company, as Trustee |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Flex Large Cap Growth Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Blue Chip Growth K6 Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Blue Chip Growth Institutional Trust |
| By its manager Fidelity Investments Canada ULC |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
SIGNATURE PAGE TO VOLUNTARY CONVERSION
| | | | | | | | |
| FIAM Target Date Blue Chip Growth Commingled Pool |
| By: Fidelity Institutional Asset Management Trust Company as Trustee |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Capital Trust: Fidelity Flex Small Cap Fund - Small Cap Growth Subportfolio |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Small Cap Growth Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity Small Cap Growth K6 Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Advisor Series I: Fidelity Advisor Growth Opportunities Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity U.S. Growth Opportunities Investment Trust |
| by its manager Fidelity Investments Canada ULC |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
SIGNATURE PAGE TO VOLUNTARY CONVERSION
| | | | | | | | |
| Fidelity NorthStar Fund - Sub D |
| by its manager Fidelity Investments Canada ULC |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Advisor Series VII: Fidelity Advisor Technology Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Variable Insurance Products Fund IV: VIP Technology Portfolio |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity OTC Portfolio |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity OTC Commingled Pool |
| By: Fidelity Management Trust Company, as Trustee |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Securities Fund: Fidelity OTC K6 Portfolio |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
SIGNATURE PAGE TO VOLUNTARY CONVERSION
| | | | | | | | |
| Fidelity Central Investment Portfolios LLC: Fidelity U.S. Equity Central Fund - Communication Services Sub |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Select Portfolios: Select Communication Services Portfolio |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
| | | | | | | | |
| Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
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| Fidelity Mt. Vernon Street Trust: Fidelity Growth Company K6 Fund |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
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| Fidelity Growth Company Commingled Pool |
| By: Fidelity Management Trust Company, as Trustee |
| | |
| By: | /s/ Colm Hogan | |
| Name:Colm Hogan | |
| Title:Authorized Signatory | |
SIGNATURE PAGE TO VOLUNTARY CONVERSION
OFFICE LEASE
303 SECOND STREET
KILROY REALTY 303, LLC,
a Delaware limited liability company,
as Landlord,
and
REDDIT, INC.,
a Delaware corporation,
as Tenant.
[Reddit, Inc.]
303 SECOND STREET
South Tower
TABLE OF CONTENTS
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| ARTICLE 1 | PREMISES, BUILDING, PROJECT, AND COMMON AREAS; RIGHT OF FIRST OFFER | 7 |
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| ARTICLE 2 | LEASE TERM; EXTENSION OPTION | 9 |
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| ARTICLE 3 | BASE RENT | 10 |
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| ARTICLE 4 | ADDITIONAL RENT | 11 |
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| ARTICLE 5 | USE OF PREMISES | 23 |
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| ARTICLE 6 | SERVICES AND UTILITIES | 25 |
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| ARTICLE 7 | REPAIRS AND MAINTENANCE | 28 |
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| ARTICLE 8 | ADDITIONS AND ALTERATIONS | 32 |
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| ARTICLE 9 | COVENANT AGAINST LIENS | 35 |
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| ARTICLE 10 | INDEMNIFICATION AND INSURANCE | 35 |
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| ARTICLE 11 | DAMAGE AND DESTRUCTION | 40 |
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| ARTICLE 12 | NONWAIVER | 42 |
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| ARTICLE 13 | CONDEMNATION | 43 |
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| ARTICLE 14 | ASSIGNMENT AND SUBLETTING | 44 |
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| ARTICLE 15 | SURRENDER OF PREMISES | 50 |
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| ARTICLE 16 | HOLDING OVER | 51 |
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| ARTICLE 17 | ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS | 52 |
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| ARTICLE 18 | SUBORDINATION AND MORTGAGEES | 52 |
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| ARTICLE 19 | EVENTS OF DEFAULT; REMEDIES | 53 |
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| ARTICLE 20 | COVENANT OF QUIET ENJOYMENT | 58 |
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| ARTICLE 21 | LETTER OF CREDIT | 58 |
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| ARTICLE 22 | INTENTIONALLY OMITTED | 62 |
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| ARTICLE 23 | SIGNS | 62 |
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| ARTICLE 24 | COMPLIANCE WITH LAW | 63 |
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| ARTICLE 25 | LATE CHARGES | 64 |
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| ARTICLE 26 | LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT | 65 |
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| ARTICLE 27 | ENTRY BY LANDLORD | 65 |
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| ARTICLE 28 | TENANT PARKING AND TRANSPORTATION | 66 |
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| ARTICLE 29 | SUSTAINABILITY AND WELLNESS | 68 |
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| ARTICLE 30 | MISCELLANEOUS PROVISIONS | 69 |
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| (i) | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBITS
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| EXHIBIT A | OUTLINE OF PREMISES |
| EXHIBIT B | WORK LETTER |
| EXHIBIT C | NOTICE OF LEASE TERM DATES |
| EXHIBIT D | RULES AND REGULATIONS |
| EXHIBIT E | FORM OF TENANT'S ESTOPPEL CERTIFICATE |
| EXHIBIT F | EXTENSION OPTION |
| EXHIBIT G | RIGHT OF FIRST OFFER |
| EXHIBIT H | FORM OF LETTER OF CREDIT |
| EXHIBIT H-1 | FORM OF ACCEPTABLE JPM LETTER OF CREDIT |
| EXHIBIT I | LIST OF EXISTING FF&E |
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| (ii) | [Reddit, Inc.] 303 SECOND STREET South Tower |
OFFICE LEASE
This Office Lease (the "Lease"), dated as of the Effective Date set forth in Section 1 of the Summary of Basic Lease Information below (the "Summary"), is made by and between KILROY REALTY 303, LLC, a Delaware limited liability company ("Landlord"), and REDDIT, INC., a Delaware corporation ("Tenant"). The Tenant originally named in the foregoing sentence may be referred to in this Lease as the "Original Tenant".
SUMMARY OF BASIC LEASE INFORMATION
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| TERMS OF LEASE | | DESCRIPTION |
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1. | "Effective Date": | | December 31, 2022. |
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2. | Premises; Building; Project: (Article 1) | |
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| 2.1 | "Premises": | | 47,872 rentable square feet of space (comprised of 46,374 rentable square feet of office space (the "Office Premises") and 1,498 rentable square feet of the Roof Deck (hereinbelow defined)) comprised of the entire fifth (5th) floor of the South Tower of the Building and commonly known as Suite 500S, as further depicted on Exhibit A to this Lease and described in Section 1.1.1 below. |
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| 2.2 | "Building": | | That certain two (2)-tower office building consisting of one ten (10) story tower (the "North Tower") and one nine (9) story tower (the "South Tower"), located at 303 Second Street, San Francisco, California 94107 and containing approximately 782,116 rentable square feet of space. |
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| 2.3 | "Project": | | The office development, commonly referred to as 303 Second Street and consisting of the Building, the Common Areas and land upon which such development is located. |
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3. | Lease Term (Article 2): | |
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| 3.1 | "Lease Term": | | The period of approximately five (5) years and eight (8) months beginning on the Lease Commencement Date (as defined below) and ending on the Lease Expiration Date (as defined below). |
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| -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
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| 3.2 | "Lease Commencement Date": | The earlier to occur of (i) the date upon which Tenant first commences to conduct business in the Premises, and (ii) September 1, 2023. |
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| 3.3 | "Lease Expiration Date": | | The last day of the sixty-eighth (68th) Lease Month (as defined in Section 2.1 of this Lease). |
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| 3.4 | Option Term: | | Tenant has one (1) option ("Extension Option") to extend the Lease Term for a period of five (5) years (the "Option Term"), as more particularly set forth in Section 2.2 and Exhibit F of this Lease. |
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4. | Base Rent (Article 3): |
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| Period of Lease Term | | Annual Base Rent | | Monthly Installment of Base Rent* | |
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| Lease Months 1 – 12 | | $3,345,733.00 | | $278,811.08 | |
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| Lease Months 13-24 | | $3,345,733.00 | | $278,811.08 | |
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| Lease Months 25 – 36 | | $3,446,104.99 | | $287,175.42 | |
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| Lease Months 37– 48 | | $3,549,488.14 | | $295,790.68 | |
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| Lease Months 49 – 60 | | $3,655,972.78 | | $304,664.40 | |
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| Lease Months 60– 68 | | $3,765,651.97 | | $313,804.33 | |
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*Subject to the TCCs of this Lease, (i) the Base Rent attributable to the eight (8) month period commencing on the first (1st) day of the first (1st) full calendar month of the Lease Term and ending on the last day of the eighth (8th) full calendar month of the Lease Term shall be fully abated, (ii) a portion of Base Rent equal to $96,879.50 per month attributable to the two (2) month period commencing on the first (1st) day of the ninth (9th) full calendar month of the Lease Term and ending on the last day of the tenth (10th) full calendar month of the Lease Term shall be abated such that the amount of Base Rent due from Tenant during such period shall equal $181,931.58 per month, (iii) a portion of Base Rent equal to $37,712.83 per month attributable to the two (2) month period commencing on the first (1st) day of the eleventh (11th) full calendar month of the Lease Term and ending on the last day of the twelfth (12th) full calendar month of the Lease Term shall be abated such that the amount of Base Rent due from Tenant during such period shall equal $241,098.25 per month, and (iv) a portion of Base Rent equal to $37,712.83 per month attributable to the six (6) month period commencing on the first (1st) day of the thirteenth (13th) full calendar month of the Lease Term and ending on the last day of the eighteenth (18th) full calendar month of the Lease Term shall be abated such that the amount of Base Rent due from Tenant during such period shall equal $241,098.25 per month. |
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| -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
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5. | "Base Year" (Article 4): | | Calendar year 2024; provided, however, electricity, water and gas for the Premises are separately submetered and directly paid by Tenant to Landlord outside of Direct Expenses, at Landlord's actual cost without any markup. |
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6. | "Tenant's Share" (Article 4): | | 6.1208% of the Building. |
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7. | Permitted Use (Article 5): | | Tenant shall use the Premises solely for general office use and other lawful uses incidental thereto, all consistent with first-class office standards in the market in which the Project is located, and subject to the other terms and conditions of this Lease (the "Permitted Use"). |
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8. | Letter of Credit (Article 21): | | $1,882,825.98 |
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9. | Parking Pass Ratio (Article 28): | | One (1) parking pass for every 2,000 rentable square feet of the Premises (the "Parking Pass Ratio"), i.e., initially twenty four (24) passes, all of which shall be for unreserved parking, in all cases subject to the TCCs of Article 28 of this Lease. If and to the extent that the rentable square feet of the Premises is changed due to a physical expansion or reduction of the Premises, Tenant will be entitled to parking passes in accordance with the Parking Pass Ratio. |
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10. | Address of Tenant (Section 30.14): | | Prior to Lease Commencement Date: Reddit, Inc. 548 Market Street,#16093 San Francisco, California 94104 Attention: General Counsel E-mail: legal@reddit.com With a copy to: Shartsis Friese LLP One Maritime Plaza, 18th Floor San Francisco, California 94111 Attention: Jonathan M .Kennedy / Tess S. Brandwein Email: ### |
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| -4- | [Reddit, Inc.] 303 SECOND STREET South Tower |
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| | | | | | From and after Lease Commencement Date: Reddit, Inc. 548 Market Street, #16093 San Francisco, California 94104 Attention: General Counsel E-mail: legal@reddit.com With a copy to: Shartsis Friese LLP One Maritime Plaza, 18th Floor San Francisco, California 94111 Attention: Jonathan M. Kennedy / Tess S. Brandwein Email: ### |
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| -5- | [Reddit, Inc.] 303 SECOND STREET South Tower |
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11. | Address of Landlord (Section 30.14): | | Kilroy Realty 303, LLC c/o Kilroy Realty Corporation 12200 West Olympic Boulevard, Suite 200 Los Angeles, California 90064 Attention: Legal Department with copies to: Kilroy Realty 303, LLC c/o Kilroy Realty Corporation 100 First Street, Suite 250 San Francisco, California 94105 Attention: John Osmond and Kilroy Realty 303, LLC c/o Kilroy Realty Corporation 100 First Street Office of the Building, Suite 250 San Francisco, California 94105 Attention: Ms. Eileen Kong For rent payment: Union Bank 445 S. Figueroa Street Los Angeles, California 90071-1602 ABA Number: ### Account Number: ### Account Name: ### Attention: ### |
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12. | Broker (Section 30.20): | | Representing Landlord and Tenant: Jones Lang LaSalle |
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13. | Improvement Allowance (Exhibit B): | | $1,675,520.00 (i.e., an amount equal to $35.00 per rentable square foot of the Premises), subject to the TCCs of the Work Letter attached hereto as Exhibit B. |
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| 14. | Amount Due Upon Lease Execution: | | $278,811.08, as first month's Base Rent |
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| -6- | [Reddit, Inc.] 303 SECOND STREET South Tower |
ARTICLE 1
PREMISES, BUILDING, PROJECT, AND COMMON AREAS; RIGHT OF FIRST OFFER
1.1 Premises, Building, Project and Common Areas.
1.1.1 The Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises. The outline of the Premises is set forth in Exhibit A attached hereto. The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions (the "TCCs") herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such TCCs by it to be kept and performed and that this Lease is made upon the condition of such performance. For purposes of this Lease, "rentable square feet" in the Premises and the Building, as the case may be, shall be calculated in general accordance with modified guidelines of BOMA 2017 for Office Buildings: Standard Methods of Measurement (ANSI/BOMA Z65.1-2017), and its accompanying guidelines with a market load factor, as interpreted for the Building by Landlord's architect ("BOMA"). Further, the rentable square feet of the Premises shall be stipulated as set forth in Section 2.1 of the Summary and the rentable square feet of the Building shall be stipulated as set forth in Section 2.2 of the Summary. In no event shall the rentable square feet of the Premises be subject to remeasurement or change during the initial Lease Term or any Option Term or other extension of the Lease Term, except in connection with the change in the physical dimensions of the Premises, and, in such event, any such remeasurement shall be carried out in accordance with BOMA. In addition, the parties acknowledge that the Premises has a contiguous outdoor roof deck (the "Roof Deck"), which Tenant shall be permitted to use during the Lease Term (as defined in Article 2 below), subject to the Rules and Regulations (as defined in Section 5.1 below) and the express TCCs of this Lease. In consideration for being permitted to use the Roof Deck during the Lease Term, Tenant does hereby release, waive, discharge, and covenant not to sue Landlord or any of the other "Landlord Parties" (as defined in Section 10.1 below), and agrees to protect, indemnify, defend and hold all Landlord Parties harmless from and against any and all Losses (defined in Section 10.1 below) in any way arising or resulting from use of the Roof Deck by Tenant or Tenant's employees, agents or invitees. Tenant acknowledges that use of the Roof Deck carries with it certain inherent risks that it may not be possible to eliminate regardless of the care taken to avoid injuries, and Tenant hereby assumes all risks associated with use of the Roof Deck by Tenant, its employees, agents or invitees. Accordingly, Tenant shall be liable for the use of the Roof Deck in the same manner that Tenant is liable for the Premises under this Lease. Landlord's operation of window washing equipment for the Building requires that certain equipment, inclusive of the davits, be stored within the Roof Deck. Landlord shall not be required to remove such equipment, provided such equipment is left in a neat, safe and clean condition.
1.1.2 Delivery of Possession. Except as specifically set forth in this Lease and in the Work Letter attached hereto as Exhibit B (the "Work Letter"), Landlord shall tender possession of the Premises to Tenant in its existing "as-is" condition as of the date of full execution and delivery of this Lease and satisfaction of the Possession Requirements (defined below; such date of tendering possession is the "Possession Date") and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises, Building or Project. Landlord shall be deemed to have tendered possession of the Premises to Tenant on the Possession Date and no action by Tenant shall be required therefor. Notwithstanding the foregoing or anything to the contrary herein, Landlord shall not be required to tender possession of the Premises to Tenant if Tenant has not delivered to Landlord (i) evidence of insurance coverage as required under Article 10 below, and (ii) all amounts due upon Lease execution as set forth in Section 14 of the Summary (such items (i) and (ii), collectively, the "Possession Requirements"). In such event, the Lease Commencement Date will still occur as set
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| -7- | [Reddit, Inc.] 303 SECOND STREET South Tower |
forth in Section 3.2 of the Summary (although Tenant shall not actually be granted possession of the Premises until Tenant has satisfied the Possession Requirements). Neither Landlord nor any agent of Landlord has made any representation or warranty regarding the condition of the Premises, the Building or the Project or with respect to the suitability of any of the foregoing for the conduct of Tenant's business, except as specifically set forth in this Lease and the Work Letter.
1.1.3 Common Areas. Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the Rules and Regulations (as defined in Section 5.1 below), those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and other tenants and visitors of the Project (such areas, together with such other portions of the Project designated by Landlord from time-to-time, in its reasonable discretion, including certain areas to be shared by Landlord and other tenants, are collectively referred to herein as the "Common Areas"). At Landlord's election from time to time, the Common Areas may include certain shared use facilities such as, but not limited to, fitness centers, conference and meeting rooms, visitors' centers, bicycle storage areas and/or bathroom and shower facilities that are under Landlord's management and control (collectively, "Shared Use Facilities"). Tenant shall have rights to utilize the Shared Use Facilities, so long as Landlord continues to operate the Shared Use Facilities for use by tenants of the Project. Landlord shall have the right to reasonably require, as a condition to use of any of such Shared Use Facilities, that employees of Tenant and other individuals sign a waiver and release of liability as deemed appropriate by Landlord.
1.2 Right of First Offer. Tenant's Right of First Offer shall be as provided in accordance with the TCCs of Exhibit G attached hereto.
1.3 FF&E. As of the Effective Date, the Premises contains certain furniture, fixtures and equipment (the "Existing FF&E"), described on Exhibit I attached hereto. Landlord is not obligated to remove the Existing FF&E prior to the Possession Date, however, at any time prior to the Lease Commencement Date, Tenant may notify Landlord of all or any Existing FF&E that Tenant requires to be removed, and Landlord shall remove any such designated Existing FF&E, at Landlord's cost, within thirty (30) days of receipt of Tenant's designation notice. Tenant shall have the right, throughout the Lease Term and at no additional cost, to use the Existing FF&E that remains within the Premises (the "Licensed FF&E"). Landlord hereby makes no representations or warranties regarding the condition of the Existing FF&E (other than a representation that Landlord owns the Existing FF&E free and clear of any third party claims or liens), and Tenant accepts the Existing FF&E in its currently existing, "as-is," "where-is" condition. Landlord shall have no obligation to maintain or repair the Existing FF&E, nor to transport the Licensed FF&E. Tenant hereby agrees that Tenant shall insure, maintain and repair the Licensed Furniture as part of Tenant's Property (defined in Section 7.1) during the Lease Term. During the Lease Term, except as otherwise agreed by Landlord, in Landlord's sole discretion, Tenant shall not (i) remove any of the Licensed FF&E from the Premises (provided that Landlord will not unreasonably withhold its consent to Tenant's removal of all or any portion of the Licensed FF&E provided Tenant stores such removed Licensed FF&E in a facility reasonably acceptable to Landlord), (ii) assign the Existing FF&E as collateral or otherwise, (iii) sell any of the Existing FF&E, or (iv) give any third party a security interest or any other interest in the Existing FF&E. Upon the expiration or earlier termination of this Lease, at Landlord's sole option (to be exercised at least thirty (30) days prior to the expiration of the Lease Term) with respect to all or any portion of the Licensed FF&E, Tenant shall either (i) promptly surrender such Licensed FF&E to Landlord in good condition and repair, normal wear and tear excepted, at the Premises, or (ii) remove the Licensed FF&E from the Premises as part of Tenant's Property in compliance with the TCCs of Article 15, which may include a requirement from Landlord for Tenant to
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| -8- | [Reddit, Inc.] 303 SECOND STREET South Tower |
pay Landlord consideration of $1.00 and execute a commercially reasonable form of bill of sale with respect to the applicable Licensed FF&E to acquire ownership of the Licensed FF&E.
ARTICLE 2
LEASE TERM; EXTENSION OPTION
2.1 Initial Lease Term. The TCCs and provisions of this Lease shall be effective as of the Effective Date. The term "Lease Year" shall mean each consecutive twelve (12) calendar month period during the Lease Term; provided, however, that the first Lease Year shall commence on the Lease Commencement Date and end on the last day of the month in which the first anniversary of the Lease Commencement Date occurs (or if the Lease Commencement Date is the first day of a calendar month, then the first Lease Year shall commence on the Lease Commencement Date and end on the day immediately preceding the first anniversary of the Lease Commencement Date), and the second and each succeeding Lease Year shall commence on the first day of the next calendar month; and further provided that the last Lease Year shall end on the Lease Expiration Date. For purposes of this Lease, the term "Lease Month" shall mean each succeeding calendar month during the Lease Term; provided, however, that the first Lease Month shall commence on the Lease Commencement Date and shall end on the last day of the first (1st) full calendar month of the Lease Term and that the last Lease Month shall expire on the Lease Expiration Date (or if the Lease Commencement Date is the first day of a calendar month, then the first Lease Month shall be that calendar month). At any time during the Lease Term, Landlord may deliver to Tenant a Notice of Lease Term Dates substantially in the form set forth in Exhibit C attached hereto (the "Notice of Lease Term Dates"), as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within fifteen (15) business days of receipt thereof; provided that if said Notice of Lease Term Dates is not factually correct, then Tenant may make such changes as are necessary to make the Notice of Lease Term Dates factually correct, and thereafter execute and return such revised Notice of Lease Term Dates to Landlord within such 15-business day period. The dates set forth on the fully executed Notice of Lease Term Dates shall be conclusive and binding upon Landlord and Tenant, unless Landlord sends a written notice to Tenant rejecting Tenant's changes, whereupon this procedure shall be repeated until the parties mutually agree upon the contents of the Notice of Lease Term Date. If Landlord fails to send Tenant the Notice of Lease Term Dates within thirty (30) days following the Lease Commencement Date, Tenant may send written notice to Landlord substantially in the form of the Notice of Lease Term Dates. In such event, Landlord shall acknowledge Tenant's Notice of Lease Term Dates by executing a copy thereof and returning the same to Tenant within fifteen (15) business days; provided that if such Notice of Lease Term Dates is not factually correct, Landlord shall make such changes to the Notice of Lease Term Dates as are necessary to make such Notice of Lease Term Dates factually correct, which revised Notice of Lease Term Dates shall thereafter be subject to the procedure for finalization set forth in this Section.
2.2 Extension Option. Tenant's Extension Option shall be as provided in accordance with the terms and conditions of Exhibit F attached hereto.
2.3 Early Termination Option. Tenant has the one-time option ("Termination Option") to terminate this Lease effective upon the last day of the forty-first (41st) full calendar month of the initial Lease Term only (the "Termination Date"). In order to exercise the Termination Option, Tenant must fully and completely satisfy each of the following conditions: (i) Tenant must give Landlord written notice ("Termination Notice") no more than thirteen (13) and no less than twelve (12) full calendar months prior to the Termination Date (the "Termination Exercise Window"), (ii) Tenant has not received notice of a default under this Lease that then remains uncured, and (iii) concurrently with
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| -9- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Tenant's delivery of the Termination Notice to Landlord, Tenant shall pay to Landlord a termination fee (the "Termination Fee") equal to the sum of: (i) $3,366,045.12 and (ii) three (3) months of Additional Rent otherwise due for the Premises during full calendar months forty-two (42), forty-three (43), and forty-four (44) of the initial Lease Term, but for the termination of the Lease. Within thirty (30) days of Tenant's written request therefore (but without extending the time period by which Tenant is required to pay the Termination Fee hereunder), and provided that such request occurs no earlier than fifteen (15) months prior to the Termination Date, Landlord shall provide Tenant with Landlord's computation of the Termination Fee and the components thereof, which shall be based on Landlord's good faith estimate of the Additional Rent component of the Termination Fee, but such estimate shall be binding on Landlord and Tenant and shall not be subject to reconciliation. Tenant's failure to deliver the Termination Fee concurrently with the Termination Notice, if such failure is not cured by the expiration of the Termination Exercise Window, shall render the Termination Notice and the Termination Option null and void and this Lease shall continue in full force and effect. Additionally, the Termination Option shall terminate upon the earliest to occur of (a) Tenant's delivery of any First Offer Exercise Notice (as defined in Section 3 of Exhibit G attached hereto), or (b) Tenant's assignment of its interest in this Lease, other than to a Permitted Transferee Assignee (defined in Section 14.7 below) or (c) Tenant's sublease of more than seventy-five percent (75%) of the rentable square feet of the then-existing Premises, other than to a Permitted Transferee (defined in Section 14.7 below) for essentially the remainder of the then remaining Lease Term.
ARTICLE 3
BASE RENT
3.1 In General. From and after the Lease Commencement Date, Tenant shall pay to Landlord, without prior notice or demand, except as otherwise set forth herein, base rent ("Base Rent") as set forth in Section 4 of the Summary, payable in monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever, except as otherwise set forth herein. In accordance with Section 4 of the Summary, any increases in Base Rent shall occur on the first day of the applicable Lease Month. However, if the first Lease Month pertains to a period longer than one (1) calendar month, then Base Rent for such first Lease Month shall be equal to one (1) calendar month's Base Rent plus prorated Base Rent for the partial calendar month also included in such first Lease Month. The prepaid Base Rent set forth in Section 14 of the Summary shall be paid at the time of Tenant's execution and delivery of this Lease. All payments required to be made by Tenant to Landlord hereunder (including, without limitation, Base Rent) shall be paid to Landlord or Landlord's agent, at Landlord's option, by wire transfer, Electronic Funds Transfer, at the management office of the Project or at such other place or method as Landlord may from time to time designate in writing, in immediately available funds that, at the time of payment, are legal tender for private or public debts in the United States of America or by Automated Clearing House ("ACH") means or other means mutually agreed upon by the parties in writing. Whenever in this Lease a payment is required to be made by one party to the other, but a specific date for payment is not set forth or a specific number of days within which payment is to be made is not set forth, or the words "immediately," "promptly," and/or "on demand," or their equivalent, are used to specify when such payment is due, then such payment shall be due thirty (30) days after the date that the party which is entitled to such payment sends notice to the other party demanding such payment.
3.2 Base Rent Abatement. Subject to the TCCs of this Lease, Tenant shall be entitled to the Base Rent abatement described in Section 4 of the Summary (the "Base Rent Abatement"). The maximum aggregate amount of the Base Rent Abatement shall be equal to $2,690,497.67.
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| -10- | [Reddit, Inc.] 303 SECOND STREET South Tower |
ARTICLE 4
ADDITIONAL RENT
4.1 In General. In addition to paying the Base Rent specified in Article 3 of this Lease, following the expiration of the Base Year, Tenant shall pay Tenant's Share of the annual Direct Expenses (as defined in Section 4.2.1 below), which are in excess of the amount of Direct Expenses applicable to the Base Year; provided, however, that in no event shall any decrease in Direct Expenses for any Expense Year (as defined in Section 4.2.2 below) below Direct Expenses for the Base Year entitle Tenant to any decrease in Base Rent or any credit against sums due under this Lease. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the TCCs of this Lease, are hereinafter collectively referred to as the "Additional Rent," and the Base Rent and the Additional Rent are herein collectively referred to as "Rent." Except as specifically set forth herein, all amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent; provided, however, the first monthly installment of Tenant's Share of any Estimated Excess, as defined in, and pursuant to the terms and conditions of, Section 4.4.2 of this Lease, shall first be due and payable for the calendar month occurring immediately following the expiration of the Base Year. Without limitation on other obligations of Landlord and Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 attributable to the period of time prior to the Lease Expiration Date or earlier termination of this Lease (or, in the event of a holdover in the Premises by Tenant, the period of time prior to Tenant vacating and surrendering the Premises to Landlord), and Landlord's obligation to reconcile and refund to Tenant any overpayments of such Additional Rent shall survive the expiration of the Lease Term; provided, however, that any such payments made by Tenant of any Additional Rent or any refund to Tenant by Landlord of any overpayments of such Additional Rent shall not constitute a waiver by either Tenant or Landlord, as the case may be, of any amount that Tenant or Landlord (as the case may be) contend are in dispute to the extent that any such payments or refunds are made "under protest" whether or not designated as such concurrently with any such payment and/or refund.
4.2 Definitions of Key Terms Relating to Additional Rent. As used in this Article 4, the following terms shall have the meanings hereinafter set forth:
4.2.1 "Direct Expenses" shall mean Operating Expenses and Tax Expenses.
4.2.2 "Expense Year" shall mean each calendar year, including the Base Year, in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires.
4.2.3 "Operating Expenses" shall mean all expenses, costs and amounts of every kind and nature which Landlord pays, accrues, or amortizes during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, renovation, restoration or operation of the Project, or any portion thereof, in accordance with sound real estate management and accounting practices, consistently applied. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities (but excluding the cost of any utilities consumed in the premises of other tenants of the Project, or consumed in the Premises to the extent that Tenant is separately paying for the cost of such utilities pursuant this Lease), the cost of operating, repairing, replacing, maintaining, renovating and restoring the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits
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and inspections and the cost of contesting any governmental enactments (provided that such enactments being contested are reasonably anticipated to increase Operating Expenses), and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of all insurance carried by Landlord in connection with the Project; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) costs incurred in connection with the parking areas servicing the Project, as well as costs incurred in connection with the provision of any shuttle service serving the Project for the purpose of facilitating access to public transportation; (vi) subject to the "Management Fee Cap" (as that term is defined below), a management fee and other fees and costs, including consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance, replacement, renovation, repair and restoration of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space (provided, however, that if and to the extent that the personnel in such management office perform management responsibilities for other properties in addition to the Project, then the rental value of such management office shall be equitably allocated between the Project and such other properties); (viii) subject to item (f) below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons (other than persons generally considered to be higher in rank than the position of "Senior Portfolio Manager") engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) the cost of operation, maintenance, repair, renovation, and replacement (subject to the provisions below regarding Permitted Capital Expenditures) of all systems and equipment and components thereof of the Project or otherwise serving the Project; (xi) the cost of janitorial, alarm, security, sewer and other services (but excluding the cost of any services utilized in the premises of other tenants of the Project, or utilized in the Premises to the extent that Tenant is separately paying for the cost of such services pursuant this Lease), replacement, renovation, restoration and repair of wall and floor coverings, ceiling tiles and fixtures in Common Areas, maintenance, replacement, renovation, repair and restoration of curbs and walkways, repair to roofs and re-roofing; (xii) amortization of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof (which amortization calculation shall include interest at the Interest Rate (as defined in Article 25 of this Lease)); (xiii) the cost of capital improvements or capital expenditures incurred in connection with the Project (the "Permitted Capital Expenditures"), including, without limitation, those that are: (A) reasonably anticipated to reduce Operating Expenses (but only to the extent of the reasonably anticipated reduction in Operating Expenses) at the time of such expenditure to be incurred, (B) required to comply with government mandated conservation programs first enacted or imposed upon the Project after the Lease Commencement Date, (C) required under any Applicable Laws first enacted after the Lease Commencement Date, (D) related to the safety or security of the Project and consistent with the Operations Standard, or (E) replacements or modifications of equipment or other items located in or serving the Common Areas required to comply with the Operations Standard (as defined in Section 6.1 below); provided, however, that any capital expenditure shall be amortized with interest at the Interest Rate over the useful life of the capital item in question as Landlord shall reasonably determine in accordance with sound real estate management and accounting practices, consistently applied and in a manner consistent with the practices of landlords of Comparable Buildings (provided, however, with respect to those items included under item (A) above, Landlord shall have the right to amortize the same over their recovery/payback period as Landlord shall reasonably determine in accordance with sound real estate management and accounting practices, consistently applied); (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute Tax Expenses as defined in Section 4.2.4.1 below; (xv) payments under any Underlying Documents and (xvi) costs of any additional services consistent with the Operations Standard
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that are not provided to the Project as of the Lease Commencement Date but which are thereafter provided by Landlord in connection with the Operation Standard. Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:
(a) costs, including marketing costs, legal fees, space planners' fees, advertising and promotional expenses (including, without limitation, printing costs and brochures), and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of improvements and provision of tenant allowances, made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any Common Areas of the Project or parking facilities);
(b) except as set forth in items (xi), (xii), (xiii), and (xiv) above, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest;
(c) costs for which the Landlord is reimbursed by any tenant or occupant of the Project (other than de minimis amounts) or by insurance by its carrier or any tenant's carrier or by anyone else (except to the extent of deductibles) or by warranty or by anyone else, or would have been reimbursed if Landlord had carried the insurance Landlord is required to carry pursuant to this Lease or would have been reimbursed if Landlord had used commercially reasonable efforts to collect such amounts, from any tenant or occupant of the Project or by insurance from its carrier or any tenant's or other third party's carrier, and electric power costs for which any tenant directly contracts with the local public service company;
(d) any bad debt loss, rent loss, or reserves for bad debts or rent loss;
(e) costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project). Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any Mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord's interest in the Project, and (including, without limitation, consulting or brokerage commissions, origination fees or points, and interest costs or charges), and costs (including attorneys' fees) incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants, and Landlord's general corporate overhead and general and administrative expenses;
(f) the wages, salaries, fees and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages, salaries, fees and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages, salaries, fees and/or benefits attributable to personnel above the level of Senior Portfolio Manager;
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(g) amount paid as ground rental or similar payments to a ground lessor;
(h) any costs and expenses of operation of commercial concessions operated by the Landlord, including any health club and restaurants, provided that the costs to operate the parking facilities and any compensation paid to any concierge or parking attendants at the Project shall be includable as an Operating Expense;
(i) costs of items and services (including after-hours HVAC) for which Tenant or any other tenant in the Project reimburses Landlord directly and separately from Operating Expenses;
(j) costs, other than those incurred in ordinary maintenance and repair, for sculpture, paintings, fountains or other objects of art;
(k) any costs expressly excluded from Operating Expenses elsewhere in this Lease;
(l) costs incurred to comply with Applicable Laws relating to the removal of Hazardous Materials which were in existence in the Building or on the Project prior to the Lease Commencement Date, and were of such a nature that a federal, state, local or municipal governmental authority would have required removal or other containment, if it had then had knowledge of the presence of such Hazardous Materials, in the state, and under the conditions that they then existed in the Building or on the Project, but only to the extent those Applicable Laws were then being actively enforced by the applicable government authority;
(m) costs incurred to remove, remedy, contain, or treat Hazardous Materials, which Hazardous Materials were brought into the Building or onto the Project after the Effective Date by Landlord or any other Landlord Parties and are of such a nature, at that time, that a federal, state, local or municipal governmental authority would have required removal or other containment, if it had then had knowledge of the presence of such Hazardous Materials, in the state, and under the conditions, that they then exist in the Building or on the Project, but only to the extent those Applicable Laws were then being actively enforced by the applicable government authority;
(n) costs of above standard cleaning or other work or services provided selectively to one or more tenants (other than Tenant) without full reimbursement, to a greater extent or in a manner more favorable to such tenant than that performed for or furnished to Tenant;
(o) costs associated with the acquisition, sale or financing of the fee, ground lease, air rights or development rights with respect to the Project;
(p) the cost of replacement of any portion of the Building Structure that is not an ordinary repair or maintenance cost;
(q) any operating expense representing any amount paid to a related corporation, entity, or person which is in excess of the amount which would be paid to a qualified first class unaffiliated third party on a competitive basis;
(r) any increase in insurance premium to the extent that such increase is caused or attributable to the particular use, occupancy or act of another tenant;
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(s) the cost of overtime or other expense to Landlord in curing its defaults or performing work expressly provided in this Lease to be borne at Landlord's expense;
(t) fees payable by Landlord for management of the Project in excess of three percent (3%) of Landlord's gross rental revenues, adjusted and grossed up to reflect a one hundred percent (100%) occupancy of the Project (the "Management Fee Cap"), including base rent, pass-throughs, and parking fees (but excluding the cost of after-hours services or utilities) from the Project for any calendar year or portion thereof;
(u) penalties and interest charges as a result of not paying bills when due or within any grace period;
(v) costs in excess of $50,000 for charitable or political contributions;
(w) penalties and fines of any kind including non-compliance with any applicable building or fire code;
(x) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment (i) which are not commercially reasonable either as to type or amount (based upon the practices of landlords of the Comparable Buildings), and (ii) which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;
(y) rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the Comparable Buildings, with adjustment where appropriate for the size of the applicable project, and if used for the management of other projects as well, such rent shall be appropriately pro-rated;
(z) any finder’s fees, brokerage commissions, job placement costs or job advertising cost, other than with respect to a receptionist or secretary in the Project office, once per year;
(aa) any above Building standard cleaning, including, but not limited to construction cleanup;
(bb) the cost of any training or incentive programs, other than for tenant life safety information services;
(cc) insurance deductibles in excess of customary deductible amounts carried by landlords of the Comparable Buildings; provided, however, that in connection with any insurance deductible amounts included in Operating Expenses as a result of an earthquake which are for items otherwise classified as capital items, such amounts shall be amortized into Operating Expenses at the cost and over the term set forth in Section 4.2.3(p) above;
(dd) costs associated with material portions of the Common Areas dedicated for the exclusive use of other tenants of the Project, except to the extent Tenant is given its pro-
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rata share (rentable square feet in the Premises in relation to rentable square feet in the Project) of comparable Common Areas;
(ee) advertising and promotional expenses and costs of signs in or on the Building identifying the owner of the Building or other tenants’ signs;
(ff) costs due to violations of the Underlying Documents or to create any future Underlying Documents (as opposed to payments under any future Underlying Documents otherwise includable as an Operating Expense hereunder);
(gg) the costs of any flowers, gifts, balloons, etc. provided to any prospective tenants, Tenant, other tenants, and occupants of the Building;
(hh) costs of specialty clubs and services;
(ii) any "validated" parking for any entity;
(jj) costs of parties or events not open to all tenants of the Building;
(kk) any dining or travel expenses not directly related to the management functions of the Project;
(ll) costs of any "tap fees" or any sewer or water connection fees for the benefit of any particular tenant in the Building or the Project;
(mm) costs of magazine and newspaper subscriptions; and
(nn) costs related to removal or treatment of asbestos or asbestos containing material and/or ground water contamination.
If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Project is not 95% occupied during all or a portion of any Expense Year (including, without limitation, if any portion of the Project is unleased or is leased, but is not then being used by a tenant in the ordinary course of its business), Landlord shall make an appropriate adjustment to the variable components of Direct Expenses for such Expense Year by employing sound real estate accounting and management principles, consistently applied, to determine the amount of Direct Expenses that would have been incurred had the Project been 95% occupied; and the amount so determined shall be deemed to have been the amount of Direct Expenses for such Expense Year. For purposes hereof, cost savings in components of Operating Expenses arising by reason of the cessation of use by tenants at the Project due to Casualty (as defined in Section 11.1 below), Force Majeure (as defined in Section 30.13 below), or other extraordinary circumstances are considered variable Operating Expenses that shall be grossed up in Operating Expenses. If Operating Expenses for the Base Year include amortized costs, or costs (including, but not limited to, costs of insurance, personnel, and increased or new services) relating to extraordinary circumstances, including, but not limited to, Casualty, Force Majeure, boycotts, strikes, conservation surcharges, embargoes or shortages, then at such time as such costs are no longer applicable, the increased Operating Expenses attributable thereto shall be excluded from the Base Year Operating
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Expenses. In no event shall each of the components of Direct Expenses for any Expense Year related to utility costs, Tax Expenses, or Project insurance costs be less than each of the corresponding components of Direct Expenses related to such utility costs, Tax Expenses, and Project insurance costs in the Base Year. Any refunds or discounts actually received by Landlord for any category of Operating Expenses shall reduce Operating Expenses in the applicable Expense Year (pertaining to such category of Operating Expenses). In the event any facilities, services or utilities used in connection with the Project are provided from another building owned or operated by Landlord or vice versa, the costs incurred by Landlord in connection therewith shall be allocated to Operating Expenses by Landlord on a reasonably equitable basis. Except for the management fee permitted pursuant to Section 4.2.3 above, Landlord shall not (i) make a profit by charging items to Operating Expenses that are otherwise also charged separately to others and (ii) subject to Landlord's right to adjust the components of Operating Expenses described above in this paragraph, collect Operating Expenses from Tenant and all other tenants in the Building in an amount in excess of what Landlord incurs for the items included in Operating Expenses. In addition, all assessments and premiums which are not specifically charged to Tenant because of what Tenant has done, which can be paid by Landlord in installments, shall be paid by Landlord in the maximum number of installments permitted by law (except to the extent inconsistent with the general practice of the Comparable Buildings in the vicinity of the Building) and shall be included as Operating Expenses in the year in which the assessment or premium installment is actually paid.
In the event Landlord incurs costs or expenses associated with or relating to any insurance premium resulting from any new forms or types of insurance, including earthquake insurance, which were not part of Operating Expenses during the entire Base Year, Operating Expenses for the Base Year shall be deemed increased by the amounts Landlord would have incurred during the Base Year with respect to such costs and expenses had such insurance been included in Operating Expenses during the entire Base Year. In the event that the earthquake, terrorism or flood insurance premium (or any other insurance premium) applicable to the Building shall decrease in any Expense Year subsequent to the Base Year, Operating Expenses attributable to the Base Year shall, commencing in the year of such decrease, but only so long as and to the extent such decrease remains in effect, thereafter be reduced by the amount of such decrease in earthquake, terrorism or flood insurance premiums (or any other insurance premium).
4.2.4 Tax Expenses.
4.2.4.1 Inclusions. "Tax Expenses" shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority, but subject to the provisions of this Section 4.2.4) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof, including, without limitation: (i) any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election ("Proposition 13") and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse
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removal and for other governmental services formerly provided without charge to property owners or occupants, and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, except as expressly provided below, (iii) any governmental or private assessments or the Project's contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies; (iv) any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; (v) any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and (vi) except as expressly provided below, all of the real estate taxes and assessments imposed upon or with respect to the Building and all of the real estate taxes and assessments imposed on the land and improvements comprising the Project. Notwithstanding the foregoing, Tax Expenses shall not include any amounts that Landlord elects to charge to Tenant directly pursuant to Section 4.5.3 below.
4.2.4.2 In General. Any costs and expenses (including, without limitation, reasonable attorneys' fees) incurred in attempting to protest, reduce or minimize Tax Expenses, if Landlord has a reasonable expectation of achieving a reduction in excess of the expenses incurred, shall be included in Tax Expenses in the Expense Year such expenses are paid. Except as set forth in Section 4.2.4.4 below, refunds of Tax Expenses shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as an increase in Tax Expenses under this Article 4 for such Expense Year. All special assessments which may be paid in installments shall be paid by Landlord in the maximum number of installments permitted by law and not included in Tax Expenses except in the year in which the assessment is actually paid; provided, however, that if the prevailing practice in Comparable Buildings is to pay such assessments on an early basis, and Landlord pays the same on such basis, such assessments shall be included in Tax Expenses in the year paid by Landlord. If Tax Expenses for any period during the Lease Term or any extension thereof are increased or decreased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord, within thirty (30) days following written demand by Landlord, Tenant's Share of any such increased Tax Expenses included by Landlord as Tax Expenses pursuant to the TCCs of this Lease, or Landlord shall provide Tenant with a credit against Rent next coming due under the Lease in the amount of Tenant's Share of any such decreased Tax Expenses included by Landlord as Tax Expenses pursuant to the terms of the Lease (until such amount has been fully credited to Tenant), as the case may be. In addition, and notwithstanding anything to the contrary in this Lease, if a repeal, replacement or modification of Proposition 13 (a "Replacement Proposition") results in an adjustment of the Tax Expenses attributable to the Base Year (any such increase in Tax Expenses attributable to the Base Year that results from a Replacement Proposition, a "Base Year Replacement Proposition Tax Increase"), then (i) Tenant shall pay Tenant's Share of the amount of the Base Year Replacement Proposition Tax Increase as Additional Rent, (ii) Tax Expenses for the Base Year shall be deemed to not include the amount of the Base Year Replacement Proposition Tax Increase (provided that increases in Tax Expenses for all Expense Years subsequent to the Base Year shall include increases attributable to the Replacement Proposition). Notwithstanding anything to the contrary set forth in this Lease, only Landlord may institute proceedings to reduce Tax Expenses and the filing of any such proceeding by Tenant without Landlord's consent shall constitute an Event of Default by Tenant under this Lease. Notwithstanding the foregoing, Landlord shall not be obligated to file any application or institute any proceeding seeking a reduction in Tax Expenses.
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4.2.4.3 Exclusions. Notwithstanding anything to the contrary contained in this Section 4.2.4 (except as set forth in Section 4.2.4.2 above), there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, documentary transfer taxes, excise taxes, special assessments levied against property other than real estate, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord's general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, (iii) any items paid by Tenant under Section 4.5 of this Lease, (iv) tax penalties, interest or late charges, and (v) any amounts charged directly to Tenant or other tenants, including pursuant to Section 4.5 or pursuant to provisions of any other tenant's lease similar to Section 4.5 below.
4.2.4.4 Adjustments to Tax Expenses. Notwithstanding anything to the contrary set forth in this Lease, if and only if Landlord obtains a reduction in Tax Expenses for the Base Year pursuant to a so-called "Proposition 8" challenge, the amount of Tax Expenses for the Base Year and any Expense Year shall be calculated without taking into account any decreases in real estate taxes obtained in connection with Proposition 8, and, therefore, the Tax Expenses in the Base Year and/or an Expense Year may be greater than those actually incurred by Landlord, but shall, nonetheless, be the Tax Expenses due under this Lease; provided that (i) any costs and expenses incurred by Landlord in securing any Proposition 8 reduction shall not be included in Direct Expenses for purposes of this Lease, and (ii) tax refunds under Proposition 8 shall not be deducted from Tax Expenses, but rather shall be the sole property of Landlord. This Section 4.2.4.4 is not intended to in any way affect (A) the inclusion in Tax Expenses of the statutory two percent (2.0%) annual maximum allowable increase in Tax Expenses (as such statutory increase may be modified by subsequent legislation), or (B) the inclusion or exclusion of Tax Expenses pursuant to the terms of Proposition 13, which shall be governed pursuant to the terms of Sections 4.2.4.1 through 4.2.4.3, above. The terms of this Section 4.2.4.4 shall not be applicable following the enactment of a Replacement Proposition that results in an annual adjustment of the Tax Expenses based on the then current value of the Project, without regard to mandatory annual inflationary increases.
4.3 Allocation of Direct Expenses. Subject to Section 4.2.3 above, Landlord shall have the right, from time to time, to reasonably equitably and consistently allocate some or all of the Direct Expenses for the Project among different portions or occupants of the Project (the "Cost Pools"), in Landlord's reasonable discretion. Such Cost Pools may include, but shall not be limited to, the office space tenants, retail space tenants, tenants leasing storage space, and tenants with exclusive use of certain other areas of the Project. Subject to Section 4.2.3 above, the Direct Expenses within each such Cost Pool shall be allocated and charged to the tenants within such Cost Pool in an equitable and consistent manner.
4.4 Calculation and Payment of Tenant's Share of Direct Expenses. If for any Expense Year ending or commencing within the Lease Term, Tenant's Share of Direct Expenses for such Expense Year exceeds Tenant's Share of Direct Expenses applicable to the Base Year, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1 below, and as Additional Rent, an amount equal to the excess (the "Excess").
4.4.1 Statement of Actual Direct Expenses and Payment by Tenant. On or before the last day of June, following the end of each Expense Year (including the Base Year), Landlord shall give to Tenant a statement (the "Statement") which shall state, in reasonable detail by major general categories, the Direct Expenses incurred or accrued for such Expense Year, and which (for Expense Years other than the Base Year) shall indicate the amount of the Excess. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay,
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within thirty (30) days after receipt of the Statement, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as Estimated Excess, as defined in Section 4.4.2 below, and if Tenant paid more as Estimated Excess than the actual Excess, Tenant shall receive a credit in the amount of Tenant's overpayment against Rent next due under this Lease or Landlord may apply such overpayment against any unpaid Rent. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord (provided that in the event that such failure continues for a period of three (3) months following receipt of notice from Tenant, Tenant may elect to seek specific performance) or Tenant from enforcing its rights under this Article 4. Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Direct Expenses for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall, within thirty (30) days after receipt of the Statement, pay to Landlord such amount, and if Tenant paid more as Estimated Excess than the actual Excess, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment or apply such overpayment against any unpaid Rent. The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term. Notwithstanding the immediately preceding sentence, Tenant shall not be responsible for Tenant's Share of any Direct Expenses attributable to any Expense Year which are first billed to Tenant more than two (2) calendar years after the earlier of the expiration of the applicable Expense Year or the Lease Expiration Date, provided that in any event Tenant shall be responsible for Tenant's Share of Direct Expenses which (x) were levied by any governmental authority or by any public utility companies, and (y) Landlord had not previously received an invoice therefor and which are currently due and owing (i.e., costs invoiced for the first time regardless of the date when the work or service relating to this Lease was performed), at any time following the Lease Expiration Date which are attributable to any Expense Year (provided that Landlord delivers Tenant a bill (a "Supplemental Statement") for such amounts within two (2) years following Landlord's receipt of the bill therefor).
4.4.2 Statement of Estimated Direct Expenses. In addition, Landlord shall use commercially reasonable efforts to give Tenant a yearly expense estimate statement (the "Estimate Statement") which shall set forth in general major categories Landlord's reasonable and good faith estimate (the "Estimate") of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated excess (the "Estimated Excess") as calculated by comparing the Direct Expenses for such Expense Year, which shall be based upon the Estimate, to the amount of Direct Expenses for the Base Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Additional Rent under this Article 4 (provided that in the event that such failure continues for a period of six (6) months following receipt of notice from Tenant, Tenant may elect to seek specific performance), nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Excess theretofore delivered to the extent necessary; provided, however, any such subsequent revision shall set forth on a reasonably specific basis any particular expense increase. Thereafter, Tenant shall pay, within thirty (30) days after receipt of the Estimate Statement, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the second to last sentence of this Section 4.4.2). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant. Throughout the Lease Term Landlord shall maintain records with respect to Direct Expenses in accordance with sound real estate management and accounting practices, consistently applied.
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4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible.
4.5.1 Tenant shall be liable for taxes levied against Tenant's equipment, furniture, fixtures and any other personal property located in or about the Premises and shall pay or dispute (to the extent lawful so to do) the same before delinquency. If any such taxes on Tenant's equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord's property or if the assessed value of Landlord's property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall with thirty (30) days following demand by Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.
4.5.2 Notwithstanding any contrary provision herein, Landlord shall have the right to charge Tenant directly, and in such event Tenant shall pay to Landlord, within thirty (30) days of demand, as Additional Rent, any or all of the following: (i) rent tax or sales tax, gross receipts tax, service tax, transfer tax or value added tax, and/or any other applicable tax on the rent or services herein or otherwise respecting this Lease, (ii) any taxes assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project (including the Parking Facilities), including, but not limited to, taxes or assessments due to any type of ballot measure, including an initiative adopted by the voters or a local agency, or a state or municipal proposition approved by the voters; and (iii) taxes assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. To the extent that Landlord elects to charge Tenant directly for any of the foregoing, then such items for which Tenant is so charged directly shall not be included in Direct Expenses.
4.5.3 Landlord may charge Tenant the estimated amount of taxes and other charges for which Tenant is directly responsible pursuant to this Section 4.5 on a monthly basis, provided that Landlord shall reconcile the amount actually paid by Tenant with the amount that Tenant should have paid, as part of Landlord's Statement following the end of each Expense Year.
4.6 Landlord's Records. Upon Tenant's written request given not more than one hundred twenty (120) days after Tenant's receipt of a Statement for a particular Expense Year, and provided that no Event of Default is then occurring under this Lease, Landlord shall furnish Tenant with such reasonable supporting documentation as Tenant may reasonably request in connection with the calculation of Direct Expenses as set forth in such Statement (to the extent Landlord has such supporting documentation readily available, and to the extent such supporting documentation is reasonably required to substantiate Direct Expenses charged to Tenant). Landlord shall provide said documentation to Tenant within sixty (60) days after Tenant's written request therefor. Within one hundred twenty (120) days after Tenant's receipt of a Statement for a particular Expense Year (the "Audit Period"; provided that if and to the extent Landlord fails to deliver supporting documentation within the sixty (60) day period described above, the expiration of the Audit Period will be delayed on a day for day basis for each such day of delay in Landlord's delivery of such supporting documentation), if Tenant disputes the calculation of Direct Expenses set forth in such Statement, an independent certified public accountant designated and paid for by Tenant ("Tenant's Accountant"), may after reasonable notice to Landlord and at reasonable times, audit Landlord's records (the "Tenant Review") with respect to the Statement. In no event shall Tenant have the right to conduct such Tenant Review if (i) a monetary Event of Default is then occurring under this Lease, including, without limitation, the payment by Tenant of all Additional Rent amounts described in the Statement, which is the subject of Tenant's Review, which payment, at Tenant's election, may be
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made under dispute, and (ii) a copy of the audit agreement between Tenant and Tenant's Accountant has not been delivered to Landlord prior to the commencement of the audit. Tenant's Accountant must (A) be a member of a nationally or regionally recognized certified public accounting firm which has previous experience in auditing financial operating records of landlords of office buildings, (B) not be retained on a contingency fee basis (i.e., Tenant must be billed based on the actual time and materials that are incurred by Tenant's Accountant in the performance of the audit), and (C) not currently or within the previous twenty-four (24) month period be providing accounting and/or lease administration services to another tenant in the Project in connection with a review or audit by such other tenant of Direct Expenses. Any Tenant Review shall take place in Landlord's office at the Project or at such other location in the city of San Francisco as Landlord may reasonably designate, and Landlord will provide Tenant with reasonable access to personnel as is reasonably necessary for the Tenant Review, reasonable accommodations for such Tenant Review and reasonable use of such available office equipment. Landlord will provide secured electronic access to books and records, if and to the extent practicable. Tenant shall provide Landlord with not less than thirty (30) days' notice of its desire to conduct such Tenant Review. In connection with such Tenant Review, Tenant and Tenant's Accountant must agree in advance to follow Landlord's reasonable rules and procedures regarding an audit of the aforementioned Landlord records that do not adversely affect the ability of Tenant's Accountant to perform the audit in a reasonable manner, and shall execute a commercially reasonable confidentiality agreement regarding the Tenant Review. Any audit report prepared by Tenant's Accountant shall be delivered concurrently to Landlord and Tenant within the Audit Period. If after such audit, Tenant still disputes such Direct Expenses, an audit to determine the proper amount shall be made, at Tenant's expense, by an independent certified public accountant (the "Neutral Accountant") mutually selected by Landlord and Tenant that has not previously represented Landlord or Tenant; provided that if such audit by the Neutral Accountant proves that the Direct Expenses in the subject Expense Year were overstated by more than five percent (5%), then the cost of the Neutral Accountant and the out-of-pocket cost of Tenant's Accountant shall be paid for by Landlord. If Landlord and Tenant cannot agree upon and appoint a Neutral Accountant within thirty (30) days of Tenant's submittal of an audit report to Landlord, then Landlord or Tenant may apply to the Presiding Judge of the Los Angeles County Superior Court to appoint a Neutral Accountant in accordance with the criteria herein. If the resolution of the parties' dispute with regard to the Additional Rent shown on the Statement (as determined by Tenant Review and accepted by Landlord, or as determined by the Neutral Accountant, if applicable) reveals an error in the calculation of Tenant's Share of Direct Expenses to be paid for such Expense Year, the parties' sole remedy shall be for the parties to make appropriate payments or reimbursements, as the case may be, to each other as are determined to be owing. Any such payments shall be made within thirty (30) days following the resolution of such dispute; provided that if Landlord fails to make such payment within such time period, Tenant may treat any overpayments resulting from the foregoing resolution of such parties' dispute as a credit against Rent until such amounts are otherwise paid by Landlord. Subject to the terms of Section 4.6.2, below, this provision shall survive the termination of this Lease to allow the parties to enforce their respective rights hereunder. Tenant's failure to audit the Direct Expenses set forth in any Statement within the Audit Period shall be deemed to be Tenant's approval of such Statement and Tenant, thereafter, waives the right or ability to audit the amounts set forth in such Statement; provided, however, that, that in no event shall the foregoing constitute a waiver by Tenant to pursue any fraud claims against Landlord pertaining to Direct Expenses to the extent allowable under Applicable Laws. Additionally, if following Tenant's delivery to Landlord of a written request for a Tenant Review, Landlord fails to make its accounting records for the applicable Expense Year reasonably available for such purpose in accordance with the terms of Section 4.6.1 above, then the Audit Period shall be extended one (1) day for each day that Tenant and/or Tenant's Auditor, as the case may be, is so prevented from accessing such accounting records. In no event shall the payment by Tenant of any Direct Expense payment, or any amount on account thereof, preclude Tenant from exercising its rights under this Section 4.6. Tenant's sole right to audit Landlord's records and to contest
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the amount of Direct Expenses with respect to any Expense Year shall be as expressly set forth in this Section 4.6, and Tenant hereby waives any and all other rights pursuant to Applicable Laws to audit such records and/or to contest the amount of Direct Expenses with respect to any Expense Year.
ARTICLE 5
USE OF PREMISES
5.1 Permitted Use. Tenant shall use the Premises solely for the Permitted Use set forth in Section 7 of the Summary and Tenant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord's sole and absolute discretion. Notwithstanding the foregoing, Tenant shall have the right, subject to compliance with all TCCs of this Lease, to use the Premises or portions thereof for the following specific purposes: (A) typical office kitchen, breakroom, pantry and dining room uses that do not require venting and consistent with typical general office use by office tenants in first-class office building projects; (B) recreation rooms for employees of Tenant; (C) vending machines and snack bars for the sale of food, confections, nonalcoholic beverages, newspapers and other convenience items to employees of Tenant, but not the general public; (D) business and mailroom machines, equipment for printing, producing and reproducing forms, circulars and other materials used in connection with the conduct of Tenant's business; (E) libraries for employees of Tenant; (F) computer and other electronic data processing; (G) boardrooms and conference rooms; (H) training and testing rooms for employees of Tenant; (I) facilities for storage of equipment and supplies in connection with the foregoing; (J) an audio-visual studio/stage and other video and filming activities. Notwithstanding the foregoing, in no event shall any of the uses set forth in items (A) through (J), above, or any non-general office component of the Permitted Use, as set forth in Section 6 of the Summary, require Landlord to modify the Base Building or cause odors, sounds, sound-related vibrations or other odors, noise or vibrations to be smelled, heard or felt from outside the Premises in excess of the level of odors, noise and vibrations caused by typical general office use. Tenant shall operate its business in the Premises and comply with, and in no event may Tenant's Permitted Use violate, the rules and regulations for the Project promulgated by Landlord from time to time ("Rules and Regulations"), the current set of which (as of the Effective Date) is attached to this Lease as Exhibit D; provided, however, the current Rules and Regulations shall not be unreasonably or discriminatorily modified or enforced in a manner which shall materially interfere with the conduct of Tenant's Permitted Use from the Premises or Tenant's use of or access to the Premises. Landlord shall not be responsible to Tenant for the nonperformance of any of such Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project; provided, however, that Landlord shall use commercially reasonable efforts (but not including the institution of legal proceedings) to enforce such non-performance against the other occupants and tenants of the Project, to the extent such non-performance has a material adverse effect on Tenant's use of or access to the Premises.
5.2 Prohibited Uses. The uses prohibited under this Lease shall include, without limitation, use of the Premises or a portion thereof for (i) offices of any agency or bureau of the United States or any state or political subdivision thereof which (a) is of a character or reputation, is engaged in a business, or is of, or is associated with, a political orientation or faction, which is inconsistent with the nature of a first-class office project or which would otherwise reasonably offend a landlord of a Comparable Building, (b) is capable of exercising the power of eminent domain or condemnation, or (c) would, in Landlord's reasonable judgment, materially increase the human and/or vehicular traffic in, or the security threat to, the Premises, the Building and/or the Project; (ii) offices or agencies of any foreign governmental or political subdivision thereof (unless a similar tenant is located in the Building, and such
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entity (a) is not of a character or reputation, is engaged in a business, or is of, or is associated with, a political orientation or faction, which is inconsistent with the nature of a first-class office project or which would otherwise reasonably offend a landlord of a Comparable Building, (b) is not capable of exercising the power of eminent domain or condemnation, and (c) would not, in Landlord's reasonable judgment, materially increase the human and/or vehicular traffic in, or the security threat to, the Premises, the Building and/or the Project); (iii) offices of any health care professionals or service organization; (iv) schools or other training facilities which are not ancillary to corporate, executive or professional office use; (v) retail or restaurant uses; (vi) communications firms for broadcasting purposes such as radio and/or television stations; (vii) primary businesses that involves e-cigarettes, vaping, cannabis or other similar business models, or business that is prohibited from time to time by any documents between partners or members in the entity comprising Landlord from leasing or occupying space at the Building or Project (provided that Landlord shall deliver a list to Tenant of any such other prohibited entities or individuals from time to time within ten (10) business days of Tenant's written request); or (viii) any use that would violate Applicable Laws, zoning, building codes or any Underlying Documents (as defined in Section 5.4 of this Lease). Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Project, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises.
5.3 Density. Tenant shall not use any substantial portion of the Premises for a "call center," any other telemarketing, credit processing or customer service center. Tenant's use shall not result in an occupancy density for the Premises which is greater than the maximum density as is required by Applicable Laws. Landlord makes no representation or warranty that the Base Building, the Common Areas or the Premises will accommodate any particular density or that any particular density is permitted by Applicable Law or zoning requirements. Furthermore, Landlord shall not be obligated to make any changes to the Base Building or Common Areas to accommodate Tenant's occupancy density.
5.4 Underlying Documents. Tenant shall (i) be subject (and this Lease shall be subordinate) to all current or future (recorded and unrecorded) ground leases and master leases, development agreements, easements, licenses, operating agreements, declarations, restrictive covenants, covenants, conditions and restrictions affecting the Building or the Project (and any portion thereof), reciprocal easement agreements, parking licenses, and any agreements with transit agencies affecting the Building or the Project (all documents described in this item (i) and any additional provisions, exhibits, documents, rules and laws mentioned therein, are, collectively, "Underlying Documents"), (ii) comply with the requirements of the Underlying Documents, (iii) not perform any act or omission that would cause Landlord to be in violation of the Underlying Documents, (iv) be solely responsible for any amounts payable by Landlord resulting from Tenant's failure to comply with this Section 5.4, and (v) within ten (10) business days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination of this Lease to any Underlying Documents; provided, however, Tenant shall not be required to subordinate this Lease to any future Underlying Documents or amendments to existing Underlying Documents that shall materially, adversely (i) affect Tenant's use of the Premises for the Permitted Use or use of or access to the Premises, (ii) materially, adversely affect Tenant's rights under this Lease, or (iii) increase Tenant's obligations under this Lease. Landlord reserves the right to further subdivide all or a portion of the Project.
5.5 Service Animals. With the exception of "service" animals (as defined by the Americans with Disabilities Act (the "ADA"), the Fair Employment and Housing Act, and their accompanying guidelines or other Applicable Laws) ("Service Animals"), no animals, reptiles, birds or pets are permitted in the Premises, Building or Project at any time. Any Service Animals brought to the Premises, Building or Project must (i) be dogs or other animals that are recognized as Service Animals under Title
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III of the Americans with Disabilities Act, the Fair Employment and Housing Act, and their accompanying guidelines or other Applicable Laws, (ii) be individually trained to do work, perform tasks or provide support for a person with a recognized disability, and (iii) be registered with Landlord's property management office prior to coming to the Premises, Building or Project. Dogs, birds, reptiles or other animals whose sole function is to provide emotional support or comfort are not permitted except to the extent required by Applicable Laws. The following terms and conditions shall apply to all Service Animals brought onto the Project by Tenant or Tenant's employees (to the extent enforceable by Applicable Laws): (a) while in or about the Premises, Building or Project, all Service Animals must be harnessed, leashed or tethered and under the handler's control at all times; (b) any Service Animals brought into the Building shall access the Premises through the service or freight elevator only, if one is functioning at the Building (otherwise the passenger elevators may be utilized); (c) all Service Animals must be free from offensive odors and display habits appropriate to the work environment of the Premises, Building and Project; (d) Service Animals may not be disruptive or aggressive or engage in behavior that endangers the health and safety of others; (e) all Service Animals shall be house-trained and vaccinated in accordance with Applicable Laws; and (f) Tenant shall immediately remove any animal waste and excrement from the Premises, Building and Project. Tenant shall be responsible for any additional janitorial or cleaning costs and all other costs which may arise from the Service Animals' presence in the Project and/or the Building in excess of the costs that would have been incurred had Service Animals not been allowed in or around the Project and/or the Building.
ARTICLE 6
SERVICES AND UTILITIES
6.1 Services. Landlord shall operate and manage the Project in a first-class manner substantially consistent with that of first-class mid-rise institutionally owned Comparable Buildings ("Operations Standard") and provide the following services on all days and at all times (unless otherwise stated below) during the Lease Term.
6.1.1 HVAC. Landlord shall provide heating, ventilation and air conditioning ("HVAC") when necessary for normal comfort for normal office use in the Premises from 7:00 A.M. to 6:00 P.M. on Monday through Friday (collectively, the "Building Hours"), except for the date of observation of New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and, at Landlord's discretion, other locally or nationally recognized holidays (collectively, the "Holidays"). If Tenant desires to use HVAC outside of Building Hours, Tenant shall give Landlord such prior notice, if any, as Landlord shall from time to time establish as appropriate, and Landlord shall supply such HVAC to Tenant at Landlord's Actual Cost to Tenant (which shall be treated as Additional Rent). With respect to HVAC service, the "Actual Cost" shall mean an amount initially equal to $280 per floor per hour from November – April and $390 per hour per floor from May – October (and with respect to fan service only, the "Actual Cost" is initially $80 per hour per floor from November – April and $280 per hour per floor from May – October), which Actual Cost shall only increase if the actual out-of-pocket cost to provide such after-hours HVAC shall increase. For all other purposes of this Lease, the "Actual Cost" shall mean the actual out-of-pocket incremental extra costs to Landlord to provide other additional services or utilities, as applicable, without markup for profit or overhead, but including depreciation. The initial Actual Cost of providing after hours HVAC service is $280 per floor per hour from November – April and $390 per hour per floor from May – October.
6.1.2 Electricity. Notwithstanding any provision to the contrary contained in this Lease, Tenant shall pay one hundred percent (100%) of the cost of electricity consumed in the Premises
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directly to Landlord, as measured pursuant to submeters existing within the Premises as of the Effective Date. Any electricity costs paid to Tenant pursuant to the preceding sentence shall be excluded from Operating Expenses. However, Operating Expenses includes an allocation of electrical service provided to Common Areas as set forth in Section 4.2.3 above. Tenant's use of electricity shall never exceed the capacity of the feeders to the Project or the risers or wiring installation, nor shall Tenant utilize electricity in excess of Applicable Laws. Landlord shall designate the utility provider from time to time.
6.1.3 Lighting. Landlord shall replace lamps, starters and ballasts for Building standard non-LED lighting fixtures (and non-Building standard non-LED lighting fixtures that utilize the same lamps, starters and ballasts) within the Premises (if any), and drivers, transformers, and lighting controls for Building standard LED lighting fixtures within the Premises (if any). Notwithstanding the foregoing, Tenant shall bear the cost of replacement of all other components of all non-Building standard lighting (whether LED or non-LED) within the Premises.
6.1.4 Water. Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes in the Common Areas and for typical office kitchens within the Premises. Notwithstanding any provision to the contrary contained in this Lease, Tenant shall pay directly to Landlord in the event water is submetered, the cost of all water provided to and/or consumed in the Premises for excess consumption and including the cost of condenser or chiller water to operate the HVAC air handlers. In the event of excess consumption due to above standard office usage, Tenant shall pay such cost (including the cost of such submeters) as Additional Rent under this Lease (and not as part of the Operating Expenses). Prior to Tenant's occupancy of the Premises, the prior occupant of the Premises installed web-enabled wireless water leak sensor devices designed to alert the Tenant on a twenty-four (24) hour seven (7) day per week basis if a water leak is occurring in the Premises (which water sensor device(s) located in the Premises shall be referred to herein as "Water Sensors"). The Water Sensors have been installed in certain areas in the Premises where water is utilized (such as sinks, drainpipes, faucets, water heaters, coffee machines, ice machines, water dispensers and water fountains) (the "Sensor Areas"). If the Improvements or Alterations include installation of additional Sensor Areas, Tenant shall install additional Water Sensors in such Sensor Areas. Landlord shall cooperate with Tenant to facilitate set-up of Tenant's use and monitoring of the Water Sensors. Notwithstanding any provision to the contrary contained herein, Landlord has neither an obligation to monitor, repair or otherwise maintain the Water Sensors, nor an obligation to respond to any alerts it may receive from the Water Sensors or which may be generated from the Water Sensors.
6.1.5 Janitorial and Window Washing. Landlord shall provide janitorial services to the Common Areas Monday through Friday, except the date of observation of the Holidays, and periodic exterior window washing services to the Building (as determined by Landlord), in each case in a manner consistent with other comparable projects located in the general vicinity of the Project. At Landlord's option, but consistent with the practices of landlords of comparable projects located in the general vicinity of the Project, Landlord may increase the scope or nature of certain janitorial services provided to the Common Areas. Notwithstanding the foregoing but subject to the remainder of this Section 6.1.5, Landlord shall not provide janitorial services to the Premises. Tenant shall be required to contract directly with Landlord's designated janitorial services provider, ABM Janitorial Services, to perform janitorial services and other cleaning to the Premises, including interior window washing, in a manner and on a cleaning schedule consistent with Landlord's janitorial specifications for the Building, and Tenant shall pay the actual cost of such contract directly to Landlord. Landlord shall have the right, from time to time, to change its designated janitorial services provider for the Building, in which event Tenant shall terminate its contract with Landlord's previously designated janitorial services provider and enter into a contract with Landlord's newly designated janitorial services provider, provided that such alternative
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janitorial services provider maintains commercially reasonable and market rates. In addition, Tenant shall have the right to independently contract for day porter and additional related services associated with Tenant's business operations within the Premises. Notwithstanding the foregoing, Landlord may elect, by delivery of written notice to Tenant, to provide janitorial services to the Premises, and any reasonable, out-of-pocket charge or cost incurred by Landlord in connection therewith and a reasonable administrative fee charged by Landlord for its oversight of such work shall be deemed Additional Rent due and payable by Tenant within thirty (30) days of receipt by Tenant of a written statement of cost from Landlord.
6.1.6 Elevators. Landlord shall provide nonexclusive, non-attended automatic passenger elevator service during the Building Hours, and shall have at least one elevator available at all other times. Landlord shall provide nonexclusive freight elevator service subject to reasonable and non-discriminatory scheduling and rules and regulations set forth by Landlord.
6.1.7 Access; Access Control. Subject to compliance with Landlord's access control procedures and Applicable Laws, and except when and where Tenant's right of access is specifically restricted or limited in this Lease, Tenant shall have the right of access to the Premises twenty-four (24) hours per day, seven (7) days per week during the Lease Term. Landlord shall provide Tenant with appropriate contact information that Tenant may contact in the event of an emergency at the Premises or Building twenty-four (24) hours per day, seven (7) days per week (whether or not during Building Hours). Landlord shall provide access control services to the Common Areas serving the Premises in a manner consistent with the Operations Standard.
6.2 Office and Communications Services. Certain office and communications services (which may include, without limitation, cable or satellite television service) may be offered to tenants of the Building or Project by a concessionaire (which may or may not have exclusive rights to offer such services) under contract to Landlord ("Provider"). Tenant shall be permitted to contract with Provider for the provision of any or all of such services on such terms and conditions as Tenant and Provider may agree. Tenant acknowledges and agrees that: (i) Landlord has made no warranty or representation to Tenant with respect to the availability of any such services, or the quality, reliability or suitability thereof; (ii) the Provider is not acting as the agent or representative of Landlord in the provision of such services, and Landlord shall have no liability or responsibility for any failure or inadequacy of such services, or any equipment or facilities used in the furnishing thereof, or any act or omission of Provider, or its agents, employees, representatives, officers or contractors; (iii) Landlord shall have no responsibility or liability for the installation, alteration, repair, maintenance, furnishing, operation, adjustment or removal of any such services, equipment or facilities; and (iv) any contract or other agreement between Tenant and Provider shall be independent of this Lease, the obligations of Tenant hereunder, and the rights of Landlord hereunder, and, without limiting the foregoing, no default or failure of Provider with respect to any such services, equipment or facilities, or under any contract or agreement relating thereto, shall have any effect on this Lease or give to Tenant any offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of Rent, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord. Tenant shall not be permitted to contract with any provider of any office or communications services other than a Provider without Landlord's prior written consent (and subject further to such provider entering into an agreement with Landlord governing such provider's rights, obligations, and liabilities with respect to accessing and otherwise providing services at the Project, such agreement to be on terms and conditions acceptable to Landlord in its sole and absolute discretion).
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6.3 Overstandard Tenant Use. In the event Tenant uses heat-generating machines, machines other than normal fractional horsepower office machines, or equipment (which machines and/or equipment are in excess of general office use quantities and/or configurations) or lighting other than Building standard lights in the Premises, which may materially affect the temperature otherwise maintained by the HVAC or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease, Tenant shall, subject to the TCCs of Article 8 below, install supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the Actual Cost thereof, including the cost of installation, operation and maintenance and other similar charges, shall be borne by Tenant. Notwithstanding the foregoing, Landlord will not require installation of supplementary air conditioning units and other facilities in the Ground Floor Premises to accommodate the heat load currently generated by the lighting fixtures in the Ground Floor Premises as of the Effective Date. If Tenant uses water in excess of that supplied by Landlord pursuant to Section 6.1 of this Lease, Tenant shall pay to Landlord, within thirty (30) days of billing, the Actual Cost of such excess consumption, the Actual Cost of installing, testing and maintaining of the metering devices. Notwithstanding the foregoing, Landlord may only charge such excess costs to Tenant to the extent that Landlord also separately bills its other tenants in the Building, if any, for usage in excess of amounts set forth in Section 6.1, above.
6.4 Interruption of Use. Landlord shall not be liable for damages, by abatement of Rent (except as provided in Section 19.6.2 of this Lease) or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements (and Landlord agrees to use commercially reasonable efforts to minimize interference with Tenant's business in the Premises in connection with the performance of any non-emergency work and further agree to provide Tenant with at least twenty-four (24) hours prior written notice of any planned shutdowns of electrical power within the Building or any planned shutdowns by the utility serving the Building (to the extent Landlord has notice thereof) excluding emergency shut downs for which Landlord is unable to provide such notice), by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises (subject, however, to Landlord’s covenant of quiet enjoyment) or relieve Tenant from paying Rent (except as provided in Section 19.6.2 of this Lease) or performing any of its obligations under this Lease; provided, however, that Landlord shall use commercially reasonable and diligent efforts to restore such service to the extent the restoration of the same is not the obligation of Tenant, the utility company or other third party. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant's business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6; provided, however, that Landlord shall be responsible for any property damage or personal injury to the extent set forth in Section 10.1 of this Lease.
ARTICLE 7
REPAIRS AND MAINTENANCE
7.1 Tenant's Repair and Maintenance Obligations. Tenant shall, at Tenant's own expense, maintain and keep in good repair and first class condition and operating the following (collectively,
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"Tenant's Repair Obligations"): (i) the Premises (which excludes the Base Building), including all improvements, fixtures, equipment, interior window coverings, and furnishings therein (which obligation of Tenant shall include, without limitation, the prompt replacement or repair, as reasonably required, of all damaged, broken, or worn fixtures and appurtenances, which work shall be performed by Tenant under the supervision and subject to the prior reasonable approval of Landlord), (ii) any personal property or equipment (including, without limitation, furniture, business and trade fixtures, equipment, free-standing cabinet work, movable partitions, servers, telephones, and merchandise) installed by Tenant within the Premises (collectively, "Tenant's Property"), and (iii) any equipment installed by Tenant at the Project and located outside of the Premises, including any rooftop equipment, supplemental HVAC, and generators ("Tenant's Off-Premises Equipment"), which Tenant's Off-Premises Equipment may only be installed by Tenant with the prior written consent of Landlord (in Landlord's sole and absolute discretion, except to the extent otherwise expressly permitted elsewhere in this Lease), and (iv) all improvements and systems exclusively serving the Premises, including any communications or computer wires and cables (collectively, the "Cabling") and applicable branch lines of the plumbing, electrical and other Building Systems as extending from the core and MPOE, except Landlord is responsible for plumbing and electrical branch lines within core restrooms. The performance of Tenant's Repair Obligations shall comply with the terms of Article 8 below.
7.2 Landlord's Repair and Maintenance Obligations. Landlord shall maintain and keep in good repair and first class condition and operating order in a manner substantially consistent with the Operations Standard the following (collectively, "Landlord's Repair Obligations"): (i) the structural portions of the Building, including the foundation, floor/ceiling slabs, roof structure, roof membrane, curtain wall, sewer and water mains, exterior glass and mullions, columns, beams, shafts (including elevator shafts), stairs, stairwells, elevator cab, Building mechanical, electrical and telephone closets (collectively, "Building Structure"), (ii) the mechanical (including equipment located on the roof and within the core of the Building, and excluding any distribution outside of the core), electrical (excluding distribution of any such systems within the Premises), life safety, plumbing (excluding distribution of any such systems within the Premises other than within the restrooms in the Building core), sprinkler systems and HVAC systems that serve the Building generally, as opposed to Tenant or another tenant exclusively (collectively, the "Building Systems") and (iii) the Common Areas, which shall include restrooms located on multi-tenant floors of the Building. The "Base Building" shall mean the Building Structure and the Building Systems. Notwithstanding anything in this Lease to the contrary, if and to the extent that any repairs that are Landlord's Repair Obligations are required because of (i) Tenant's use of the Premises for other than normal and customary business office operations, or (ii) Tenant's construction of non-general office Improvements or Alterations, then Landlord shall make such repairs and replacements, at Tenant's sole cost sufficient to reimburse Landlord for the Actual Cost thereof (including all overhead, general conditions, fees and other costs or expenses arising from Landlord's involvement with such repairs and replacements) within thirty (30) days of being billed for same. In the event that the Premises has an "open ceiling plan", then Landlord and third parties leasing or otherwise using/managing or servicing space on the floor immediately above the Premises shall have the right to install, maintain, repair and replace mechanical, electrical and plumbing fixtures, devices, piping, ductwork and all other improvements through the floor above the Premises (which may penetrate through the ceiling of the Premises and be visible within the Premises during the course of construction and upon completion thereof), as Landlord may determine in Landlord's commercially reasonable discretion and with reasonable approval rights being afforded to Tenant with respect thereto. Notwithstanding Tenant's occupancy of the Premises during the performance of any of Landlord's Repair Obligations, except as otherwise provided herein, the performance of Landlord's Repair Obligations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent; provided that Landlord shall perform Landlord's Repair Obligations in a manner so as to minimize any material, adverse effect upon Tenant's use of, or ingress or
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egress to, the Premises. Subject to the foregoing, Tenant shall promptly and diligently cooperate with Landlord and any of the third parties performing Landlord's Repair Obligations in the Premises in order to facilitate the performance of such work in an efficient and timely manner. Landlord's entry into the Premises to perform any repairs or maintenance hereunder shall be subject to Article 27 below. Tenant hereby waives any and all rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect.
7.3 Tenant's Right to Make Repairs. As used herein, the term "Emergency Condition" shall mean a situation which poses an imminent threat: (i) to the physical well-being of persons at the Building or (ii) of material damage to Tenant's Property, and the term "Adverse Condition" shall mean Landlord has failed to perform one of Landlord's Repair Obligations ("Landlord Breach") and such Landlord Breach will have a material and adverse impact on Tenant's ability to conduct its business in the Premises, or any material portion thereof. Landlord and Tenant shall have the following obligations and rights in the case of an Emergency Condition or Adverse Condition:
7.3.1 Landlord's Obligation to Cure. If an Emergency Condition or Adverse Condition exists, and Landlord is obligated under the terms of this Lease to cure or remediate such Emergency Condition or Adverse Condition, then Landlord shall, promptly following Landlord's learning of such Emergency Condition or Adverse Condition, commence and diligently thereafter, perform all repairs required by Landlord under this Lease or take such other actions, if any, required of Landlord under this Lease to cure or remediate such Emergency Condition or Adverse Condition (collectively "Emergency Repairs"). In any case, in the event any Emergency Repairs are not completed by Landlord within a two (2) business day period with respect to an Emergency Condition or ten (10) business day period with respect to an Adverse Condition, Landlord shall, within three (3) business days following Tenant's written request therefore, provide to Tenant a schedule determined in good faith setting forth the basic steps Landlord proposes to be taken to effect the Emergency Repairs or other actions in a commercially reasonable time frame given the specifics of the Emergency Repairs required and the times when such work is proposed to be done (the "Emergency Repair Schedule") and thereafter Landlord shall proceed to complete such Emergency Repairs in accordance with the Emergency Repair Schedule.
7.3.2 Tenant Self-Help Notice. Notwithstanding anything to the contrary contained herein, if an Emergency Condition or Adverse Condition occurs and Landlord is not materially complying with the timing set forth on the Emergency Repair Schedule or did not timely deliver notice of the Emergency Repair Schedule, Tenant shall have the right to deliver to Landlord a notice ("Tenant Self-Help Notice") that Tenant intends to exercise its self-help rights set forth in this Section 7.3.
7.3.3 Self-Help. If Landlord fails, within two (2) business days after delivery of a Tenant Self-Help Notice to commence Emergency Repairs and thereafter diligently prosecute such Emergency Repairs to completion, then, unless Landlord has delivered a Landlord Dispute Notice (as defined below), Tenant shall have the right, but not the obligation, to perform such Emergency Repairs at Landlord's expense; provided, however, that in no event shall Tenant undertake any actions which will or are reasonably likely to materially and adversely affect (other than to a de minimis extent): (a) the Building Structure, (b) the Building Systems, (c) the exterior appearance of the Building or (d) any other tenant or occupant of the Building. If Tenant undertakes any Emergency Repairs, Tenant shall (i) proceed in accordance with all applicable Laws; (ii) retain only such reputable, experienced contractors and suppliers as are duly licensed in the City and, if Landlord has furnished to Tenant a reasonable list of Landlord's approved contractors for the Building, are included on such list, (iii)provide evidence to Landlord that all contractors and suppliers retained to perform the Emergency Repairs are insured in
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accordance with the provisions of Article 10 of this Lease; (iv) effect such repairs or perform such other actions in a good and workmanlike and commercially reasonable manner that will not adversely affect Landlord's warranties for the Building; (v) use new or like new materials; (vi) take reasonable efforts to minimize any material interference or impact on the other tenants and occupants of the Project, and (vii) otherwise comply with all applicable requirements set forth in Article 8 of this Lease. Notwithstanding anything in this Section 7.3 to the contrary, the foregoing self-help right (a) shall not apply in the event of any Casualty, it being acknowledged and agreed that Article 11 shall govern with respect to any Casualty, (b) shall not apply in the event of any condemnation, it being acknowledged and agreed that Article 13 shall govern with respect to any such condemnation, and (c) shall not permit Tenant to access any other tenant's or occupant's space at the Project.
7.3.4 Landlord Dispute Notice. Landlord shall have the right to indicate in writing within two (2) business days of receipt of a Tenant Self-Help Notice that Landlord reasonably and in good faith disputes Tenant's right to perform the Emergency Repairs as set forth herein (a "Landlord Dispute Notice"). Landlord's failure to timely deliver a Landlord Dispute Notice shall conclusively be deemed Landlord's waiver of any right to dispute Tenant's right to perform the Emergency Repairs. If Landlord timely delivers a Landlord Dispute Notice, Tenant may elect to have the dispute resolved pursuant to the arbitration procedures set forth in Subsection 7.3.8, below.
7.3.5 Reimbursement of Tenant Costs. If Tenant exercises its right to perform Emergency Repairs or other actions on Landlord's behalf, as provided above, then Landlord shall reimburse the actual third-party out-of-pocket reasonable cost thereof, without any mark-up or premium or interest plus an administrative fee of 2% (collectively, "Tenant Self-Help Costs"), within thirty (30) days following Tenant's delivery of: (i) a written notice describing in reasonable detail the Emergency Repairs taken by the Tenant, and (ii) reasonably satisfactory evidence of the Tenant Self-Help Costs, including a description of the contractors and materials used, a copy of all required permits and governmental approvals, a copy of receipt(s) showing Tenant's payments to those providing services or materials, and valid, final, unconditional mechanics' lien releases and waivers from all contractors, subcontractors and suppliers providing services or materials.
7.3.6 Landlord's Set-Off Notice. Landlord shall have the right, within thirty (30) days following Tenant's written request for reimbursement of Tenant Self-Help Costs, to notify Tenant that Landlord reasonably and in good faith disputes that (i) Tenant did not perform the Emergency Repairs in the manner permitted by this Lease, or (ii) that the amount of the Tenant Self-Help Costs that Tenant requests be reimbursed from Landlord for performance of the Emergency Repairs is incorrect or excessive ("Landlord's Set-Off Notice"). Failure of Landlord to timely deliver a Landlord's Set-Off Notice shall be deemed to constitute Landlord's acknowledgement that the request for reimbursement is appropriate. If Landlord timely delivers a Landlord's Set-Off Notice to Tenant, then Tenant shall not be entitled to exercise the deduction from Rent set forth below (provided, if Landlord contends the amount spent by Tenant in making such repairs is excessive and does not otherwise object to Tenant's actions pursuant to this section, then Landlord shall pay the amount it contends would not have been excessive), in which case Tenant may elect to have the dispute resolved pursuant to the arbitration procedures set forth in Subsection 7.3.8, below.
7.3.7 Tenant Offset Right. If Landlord does not timely deliver a Landlord's Set-Off Notice to Tenant, and Landlord fails timely to pay the Tenant Self-Help Costs (or, if, having timely disputed the amount sought in reimbursement, Landlord fails timely to pay the undisputed amount to Tenant), Tenant shall thereafter have the right to offset the Tenant Self-Help Costs (or the undisputed amount of the same, as applicable), together with interest at the Interest Rate from the date Landlord was
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required to pay such amount until offset occurs. The foregoing offset rights do not limit Tenant's rights to recover from Landlord amounts due to Tenant. Without limitation, if there are insufficient rents remaining due under this Lease to allow Tenant to fully offset its costs and interest, Tenant shall have the right to pursue claims directly against Landlord.
7.3.8 Dispute Resolution. In the event of a dispute between Landlord and Tenant regarding (i) Tenant's right to perform Emergency Repairs, or (ii) the amount of the Tenant Self-Help Costs, Tenant may elect to have such dispute determined by arbitration in San Francisco, California before a single arbitrator administered by JAMS pursuant to its Expedited Procedures provisions (Rules 16.1-16.2 in the current edition) of the JAMS Comprehensive Arbitration Rules and Procedures. If the nature of the dispute involves whether Tenant may perform Emergency Repairs, and the arbitrator finds that Tenant is entitled to perform such Emergency Repairs, Tenant may, but shall not be obligated to, thereafter perform such Emergency Repairs unless Landlord shall, in the interim, have remedied the Emergency Condition or Adverse Condition. If the nature of the dispute involves the amount of the Tenant Self-Help Costs, the amount, if any, to which the arbitrator determines Tenant was entitled and not paid by Landlord shall be paid by Landlord within thirty (30) days, or otherwise may be offset by Tenant from Rent next due and payable under this Lease pursuant to Subsection 7.3.7 above. For the avoidance of doubt, the prevailing party in any such arbitration shall be entitled to reimbursement of its reasonable attorneys' fees and costs incurred in connection with the arbitration.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 Landlord's Consent to Alterations. Tenant may not make any repairs, improvements, alterations, additions or changes to the Premises or any other portion of the Project (collectively, the "Alterations") without the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than fifteen (15) business days prior to the commencement thereof, and which consent shall not be unreasonably withheld by Landlord and shall be granted or denied within ten (10) business days, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which constitutes a Design Problem (without limitation as to any other reasonable grounds for Landlord to withhold its consent to any particular Alterations). A "Design Problem" is defined as, and will be deemed to exist if such Alterations or Improvements may (i) affect the exterior appearance of the Building; (ii) affect the Building Structure or adversely affect the Building Systems in a non-de minimis manner; (iii) fail to comply with Applicable Laws and applicable building codes ("Code") or would cause any other portion of the Project to fail to comply with Applicable Laws or Code, (iv) be in conflict with Landlord's Sustainability Requirements (including, without limitation, by jeopardizing any Sustainability Certification), (v) vitiate or otherwise negatively affect any warranty, guaranty, or insurance maintained by Landlord, (vi) materially increase Landlord's Repair Obligations, (vii) be unusually difficult or expensive to remove or not be readily usable for typical office or retail use (as applicable given the Permitted Use of the Premises) by a future tenant, (viii) unreasonably interfere with any other tenant or occupant of the Project, (ix) affect the certificate of occupancy or its legal equivalent for the Project or any portion thereof, (x) fail to adhere to mandatory Building standard requirements for the Project, or (xi) in connection with Improvements only, affect the critical path of construction of the Landlord SOV Improvements (as defined in the Work Letter). Notwithstanding the foregoing, Tenant shall be permitted to make Alterations following ten (10) business days' notice to Landlord ("Cosmetic Alterations Notice"), but without Landlord's prior consent, to the extent that such Alterations do not (a) constitute a Design Problem, (b) require a building or construction permit, or (c) cost more than $8.00 per rentable square foot of the Premises affected for a particular job of work, or more than $12.00 per rentable square
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foot of the Premises affected in the aggregate in any consecutive twelve (12) month period (the "Cosmetic Alterations"). The Cosmetic Alterations Notice must be accompanied by reasonably adequate evidence that such Cosmetic Alterations meet the criteria set forth above in this Section 8.1 (failing which Tenant shall not be permitted to perform such Alterations without Landlord's prior written consent).
8.2 Manner of Construction. Landlord may impose, as a condition to Tenant's right to perform any Alterations for which Landlord's prior consent is required, such requirements as Landlord in its reasonable discretion consistent with landlords of Comparable Buildings may deem desirable, including, but not limited to, (i) the requirement that Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant and reasonably approved by Landlord, (ii) that Tenant enter into a construction contract that includes Landlord's then-standard commercially reasonable construction rider (or such other construction rider as Landlord may reasonably require), which rider shall include, among other things, Landlord's commercially reasonable insurance and indemnity requirements, and (iii) any Cabling (including riser cables) installed by Tenant shall be (x) appropriately insulated to prevent excessive electromagnetic fields or radiation, (y) surrounded by a protective conduit reasonably acceptable to Landlord, and (z) identified in accordance with Landlord's Building standard requirements. Tenant shall be solely responsible for acquiring a permit for all Alterations, furnishing of a copy of such permit and approvals to Landlord prior to the commencement of the work, and complying with all conditions of said permit in a prompt and expeditious manner. If such Alterations will involve the use of or disturb Hazardous Materials, Tenant shall notify Landlord prior to performing such Alterations and comply with Landlord's reasonable non-discriminatory rules and regulations concerning such Hazardous Materials. Tenant shall construct all Alterations in a good and workmanlike manner, in conformance with any and all Applicable Laws and Landlord's reasonable written construction rules and regulations; provided, however, that prior to commencing to construct any Alteration, Tenant shall meet with Landlord to discuss Landlord's design parameters and Code compliance issues. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof, by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project. Tenant shall retain any union trades to the extent designated by Landlord. Further, Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord's reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Project. In addition to Tenant's obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Project is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute. Tenant shall, promptly following the completion of any Alterations (including any Cosmetic Alterations), compile and deliver to Landlord a "close-out package" in such format designated by Landlord (e.g., paper and/or electronic files) containing, without limitation, the following items (to the extent deemed necessary by Landlord for the particular Alterations): (a) as-built drawings and final record CAD drawings, (b) warranties and guarantees from all contractors, subcontractors and material suppliers, (c) all permits, approvals and other documents issued by any governmental agency in connection with the Alterations, (d) an independent air balance report, if required due to the nature of the Alterations, (e) lien releases for all work performed at the Project, and (f) such other information or materials as may be reasonably requested by Landlord.
8.3 Payment for Alterations. Tenant is responsible for all of the costs of performing any Alterations. In addition, Tenant shall also reimburse Landlord for Landlord's reasonable, out-of-pocket costs and expenses actually incurred in connection with Landlord's review of such Alterations (including,
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but not limited to, fees paid to consultants retained by Landlord to review plans and specifications for such Alterations).
8.4 Construction Insurance. In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with evidence that Tenant carries "Builder's Risk" insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord, commensurate with the practice of owners of Comparable Buildings, may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof. In addition, Landlord may, in its reasonable discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.
8.5 Ownership and Removal. The initial Improvements shall be deemed to constitute Alterations for purposes of this Section 8.5 below). All Alterations shall, upon completion of construction, become part of the Premises (or the Project, as applicable) and the property of Landlord. Prior to the expiration or earlier termination of this Lease, Tenant, at Tenant's expense shall remove all Mandatory Removal Items (as defined below). Notwithstanding the foregoing, in addition to Mandatory Removal Items, Landlord may, by written notice to Tenant, concurrently with Landlord's review and approval of Tenant's plans and specifications, require Tenant, at Tenant's expense, to remove any Specialty Improvements, in which event Tenant shall be required to remove the same in accordance with the TCCs of Section 15.2 below. Failure of Landlord to designate any proposed Alteration as a Specialty Improvement at the time of Landlord's approval of the same shall be deemed to be Landlord's waiver of its right to require removal of the same. Tenant is not obligated to remove any Original Improvements. "Mandatory Removal Items" shall mean: (i) any Alterations located outside of the Premises, including Tenant's Off-Premises Equipment, (ii) all Cabling which was installed by Tenant (but not any Cabling existing in or serving the Premises as of the date the Premises are delivered by Landlord to Tenant if and to the extent that such distinction may be determined, failing which Tenant will be deemed to be required to remove the same), (iii) any other items, improvements or fixtures which Tenant is expressly required to remove pursuant to the terms of this Lease, (iv) any Alterations or signage incorporating Tenant's name or logo (except for any signage provided by Landlord on any Building directory), (v) any Alterations not complying with Applicable Laws or which are not operable/functioning, and (vi) any Alterations not performed in accordance with the TCC's of this Article 8 (or the Work Letter, as applicable). "Specialty Improvements" shall mean: (a) safes and vaults, (b) decorative water features; (c) specialized wallcoverings and ceilings, and flooring, including raised flooring; (d) conveyors and dumbwaiters; (e) any Alterations or Improvements which (1) perforate a floor slab in the Premises (other than typical core drills) or a wall that encloses/encapsulates the Building Structure, (2) involve material plumbing connections (such as kitchens and executive bathrooms outside of the Building core), or (3) require changes to the Base Building; (f) supplemental HVAC equipment within the Premises and non-Building standard fire suppression systems, and (g) any other installations not typically found in general use office space or requiring over-standard demolition costs for the removal thereof. For avoidance of doubt, Landlord shall have the right, but not the obligation, to require removal of Mandatory Removal Items (and in no event shall Tenant be permitted to remove any Alterations other than Mandatory Removal Items unless such removal is required by Landlord in writing), provided Landlord gives notice to Tenant of the requirement to remove such Mandatory Removal Items at least forty five (45) days prior to the scheduled expiration of the Lease Term.
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ARTICLE 9
COVENANT AGAINST LIENS
Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished, or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify, and hold Landlord harmless from and against any Losses (as defined in Section 10.1 below) arising out of same or in connection therewith. Tenant shall give Landlord notice at least ten (10) business days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under Applicable Laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility. Tenant shall remove any such lien or encumbrance by bond or otherwise within fifteen (15) business days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof. The amount so paid shall be deemed Additional Rent under this Lease payable within thirty (30) days following demand (or, at Landlord's election, Landlord may deduct such amounts from any undisbursed improvement allowance or other allowance granted to Tenant under this Lease), without limitation as to other remedies available to Landlord under this Lease. Nothing contained in this Lease shall authorize Tenant to do any act which shall subject Landlord's title to the Building or Premises to any liens or encumbrances whether claimed by operation of law or express or implied contract. Any claim to a lien or encumbrance upon the Building or Premises arising in connection with any such work or respecting the Premises not performed by or at the request of Landlord shall be null and void, or at Landlord's option shall attach only against Tenant's interest in the Premises and shall in all respects be subordinate to Landlord's title to the Project, Building and Premises.
ARTICLE 10
INDEMNIFICATION AND INSURANCE
10.1 Indemnification and Waiver.
10.1.1 Tenant's Indemnification and Waiver. Because Tenant is required to insure Tenant's Insured Property and because of the requirements to provide waivers of subrogation, Tenant hereby assumes all risk of damage to Tenant's Insured Property, subject to the provisions of the waiver of subrogation set forth below. Except to the extent arising from the negligence or willful misconduct of or breach of this Lease by Landlord or any Landlord Parties (defined below) but subject to Section 10.5 below, Tenant hereby assumes risk of injury to persons in, upon or about the Premises from any cause whatsoever, except to the extent caused by the negligence or willful misconduct of the Landlord Parties. To the extent not prohibited by Applicable Laws, Landlord, its partners, subpartners, members, trustees, ancillary trustees and their respective officers, directors, shareholders, beneficiaries, agents, servants, employees, and independent contractors (collectively, "Landlord Parties") shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant, except for damage to Landlord's Insured Property, subject to the waiver of subrogation, and except for injury to persons to the extent caused by the negligence or willful misconduct of the Landlord Parties. Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from and against any and all claims, losses, costs, damages, expenses, causes of action, proceedings and liability (including without limitation court costs and reasonable attorneys' fees) (collectively, "Losses") incurred in connection with or arising from: (i) any causes in, on or about the Premises; (ii) any activity, work, or thing done, or permitted or suffered by Tenant or any person claiming by, through or under Tenant, its partners,
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subpartners, parent organization, affiliates, subsidiaries and their respective officers, directors, Transferees, or the contractors, agents, employees, invitees, or visitors of Tenant or its Transferees and each of them (collectively, "Tenant Parties") or any such person, occurring in, on or about the Project, but outside of the Premises; (iii) any breach of any term, covenant, or provision of this Lease; or (iv) the placement of any of Tenant's Property or any of Tenant's Off-Premises Equipment. Notwithstanding the foregoing, if Landlord is found to be wholly or partially negligent or to have acted with willful misconduct by a court of competent jurisdiction in a final, non-appealable judgment relating to any of Tenant's foregoing indemnification obligations, Landlord shall be responsible for paying all or a portion of the applicable damage award (except for damage to Tenant's Insured Property in excess of the deductible), including reasonable attorneys' fees, such portion to be determined based on the extent to which the damage was caused by Landlord's negligence or willful misconduct.
10.1.2 Landlord's Indemnification. Landlord shall indemnify, defend, protect, and hold harmless Tenant and the Tenant Parties from and against any Losses incurred in connection with or arising from the negligence or willful misconduct of Landlord and its partners and subpartners and all of their respective officers and employees in the Common Areas. Notwithstanding the foregoing, if Tenant is found to be wholly or partially negligent or to have acted with willful misconduct by a court of competent jurisdiction in a final, non-appealable judgment relating to any of Landlord's foregoing indemnification obligations, Tenant shall be responsible for paying all or a portion of the applicable damage award (except for damage to Landlord's Insured Property in excess of the deductible), including reasonable attorneys' fees, such portion to be determined based on the extent to which the damage was caused by Tenant's negligence or willful misconduct.
10.1.3 In General. Should Landlord or Tenant be named as a defendant in connection with a Loss which the subject party is to be indemnified by the other party pursuant to the TCCs hereof, the indemnifying party shall pay the indemnified party's actual and reasonable costs and expenses incurred in such suit, including without limitation, its actual reasonable professional fees such as appraisers', accountants' and attorneys' fees. The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any Losses arising in connection with any event occurring prior to such expiration or termination.
10.2 Landlord's Insurance. Landlord shall maintain insurance against loss or damage with respect to the portions of the Project constituting Landlord's Repair Obligations (collectively, "Landlord's Insured Property") on an "all risk" or equivalent type insurance form, with customary exceptions, subject to such deductibles and self-insured retentions as Landlord may reasonably determine and consistent with the Operations Standard, in an amount equal to at least the replacement value of Landlord's Insured Property. In addition, Landlord shall maintain a Commercial General Liability Insurance policy with respect to the Project with limits of no less than $5,000,000 written on an occurrence basis, which shall provide contractual liability to cover Landlord’s indemnification obligation to Tenant under Section 10.1 above. Landlord's insurance company shall be with a carrier who satisfies the requirements set forth in Section 10.4 below. Such insurance shall be maintained with an insurance company reasonably selected by Landlord. Payment for losses thereunder shall be made solely to Landlord. Landlord shall maintain earthquake insurance, terrorism insurance, and flood insurance, as Landlord may in its reasonable discretion elect and consistent with the Operations Standard. Landlord may also maintain such other insurance as may from time to time be reasonably required by a Mortgagee (as defined in Article 18 below) and consistent with the Operations Standard. Any or all of Landlord's insurance may be provided by blanket coverage maintained by Landlord or any affiliate of Landlord under its insurance program for its portfolio of properties, or by Landlord or any affiliate of Landlord under a program of self-insurance. Tenant shall, at Tenant's expense, comply with Landlord's insurance
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company's commercially reasonable requirements pertaining to the use of the Premises. If Tenant's conduct or use of the Premises for other than general office use causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body. Notwithstanding the foregoing provisions of this Section 10.2, the coverage and amounts of insurance carried by Landlord in connection with the Building shall at a minimum be reasonably commensurate with the coverage and amounts of insurance which are carried by reasonably prudent landlords of Comparable Buildings, and Worker's Compensation and Employee's Liability coverage as required by Applicable Laws.
10.3 Tenant's Insurance. Before the earlier of (i) the date on which any Tenant Party first enters the Premises for any reason or (ii) the Lease Commencement Date (such earlier date is the "Insurance Commencement Date"), and thereafter throughout and until the end of the Lease Term, and after the end of the Lease Term so long after the end of the Lease Term as any of Tenant's Property or Tenant's Off-Premises Equipment remains at the Project, or Tenant or anyone acting by, through or under Tenant may use, be in occupancy of any part of, or have access to any part of the Premises or any portion thereof, Tenant shall maintain the following insurance coverages in at least the amounts set forth below; provided, however, Landlord makes no representation that the limits or forms of coverage specified herein are adequate to cover Tenant's property, business operations or obligations under this Lease. The required evidence of coverage must be delivered to Landlord on or before the dates required under Section 10.4 below. Such policies shall be for a term of at least one (1) year, or the length of the remaining term of this Lease, whichever is less.
10.3.1 Commercial General Liability Insurance, including so-called "limited" contractual liability covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) based upon or arising out of Tenant's operations, occupancy or maintenance of the Project and all areas appurtenant thereto. Such insurance shall be written on an "occurrence" basis. Landlord and any other party the Landlord reasonably specifies that has a material financial interest in the Project, including Landlord's managing agent, ground lessor and/or lender, if any (collectively, "Additional Insureds"), shall be named as additional insureds as their interests may appear using Insurance Service Organization's form CG2011 or a comparable form reasonably approved by Landlord. Tenant shall provide an endorsement or policy excerpt showing that Tenant's coverage is primary and any insurance carried by Landlord shall be excess and non-contributing. The coverage shall also be extended to include damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations. This policy shall include coverage for all Losses assumed under this Lease as an insured contract for the performance of all of Tenant's indemnity obligations under this Lease to the extent covered by a standard CGL policy. The
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limits of said insurance shall not, however, limit the liability of Tenant nor relieve Tenant of any obligation hereunder. Limits of liability insurance shall not be less than the following:
| | | | | | | | | | | | | | |
| Bodily Injury and Property Damage Liability | | $10,000,000 each occurrence | |
| | | $10,000,000 each occurrence | |
| Personal Injury and Advertising Liability | | | |
| | | | |
| Tenant Legal Liability/Damage to Rented Premises Liability | | $5,000,000 | |
Tenant shall have the right to cover its insurance requirements set forth in this Section 10.3 with a combination of general liability, umbrella insurance and blanket coverages, provided that the amounts (based upon the general liability policy and the allocations of the umbrella policy) and other conditions required to be satisfied by the terms of this Article 10 are satisfied by such coverages.
10.3.2 Property Insurance covering (i) Tenant's Property and Tenant's Off-Premises Equipment, (ii) the Improvements, and any other improvements which exist in the Premises as of the Lease Commencement Date (excluding Landlord's Insured Property) (the "Original Improvements"), and (iii) all Alterations (items (i), (ii) and (iii) are collectively, "Tenant's Insured Property"). Such insurance shall be written on a Special Form basis, for the full replacement cost value (subject to reasonable deductible amounts), without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for (a) all perils included in the Special Form policy, (b) water damage from any cause whatsoever, including, but not limited to, sprinkler leakage (but not earthquake sprinkler leakage), bursting, leaking or stoppage of any pipes, explosion, and backup or overflow from sewers or drains, and (c) terrorism (to the extent such terrorism insurance is available as a result of the Terrorism Risk Insurance Act of 2002 (Pub. L. 107-297, 116 Stat. 2322), the Terrorism Risk Insurance Program Reauthorization Act of 2005 (Pub. l. 109-144), and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (Pub. L. 110-160, 121 Stat. 183), any successor statute or regulation, or is otherwise available at commercially reasonable rates). Tenant shall use the proceeds from any such insurance for the replacement of Tenant's Insured Property.
10.3.3 Business Income/Interruption insurance covering a one-year period in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings attributable to the risks outlined in Section 10.3.2 above.
10.3.4 Worker's Compensation or other similar insurance pursuant to all applicable state and local statutes and regulations, and Employer's Liability with minimum limits of not less than $1,000,000 each accident/employee/disease.
10.3.5 Commercial Automobile Liability Insurance covering all Owned (if any), Hired, or Non-owned vehicles with limits not less than $1,000,000 combined single limit for bodily injury and property damage.
10.4 Form of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) be issued by an insurance company having an AM Best rating of not less than A-VII (or to the extent AM
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Best ratings are no longer available, then a similar rating from another comparable rating agency), or which is otherwise acceptable to Landlord and licensed to do business in the State of California, (ii) be in form and content reasonably acceptable to Landlord and complying with the requirements of Section 10.3, and (iii) Tenant shall not do or permit to be done anything which invalidates the required insurance policies. Tenant shall provide Landlord with prior notice of any cancelation or material change in coverage. Tenant shall deliver certificates thereof and applicable endorsements which meet the requirements of this Article 10 to Landlord on or before the Insurance Commencement Date, and five (5) business days after the renewal of such policies. In the event Tenant shall fail to procure such insurance, or to deliver such certificates and applicable endorsements, Landlord may, at its option, after written notice to Tenant and Tenant's failure to obtain such insurance within five (5) business days thereafter, procure such policies for the account of Tenant and the sole benefit of Landlord, and the Actual Cost thereof shall be paid to Landlord after delivery to Tenant of bills therefor.
10.5 Property Insurance Subrogation. Landlord and Tenant intend that their respective property loss risks shall be borne by their insurance carriers, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder or is actually covered by insurance maintained by a party hereto. Accordingly, notwithstanding any other provision of this Lease to the contrary, the parties each hereby waive all rights and claims against each other for such losses and waive all rights of subrogation of their respective insurers. Landlord and Tenant hereby represent and warrant that their respective property insurance policies include a waiver of (i) subrogation by the insurers, and (ii) all rights based upon an assignment from its insured, against Landlord and/or any of the Landlord Parties or Tenant and/or any of the Tenant Parties (as the case may be) in connection with any property loss risk thereby insured against. Tenant will cause all subtenants and licensees of the Premises claiming by, under, or through Tenant to execute and deliver to Landlord a waiver of claims similar to the waiver in this Section 10.5 and to obtain such waiver of subrogation rights endorsements. If either party hereto fails to maintain the waivers set forth in items (i) and (ii) above, the party not maintaining the requisite waivers shall indemnify, defend, protect, and hold harmless the other party for, from and against any and all Losses arising out of, resulting from, or relating to, such failure.
10.6 Additional Insurance Obligations. Tenant shall carry and maintain during the entire Lease Term, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10 and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord; provided, however, that (a) in no event shall such new or increased amounts or types of insurance exceed that required of comparable tenants comparable in size to Tenant by landlords of Comparable Buildings and (b) Landlord shall not have the right to require that Tenant adjust its insurance coverage more than once in any twenty four (24) month period, and not during the initial twenty four (24) months of the Lease Term. In addition, Tenant shall pay for any increase in the premiums for the property insurance of the Project carried by Landlord if said increase is caused by Tenant's acts, omissions, use or occupancy of the Premises.
10.7 Third-Party Contractors. Tenant shall obtain and deliver to Landlord, certificates of insurance and applicable endorsements at least five (5) business days prior to the commencement of work in or about the Premises by any vendor or other third-party contractor retained or engaged by Tenant (collectively, a "Third Party Contractor"). All such insurance shall (a) name the Additional Insureds as additional insureds under such third party's liability policies, (b) provide a waiver of subrogation in favor of Landlord under such third party's commercial general liability insurance, (c) be primary and any insurance carried by Landlord shall be excess and non-contributing, and (d) comply with Landlord's
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commercially reasonable minimum insurance requirements (which may vary depending on the type of work or vendor taking place in the Premises).
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 Repair of Damage from Casualty. If the Project (or any portion thereof) shall be damaged by a fire or any other casualty (collectively, a "Casualty"), (i) Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to the other TCCs of this Article 11, restore Landlord's Insured Property to substantially the same condition as existing prior to the Casualty, except for modifications required by Applicable Laws, Code or the Underlying Documents, or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project and do not materially impair access to the Premises, and (ii) except as set forth below, Tenant shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Tenant's reasonable control, and subject to the other TCCs of this Article 11, restore Tenant's Insured Property to substantially the same condition as existing prior to the Casualty, except for modifications required by Applicable Laws, Code or the Underlying Documents, or any other modifications deemed desirable by Tenant and approved by Landlord pursuant to Article 8. Notwithstanding the foregoing, Landlord shall have the right, upon notice (the "Landlord Repair Notice") to Tenant from Landlord within sixty (60) days following the date the Casualty becomes known to Landlord, to promptly and diligently restore the Original Improvements, Improvements and Alterations, and, in such event Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under Section 10.3 of this Lease for the Original Improvements, Improvements and Alterations; provided that if the Actual Cost of such repair (based on competitive pricing without any profit or mark-up or supervision fee to Landlord or its Affiliates) by Landlord exceeds the amount of insurance proceeds received by Landlord from Tenant's insurance carrier, as assigned by Tenant, the Actual Cost of such repairs which is not so covered by Tenant's insurance proceeds shall be paid by Tenant to Landlord on a progress payment basis during Landlord's repair of the damage. All work performed by Tenant pursuant to this Section 11.1 shall be performed in accordance with Article 8 of this Lease. Tenant's insurance proceeds shall be disbursed for all costs and expenses incurred by Landlord in connection with the repair of any such damage to the Original Improvements, Improvements and Alterations pursuant to a disbursement procedure mutually approved by Landlord and Tenant. As long as the Original Improvements, Improvements and Alterations are rebuilt, Tenant shall be entitled to retain any portion of the proceeds of the insurance described in Sections 10.3.2 (ii) and (iii) in excess of the cost of such restoration. Landlord shall use commercially reasonable efforts to minimize any such inconvenience, annoyance or interference to Tenant resulting from Landlord’s repair of any damage pursuant to this Section 11.1. At any time, from time to time, after the date occurring sixty (60) days after the date of the damage, Tenant may request that Landlord inform Tenant of Landlord's reasonable opinion of the date of completion of the repairs and Landlord shall respond to such request within five (5) business days ("Landlord's Repair Estimate Notice"). Notwithstanding any contrary provision of this Article 11, the parties hereby agree as follows: (a) the closure of the Project, the Building, the Common Areas, or any part thereof to protect public health shall not constitute a Casualty for purposes of this Lease, (b) Casualty covered by this Article 11 shall require that the physical or structural integrity of the Premises, the Project, the Building, or the Common Areas is degraded as a direct result of such occurrence, and (c) a Casualty under this Article 11 shall not be deemed to occur merely because Tenant is unable to productively use the Premises in the event that the physical and structural integrity of the Premises is undamaged.
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11.2 Casualty Rent Abatement. If (i) the Premises or portions of the Common Area necessary for the conduct of Tenant's business are damaged by Casualty, (ii) such Casualty causes all or a material portion of the Premises to be untenantable and unusable by Tenant and Tenant actually ceases to use all or such material portion of the Premises, or (iii) the Casualty is not the result of the acts and/or omissions of Tenant and/or other Tenant Parties or Landlord is otherwise entitled to receive rental interruption insurance proceeds (items (i) through (iii) are, collectively, "Casualty Conditions"), Tenant may, upon written notice to Landlord, immediately abate Rent payable under this Lease for that portion of the Premises rendered untenantable and not actually used by Tenant (or if the Premises is damaged such that the remaining portion is not sufficient to allow Tenant to conduct its business operations from such remaining portion and Tenant does not conduct its business operations from the entire Premises, Landlord shall allow Tenant a total abatement of Rent), for the period beginning on the date of the Casualty through (a) if Landlord delivered the Landlord Repair Notice, the date Landlord substantially completes restoration of the Original Improvements, Improvements and Alterations, such that the Premises are no longer untenantable (or such earlier date following the Casualty that Tenant conducts business from the Premises), or (b) if Landlord did not deliver the Landlord Repair Notice, the earlier of the date that Tenant substantially completes restoration of Tenant's Insured Property (such that the Premises are no longer untenantable) and a weekend to move-in and the date that Tenant would have substantially completed restoration of Tenant's Insured Property if Tenant had used reasonable diligence (or such earlier date following the Casualty that Tenant conducts business from the Premises). Except for the foregoing Rent abatement, Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from a Casualty.
11.3 Casualty Termination Rights.
11.3.1 Landlord Termination Rights. Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Landlord's Insured Property, and instead terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage from Casualty, such notice to include a termination date giving Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only if (a) the Building or Project shall be damaged by Casualty, whether or not the Premises are affected, (b) Landlord elects to terminate the leases of all other tenants of the Project similarly affected by the damage and destruction and (c) if one or more of the following conditions is present: (i) in Landlord's reasonable judgment, repairs cannot reasonably be completed within two hundred seventy (270) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the Mortgagee shall require that the insurance proceeds or any portion thereof in excess of the "Landlord Contribution" (as that term is defined below) be used to retire or terminate the Mortgage; (iii) the damage is not fully covered, except for the Landlord Contribution, by Landlord's insurance policies (or by the insurance Landlord is required to carry under this Lease); or (iv) the damage occurs during the last twelve (12) months of the Lease Term, and, in the reasonable judgment of Landlord, the damage or destruction to the Premises or Building cannot be repaired by the date which occurs fifty percent (50%) of the way through the then remaining Lease Term. "Landlord Contribution" shall initially mean $3,000,000.00; provided, however, that such amount shall be reduced by an amount equal to $1,000.00 on the first day of each month during the Lease Term.
11.3.2 Tenant Termination Rights. If all of the Casualty Conditions are satisfied and either the repairs cannot, pursuant to the Landlord Repair Estimate Notice, be completed within two hundred seventy (270) days after the date of discovery of the damage (which such repairs are made without the payment of overtime or other premiums, or the damage occurs during the last twelve (12) months of the Lease Term, and, in the reasonable judgment of Landlord, the damage or destruction to the
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Premises or Building cannot be repaired by the date which occurs fifty percent (50%) of the way through the then remaining Lease Term, Tenant may elect, no earlier than sixty (60) days after the date of the damage and not later than ninety (90) days after the date of such damage, to terminate this Lease by written notice to Landlord effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such notice is given by Tenant. Furthermore, if all of the Casualty Conditions are satisfied, neither Landlord nor Tenant has terminated this Lease, and the repairs required to be completed by Landlord are not actually completed within the longer of one (1) year of the date of discovery of the damage, and two (2) months after the date that Landlord originally estimated for completion in the Landlord Repair Estimate Notice, Tenant shall have the right to terminate this Lease during the first five (5) business days of each calendar month following the end of such period until such time as the repairs are complete, by notice to Landlord (the "Damage Termination Notice"), effective as of a date set forth in the Damage Termination Notice (the "Damage Termination Date"), which Damage Termination Date shall not be less than ten (10) business days nor more than ninety (90) days following the end of each such month. In the event this Lease is terminated in accordance with the terms of this Section 11.3, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant's insurance required under items (ii) and (iii) of Section 10.3.2 of this Lease that are attributable to the unamortized Improvement Allowance.
11.4 Waiver of Statutory Provisions. The provisions of this Lease, including this Article 11, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.
ARTICLE 12
NONWAIVER
No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed by the waiving party. The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any of the TCCs of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. Tenant's payment of any Rent hereunder shall not constitute a waiver by Tenant of any breach or default by Landlord under this Lease nor shall Landlord’s payment of monies due Tenant hereunder constitute a waiver by Landlord of any breach or default by Tenant under this Lease. No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord's right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the full amount due. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for
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possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.
ARTICLE 13
CONDEMNATION
If the whole or any material part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any material part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease, within ninety (90) days following Landlord’s receipt of notice of the taking, effective as of the date possession is required to be surrendered to the authority; provided, however, that (i) Landlord shall only have the right to terminate this Lease as provided herein if Landlord terminates the leases of all tenants in the Project similarly affected by the taking, and (ii) to the extent that the Premises is not adversely affected by such taking and Landlord continues to operate the Building as an office building, Landlord shall not terminate this Lease. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired or if Tenant cannot conduct its business operations in substantially the same manner such business operations were conducted prior to such taking while still retaining substantially the same material rights and benefits it bargained to receive under this Lease, in each case for a period in excess of one hundred eighty (180) days, Tenant shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the TCCs of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord or its Mortgagee, and such claim is payable separately to Tenant or is otherwise separately identifiable. Notwithstanding anything in this Article 13 to the contrary, Landlord and Tenant shall each be entitled to receive fifty percent (50%) of the "bonus value" of the leasehold estate in connection therewith, which bonus value shall be equal to the difference between the Rent payable under this Lease and the sum established by the condemning authority as the award for compensation for this Lease. All Rent shall be apportioned as of the date of any such termination. If any part of the Premises shall be taken and this Lease is not terminated, the Rent under this Lease shall be proportionately reduced based on the portion of the Premises subject to the applicable taking. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure. Notwithstanding anything to the contrary contained in this Article 13, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and Tenant's Share of Direct Expenses shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises; provided, further, that in such event, if a portion of the Premises is taken such that the remaining portion thereof is not sufficient to allow Tenant to conduct its business operations from such remaining portion and Tenant does not conduct its business operations therefrom, Landlord shall allow Tenant a total abatement of Rent during the time and to the extent the Premises are taken, and not occupied by Tenant as a result thereof. Tenant’s abatement period shall continue until Tenant has been given reasonably sufficient time and reasonably sufficient access to the Premises, the parking facilities
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and/or the Building, to install its property, furniture, fixtures, and equipment, to the extent the same shall have been removed and/or damaged as a result of such eminent domain taking, and to move back into the Premises over one (1) weekend. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking. Notwithstanding any contrary provision of this Lease, the following governmental actions (whether through regulatory action, ordinance, or otherwise) shall not constitute a taking or condemnation, either permanent or temporary: (i) an action that requires Tenant's business to close during the Lease Term, (ii) an action that limits or temporarily prohibits access to or use of the Building or the Premises, and (iii) an action taken for the purpose of protecting public safety (e.g., to protect against acts of war, the spread of communicable diseases, or an infestation), and no such governmental actions shall entitle Tenant to any compensation from Landlord or any authority, or Rent abatement or any other remedy under this Lease.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfers. Except for an assignment of this Lease or a sublease of all or a portion of the Premises (each of the foregoing, together with any modifications or amendments to any existing assignments or subleases being referred to herein as a "Transfer" and any person or entity to whom any Transfer is made or sought to be made is referred to herein as a "Transferee"), Tenant shall not mortgage, pledge, hypothecate, encumber or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any other transfer of this Lease or any interest hereunder by operation of law or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees. Except as otherwise provided herein, Tenant shall not Transfer this Lease or its interest in any portion of the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. If Tenant desires Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the "Transfer Notice") shall include (i) the proposed effective date of the Transfer, which shall not be less than ten (10) business days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the "Subject Space"), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the Transfer Premium, as defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer (but not any documentation relating solely to the sale (if any) of Tenant's business to such Transferee, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, provided that Landlord shall have the right to require Tenant to utilize Landlord's standard commercially reasonable consent to Transfer documents in connection with the documentation of Landlord's consent to such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, as reasonably necessary to determine if such Transferee is a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the proposed Transfer on the date consent is requested, business credit, bank and personal references and history of the proposed Transferee and any other information reasonably required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee's business and proposed use of the Subject Space, which information is requested within three (3) business days following Tenant's submission to Landlord of items described in clauses (i), (ii), (iii) and (iv) of this Section 14.1, (v) a complete statement, certified by an independent certified public accountant, or Tenant's chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer and (vi) an executed estoppel certificate from Tenant in
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the form attached hereto as Exhibit E. Landlord shall approve or disapprove of the proposed Transfer in accordance with Section 14.2, below, within ten (10) business days (or such longer period as may be required by any lender on the Project having an approval right over the proposed Transfer) (the "Transfer Request Review Period") after Landlord's receipt of the applicable Transfer Notice. In the event that Landlord fails to notify Tenant in writing of such approval or disapproval within such Transfer Request Review Period, Tenant shall deliver written notice to Landlord (a "Transfer Approval Notice") stating in bold print that LANDLORD'S FAILURE TO RESPOND TO SUCH REQUEST WITHIN THREE (3) BUSINESS DAYS FOLLOWING LANDLORD'S RECEIPT OF SUCH TRANSFER APPROVAL NOTICE SHALL BE DEEMED TO BE LANDLORD'S APPROVAL OF THE PROPOSED TRANSFER. At the end of such three (3) business day period, Landlord shall be deemed to have approved such Transfer. If Landlord at any time timely delivers notice to Tenant or Landlord's withholding of consent to a proposed assignment or sublease, Landlord shall specify in reasonable detail in such notice, the basis for such withholding of consent. Any Transfer requiring Landlord's consent made without Landlord's prior written consent (or deemed consent as described above) shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute an Event of Default by Tenant under this Lease. Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord's review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys', accountants', architects', engineers' and consultants' fees) incurred by Landlord, within thirty (30) days after written request by Landlord, provided that such cost and expenses shall not exceed Two Thousand Five Hundred Dollars ($2,500.00) for a Transfer in the ordinary course of business.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Without limitation as to other reasonable grounds for withholding consent, it shall be reasonable under this Lease and under Applicable Laws for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:
14.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project as reflected by the then-existing tenants of the Project and Comparable Buildings with respect to comparable space;
14.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or instrumentality thereof (i) which is that of a foreign country, (ii) which is of a character or reputation, is engaged in a business, or is of, or is associated with, a political orientation or faction, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of a comparable building located in the vicinity of the Project, (iii) which is capable of exercising the power of eminent domain or condemnation, or (iv) which would significantly increase the human traffic in, or the security threat to, the Premises, the Building, and/or the Project;
14.2.4 The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested;
14.2.5 The proposed Transfer would cause a violation of another lease, including, without limitation, any exclusive use provision contained therein, for space in the Project, or would give
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an occupant of the Project a right to cancel its lease, provided that upon request from Tenant, Landlord shall provide notice of the nature all such applicable rights;
14.2.6 Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, is negotiating with Landlord to lease space in the Project at such time as evidenced by an exchange in correspondence during the two (2) month period immediately preceding the date Landlord receives the Transfer Notice and Landlord has space comparable in size in the Project to lease to such Transferee (and Landlord has (or reasonably anticipates it will have) available space in the Building suitable to meet such proposed Transferee's occupancy needs).
If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's consent (or deemed consent), but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2, or (ii) which would cause the proposed Transfer to be materially more favorable to the Transferee than the terms set forth in Tenant's original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord's right of recapture, if any, under Section 14.4 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld, conditioned or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, Tenant hereby waives any right at law or in equity to terminate this Lease, on its own behalf and, to the extent permitted under all Applicable Laws, on behalf of the proposed Transferee but Tenant retains the right to sue Landlord for any damages suffered by Tenant and/or for specific performance if Landlord unreasonably withholds, conditions or delays it consent to a proposed Transfer (other than damages or injury to, or interference with, Tenant's business, including without limitation, loss of profits, however occurring, but not excluding loss of fifty percent (50%) of any Transfer Premium (as defined in Section 14.3 below)) that Tenant would have been able to claim pursuant to Section 14.3 of this Lease). Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld, conditioned or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14, Tenant hereby waives any right at law or in equity to terminate this Lease, on its own behalf and, to the extent permitted under all Applicable Laws, on behalf of the proposed Transferee but Tenant retains the right to sue Landlord for any damages suffered by Tenant and/or for specific performance if Landlord unreasonably withholds, conditions or delays it consent to a proposed Transfer (other than damages or injury to, or interference with, Tenant's business, including without limitation, loss of profits, however occurring, but not excluding loss of fifty percent (50%) of any Transfer Premium (as defined in Section 14.3 below)) that Tenant would have been able to claim pursuant to Section 14.3 of this Lease).
14.3 Transfer Premium. If Landlord consents to any Transfer (specifically excluding events under Sections 14.7 and 14.8), as a condition thereto (which the parties hereby agree is reasonable), Tenant shall pay to Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined in this Section 14.3, actually received by Tenant from such Transferee. "Transfer Premium" shall mean all rent, additional rent or other consideration payable (in lieu or in addition to rent) by such Transferee in connection with the Transfer (as opposed to the sale of Tenant’s business) in excess of the Base Rent and Tenant’s Share of Direct Expenses payable by Tenant under this Lease during the term of the Transfer
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(which shall be calculated on a per rentable square foot basis if less than all of the Premises is transferred), after deducting the reasonable expenses incurred by Tenant for (a) the gross revenue (exclusive of any such Transfer Premium) paid to Landlord by Tenant during the period of the sublease term or during the assignment for the Subject Space; (b) any improvement allowance or other economic concession (space planning allowance, moving expenses, etc.,) paid to the sublessee or assignee or the cost of improvements constructed by Tenant in connection therewith; (c) any broker's commission incurred by Tenant in connection with the Transfer; (d) reasonable attorneys' fees incurred by Tenant in connection with the negotiation and documentation of the Transfer; (e) any lease takeover costs incurred by Tenant in connection with the Transfer; (f) any fees charged by Landlord and incurred by Tenant in connection with the Transfer; and (f) out-of-pocket, third-party costs of advertising and marketing such Subject Space incurred by Tenant in connection with the Transfer (collectively, "Subleasing Costs"). "Transfer Premium" shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer (as opposed to the sale of Tenant’s business), and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. The determination of the amount of Landlord's applicable share of the Transfer Premium shall be made on a monthly basis as rent or other consideration is received by Tenant under the Transfer. Notwithstanding anything contained herein to the contrary, under no circumstances shall Landlord be paid any Transfer Premium until Tenant has recovered all Subleasing Costs for such Subject Space, it being understood that if in any year the gross revenues, less the deductions set forth and included in Subleasing Costs, are less than any and all costs actually paid in assigning or subletting the affected space (collectively, "Transaction Costs"), the amount of the excess Transaction Costs shall be carried over to the next year and then deducted from net revenues with the procedure repeated until a Transfer Premium is achieved. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to the calculation of any Transfer Premium and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than four percent (4%), Tenant shall pay Landlord's costs of such audit.
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to the contrary contained in this Article 14, Tenant shall give Landlord notice (the "Intention to Transfer Notice") at any time determined in Tenant's sole discretion prior to or concurrent with Tenant's delivery of a Transfer Notice that Tenant is contemplating a Transfer (whether or not the contemplated Transferee or the terms of such contemplated Transfer have been determined); provided, however, that Landlord hereby acknowledges and agrees that Tenant shall only be obligated to deliver an Intention to Transfer Notice hereunder, and Landlord shall only have the right to recapture space with respect to, (A) an assignment of this Lease, or (B) a sublease of more than fifty percent (50%) of the Premises or (C) any sublease for substantially the remainder of the Lease Term (for purposes hereof, a sublease shall be deemed to be for substantially the remainder of the Lease Term if, assuming all sublease renewal or extension rights are exercised, such sublease shall expire during the final six (6) months of the Lease Term); provided further, however, (1) in no event shall Landlord have a right to recapture space in connection with a Permitted Transfer or Change of Control, and (2) Landlord's right to recapture as set forth in this Section 14.4 shall not be triggered unless and until Landlord receives an Intention to Transfer Notice from Tenant. Tenant may indicate in a Transfer Notice that such Transfer Notice also serves as an Intention to Transfer Notice, but, in any event, if Tenant fails to deliver an Intention to Transfer Notice with respect to Contemplated Transfer Space, and thereafter delivers a Transfer Notice, such Transfer Notice shall be deemed to also serve as an Intention to Transfer Notice with respect to the Subject Space described in the Transfer Notice. The Intention to Transfer Notice shall specify the portion of and amount of rentable square
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footage of the Premises which Tenant intends to Transfer (the "Contemplated Transfer Space"), the contemplated date of commencement of the contemplated Transfer (the "Contemplated Effective Date"), the contemplated length of the term of such contemplated Transfer, whether the Contemplated Transfer Space is subject to any limitations on occupancy density, and shall specify that such Intention to Transfer Notice is delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer Space. Thereafter, Landlord shall have the option, by giving written notice to Tenant within fifteen (15) business days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space. If Landlord elects to recapture, then the recapture shall cancel and terminate this Lease with respect to such Contemplated Transfer Space as of the Contemplated Effective Date. In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, (I) the Base Rent reserved herein shall be proportionately reduced based upon the number of rentable square feet of the Premises relinquished by Tenant, (II) Tenant's Share shall be proportionately reduced based upon the number of rentable square of the Premises relinquished by Tenant and (III) the parties shall comply with multi-tenant provisions set forth in Section 29.36, below. If Landlord declines, or fails to elect in a timely manner, to recapture such Contemplated Transfer Space under this Section 14.4, then, subject to the other TCCs of this Article 14, for a period of nine (9) months (the "Nine Month Transfer Period") commencing on the last day of such fifteen (15) business day period, Landlord shall not have any right to recapture the Contemplated Transfer Space with respect to any Transfer made during the Nine Month Transfer Period, provided that any such Transfer is substantially on the terms set forth in the Intention to Transfer Notice, and provided further that any such Transfer shall be subject to the remaining TCCs of this Article 14. If such a Transfer is not so consummated within the Nine Month Transfer Period (or if a Transfer is so consummated, then upon the expiration of the term of any Transfer of such Contemplated Transfer Space consummated within such Nine Month Transfer Period), Tenant shall again be required to submit a new Intention to Transfer Notice to Landlord with respect to any contemplated Transfer, as provided above in this Section 14.4.
14.5 Effect of Transfer. If Landlord consents to any Transfer, (i) the TCCs of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, and (iii) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of this Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space.
14.6 Occurrence of Default. Any Transfer shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer. If an Event of Default by Tenant shall occur, Landlord is hereby irrevocably authorized, as Tenant's agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant's obligations under this Lease) until such Event of Default is cured. Such Transferee shall rely on any representation by Landlord that an Event of Default by Tenant is then occurring hereunder, without any need for confirmation thereof by Tenant. Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease. No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing. In no event shall Landlord's enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord's right to enforce any term of this Lease against
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Tenant or any other person. If Tenant's obligations hereunder have been guaranteed, Landlord's consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.
14.7 Permitted Transfers. Notwithstanding anything to the contrary contained in this Lease, (i) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (which for purposes of this Section 14.7, shall mean an entity which is controlled by, controls, or is under common control with (including without limitation, any joint ventures of Tenant), Tenant as of the date of the assignment or subletting), (ii) a sale of corporate shares of capital stock in Tenant in connection with an initial public offering of Tenant's stock on a nationally-recognized stock exchange, (iii) an assignment of this Lease to an entity which acquires all or substantially all of the stock, interest or assets of Tenant, or (iv) an assignment of this Lease to an entity which is the resulting entity of a merger, consolidation or other reorganization of Tenant during the Lease Term, shall not be deemed a Transfer requiring Landlord's consent under this Article 14 or be subject to Section 14.3 (any such assignee or sublessee described in items (i) through (iv) of this Section 14.7 hereinafter referred to as a "Permitted Transferee", and any such assignment or sublease, a "Permitted Transfer"), provided that (a) Tenant notifies Landlord at least five (5) days prior to the effective date of any such assignment or sublease (unless such prior notice is prohibited by Applicable Laws or the terms of an applicable confidentiality agreement, in which event Tenant shall notify Landlord as soon as permissible) and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such transfer or transferee as set forth above, (b) such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease or would be a violation of Section 5.2 of this Lease, (c) Tenant shall demonstrate to Landlord that there is no material reduction in the tangible net worth of the Permitted Transferee Assignee resulting from a Permitted Transfer under subsections (ii), (iii), or (iv) above as compared to the tangible net worth of the original Tenant as of the Lease Commencement Date (the "Net Worth Test"), (d) Tenant shall not be relieved from any liability under this Lease, (e) the liability of such Permitted Transferee under an assignment shall be joint and several with Tenant, and (f) Tenant and the Permitted Transferee shall execute and deliver to Landlord, prior to the effective date of the Transfer (and as a condition to the effectiveness of the Transfer), Landlord's then-standard commercially reasonable form of acknowledgment representing that the conditions of this Section 14.7 are true and accurate with respect to such Transfer. An assignee of Tenant's entire interest in this Lease who qualifies as a Permitted Transferee may also be referred to herein as a "Permitted Transferee Assignee." "Control," as used in this Section 14.7, shall mean the ownership, directly or indirectly, of at least fifty-one percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity.
14.8 Change of Control. For purposes of this Section 14.8, the term "Change of Control" shall mean the following: (i) if Tenant is a partnership, limited liability company, or other non-corporate entity, the withdrawal or change, voluntary, involuntary or by operation of law, of more than fifty percent (50%) of the partners, members, or owners, or transfer of more than fifty percent (50%) of partnership, membership, or ownership interests, within a twelve (12)-month period, or the dissolution of the partnership or other entity without immediate reconstitution thereof, and (ii) if Tenant is a corporation, (A) the dissolution, merger, consolidation or other reorganization of Tenant or (B) the sale or other transfer of an aggregate of more than fifty percent (50%) of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or pledge of an aggregate of more than fifty percent (50%) of the value of the unencumbered assets of Tenant within a twelve (12)-month period. Except as otherwise provided herein, including without limitation, Section 14.7 above, Tenant must notify Landlord in writing within thirty (30) days after any Change of Control (and Tenant shall provide Landlord with such information with respect to the Change of Control as may be reasonably requested by Landlord). Landlord's consent shall
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not be required for a Change of Control unless the Net Worth Test following the Change of Control is not satisfied. In no event shall Tenant be relieved from any liability under this Lease as a result of a Change of Control. Notwithstanding the foregoing or anything to the contrary herein, any Change of Control that is a subterfuge by Tenant to avoid its obligations under this Lease shall constitute an Event of Default hereunder.
ARTICLE 15
SURRENDER OF PREMISES
15.1 Surrender of Premises. No act or thing done by Landlord or the Landlord Parties or Tenant or the Tenant Parties during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord Parties shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.
15.2 Removal Requirements. Nothing in this Section 15.2 shall prohibit Tenant from removing Tenant's Property and Tenant's Off-Premises Property (including any TVs, a/v equipment, specialty items, furniture, equipment, and free-standing cabinet work) installed or placed by Tenant at its expense in the Premises, at any time throughout the Lease Term, including if attached to the wall or floor for stability purposes (provided that Tenant repairs any damage resulting therefrom). Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15, quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear, permitted Alterations (other than Specialty Alterations which Landlord has required the removal of and Mandatory Removal Items) and repairs which are specifically made the responsibility of Landlord hereunder (including Casualty and condemnation) excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises (and/or the Project, as applicable) the following, and repair all damage to the Premises, the Building and the Project resulting from such removal: (i) all debris and rubbish, (ii) Tenant's Property, and (iii) all Mandatory Removal Items, and other Specialty Alterations that Landlord requires Tenant to remove in accordance with Section 8.5 above. With respect to any of Tenant's Property, Alterations, or Improvements that Tenant is not required to remove pursuant to this Lease, Tenant shall leave the same in good working order and condition, deliver to Landlord all necessary user information such that the same may be used by future users (e.g., any Water Sensors that remain shall be unblocked and ready for use by a third-party). If Tenant fails to perform the foregoing removal, repair and restoration obligations, then at Landlord's option, either (i) Tenant shall be deemed to be holding over in the Premises and Rent shall continue to accrue in accordance with the terms of Article 16 below, until such work shall be completed, and/or (ii) Landlord may do so and may charge the Actual Cost thereof to Tenant. Tenant hereby protects, defends, indemnifies and holds Landlord harmless from and against any Losses relating to the installation, placement, removal or financing of any such Alterations, Improvements, fixtures and/or equipment in, on or about the Premises, the Building or the Project, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.
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15.3 Disposal Rights. Without limiting any other rights or remedies of Landlord, any of Tenant's Property or Tenant's Off-Premises Equipment not removed by Tenant upon the expiration of this Lease, or within forty-eight (48) hours after any early termination of this Lease, shall be considered abandoned and Landlord may, at its sole election (and regardless of the value of such property), (i) elect to take ownership of any or all of such property (in which event, subject to the rights of any third parties who have an ownership or security interest in any such property, Landlord may use, sell, or dispose of such property in Landlord's sole discretion), or (ii) store any or all of such property in a public warehouse or elsewhere (including at Landlord's property) for the account, and at the expense and risk, of Tenant. If Landlord elects to store Tenant's Property or Tenant's Off-Premises Equipment, then Tenant shall pay the cost of storing the same to Landlord (based on the actual costs and expenses incurred by Landlord in connection therewith, plus a 5% administrative fee, or if the property is being stored at property owned or controlled by Landlord or its affiliates, based on the then fair market rental value of the applicable space, in all cases as reasonably determined by Landlord). If Landlord elects to store any such personal property in accordance with item (ii) above, then Landlord may thereafter elect to take ownership of such property pursuant to item (i) above at any time prior to Tenant recovering possession of the subject property. The TCCs of this Section 15.3 have been specifically bargained for, and, to the maximum extent permitted by law, Tenant expressly waives the right to receive any notices under California Civil Code Section 1993 et seq., or any other statutory procedures with respect to abandoned personal property.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, without the express written consent of Landlord, such tenancy shall be a tenancy at sufferance, and shall not constitute a renewal hereof or an extension for any further term, and in such case daily damages in any action to recover possession of the Premises shall be calculated at a daily rate equal to one hundred twenty-five percent (125%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease for the first month and thereafter one hundred fifty percent (150%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease (calculated on a per diem basis) and one hundred percent (100%) of all other Rent applicable during the last rental period of the Lease Term under this Lease (calculated on a per diem basis). Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to vacate and deliver possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant holds over without Landlord's express written consent, and tenders payment of rent for any period beyond the expiration of the Lease Term by way of check (whether directly to Landlord, its agents, or to a lock box) or wire transfer, the cashing of such check or acceptance of such wire shall be considered inadvertent and not be construed as creating a month-to-month tenancy, provided Landlord refunds such payment to Tenant promptly upon learning that such check has been cashed or wire transfer received. Any holding over without Landlord's express written consent may compromise or otherwise affect Landlord's ability to enter into new leases with prospective tenants regarding the Premises. Therefore, if Tenant fails to vacate and deliver the Premises within thirty (30) days of the termination or expiration of this Lease, in addition to any other Losses to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from and against all claims made by any succeeding tenant founded upon such failure to vacate and deliver, and any Losses suffered by Landlord, including lost profits, resulting from such failure to vacate and deliver. In addition, Tenant shall be liable for all damages (including attorneys' fees and expenses) of whatever type (including consequential
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damages) incurred by Landlord as a result of any holding over. Tenant agrees that any proceedings necessary to recover possession of the Premises, whether before or after expiration of the Lease Term, shall be considered an action to enforce the terms of this Lease for purposes of the awarding of any attorney's fees in connection therewith.
ARTICLE 17
ESTOPPEL CERTIFICATES; FINANCIAL STATEMENTS
17.1 Estoppel Certificates. Within ten (10) business days following a request in writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E, attached hereto (or such other form as may be required by any prospective Mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Mortgagee or prospective purchaser; provided, however, that if such estoppel certificate is not factually correct, then Tenant may make such changes as are necessary to make such estoppel certificate factually correct and shall thereafter return such signed estoppel certificate to Landlord within said ten (10) business day period. Any such certificate may be relied upon by any prospective Mortgagee or purchaser of all or any portion of the Project.
17.2 Financial Statements. At any time during the Lease Term, but not more often than one (1) time during any twelve (12) month period (except in connection with the sale or refinance of the Project, a Transfer, or following any monetary default by Tenant beyond all applicable notice and cure periods), Landlord may require Tenant to provide Landlord with a current financial statement prepared in the ordinary course of business and financial statements prepared in the ordinary course of business of the two (2) years prior to the current financial statement year (collectively, "Financial Statements"); provided, however, as a condition precedent to Tenant's delivery, Landlord or the Landlord Party requesting such information shall execute a commercially reasonable form of confidentiality agreement with respect thereto. Such statements shall be as prepared in Tenant’s ordinary course of business and certified as true and correct by Tenant's chief financial officer.
ARTICLE 18
SUBORDINATION AND MORTGAGEES
Landlord represents and warrants that, as of the Effective Date, the Project is not subject to a mortgage or deed of trust or any ground lease. This Lease shall be subject and subordinate to the lien of any future mortgage, trust deed or other encumbrances (each, a "Mortgage") hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such Mortgage, unless the holders or lessors of such Mortgages (each, a "Mortgagee"), require in writing that this Lease be superior thereto. Notwithstanding anything to the contrary contained in this Article 18, in consideration of, and as a condition precedent to, Tenant's agreement to permit its interest pursuant to this Lease to be subordinated to any Mortgage and to any renewals, extensions, modifications, consolidations and replacements thereof, Landlord shall deliver to Tenant a commercially reasonable non-disturbance agreement executed by the Mortgagee. Such commercially reasonable non-disturbance agreement(s), shall include the obligation of any such Mortgagee to recognize Tenant's rights specifically set forth in this Lease, including without limitation, Tenant’s rights to offset certain amounts against Rent due hereunder and to be bound by and be responsible for all Landlord’s obligations with
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respect to the L-C under the terms of Article 21, and Landlord's obligations to comply with the provisions of this Lease, or to otherwise receive certain credits against Rent as set forth herein. Subject to Tenant's receipt of the non-disturbance agreement(s) described above, Tenant covenants and agrees in the event any proceedings are brought for the foreclosure sale or deed in lieu thereof of any such Mortgage, to attorn to the Mortgagee upon any such foreclosure sale or deed in lieu thereof, if so reasonably requested to do so by such Mortgagee, and to recognize such Mortgagee as the lessor under this Lease, provided such Mortgagee shall agree to accept this Lease and not disturb Tenant's occupancy, so long as Tenant timely pays the Rent and observes and performs the TCCs of this Lease to be observed and performed by Tenant within all applicable notice and cure periods. Landlord's interest herein may be assigned as security at any time to any Mortgagee. Tenant shall, within ten (10) business days of request by Landlord, execute such further commercially reasonable instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such Mortgage in accordance with this Article 18. Subject to the provisions of this Article 18, Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale. Should any current or prospective Mortgagee require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, this Lease may be so modified and Tenant shall execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) business days following a request therefor. Landlord's title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.
ARTICLE 19
EVENTS OF DEFAULT; REMEDIES
19.1 Events of Default. In addition to any other Events of Default specified elsewhere in this Lease, the occurrence of any of the following shall constitute an "Event of Default" by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due unless such failure is cured within five (5) business days after notice (hereinafter, a "Monetary Event of Default"); provided, however, that Landlord shall not be required to provide such notice more than one (1) time with respect to any failure by Tenant to make a recurring payment of Rent during any given twelve (12) month period; or
19.1.2 To the extent permitted by Applicable Laws, (i) Tenant or any guarantor of this Lease being placed into receivership or conservatorship, or becoming subject to similar proceedings under Federal or State law, or (ii) a general assignment by Tenant or any guarantor of this Lease for the benefit of creditors, or (iii) the taking of any corporate action in furtherance of bankruptcy or dissolution whether or not there exists any proceeding under an insolvency or bankruptcy law, or (iv) the filing by or against Tenant or any guarantor of any proceeding under an insolvency or bankruptcy law, unless in the case of such a proceeding filed against Tenant or any guarantor the same is dismissed within sixty (60) days, or (v) the appointment of a trustee or receiver to take possession of all or substantially all of the assets of Tenant or any guarantor, unless possession is restored to Tenant or such guarantor within thirty (30) days, or (vi) any execution or other judicially authorized seizure of all or substantially all of Tenant's assets located upon the Premises or of Tenant's interest in this Lease, unless such seizure is discharged within thirty (30) days; or
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19.1.3 The failure by Tenant to observe or perform according to the provisions of Articles 5, 14, 17 or 18 of this Lease or any provision of the Work Letter where, in each instance, such failure continues for more than five (5) business days after notice from Landlord; or
19.1.4 Except where a specific time period for Tenant's performance is otherwise expressly set forth in this Lease, in which event the failure to perform by Tenant within such time period shall be an Event of Default by Tenant under this Section 19.1.4, any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period (or, as applicable, within the specific time period for Tenant's performance otherwise expressly set forth in this Lease), no Event of Default shall be deemed to have occurred under this Section 19.1.4 if Tenant diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default.
Any notices to be provided by Landlord under this Section 19.1 shall be in lieu of, and not in addition to, any notice required under Section 1161 et seq. of the Code of Civil Procedure, and may be served on Tenant in the manner allowed for service of notices under this Lease.
19.2 Remedies Upon Event of Default. Upon the occurrence of any Event of Default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies (including, without limitation, during any eviction moratorium, to the extent not prohibited by Applicable Law), each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or for any claim for damages therefor; and Landlord may recover from Tenant the following:
(a) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, as allowed under all Applicable Laws, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and
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(e) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Laws.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Sections 19.2.1(a) and (b) above, the "worth at the time of award" shall be computed by allowing interest at the Interest Rate, but in no case greater than the maximum amount of such interest permitted by Applicable Laws. As used in Section 19.2.1(c) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).
19.2.2 In the event this Lease has not been terminated, Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any Event of Default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.
19.2.3 Any agreement for free, abated, or reduced Rent or other charges (including, without limitation, the Base Rent Abatement and Parking Rent Abatement), any allowances or other rights of reimbursement granted to Tenant (for improvements, furniture, fixtures, equipment, moving costs, or otherwise), any other agreement for the giving or paying by Landlord to or for the benefit of Tenant of any monetary amounts, and any other bonus, inducement, or other consideration for Tenant entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions" shall be deemed conditioned upon Tenant's full and faithful performance of all of the TCCs of this Lease. Accordingly, upon the occurrence of any Event of Default, or if this Lease is terminated for any reason other than Landlord's breach of this Lease, Casualty or condemnation, in addition to all other rights and remedies of Landlord, at Landlord's sole option (which may be exercised by Landlord at any time following the occurrence of any Event of Default), any and all of the Inducement Provisions (as may be designated by Landlord) shall be deemed null and void and of no further force or effect, and any Rent, other charge, bonus, inducement, consideration, or other amount therefore abated, reduced, given or paid by Landlord under such Inducement Provision(s) shall be immediately due and payable by Tenant to Landlord, notwithstanding any subsequent cure of the applicable Event of Default. Alternatively, with respect to any Inducement Provision that is in the nature of an agreement for free, abated, or reduced Rent or other charges (including, without limitation, the Base Rent Abatement and Parking Rent Abatement), Landlord shall have the right, in its sole and absolute discretion, to cause the dollar amount of the unapplied portion of any such Inducement Provision as of the Event of Default or termination, as the case may be, to be converted to a credit to be applied to the Base Rent applicable at the end of the Lease Term, in which event Tenant shall immediately be obligated to begin paying Base Rent for the Premises in full (without regard to the applicable Inducement Provision). The acceptance by Landlord of Rent or the cure of any Event of Default shall not be deemed a waiver by Landlord of its rights under this Section 19.2.3.
19.2.4 Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under Sections 19.2.1, 19.2.2, and 19.2.3 above, or any law or other provision of this Lease), without prior demand or notice except as required by Applicable Laws, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof.
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19.3 Subleases of Tenant. Whether or not Landlord elects to terminate this Lease on account of Event of Default, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.
19.4 Efforts to Relet. No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord's interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant's right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant's obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.
19.5 Landlord Default.
19.5.1 In General. Notwithstanding anything to the contrary set forth in this Lease, Landlord shall be in default in the performance of any obligation required to be performed by Landlord under this Lease only if (i) in the event a failure by Landlord is with respect to the payment of money, Landlord fails to pay such unpaid amounts within five (5) business days of notice from Tenant that the same was not paid when due; (ii) the failure of Landlord to perform according to the provisions of Article 17 of this Lease for more than fifteen (15) business days after notice from Tenant; or (iii) in the event a failure by Landlord is other than (i) and (ii) above, Landlord fails to perform any of its other obligations hereunder and such failure continues for thirty (30) days after Tenant delivers to Landlord written notice specifying such failure; however, if such failure cannot reasonably be cured within such 30-day period, but Landlord commences to cure such failure within such 30-day period and thereafter diligently pursues the curing thereof to completion, then Landlord shall not be in default hereunder or liable for damages therefor. Except where the provisions of this Lease grant Tenant an express, exclusive remedy, or expressly deny Tenant a remedy, Tenant's exclusive remedy for Landlord's default under this Lease shall be limited to Tenant's actual direct, but not consequential, damages caused by such default; in each case, Landlord's liability or obligations with respect to any such remedy shall be limited as provided in Sections 19.6 and 29.10 below. All obligations of Landlord under this Lease shall be construed as covenants, not conditions. Except as otherwise provided herein, Tenant hereby waives the benefit of any laws granting it the right to perform Landlord's obligations or the right to terminate this Lease or withhold Rent on account of any Landlord default. Without limiting the generality of the foregoing, except as otherwise provided herein, Tenant hereby waives and agrees not to pursue or claim any excuse or offset to Tenant's obligations under this Lease based on the doctrines of impossibility, impracticality, frustration of contract, frustration of purpose, or other similar legal principals.
19.5.2 Abatement Event. If (i) (a) Landlord fails to provide any services required of Landlord under Section 6.1 above or perform any of Landlord's Repair Obligations required under Article 7 below, or prevents Tenant from having access to the Premises or the portions of the Building reasonably necessary to have normal access to the Premises (for example, elevators) except as a necessary consequence of any Casualty, in which event the terms of Article 11 above will control, or (b) Hazardous Materials are present in the Premises or the portions of the Building necessary for access to the Premises and such presence in the Building prevents Tenant from having reasonable access to the Premises, provided in either case that such Hazardous Materials were not brought into the Building or the Premises,
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exposed, or exacerbated by Tenant or Tenant Parties, (ii) such failure causes all or a material portion of the Premises to be inaccessible or unusable by Tenant and Tenant actually ceases to use all or such material portion of the Premises, and (iii) such failure is not the result of the acts and/or omissions of Tenant and/or other Tenant Parties, then in order to be entitled to receive the benefits of this Section 19.5.2, Tenant must give Landlord notice (the "Initial Abatement Notice"), specifying such failure to perform by Landlord (the "Abatement Event"); an Initial Abatement Notice may be delivered by electronic mail or by hand to Landlord's property management office at the Building for the purposes of establishing delivery so long as concurrently Tenant sends duplicate Initial Abatement Notices to the addresses for notice to Landlord set forth herein in the manner otherwise required by this Lease. If Landlord has not commenced to cure such Abatement Event within three (3) business days after the receipt of the Initial Abatement Notice and is not otherwise expressly excused from such performance by this Lease, Tenant may, upon written notice to Landlord (similarly delivered to Landlord's property management address), immediately abate Base Rent, Tenant's Share of Direct Expenses and parking charges payable under this Lease for that portion of the Premises so rendered inaccessible or unusable and not actually used by Tenant (which may include the entire Premises if the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion), for the period beginning on the date immediately following the expiration of the three (3) business day period described above and continuing to the earlier of the date Landlord cures such Abatement Event or the date Tenant recommences the use of such portion of the Premises. Notwithstanding the foregoing, if Tenant provides an Initial Abatement Notice for an Abatement Event that was cured by Landlord, but which recurs within twelve (12) months of such cure and, as a result of such particular Abatement Event all or a material portion of the Premises is inaccessible or unusable (and not actually used) by Tenant for more than ten (10) days in such twelve (12) month period, then Tenant may provide an additional abatement notice ("Recurring Abatement Notice") specifying such recurrence, and if Landlord has not commenced to cure such Abatement Event within two (2) business days after the receipt of the such Recurring Abatement Notice and is not otherwise excused from such performance by this Lease, Tenant may, upon written notice to Landlord, immediately abate Base Rent, Tenant's Share of Direct Expenses and parking charges payable under this Lease for that portion of the Premises rendered untenantable and not actually used by Tenant (which may include the entire Premises if the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion), for the period beginning on the date of Tenant's delivery of the Recurring Abatement Notice and continuing to the earlier of the date Landlord cures such Abatement Event or the date Tenant recommences the use of such portion of the Premises. Such right to abate Rent shall be Tenant's sole and exclusive remedy at law or in equity for an Abatement Event; provided, however, that nothing in this Section 19.5.2, shall impair Tenant's rights under Sections 7.3 and 19.5.1, above. In the event that Tenant is entitled to an abatement of Rent during any of the abatement periods described in Section 4 of the Summary of Lease Terms, then the scheduled abatement of Rent as described in said Section 4 will be suspended until the expiration of any abatement of Rent described in this Section 19.5.2, provided that any such reinstatement of Tenant’s Section 4 abatement rights will be calculated at the Rent rates which would have been applicable to the originally scheduled abatement period(s).
19.6 Mutual Waiver of Consequential Damages. Notwithstanding anything to the contrary set forth in this Lease, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant's business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, or any indirect, consequential, or punitive damages or any kind, in each case, however occurring (including, without limitation, in connection with or incidental to a failure to furnish any services or utilities, or any failure to perform any repair or maintenance obligations). In addition, neither Tenant nor the Tenant
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Parties shall be liable under any circumstances for injury or damage to, or interference with, Landlord's business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, or any indirect, consequential, or punitive damages of any kind, in each case, however occurring, , other than those consequential damages incurred by Landlord in connection with (i) a holdover of the Premises by Tenant after the expiration or earlier termination of this Lease, and (ii) any repair, physical construction or improvement work performed by or on behalf of Tenant in the Project.
ARTICLE 20
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other TCCs, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the TCCs, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 21
LETTER OF CREDIT
21.1 Delivery of Letter of Credit. Tenant shall cause the "Bank" (as that term is defined below) to deliver to Landlord, within ten (10) business days following the mutual execution and delivery of this Lease by Landlord and Tenant, a standby letter of credit (the "L-C" or "Letter of Credit") that complies in all respects with the requirements of this Article 21 in the amount set forth in Section 8 of the Summary (the "L-C Amount"). The L-C shall: (i) be issued by a Bank; (ii) be in the form attached hereto as Exhibit H (provided that Landlord agrees to accept a Letter of Credit in the form of Exhibit H-1 attached hereto from J.P. Morgan Chase Bank, N.A. ("JPM") with such reasonable changes to such form as requested by JPM or Tenant and reasonably approved by Landlord); (iii) be irrevocable, unconditional, and payable upon demand; (iv) be maintained in effect, whether through renewal or extension, for the period commencing on the date of this Lease and continuing until the date (the "L-C Expiration Date") that is no less than ninety (90) days following the expiration of the Lease Term, as the same may be extended, (v) be drawable in either Los Angeles or San Francisco, California (unless presentation by facsimile or overnight courier is allowed), (vi) contain a provision that provides that the L-C shall be automatically renewed on an annual basis without amendment of the L-C unless the Bank delivers a written notice of cancellation to Landlord at least sixty (60) days prior to the expiration of the L-C, without any action whatsoever on the part of Landlord; (vii) be fully assignable by Landlord, its successors and assigns; (viii) permit partial draws and multiple presentations and drawings, and (ix) be otherwise subject to the International Standby Practices-ISP 98, International Chamber of Commerce Publication #590. Tenant shall pay all expenses, points, and/or fees incurred by Tenant in obtaining and maintaining the L-C. The term "Bank" referred to herein shall mean a commercial, solvent, nationally recognized bank, approved by Landlord, that satisfies all of the following requirements (the "Bank Requirements"): (a) has a long-term, unsecured, and unsubordinated debt obligations rating of no less than "A" by Fitch Ratings Ltd. ("Fitch") and a short term deposit rating of no less than "F1" by Fitch (or in the event such applicable Fitch ratings are no longer available, comparable ratings from Standard and Poor's Professional Rating Service or Moody's Professional Rating Service); (b) accepts deposits and maintains accounts; (c) is chartered under the laws of the United States, any state thereof, or the District
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of Columbia, and which is insured by the Federal Deposit Insurance Corporation; and (d) is not subject to the control or jurisdiction of any receiver, trustee, custodian, conservator, liquidator or similar official under any federal or state or common law. Landlord hereby approved JPM. as the Bank, based on its financial ratings as of the Effective Date.
21.2 L-C Draw Event. Each of the following is an "L-C Draw Event": (i) such amount is past due to Landlord under the TCC's of this Lease; (ii) this Lease has terminated prior to the scheduled expiration of the Lease Term as a result of Tenant's breach or default of any term or provision of this Lease; (iii) Tenant has filed a voluntary petition under the U.S. Bankruptcy Code or any state bankruptcy code (collectively, "Bankruptcy Code"); (iv) an involuntary petition has been filed against Tenant under the Bankruptcy Code; (v) this Lease has been rejected or disaffirmed, or is deemed rejected or disaffirmed, under Section 365 of the U.S. Bankruptcy Code or any similar federal or state or common law; (vi) the Bank has notified Landlord, as described above, that the L-C will not be renewed or extended through the L-C Expiration Date and Tenant has not provided Landlord with a replacement L-C meeting the requirements of this Article 21 by the date that is thirty (30) days prior to the date upon which the existing Letter of Credit will be terminated; (vii) the Bank has failed to notify Landlord that the L-C will be renewed or extended on or before the date that is sixty (60) days before the then applicable L-C expiration date and Tenant has not provided Landlord with a replacement L-C meeting the requirements of this Article 21 by the date that is thirty (30) days prior to the L-C Expiration Date; (viii) Tenant is placed into receivership, liquidation, or conservatorship, or becomes subject to similar proceedings under federal or state law; (ix) Tenant executes an assignment for the benefit of creditors or commences an involuntary dissolution or becomes subject to an involuntary dissolution; or (x) the Bank no longer satisfies the Bank Requirements or there is otherwise a material adverse change in the financial condition of the Bank and Tenant has not provided Landlord with a replacement L-C meeting the requirements of this Article 21 within ten (10) business days following request by Landlord.
21.3 Application of L-C Proceeds. In the event of any L-C Draw Event, Landlord may, but without obligation to do so, and without notice to Tenant, draw upon the L-C, in part or in whole, and may, but is not obligated to, apply the proceeds of the L-C to any and all amounts due and owing under this Lease and to compensate Landlord for any and all damages or losses of any kind or nature sustained or which Landlord reasonably estimates that it will sustain resulting from Tenant's breach or default of this Lease or other L-C Draw Event and/or to compensate Landlord for any and all damages or losses arising out of, or incurred in connection with, the termination of this Lease, including, without limitation, those specifically identified in Section 1951.2 of the California Civil Code. The use, application, or retention of the L-C proceeds, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by any Applicable Laws, and Landlord shall not first be required to proceed against the L-C, and such L-C or the proceeds thereof shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. No condition or term of this Lease shall be deemed to render the L-C conditional to justify the issuer of the L-C in failing to honor a drawing upon such L-C in a timely manner. Tenant agrees and acknowledges that: (i) the L-C constitutes a separate and independent contract between Landlord and the Bank; (ii) Tenant is not a third party beneficiary of such contract; (iii) Tenant has no property interest whatsoever in the L-C or the proceeds thereof; and (iv) in the event Tenant becomes a debtor under any chapter of the Bankruptcy Code, Tenant is placed into receivership or conservatorship, there is an event of a receivership, conservatorship, or bankruptcy filing by, or on behalf of, Tenant, or Tenant executes an assignment for the benefit of creditors, neither Tenant, any trustee, receiver, conservator, assignee, nor Tenant's bankruptcy estate shall have any right to restrict or limit Landlord's claim or rights to the L-C or the proceeds thereof by application of Section 502(b)(6) of the U.S. Bankruptcy Code, any similar state or federal law, or otherwise.
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21.4 Replenishment, Renewal and Replacement of L-C. Tenant shall have no right to replace the L-C without Landlord's express written consent, which may be withheld in Landlord's sole and absolute discretion if the proposed replacement L-C (or the Bank issuing same) does not meet the express requirements of this Article 21. In the event Landlord consents to the replacement of the L-C for any reason (other than the delivery of a replacement L-C due to the pending early termination of an existing L-C), Landlord may require, as a condition of such consent, that the L-C remain in place with all existing rights thereunder for a period of one hundred ten (110) days following the delivery of the new L-C, and Tenant shall extend the original L-C as necessary to facilitate the same. The new L-C shall comply with all terms and conditions of this Article 21. If, as a result of any drawing by Landlord on the L-C pursuant to an L-C Draw Event, the amount of the L-C shall be less than the L-C Amount, Tenant shall, within ten (10) business days after written notice thereof from Landlord, provide Landlord with (i) an amendment to the L-C restoring such L-C to the L-C Amount or (ii) an additional L-C in an amount equal to the deficiency, which additional L-C shall comply with all of the provisions of this Article 21. If the L-C expires earlier than the L-C Expiration Date, Tenant shall deliver a certificate of renewal or extension to Landlord at least thirty (30) days prior to the expiration of the L-C then held by Landlord, without any action whatsoever on the part of Landlord. In furtherance of the foregoing, if the L-C has an expiration date prior to the L-C Expiration Date, Landlord and Tenant agree that the L-C shall contain a so-called "evergreen provision," whereby the L-C will automatically be renewed, without amendment, unless at least sixty (60) days' prior written notice of non-renewal is provided by the Bank to Landlord. If the Bank fails to satisfy any of the Bank Requirements, Tenant shall deliver a replacement L-C to Landlord within ten (10) business days of Landlord’s request therefor. At any time that Tenant has failed to timely provide Landlord with a renewed L-C, amended L-C, additional L-C or replacement L-C as and when required under this Lease, then Landlord shall have the right to declare that an Event of Default has occurred for which there shall be no notice or grace or cure periods applicable thereto. The L-C shall be honored by the Bank regardless of whether Tenant disputes Landlord's right to draw upon the L-C. Tenant shall be responsible for the payment of any and all costs incurred by Landlord (including, without limitation, Landlord's reasonable attorneys' fees) relating to the review of any renewed, amended, additional or replacement L-C.
21.5 In the event that Landlord draws on the L-C pursuant to an L-C Draw Event, subject to Section 21.10 below, (i) any unused proceeds shall constitute the property of Landlord (and not Tenant's property or, in the event of a receivership, conservatorship, or bankruptcy filing by, or on behalf of, Tenant, property of such receivership, conservatorship or Tenant's bankruptcy estate) and need not be segregated from Landlord's other assets, and (ii) Landlord agrees to pay to Tenant within thirty (30) days after the L-C Expiration Date (or, if earlier, the date on which Tenant provides an amendment to the L-C reinstating the face amount of the L-C to the L-C Amount or an additional L-C, the face amount of which, when combined with the then-current L-C held by Landlord, equals the L-C Amount) the amount of any proceeds of the L-C received by Landlord and not applied as contemplated in this Article 21; provided, however, that if prior to the L-C Expiration Date a voluntary petition is filed by Tenant, or an involuntary petition is filed against Tenant by any of Tenant’s creditors, under the Bankruptcy Code or if Tenant executes an assignment for the benefit of creditors or is placed in receivership or liquidation, then Landlord shall not be obligated to make such payment in the amount of the unused L-C proceeds until either all preference issues relating to payments under this Lease have been resolved in such bankruptcy or reorganization case or such bankruptcy or reorganization case has been dismissed.
21.6 Transfer and Encumbrance. Tenant has no right to assign or encumber the L-C or any part thereof and neither Landlord nor its successors or assigns will be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. In the event of an assignment by Tenant of its interest in the Lease (and irrespective of whether Landlord's consent is required for such
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assignment), the acceptance of any replacement or substitute letter of credit by Landlord from the assignee shall be subject to Landlord's prior written approval, in Landlord's sole and absolute discretion. At any time and without notice to Tenant and without first obtaining Tenant's consent thereto, Landlord may transfer (one or more times) all of its interest in and to the L-C to another party, person or entity, as a part of the assignment by Landlord of its rights and interests in and to this Lease. In the event of a transfer of Landlord's interest in this Lease, Landlord shall transfer the L-C, to the transferee and thereupon Landlord shall, without any further agreement between the parties, be released by Tenant from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole of said L-C to a new landlord. In connection with any such transfer of the L-C by Landlord, Tenant shall, at Tenant's sole cost and expense, execute and submit to the Bank such applications, documents and instruments as may be necessary to effectuate such transfer, and Tenant shall be responsible for paying the Bank's transfer and processing fees in connection therewith, provided that Landlord shall have the right (in its sole discretion), but not the obligation, to pay such fees on behalf of Tenant.
21.7 L-C Not a Security Deposit. In no event or circumstance shall the L-C, any renewal or substitute therefor or any proceeds thereof be deemed to be or treated as a "security deposit" under any law applicable to security deposits in the commercial context, including, but not limited to, Section 1950.7 of the California Civil Code, as such Section now exists or as it may be hereafter amended or succeeded (the "Security Deposit Laws"). The L-C (including any renewal thereof or substitute therefor or any proceeds thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto. Landlord and Tenant hereby waive any and all rights, duties and obligations that any such party may now, or in the future will, have relating to or arising from the Security Deposit Laws. Tenant hereby irrevocably waives and relinquishes the provisions of Section 1950.7 of the California Civil Code and any successor statute, and all other provisions of law, now or hereafter in effect, which (x) establish the time frame by which a landlord must refund a security deposit under a lease, and/or (y) provide that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant or to clean the premises.
21.8 Non-Interference By Tenant. Tenant agrees not to interfere in any way with any payment to Landlord of the proceeds of the L-C, either prior to or following a "draw" by Landlord of all or any portion of the L-C, regardless of whether any dispute exists between Tenant and Landlord as to Landlord's right to draw down all or any portion of the L-C. No condition or term of this Lease shall be deemed to render the L-C conditional and thereby afford the Bank a justification for failing to honor a drawing upon such L-C in a timely manner. Tenant shall not request or instruct the Bank to refrain from paying sight draft(s) drawn under such L-C.
21.9 Waiver of Certain Relief. Tenant unconditionally and irrevocably waives (and as an independent covenant hereunder, covenants not to assert) any right to claim or obtain any of the following relief in connection with the L-C:
21.9.1 A temporary restraining order, temporary injunction, permanent injunction, or other order that would prevent, restrain or restrict the presentment of sight drafts drawn under the L-C or the Bank's honoring or payment of sight draft(s); or
21.9.2 Any attachment, garnishment, or levy in any manner upon either the proceeds of the L-C or the obligations of the Bank (either before or after the presentment to the Bank of sight drafts drawn under such L-C) based on any theory whatever.
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21.10 Remedy for Improper Drafts. Tenant's sole and exclusive remedy in connection with Landlord's improper draw against the L-C or Landlord's improper application or retention of any proceeds of the L-C shall be the right to obtain from Landlord a refund of the amount of any sight draft(s) that were improperly presented or the proceeds of which were misapplied or wrongfully held, together with interest at the Interest Rate and reasonable actual out-of-pocket attorneys' fees, provided that at the time of such refund, Tenant increases the amount of such L-C to the then-current L-C Amount. Tenant irrevocably waives any right to secondary, incidental, indirect or consequential damages in any way related to Landlord's draw on the L-C. Tenant acknowledges that Landlord's draw against the L-C, application or retention of any proceeds thereof, or the Bank's payment under such L-C, could not, under any circumstances, cause Tenant injury that could not be remedied by an award of money damages, and that the recovery of money damages would be an adequate remedy therefor. In the event Tenant shall be entitled to a refund as aforesaid and Landlord shall fail to make such payment within ten (10) business days after demand, Tenant shall have the right to deduct the amount thereof together with interest thereon at the Interest Rate from the next installment(s) of Base Rent.
21.11 Reduction of L-C Amount. Provided that the "L-C Reduction Conditions" (as defined below) are then satisfied, the L-C Amount may be reduced upon or following each "Reduction Date" (as defined below) occurring thereafter, by the "L-C Reduction Amount"; provided, however, the L-C Amount shall never be less than $941,412.99. The "Reduction Date" shall mean each of the following: the first day of Lease Year 3, the first day of Lease Year 4, and the first day of Lease Year 5. The "L-C Reduction Amount" shall mean $313,804.33. The reduction of the L-C Amount shall be effectuated by Tenant's delivery to Landlord of a certificate of amendment to the existing L-C, conforming in all respects to the requirements of this Article 21, in the amount of the applicable reduced L-C Amount. If Tenant is allowed to reduce the L-C Amount, then Landlord shall reasonably cooperate with Tenant in order to effectuate such reduction. "L-C Reduction Conditions" shall mean that Tenant has not received notice of a monetary default under this Lease which then remains uncured under this Lease and the Net Worth Test is satisfied. If any of the L-C Reduction Conditions are not satisfied as of the applicable Reduction Date, then any decrease may take place retroactively upon satisfaction of the L-C Reduction Condition; provided that no decrease may take place retroactively if this Lease has been terminated as a result of an Event of Default by Tenant.
ARTICLE 22
INTENTIONALLY OMITTED
ARTICLE 23
SIGNS
23.1 Full Floors. So long as the Premises comprises the entirety of the fifth (5th) floor portion of the South Tower, subject to Landlord's prior written approval, as part of Landlord's Consent Standard, which approval shall not be unreasonably withheld, conditioned, or delayed, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant, at its sole cost and expense, may install identification signage anywhere in the Premises (including, but not limited to, in the elevator lobby of the Premises), provided that such signs must not be visible from the exterior of the Building.
23.2 Multi-Tenant Floors. If other tenants occupy space on any floor of the Building on which the Premises is located, Tenant's identifying signage shall be provided by Landlord, at Tenant's cost, and such signage shall be comparable to that used by Landlord for other similar floors in the
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Building and shall comply with Landlord's Building standard signage program. Any subsequent changes to Tenant's identifying signage shall be at Tenant's sole cost and expense following Tenant's receipt of Landlord's consent thereto (which consent may be withheld in Landlord's reasonable discretion).
23.3 Building Directory. If a building directory is located in the lobby of the Building, Tenant shall have the right, at Landlord's sole cost and expense, to designate one (1) name strip on such directory. Any subsequent changes to Tenant's name strip shall be at Tenant's sole cost and expense following Tenant's receipt of Landlord's consent thereto (which consent may be withheld in Landlord's reasonable discretion).
23.4 Prohibited Signage and Other Items. Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord and which Tenant does not remove within two (2) business days following notice from Landlord may be removed without notice by Landlord at the sole expense of Tenant. Tenant may not install any signs on the exterior or roof of the Project or in any Common Areas. Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion.
ARTICLE 24
COMPLIANCE WITH LAW
24.1 Tenant's Compliance Obligations. Tenant shall not do anything or permit anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other rule, directive, order, regulation, guideline, or requirement of any governmental entity or governmental agency now in force or which may hereafter be enacted or promulgated (collectively, "Applicable Laws"). At its sole cost and expense, Tenant shall, except as otherwise expressly provided in this Lease or in the Work Letter, promptly comply with all such Applicable Laws (including the making of any alterations required by Applicable Laws) which relate to (i) Tenant's use of, or requirements to cease or reduce Tenant's business operations in or Tenant's use of, the Premises, (ii) the areas of the Project that pertain to Tenant's Repair Obligations, and (iii) Tenant's Insured Property subject to Landlord’s compliance obligations set forth in Section 24.2 below. Except as otherwise provided herein, should any standard or regulation now or hereafter be imposed on Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, or tenants, then Tenant, at its sole cost and expense, shall comply promptly with such standards or regulations. The judgment of any court of competent jurisdiction or the admission of either party hereto in any judicial action, regardless of whether the other party is a party thereto, that such party has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.
24.2 Landlord's Compliance Obligations. Landlord shall comply with all Applicable Laws (including the ADA) relating to the areas of the Project that pertain to Landlord's Repair Obligations and Landlord's Insured Property to the extent that Landlord's failure to comply therewith would prohibit Tenant from obtaining or maintaining permits for construction of general office Improvements (assuming a typical general office density) or a certificate of occupancy for the Premises allowing for general office use, or would unreasonably and materially affect the safety of Tenant's employees or create a significant health hazard for Tenant's employees, or would interfere with Landlord's ability to provide services to the Premises or would otherwise materially and adversely affect Tenant's use of or access to the Premises. If
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any changes are required to areas of the Project that are subject to Landlord's Repair Obligations or Landlord's Insured Property as a result of Tenant's Alterations, the Improvements, or use of the Premises for non-general office use or Tenant's use of the Premises with an above-standard occupancy density, then Landlord shall make such changes at Tenant's sole cost and expense, including Landlord's standard supervision fee (or, at Landlord's election, Tenant shall not be permitted to proceed with the Alterations, Improvements, or use of the Premises that has or will trigger such changes). Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent not prohibited by the terms of Article 4 above.
24.3 Certified Access Specialist. For purposes of Section 1938 of the California Civil Code, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that the Premises have not undergone inspection by a Certified Access Specialist ("CASp"). As required by Section 1938(e) of the California Civil Code, Landlord hereby states as follows: "A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises." In furtherance of the foregoing, Landlord and Tenant hereby agree as follows: (i) any CASp inspection requested by Landlord or Tenant shall be conducted, at the requesting party's sole cost and expense, by a CASp approved by Landlord, subject to the non-requesting party's reasonable rules and requirements; and (ii) Tenant's and Landlord's respective obligations for making any improvements or repairs to correct violations of construction-related accessibility standards shall be as set forth in Sections 24.1 and 24.2 above.
24.4 First Source Hiring Program. Tenant has been informed by Landlord that there is a City-wide "First Source Hiring Program" (FSHP) (adopted by the City and County of San Francisco on August 3, 1998, Ordinance No. 264-98; codified at San Francisco Administrative Code Sections 83.1-83.1(8)). Tenant hereby acknowledges that its activities at the Premises and the Project may be subject to the FSHP. Accordingly, Tenant shall, at Tenant's sole cost and expense, comply with any provisions of the FSHP that are applicable to the Premises or any construction in, or use or development of, the Premises by Tenant.
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord's designee when due, then Tenant shall pay to Landlord a late charge equal to three percent (3%) of the overdue amount; provided, however, with regard to the first two (2) such failures in any twelve (12) month period, Landlord will waive such late charge to the extent Tenant cures such failure within five (5) business days following Tenant's receipt of written notice from Landlord that the same was not received when due. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) business days after the date they are due shall bear interest from the date when due until paid at an annual interest rate (the
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"Interest Rate") equal to the lesser of (i) the annual "Bank Prime Loan" rate cited in the Federal Reserve Statistical Release Publication H.15(519), published weekly (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published), plus two (2) percentage points, and (ii) the highest rate permitted by Applicable Laws.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 Landlord's Cure. All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein. If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under Section 19.1.6 above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant's part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder. Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant's designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.
26.2 Tenant's Reimbursement. Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, within thirty (30) days following delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Events of Default by Tenant pursuant to the provisions of Section 26.1; and (ii) sums equal to all Losses referred to in Article 10 of this Lease. Tenant's obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.
ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon at least twenty-four (24) hours prior written notice to Tenant (or oral notice to Tenant's office manager), except in the case of an Emergency in which case no prior notice shall be required, to enter the Premises to (i) inspect them; (ii) show the Premises to prospective purchasers, or to current or prospective Mortgagees, ground or underlying lessors or insurers or, during the last twelve (12) months of the Lease Term, to prospective tenants; (iii) post notices of non-responsibility; or (iv) perform Landlord's Repair Obligations or Modifications. Notwithstanding anything to the contrary contained in this Article 27, Landlord may enter the Premises at any time without notice to (A) perform standard services required of Landlord, including janitorial service; (B) take possession due to an Event of Default by Tenant in the manner provided herein; and (C) subject to the terms of Section 26.1, above, perform any covenants of Tenant which Tenant fails to perform. Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and may take such reasonable steps as may be necessary to accomplish the stated purposes; provided, however, except for Emergencies, any such entry shall be performed in an expeditious manner so as not to unreasonably interfere with Tenant's use of the Premises. Landlord use commercially reasonable efforts to schedule entries into the Premises under this Article 27 with Tenant (except entries under items (A) and (B), above) so that Tenant, at Tenant's option, may provide a representative to accompany Landlord. Landlord agrees to take no photographs of any active work areas
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in the Premises without Tenant’s prior consent and agrees that any information obtained by any entry into the Premises by Landlord or its employees, agents or contractors shall be kept strictly confidential. Even in an Emergency situation, Landlord shall use commercially reasonable efforts to minimize any disruption to Tenant’s business operations. Except as otherwise provided in this Lease, Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises; provided, however, that Landlord shall, subject to Section 10.1 of this Lease and to the extent that such damage is not covered by insurance required to be carried by Tenant under this Lease or caused by any governmental agencies, repair any damage to the Premises caused by any such emergency entry into the Premises by Landlord. Notwithstanding anything to the contrary set forth in this Article 27, Tenant may designate certain areas of the Premises as "Secured Areas" should Tenant require such areas for the purpose of securing certain valuable property or confidential information. In connection with the foregoing, Landlord shall not enter such Secured Areas except in the event of an Emergency or in connection with alterations to the premises of another tenant of the Building subject to Landlord’s compliance with the terms of this Article 27. Landlord shall not clean any area designated by Tenant as a Secured Area and shall only maintain or repair such secured areas to the extent (i) such repair or maintenance is required in order to maintain and repair the Building Structure and/or the Building Systems; (ii) as required by Applicable Laws, or (iii) in response to specific requests by Tenant and in accordance with a schedule reasonably designated by Tenant, subject to Landlord's reasonable approval. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.
ARTICLE 28
TENANT PARKING AND TRANSPORTATION
28.1 Parking Passes. Tenant shall have the right, but not the obligation, to rent from Landlord, on a monthly basis throughout the Lease Term, commencing on the Lease Commencement Date, the amount of unreserved parking passes set forth in Section 9 of the Summary, which parking passes shall pertain to the Project's parking facilities (the "Parking Facilities"). Subject to the TCCs of this Lease, Tenant shall be entitled to an abatement of the first three (3) months of rent for any parking passes (the "Parking Rent Abatement") rented by Tenant with no less than a twelve (12) month commitment, which commitment is made in writing by Tenant within the first twenty-four (24) full calendar months of the Lease Term. Subject to the Parking Rent Abatement, Tenant shall pay to Landlord (or Landlord's parking operator or other designee) for all parking passes rented by Tenant on a monthly basis at the prevailing rates charged from time to time by Landlord at the Project. In addition to any monthly fees charged by Landlord for Tenant's parking passes, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by Tenant or the use of the Parking Facilities by Tenant. The parking passes rented by Tenant pursuant to this Article 28 are provided to Tenant solely for use by Tenant's own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant (nor may parking passes be shared among Tenant's personnel or with any party other than the particular party to whom each such pass has been issued) without Landlord's prior approval.
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28.2 Use of Parking Facilities. Tenant's continued right to use the Parking Facilities is conditioned upon Tenant abiding by all commercially reasonable and non-discriminatory rules and regulations which are prescribed from time to time for the orderly operation and use of the Parking Facilities, including any sticker or other identification system reasonably established by Landlord, Tenant's cooperation in seeing that Tenant's employees and visitors comply with such rules and regulations and Tenant not being in default under this Lease. Landlord may, at any time, institute valet assisted parking, tandem parking stalls, "stack" parking, or other parking program within the Parking Facilities, the cost of which shall be included in Operating Expenses. Landlord may delegate its responsibilities hereunder to a parking operator in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. Tenant may validate visitor parking by such method or methods as the Landlord may establish, at the validation rate from time to time generally applicable to visitor parking.
28.3 Transportation Management. Tenant shall fully comply with all present or future governmentally mandated programs intended to manage parking, transportation or traffic in and around the Project. In addition, at no material out-of-pocket cost to Tenant, Tenant shall meet with Landlord to discuss collaborative methods and programs to encourage use by Tenant's employees and visitors of public transportation, alternative transportation and trip planning, and similar transportation programs.
28.4 Tenant's Bicycles. Tenant's employees, contractors and visitors shall be permitted to bring their bicycles ("Bicycles") into the designated portions of the Project, subject to such additional reasonable rules and regulations as may be promulgated by Landlord from time to time (in Landlord's reasonable discretion) that do not unreasonably interfere with Tenant's ability to park its Bicycles as contemplated herein. AT NO TIME ARE RIDERS ALLOWED TO RIDE ANY BICYCLE IN THE PREMISES, THE PROJECT PARKING FACILITY, THE BUILDING, OR ANYWHERE ELSE WITHIN THE PROJECT. RIDERS MUST ALWAYS WALK THEIR BICYCLES WITHIN THE PROJECT BOUNDARIES. Storage of any Bicycle anywhere on the Project other than as expressly set forth in this Section 28.4 is prohibited. Tenant shall keep its employees informed of these rules and regulations and any modifications thereto.
28.4.1 Bicycle Storage Area. Tenant (including employees, contractors and visitors of Tenant) shall have the non-exclusive right, on a first-come, first-served basis, at no cost to Tenant, to utilize that portion of the Parking Facilities (containing storage for approximately 37 typical sized bicycles) designated by Landlord for the day use parking of operable Bicycles by tenants and occupants of the Building at no additional cost (the "Bicycle Storage Area"). Gas-powered motorized vehicles of any kind (but not including electric powered bicycles), including motorcycles and mopeds, are prohibited in the Bicycle Storage Area, as is the storage of any property other than Bicycles, or the storage of more than a de minimis number of Bicycles for more than seventy-two (72) hours in the Bicycle Storage Area (and any such Bicycles which are stored for longer than seventy-two (72) hours shall be subject to removal by Landlord in accordance with signage posted in the Bicycle Storage Area). Each rider shall use the Bicycle Storage Area at is sole risk. Subject to compliance with Landlord's access control procedures and Applicable Laws, and except when and where Tenant's right of access is specifically restricted or limited in this Lease, Tenant shall have the right of reasonable access control services for the Bicycle Storage Area to allow Tenant’s employees to access the Bicycle Storage Area with their Bicycles after the ordinary hours of business for the Building, twenty-four (24) hours per day, seven (7) days per week during the Lease Term. Landlord specifically reserves the right to reasonably change the location, size, configuration, design, layout and all other aspects of the Bicycle Storage Area at any time (provided that no such action will materially diminish the capacity of the Bicycle Storage Area on other than a temporary basis), and Tenant acknowledges and agrees that Landlord may, without incurring any liability
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to Tenant and without any abatement of Rent under this Lease, from time to time, temporarily close-off or restrict access to the Bicycle Storage Area for purposes of permitting or facilitating any such construction, alteration or improvements upon prior written notice to Tenant. Landlord shall in no case be liable for personal injury or property damage for any error with regard to the admission to or exclusion from the Bicycle Storage Area of any person. Upon the expiration or earlier termination of this Lease, Tenant shall have removed all Bicycles belonging to its employees from the Bicycle Storage Area and Tenant, at Tenant's sole cost and expense, shall repair all damage to the Bicycle Storage Area caused by the removal of the Bicycles therefrom, and if Tenant fails to repair such damage, Landlord may undertake such repair on account of Tenant and Tenant shall pay to Landlord upon demand the cost of such repair. If Tenant fails to remove any Bicycles at the expiration or earlier termination of this Lease, Landlord may dispose of said Bicycles in such lawful manner as it shall determine in its sole and absolute discretion.
28.4.2 Bicycles in the Premises. Tenant's employees shall be permitted to bring their Bicycles into the Premises in accordance with the terms of this Section 28.4.2. The right provided to Tenant and its employees to bring Bicycles into the Premises shall be subject to the following TCCs: (i) the access to and storage of Bicycles in the Premises shall be subject to all Applicable Laws, (ii) Bicycles may enter and exit the Building only through the Parking Facilities; (iii) Bicycles must be taken directly to the Premises via the freight elevator, and in no event shall Tenant's employees bring any Bicycles into or through the ground floor lobby of the Building; (iv) Landlord shall have the right to reasonably designate the path of travel that Tenant's employees must use; and (v) in no event shall Tenant permit any Bicycles to be stored or left unattended within the Common Areas (other than the Bicycle Storage Area and other Bicycle storage areas as may be reasonably designated by Landlord for non-exclusive use of tenants of the Project) at any time.
ARTICLE 29
SUSTAINABILITY AND WELLNESS
29.1 Sustainability and Wellness Requirements. Landlord's ownership and operation of the Project is informed by an awareness of best practices within the commercial real estate industry concerning sustainability and wellness of the Building and its occupants. In connection therewith, Landlord may, in its sole and absolute discretion, (i) implement a green cleaning program, a recycling program (which may include, without limitation, a requirement that Tenant separate waste appropriately so that it can be efficiently processed by Landlord's particular recycling contractors), Building wellness program, energy efficiency program, or other standards for efficient operation and management of the Building or Project (collectively, as the same may be updated by Landlord from time to time, "Sustainability and Wellness Programs"), and (ii) pursue and/or maintain certification(s) for the Building and/or Project (or any portion thereof) under the U.S. Green Building Council's Leadership in Energy and Environmental Design ("LEED"), Fitwel, and WELL certification, or other applicable certification agency (any of the foregoing, a "Sustainability and Wellness Certification"). The Sustainability and Wellness Programs and Sustainability and Wellness Certifications are, collectively, the "Sustainability and Wellness Initiatives", and any sustainability and wellness practices and requirements with respect to the Building and/or the Project established by Landlord to implement the Sustainability and Wellness Initiatives are, collectively, as the same may be updated by Landlord from time to time, "Sustainability and Wellness Requirements". Nothing contained in this Section 29.1 shall obligate Landlord to incur any costs or expenses that are not otherwise an obligation of Landlord pursuant to the other TCCs of this Lease.
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29.2 Tenant's Compliance. Tenant shall, at no material out-of-pocket cost to Tenant, comply with (and cause its employees, vendors, and contractors to comply with) all Sustainability and Wellness Requirements and the terms of any Sustainability and Wellness Initiatives and otherwise cooperate with Landlord in connection with Landlord's efforts in connection therewith, which compliance and cooperation may include, without limitation, (i) Tenant's compliance with certain standards pertaining to the purchase of materials used in connection with the performance of Tenant's Repair Obligations and/or any Alterations or Improvements undertaken by the Tenant in the Project, and (ii) Tenant sharing with Landlord documentation pertaining to any of Tenant's Repair Obligations, Alterations or Improvements undertaken by Tenant in the Project, Tenant's billing information pertaining to trash removal and recycling related to Tenant's operations in the Project, and otherwise providing Landlord with any documentation Landlord may need in order to obtain or maintain any Sustainability and Wellness Certification(s). A description of Landlord's then-existing Sustainability and Wellness Initiatives for the Project, and the terms of any Sustainability and Wellness Requirements will be provided to Tenant upon written request, and any inquiries from Tenant concerning Sustainability and Wellness Requirements or Landlord's sustainability efforts in general may be directed to sustainability@kilroyrealty.com. To the extent Tenant fails to comply with any of Landlord's Sustainability and Wellness Requirements and Sustainability and Wellness Initiatives, Tenant shall be required to pay any fees or charges incurred by Landlord related to such non-compliance.
29.3 Utility Information. Tenant hereby acknowledges that Landlord may be required to disclose certain information concerning the energy performance of the Building pursuant to Applicable Laws and Tenant hereby (i) consents to all such disclosures, (ii) acknowledges that Landlord shall not be required to notify Tenant of any disclosures, and (iii) releases Landlord from any and all Losses relating to, arising out of and/or resulting from any such disclosure. In the event that Tenant is permitted to contract directly for the provision of electricity, gas, water or other utility services to the Premises with the third-party provider as described in Article 6, Tenant shall provide Landlord a copy of every invoice for such services within five (5) business days following Landlord's request. The terms of this paragraph shall survive the expiration or earlier termination of this Lease.
ARTICLE 30
MISCELLANEOUS PROVISIONS
30.1 Terms; Captions. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.
30.2 Binding Effect. Subject to all other provisions of this Lease, each of the TCCs of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.
30.3 No Air Rights. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises is temporarily darkened or the light or view therefrom is obstructed by reason of
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any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant's obligations under this Lease.
30.4 Transfer of Landlord's Interest. Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and in the event of any such transfer (to the extent such obligations are assumed by the transferee), (i) Landlord shall automatically be released from all liability under this Lease arising from and after the date of such transfer, and (ii) Tenant shall look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer, (iii) such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and (iv) Tenant shall attorn to such transferee. Landlord may also assign its interest in this Lease to a Mortgagee as additional security, but such an assignment shall not release Landlord from its obligations hereunder and Tenant shall continue to look to Landlord for the performance of its obligations hereunder.
30.5 Prohibition Against Recording or Publication. Neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded or otherwise published by Tenant or by anyone acting through, under or on behalf of Tenant.
30.6 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venture or any association between Landlord and Tenant.
30.7 Time of Essence. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.
30.8 Partial Invalidity. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.
30.9 No Warranty. In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.
30.10 Landlord Exculpation. The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord's operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the lesser of (a) the interest of Landlord in the Building or (b) the equity interest Landlord would have in the Building if the Building were encumbered by third-party debt in an amount equal to eighty percent (80%) of the value of the Building (as such value is determined by Landlord), provided that in no event shall such liability extend to any sales, rental or rental insurance proceeds received by Landlord or the Landlord Parties in connection with the Project, Building or Premises. Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. The limitations of liability contained in this Section 30.10 shall inure to the benefit of Landlord's and the Landlord Parties'
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present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns. Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord's obligations under this Lease.
30.11 Entire Agreement. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties' entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto (including, without limitation, any confidentiality agreement, letter of intent, request for proposal, or similar agreement previously entered into between Landlord and Tenant in anticipation of this Lease) or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. None of the TCCs of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.
30.12 Right to Lease. Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.
30.13 Force Majeure. Notwithstanding anything to the contrary contained in this Lease (but subject to the remaining TCCs of this Section 30.13), any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, governmental laws, regulations or restrictions, civil commotions, Casualty, actual or threatened public health emergency (including, without limitation, epidemic, pandemic, famine, disease, plague, quarantine, and other significant public health risk), governmental edicts, actions, declarations or quarantines by a governmental entity or health organization (including, without limitation, any shelter-in-place orders, stay at home orders or any restrictions on travel related thereto that preclude Tenant, its agents, contractors or its employees from accessing the Premises, national or regional emergency), breaches in cybersecurity, and other causes beyond the reasonable control of the party obligated to perform, regardless of whether such other causes are (i) foreseeable or unforeseeable or (ii) related to the specifically enumerated events in this paragraph (collectively, a "Force Majeure"), shall excuse the performance of such party for a period of time equal to any such prevention, delay or stoppage. If this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure. Notwithstanding the foregoing or anything to the contrary contained in this Lease, in no event shall Force Majeure: (a) excuse Tenant's obligations to pay Rent and other charges due pursuant to this Lease, or (b) entitle either party to terminate this Lease, except as allowed pursuant to Articles 11 and 13 of this Lease, or (c) excuse Tenant's obligations under Articles 5 and 24 of this Lease or Section 10.3 of this Lease, or (d) extend the time period for Tenant to vacate the Premises following expiration of the Lease Term, or (e) excuse Tenant from paying for utilities whether to Landlord or a utility provider, or (f) permit Tenant to interfere with other tenants and occupants at the Project or create or cause a nuisance or disturbance at the Project, or (g) extend the occurrence of the Lease Commencement Date (except to the extent described in the Work Letter). The provisions of this Section 30.13 shall not, however, delay (i) the trigger date for Tenant’s right to abatements in Rent as set forth in Section 19.5.2 above, or (ii) the date upon which Tenant may exercise its right to terminate this Lease following Casualty described in Section 11.2 above except as expressly set forth in Section 11.2. In
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the event that either party is delayed from performing any obligation hereunder as a result of Force Majeure, such party shall promptly give notice to the other party of the delay in question, specifying in such notice the nature of the delay and, without any such estimate being deemed a representation or warranty, such party’s good faith estimate of the length of the delay in question. Without limiting the generality of the foregoing, Tenant agrees and acknowledges that (1) events of Force Majeure may limit, interfere with, or prevent Tenant from using the Premises, and from entering the Premises, (2) such potential interference, limitation, and prevention is foreseeable, and (3) no such limitations, interference or prevention shall constitute frustration of purpose, impossibility of performance, or impracticality of performance with respect to this Lease. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1511 of the California Civil Code, and hereby agrees that this Section 30.13 is an express provision to the contrary. Tenant's agreement to the TCCs of this Section 30.13 is material consideration for Landlord's agreement to enter into this Lease.
30.14 Notices. All notices, demands, statements or communications (collectively, "Notices") given or required to be given by either party to the other hereunder shall be in writing, shall be (i) delivered by a nationally recognized overnight courier, (ii) delivered by registered or certified mail, return receipt requested ("Mail"), or (iii) delivered personally. Any such Notice shall be delivered (a) to Tenant at the appropriate address set forth in Section 10 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord; or (b) to Landlord at the addresses set forth in Section 11 of the Summary, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given (A) three (3) business days after the date it is posted if sent by Mail, or (B) the date the overnight courier or hand delivery is made or attempted to be made; provided, however, that in the case of clauses (ii) or (iii) above, if the effective date of any such notice would be a weekend or holiday, then such notice shall be deemed given on the next succeeding business day. If Tenant is notified of the identity and address of any Mortgagee, Tenant shall give to such Mortgagee a copy of any notice of default delivered by Tenant to Landlord under the terms of this Lease by Mail or nationally recognized overnight courier. The party delivering Notice shall use commercially reasonable efforts to provide a courtesy copy of each such Notice to the receiving party via electronic mail.
30.15 Joint and Several. If there is more than one Tenant, then the obligations imposed upon Tenant under this Lease shall be joint and several.
30.16 Authority. If Tenant is a corporation, trust, partnership, limited liability company or other legal entity, each individual executing this Lease on behalf of Tenant hereby represents and warrants that (i) Tenant is duly formed and in good standing in Tenant's state of organization, (ii) Tenant is qualified to do business in California, (iii) Tenant has full right and authority to execute and deliver this Lease, and (iv) each person signing on behalf of Tenant is authorized to do so. Tenant shall, within ten (10) business days after Landlord's written request, deliver to Landlord satisfactory written evidence of the truth and accuracy of the foregoing representations and warranties.
30.17 Attorneys' Fees. In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.
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30.18 Governing Law; WAIVER OF TRIAL BY JURY. This Lease, including the terms of Article 21 (which shall include any dispute between Landlord and Tenant relating to the L-C) shall be construed and enforced in accordance with the laws of the State of California. IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.
30.19 Submission of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.
30.20 Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 12 of the Summary (the "Brokers"), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party shall indemnify and defend the other party against and hold the other party harmless from and against any and all Losses with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party. Landlord shall, and Tenant shall not, pay all fees due the Brokers pursuant to separate written agreements between Landlord and the Brokers (each, a "Written Agreement"). If Landlord does not make payment to the Brokers pursuant to the terms of the Written Agreements with respect to the Premises leased by Tenant pursuant to this Lease, Tenant may send a factually correct Notice to Landlord of such failure and if Landlord fails to pay the Brokers all required amounts within thirty (30) days following receipt of such Notice, Tenant may, at its option, make such payment and deduct such payment, together with interest at the Interest Rate, from the Rent next due and owing under this Lease from the date of such payment to the date of the deduction. Any amounts so paid by Tenant to the Brokers and offset from Rent shall no longer be owed from Landlord to the Brokers pursuant to the terms of the Written Agreements. The terms of this Section 30.20 shall survive the expiration or earlier termination of the Lease Term.
30.21 Independent Covenants. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not, except as otherwise expressly provided in this Lease, be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord, except as expressly provided herein; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building, the Project, or any portion thereof, of whose address Tenant has theretofore been notified, and an opportunity is granted to Landlord and such holder to correct such violations as provided above.
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30.22 Project or Building Name and Signage. Landlord shall have the right at any time to change the address or name of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord's sole discretion, desire, except that Landlord shall not place any signage on the exterior of the Building so long as Tenant is the sole direct tenant of the Building. Tenant shall not use the name of the Project or Building, or the name or logo of Landlord (or any of its affiliates), or use pictures or depictions of the Project or Building, in advertising or other publicity (including, without limitation, any websites or social media accounts) or for any purpose, without the prior written consent of Landlord. Notwithstanding the foregoing, Tenant may use the name of the Building and Project as an element of Tenant's address with respect to the business to be conducted by Tenant in the Premises.
30.23 Confidentiality; Press Releases. The content of this Lease and any related amendments, agreements and documents are confidential information. Landlord and Tenant shall keep such information strictly confidential and shall not disclose such confidential information to any person or entity other than (i) such party's and potential Transferee’s respective financial, legal, space planning and construction consultants, and such party's parent, subsidiary or other affiliated companies, their partners, lenders, banks, auditors, underwriters, and attorneys and similar professionals, (ii) as may be required to enforce the provisions of this Lease, or (iii) as may be required to comply with Applicable Laws. In addition, notwithstanding the foregoing or anything to the contrary herein, Landlord and Tenant shall be entitled to (a) disclose information relating to this Lease to the extent necessary to comply with the disclosure or regulatory requirements of the S.E.C., IRS or similar entities (or any equivalent non-US agencies), or in connection with other S.E.C., IRS or other regulatory filings (or any equivalent non-US regulatory filings) customarily made by publicly traded REIT entities; (b) disclose information relating to this Lease on earnings calls and/or at investor meetings as customarily disclosed by publicly traded REIT entities, and/or public entities (including non-US public companies). Additionally, Tenant shall have the right to deliver a copy of this Lease (with economic terms redacted) to any proposed subtenant or assignee. Neither party shall issue press releases with respect to the fact that this Lease has been entered into without the prior written reasonable consent of the other party.
30.24 Modifications. During the Lease Term, Landlord may renovate, improve, alter, or modify (including temporary closures of the same) (collectively, the "Modifications") the Project, the Building and/or the Premises, including without limitation the Parking Facilities, Common Areas, and/or Base Building, which Modifications may include, without limitation, (i) installing sprinklers in the interior Common Areas and leased spaces, (ii) modifying the Common Areas and leased spaces to comply with Applicable Laws, including regulations relating to the physically disabled, seismic conditions, and building safety and security, (iii) to the extent Tenant is not then the sole tenant of the Building, installing new floor covering, lighting, and wall coverings in the interior Common Areas, and (iv) re-striping or reconfiguring the Parking Facilities; provided that, except as required by Applicable Laws, or in connection with an Emergency, Landlord shall not implement any Modifications that materially and adversely affect Tenant's use of the Premises for the Permitted Use, or materially and adversely affect Tenant's ingress to or egress from the Premises. In connection with any Modifications, Landlord may, among other things, erect scaffolding or other necessary structures at the Building, limit or eliminate access to portions of the Project, including portions of the Common Areas, or perform work in the Building, which work may create noise, dust or leave debris in the Building; provided that, Landlord shall, except as required by Applicable Laws, or in connection with an Emergency, use commercially reasonable efforts to mitigate any material disruption to the conduct of Tenant's business from the Premises during the performance of any Modifications. Such Modifications and Landlord's actions in connection with such Modifications shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent (except as specifically set forth in Section 19.5.2 of this Lease).
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Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant's business arising from the Modifications, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant's personal property or improvements resulting from the Modifications or Landlord's actions in connection with such Modifications, or for any inconvenience or annoyance occasioned by such Modifications or Landlord's actions. Landlord shall use commercially reasonable efforts to minimize any interference with Tenant's use of, and access to, the Premises in connection with any Modifications undertaken by Landlord.
30.25 No Violation. Landlord and Tenant each hereby warrant and represent to the other that neither its execution of nor performance under this Lease shall cause the subject party to be in violation of any agreement, instrument, contract, law, rule or regulation by which the subject party is bound, and each party shall protect, defend, indemnify and hold the other party harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees and costs, arising from a breach of this warranty and representation.
30.26 Hazardous Materials. Tenant: (i) except for Permitted Chemicals (as defined below), shall not cause or suffer to occur, the release, discharge, escape or emission of any Hazardous Materials at, upon, under or within the Project; (ii) shall not engage in activities at the Project that could result in, give rise to, or lead to the imposition of liability upon Tenant or Landlord or the creation of a lien upon the Project; (iii) shall notify Landlord promptly following receipt of any knowledge with respect to any actual release, discharge, escape or emission (whether past or present) of any Hazardous Materials at, upon, under or within the Premises; and (iv) shall promptly forward to Landlord copies of all orders, notices, permits, applications and other communications and reports in connection with any release, discharge, escape or emission of any Hazardous Materials at, upon, under or within the Premises or any contiguous or adjacent premises.
30.26.1 Definitions. "Hazardous Material(s)" shall mean any solid, liquid or gaseous substance or material that is described or characterized as a toxic or hazardous substance, waste, material, pollutant, contaminant or infectious waste, or any substance or material that in certain specified quantities would be injurious to the public health or welfare, or words of similar import, in any of the "Environmental Laws," as defined below, or any other words which are intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity and includes, without limitation, asbestos, petroleum (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum products, polychlorinated biphenyls, urea formaldehyde, radon gas, nuclear or radioactive matter, medical waste, soot, vapors, fumes, acids, alkalis, chemicals, microbial matters (such as molds, fungi or other bacterial matters), biological agents and chemicals which may cause adverse health effects, including but not limited to, cancers and /or toxicity. "Environmental Laws" shall mean any and all federal, state, local or quasi-governmental laws (whether under common law, statute or otherwise), ordinances, decrees, codes, rulings, awards, rules, regulations or guidance or policy documents now or hereafter enacted or promulgated and as amended from time to time, in any way relating to (i) the protection of the environment, the health and safety of persons (including employees), property or the public welfare from actual or potential release, discharge, escape or emission (whether past or present) of any Hazardous Materials or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Materials.
30.26.2 Permitted Chemicals. Notwithstanding the foregoing, Tenant may use, store and properly dispose of commonly available household cleaners and chemicals, in reasonable quantities,
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to maintain the Premises and Tenant's routine office operations (such as printer toner and copier toner) (collectively, the "Permitted Chemicals"). Any or all of the Permitted Chemicals described in this paragraph may constitute Hazardous Materials. However, Tenant may use, store and dispose of same, provided that in doing so, all Permitted Chemicals are stored, properly packaged and labeled, disposed of and/or used in accordance with applicable Environmental Laws, and provided that Tenant fully complies with all Environmental Laws and all of the TCC's of this Article 30 and of Article 24 above.
30.26.3 Tenant Hazardous Materials. With thirty (30) days following Tenant's receipt of a reasonable request from Landlord, Tenant shall deliver to Landlord a list of all Hazardous Materials other than Permitted Chemicals anticipated to be used by Tenant in the Premises and the quantities thereof and promptly complete, and return to Landlord, an "environmental questionnaire" using the form then-provided by Landlord.
30.26.4 Indemnification. Tenant shall indemnify, defend, protect and hold harmless the Landlord Parties from and against any Losses resulting directly or indirectly from any use, presence, removal or disposal of any Hazardous Materials or breach of any provision of this section, to the extent such Losses are a result of actions caused or permitted by Tenant or any Tenant Parties.
30.27 No Discrimination. Tenant covenants by and for itself, its heirs, executors, administrators, assigns, agents and employees, and all persons claiming under or through Tenant, and this Lease is made and accepted upon and subject to the following conditions: that there shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, sex, age, religion, marital status, veteran's status, disability, ancestry or national origin in the leasing, subleasing, transferring, use, or enjoyment of the Premises, nor shall Tenant itself, or any person claiming under or through Tenant, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy, of tenants, lessees, sublessees, subtenants or vendees in the Premises.
30.28 Prohibited Persons; Foreign Corrupt Practices Act and Anti-Money Laundering. Tenant, to the best of its knowledge, represents and warrants to Landlord that neither Tenant nor any of its affiliates, is a person or entity with whom U.S. persons or entities are restricted from doing business under (i) the Patriot Act (as defined below), (ii) any other requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury ("OFAC") (including any "blocked" person or entity listed in the Annex to Executive Order Nos. 12947, 13099 and 13224 and any modifications thereto or thereof or any other person or entity named on OFAC's Specially Designated Blocked Persons List) or (iii) any other U.S. statute, Executive Order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism) or other governmental action (collectively, "Prohibited Persons"). Tenant further represents and warrants to Landlord that Tenant and its employees and all persons acting on its behalf have at all times fully complied with, and are currently in full compliance with, the Foreign Corrupt Practices Act of 1977 and any other applicable anti-bribery or anti-corruption laws. Tenant agrees that Tenant is not entering into this Lease, directly or indirectly, in violation of any laws relating to drug trafficking, money laundering or predicate crimes to money laundering. As used herein, "Patriot Act" shall mean the USA Patriot Act of 2001, 107 Public Law 56 (October 26, 2001) and all other statutes, orders, rules and regulations of the U.S. government and its various executive departments, agencies and offices interpreting and implementing the Patriot Act.
30.29 REIT Provisions. Landlord and/or one or more of its affiliates (each, a "REIT Affiliate") qualifies as a real estate investment trust (a "REIT") within the meaning of Sections 856-860
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| -76- | [Reddit, Inc.] 303 SECOND STREET South Tower |
of the Internal Revenue Code of 1986, as amended ("IRS Code"). As a result, avoiding (i) the loss of REIT status, (ii) the receipt of any income that does not constitute "rents from real property" within the meaning of Section 856(d) of the IRS Code, (iii) the ownership of nonqualifying assets for purposes of the asset tests set forth in Section 856(c)(4)(iv) of the IRS Code, and (iv) the imposition of income, penalty, or similar taxes (each an "Adverse REIT Event") is of material importance to Landlord and such REIT Affiliates. If this Lease or any document contemplated hereby could result in or cause an Adverse REIT Event, as determined by Landlord in its sole discretion, Tenant agrees it shall cooperate with Landlord in negotiating an amendment to or modification of this Lease or such document, and shall, at the request of Landlord, execute and deliver such documents reasonably required to effect such amendment or modification. Any amendment or modification pursuant to this Section 30.29 shall be made at Landlord’s expense and shall be structured so that Tenant does not incur any incremental non-de minimis payment obligation under this Lease as a result of such amendment or modification. Tenant expressly covenants and agrees not to enter into any license, concession, sublease or assignment with respect to the Premises (a) that provides for rent or other payments based in whole, or in part, on the income or profits derived by any person from the Premises (other than an amount based on a fixed percentage or percentages of gross receipts or sales, (b) with any person in which, to the best knowledge of Tenant, Landlord or a REIT Affiliate owns an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the IRS Code), (c) pursuant to which Tenant furnishes or renders any services to the licensee, concessionaire, subtenant or assignee, or (d) that could otherwise cause any portion of the amounts received by Landlord pursuant to this Lease to fail to qualify as "rents from real property" within the meaning of Section 856(d) of the IRS Code or constitute nonqualifying income for purposes of Section 856(c)(2) of the IRS Code. Any such purported license, concession, sublease or assignment shall be void ab initio and not convey any right to, or interest in, the possession, use, occupancy, or utilization of any portion of the Premises.
30.30 Good Faith. Except (i) for matters for which there is a standard of consent or discretion specifically set forth in this Lease; (ii) matters which could have an adverse effect on the Building Structure or the Building Systems, or which could affect the exterior appearance of the Building, or (iii) matters covered by Article 4 (Additional Rent), Article 10 (Insurance), or Article 19 (Defaults; Remedies) of this Lease (collectively, the "Excepted Matters"), any time the consent of Landlord or Tenant is required under this Lease, such consent shall not be unreasonably withheld or delayed, and, except with regard to the Excepted Matters, whenever this Lease grants Landlord or Tenant the right to take action, exercise discretion, establish Rules and Regulations or make an allocation or other determination, Landlord and Tenant shall act reasonably and in good faith.
30.31 Counterparts; Electronic Signatures. This Lease may be executed in counterparts with the same effect as of both parties hereto had executed the same document. Landlord and Tenant agree that (i) this Lease may be signed electronically, (ii) any electronic signatures on this Lease shall have the same validity, enforceability, and admissibility as handwritten signatures, and (iii) the electronic record of this signed Lease shall be legally binding to the same extent as a paper copy bearing handwritten signatures.
[SIGNATURES APPEAR ON FOLLOWING PAGE(S)]
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| -77- | [Reddit, Inc.] 303 SECOND STREET South Tower |
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed as of the Effective Date set forth in Section 1 of the Summary.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| "LANDLORD": |
| |
| KILROY REALTY 303, LLC, |
| a Delaware limited liability company |
| |
| By: | KR 303 Second Street Owner, LLC, |
| | a Delaware limited liability company |
| | Its Sole Member |
| |
| | By: | 303 Second Street Member, LLC, |
| | | a Delaware limited liability company |
| | | Its Manager |
| |
| | | By: | Kilroy Realty, L.P., |
| | | | a Delaware limited partnership |
| | | | Its Managing Member |
| |
| | | | By: | Kilroy Realty Corporation, |
| | | | | a Maryland corporation |
| | | | | Its General Partner |
| |
| |
| | | | | By: | /s/ Eileen Kong | |
| | | | | | | | | | |
| | | | | Name: | Eileen Kong | |
| | | | | | | | | | |
| | | | | Title: | SVP, Asset Management | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | By: | /s/ Michael Schmitt | |
| | | | | | | | | | |
| | | | | Name: | Michael Schmitt | |
| | | | | | | | | | |
| | | | | Title: | SVP - Real Estate Counsel | |
| | | | | | | | | | |
| | | | | | | | | | |
| "TENANT": | | | | | | | | |
| | | | | | | | | | |
| REDDIT, INC., | | | | | | | |
| a Delaware corporation | | | | | | |
| |
| |
| By: | /s/ Ben Lee | | |
| |
| Name: | Ben Lee | | |
| |
| Its: | General Counsel | | |
| |
| |
| * The individual(s) signing this Lease on behalf of Tenant above expressly acknowledge and hereby certify the accuracy of the representations and warranties set forth in Section 30.16 of this Lease. |
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| -78- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT A
OUTLINE OF PREMISES
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| EXHIBIT A -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT B
WORK LETTER
Tenant-Build with Allowance
This Work Letter shall set forth the terms and conditions relating to the construction of the Improvements (as defined below). All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Lease.
SECTION 1
POSSESSION
Except as specifically set forth in this Work Letter and the Lease, Landlord shall tender possession of the Premises to Tenant in its existing "as-is" condition in accordance with the timing and other terms and conditions set forth in the Lease.
SECTION 2
IMPROVEMENTS; TENANT DELIVERABLES; TIME DEADLINES
2.1 Description of Improvements. Subject to the terms and conditions of this Work Letter (including, but not limited to, Landlord's approval rights set forth in Section 3 below), Tenant shall be responsible for the design and construction of the improvements in the Premises, which improvements shall be permanently affixed to the Premises (the "Improvements"). Responsibility for costs relating the design and construction of the Improvements, as between Landlord and Tenant, shall be governed by Section 4 and the other provisions of this Work Letter. Except as otherwise provided in this Lease, all of the Improvements shall be and become a part of the Premises and shall be the property of Landlord. Restoration and removal requirements with respect to the Improvements shall be governed by Article 8 of the Lease.
2.2 Tenant Deliverables and Time Deadlines. Tenant acknowledges that Landlord is a publicly traded real estate investment trust (REIT) and as a result Landlord is required to satisfy certain tax and accounting requirements and related obligations in connection with the leases at the Project. In connection therewith, Landlord requires (i) various construction-related deliverables to be timely submitted by Tenant to Landlord ("Tenant Deliverables") as set forth in Schedule 1 attached hereto and elsewhere in this Work Letter, and (ii) certain time deadlines to be met in connection with the design and construction of the Improvements. Landlord shall have the right to designate the means of delivery for the Tenant Deliverables (including, but not limited to, email or other electronic delivery method). Tenant hereby agrees to timely comply with all such Tenant Deliverables obligations and time deadlines. Time is of the essence with respect to the performance by Tenant of every provision of this Work Letter.
SECTION 3
DESIGN OF IMPROVEMENTS; SELECTION OF TENANT'S AGENTS
3.1 Construction Drawings. The plans and drawings for the Improvements shall be known collectively herein as the "Construction Drawings." If Landlord fails to respond to a request for approval to any Construction Drawings within the applicable time periods set forth below, Tenant may deliver a
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| EXHIBIT B -1- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
written "reminder notice", informing Landlord that it has failed to respond, and warning that a continued failure may result in a "deemed approval". If Landlord fails to respond to such "reminder notice" within five (5) business days, then Landlord shall be deemed to have approved the submitted applicable Construction Drawings. All Construction Drawings shall be prepared by Tenant pursuant to the terms of this Work Letter, comply with the drawing format and specifications reasonably determined by Landlord, and be subject to Landlord's approval, such approval not to be unreasonably withheld, conditioned or delayed, except if the Construction Drawings are incomplete in any material respect or a Design Problem exists (collectively, "Landlord's Consent Standard"). Tenant and Architect (as defined in Section 3.7 below) shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the Base Building plans that can be verified by visual inspection without penetrating walls, columns, core areas, or floor and ceiling slabs, and to such extent, Tenant and Architect shall be solely responsible for the same (subject to Landlord's approval rights set forth in this Section 3). Notwithstanding that any Construction Drawings are reviewed or approved by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith, except to the extent that Landlord has specifically required a particular modification to the Construction Drawings as a condition to Landlord's approval of the same, and shall not be responsible for any omissions or errors contained in the Construction Drawings. Tenant acknowledges and agrees that any Construction Drawings submitted by Tenant or its agents to Landlord for approval pursuant to the terms of this Work Letter shall constitute Tenant's approval thereof.
3.2 Final Space Plan. On or prior to the date that is fifteen (15) business days following mutual execution of the Lease (and before any Working Drawings, as defined in Section 3.3 below, have been commenced), Tenant shall submit to Landlord for approval in accordance with Landlord's Consent Standard, its final space plan (the "Final Space Plan"), along with other renderings or illustrations reasonably required by Landlord, to allow Landlord to understand Tenant's design intent for the Improvements. Tenant shall provide Landlord with three (3) hard copies of the Final Space Plan signed by Tenant and concurrently with Tenant's delivery of such hard copies, Tenant shall send to Landlord's representative identified in this Work Letter one (1) .pdf electronic copy of such Final Space Plan via e-mail or other electronic delivery method approved by Landlord. The Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein. Landlord may request clarification or more specific drawings for special use items not included in the Final Space Plan. Landlord shall advise Tenant within ten (10) business days after Landlord's receipt of the Final Space Plan if the same is approved or disapproved per Landlord's Consent Standard. If the Final Space Plan is disapproved, Tenant shall cause the Final Space Plan to be revised to correct any deficiencies or other matters Landlord may reasonably require within five (5) business days of submittal. The foregoing process shall be repeated until the Final Space Plan has been approved (or deemed approved as described in Section 3.1 above) by Landlord. Within ten (10) business days following Landlord's approval of the Final Space Plan, Tenant shall provide Landlord with a preliminary breakdown, by trade, of the anticipated costs to be incurred (or which have been incurred), in connection with the design and construction of the Improvements (the "Preliminary Budget").
3.3 Working Drawings. Upon the approval of the Final Space Plan by Landlord and Tenant, Tenant shall promptly (i) supply the Engineers (as defined in Section 3.6 below) with a complete listing of standard and non-standard equipment and specifications, including, without limitation, B.T.U. calculations, electrical requirements and special electrical receptacle requirements, to enable the Engineers and the Architect to complete the "Working Drawings," as defined below, in the manner as set forth below, (ii) cause the Architect and the Engineers to complete the architectural and engineering drawings for the Improvements in a manner consistent with, and which are a natural and logical extension
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| EXHIBIT B -2- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
of, the approved Final Space Plan, and (iii) cause the Architect to compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable Permits, as defined below (collectively, the "Working Drawings"). The Working Drawings shall be submitted to Landlord for approval in accordance with Landlord's Consent Standard on or before the date that is fifteen (15) business days following Landlord's approval of the Final Space Plan. Tenant shall supply Landlord with three (3) hard copies signed by Tenant of the Working Drawings, and concurrently with Tenant's delivery of such hard copies, Tenant shall send to Landlord's representative identified in this Work Letter one (1) .pdf electronic copy of such Working Drawings via e-mail or other electronic delivery method approved by Landlord. Landlord shall advise Tenant within ten (10) business days after Landlord's receipt of the Working Drawings if the same are approved or disapproved per Landlord's Consent Standard. If the Working Drawings are disapproved, then Tenant shall, within five (5) business days of Tenant's receipt of Landlord's notice thereof, revise and resubmit the Working Drawings to Landlord. The foregoing process shall be repeated until the Working Drawings have been approved (or deemed approved as described in Section 3.1 above) by Landlord, provided that Landlord shall advise Tenant within five (5) business days after Landlord's receipt of any revised Working Drawings if the same are still disapproved for any reason (unless additional time is reasonably required due to the nature of the revisions, in which event Landlord shall inform Tenant, within such five (5)-business day period, of the need for additional time, and Landlord shall thereafter advise Tenant within ten (10) business days after Landlord's receipt of any revised Working Drawings if the same are still disapproved for any reason). In the event that the Working Drawings or any amendment or supplement thereto shall require any changes or modifications to the Base Building ("Base Building Changes"), and if Landlord in its sole and exclusive discretion approves such Base Building Changes, Landlord shall notify Tenant of the need for and cost of such Base Building Changes and Tenant shall pay the cost of such required Base Building Changes in advance prior to the commencement of construction of the Improvements (subject to Tenant's right to use a portion of the Improvement Allowance, as defined below, towards the cost of such Base Building Changes in accordance with Section 4.3.1(iv) below). The cost of any Base Building Changes shall include, without limitation, all architectural and/or engineering fees and construction costs in connection therewith.
3.4 Approved Working Drawings; Permits. The Working Drawings as approved by Landlord shall be referred to herein as the "Approved Working Drawings". Within five (5) business days following Landlord's approval of the Working Drawings, Tenant shall submit the Approved Working Drawings to the appropriate municipal authorities for plan check and diligently pursue all applicable building permits and approvals for the Improvements (the "Permits"). Tenant shall deliver copies of the final, approved Permits to Landlord prior to the commencement of construction of the Improvements. Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant's sole responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy.
3.5 Improvement Changes. No material changes, modifications or alterations in the Approved Working Drawings ("Improvement Changes") may be made without the prior written consent of Landlord. In the event Tenant desires to implement an Improvement Change, Tenant shall deliver notice (the "Drawing Change Notice") of the same to Landlord, setting forth in detail the Improvement Change that Tenant desires to make to the Approved Working Drawings. Landlord shall approve or disapprove the Improvement Change in accordance with Landlord's Consent Standard within five (5) business days of receipt of a Drawing Change Notice (unless additional time is reasonably required due to
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| EXHIBIT B -3- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
the nature of the Improvement Change, in which event Landlord shall inform Tenant, within such five (5)-business day period, of the need for additional time, and Landlord shall thereafter advise Tenant within ten (10) business days after Landlord's receipt of any Drawing Change Notice if the Improvement Change is approved or disapproved). If the Improvement Change is disapproved, Tenant shall, within five (5) business days of Tenant's receipt of Landlord's notice thereof, revise and resubmit the Drawing Change Notice to Landlord (unless additional time is reasonably required due to the nature of the revisions, in which event Tenant shall inform Landlord, within such five (5)-business day period, of the need for additional time, and Tenant shall thereafter revise and resubmit the Improvement Change to Landlord within ten (10) business days after Tenant's receipt of Landlord's notice thereof). The foregoing process shall be repeated until the Improvement Change request has been approved by Landlord (or deemed approved as described in Section 3.1 above) or withdrawn by Tenant. Except as expressly set forth herein, any Improvement Changes approved by Landlord pursuant to the terms hereof shall otherwise be treated as Improvements for purposes of the Lease and this Work Letter.
3.6 Building Standards; LEED Certifications. Landlord has established specifications for certain Building standard components to be used in the design and construction of the Improvements. The quality of the Improvements shall be equal to or of greater quality than the quality of such Building standards, provided that Landlord may, at its sole option, require the Improvements to comply with certain elements of the Building standards. Landlord may make changes to said specifications for the Building standards from time to time. Tenant shall not install any systems, equipment or Improvements that would jeopardize any LEED certifications for the Project.
3.7 Selection of Architect, Engineers, Contractor and Tenant's Agents. Tenant shall retain the architect (the "Architect") and the engineering consultants (the "Engineers") to prepare the Construction Drawings in accordance with the requirements of this Work Letter. Tenant shall also retain the general contractor (the "Contractor") to construct the Improvements in accordance with the Approved Working Drawings. The Architect, Engineers, Contractor and all subcontractors, laborers, materialmen, and suppliers used by Tenant are referred to herein as "Tenant's Agents". All of Tenant's Agents all must be approved in advance in writing by Landlord, which approval shall not be unreasonably withheld or delayed and shall be granted to denied within five (5) business days following Landlord receipt of written request therefor; provided that the Contractor retained by Tenant shall be selected from a list supplied by Landlord and Tenant shall retain only Landlord's designated Engineers and subcontractors to design and perform work relating to the Base Building. All of Tenant's Agents shall utilize only union labor unless otherwise approved by Landlord. Further, Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord's reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services at the Project. Landlord hereby approves Principal Builders as the Contractor.
SECTION 4
COST OF IMPROVEMENTS; IMPROVEMENT ALLOWANCE
4.1 Construction Contract; Final Costs; Schedules of Values. Tenant shall engage the Contractor under a construction contract, which construction contract shall incorporate Landlord's commercially reasonable construction contract rider (the "Contract"). Prior to the commencement of the construction of the Improvements, Tenant shall provide Landlord with (i) a copy of the fully executed Contract, (ii) Tenant's proposed construction schedule for the Improvements (the "Construction Schedule"), and (iii) a detailed schedule of values which includes a breakdown, by trade, of the final costs
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| EXHIBIT B -4- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
to be incurred or which have been incurred in connection with the design and construction of the Improvements, which costs form a basis for the amount of the Contract (the "Final Costs"). In the event that the Final Costs will exceed the amount of the Improvement Allowance, Tenant shall so advise Landlord and the parties shall promptly meet and confer in order to establish two (2) separate schedules of values for the Improvement Allowance Items: (a) the first of which (the "Landlord SOV") shall specifically identify certain assets and trades included in the Improvement Allowance Items that (x) when totaled together substantially equal the amount of the Improvement Allowance to the maximum extent possible without splitting or apportioning the cost of specific assets, line items or trades unless expressly approved by Landlord, and (y) will be at least ninety percent (90%) complete by the "Lease Commencement Date" set forth in the Lease (such Improvements included in the Landlord SOV to be referred to herein as the "Landlord SOV Improvements"); and (b) the second of which (the "Tenant SOV") shall include the remainder of the work required in connection with the design and construction of the Improvements (the "Tenant SOV Improvements"). Tenant shall submit a proposed Landlord SOV and Tenant SOV to Landlord for approval no later than five (5) business days after the initial meeting between Landlord and Tenant. Landlord shall approve or disapprove of Tenant's proposed Landlord SOV and Tenant SOV within five (5) business days after receipt thereof from Tenant. If disapproved by Landlord, Tenant shall cause the Landlord SOV and Tenant SOV to be revised to address any changes or correct any deficiencies or other matters Landlord may reasonably require and Tenant shall resubmit to Landlord the two (2) revised schedules of values within five (5) business days of Tenant's receipt of Landlord's disapproval. The foregoing process shall be repeated until the Landlord SOV and Tenant SOV have been approved by Landlord. Tenant agrees to meet and confer with Landlord and to otherwise reasonably cooperate with Landlord's requests in connection with the establishment of the Landlord SOV and Tenant SOV. Notwithstanding anything to the contrary herein, the Improvement Allowance shall be solely used for the costs to design and construct the Landlord SOV Improvements and Tenant shall, to the extent reasonably achievable given the sequencing of construction of the Improvements, expend the Improvement Allowance funds for the Landlord SOV Improvements prior to expending any of its own funds in connection with the Improvements. In the event that following Tenant's delivery and Landlord's approval of the initial Landlord SOV and Tenant SOV, the total cost of the Improvement Allowance Items included in the Landlord SOV Improvements will be less than the amount of the Improvement Allowance, then Tenant shall be entitled to revise the Landlord SOV and the Tenant SOV such that the Improvement Allowance Items included in the Landlord SOV Improvements equals the amount of the Improvement Allowance.
4.2 Improvement Allowance. Tenant shall be entitled to an improvement allowance (the "Improvement Allowance") in the amount set forth in the Summary for the costs of the Improvement Allowance Items (as defined below). In no event shall Landlord be obligated to pay a total amount which exceeds the Improvement Allowance in connection with the design and construction of the Improvements. Notwithstanding anything to the contrary contained in this Work Letter, Tenant shall not be entitled to any portion of the Improvement Allowance for which Tenant has not submitted a request for disbursement to Landlord in compliance with the requirements of Section 4.3 below on or before eighteen (18) full calendar months following the Possession Date (the "Allowance Deadline"), and any such remaining portion of the Improvement Allowance as of the Allowance Deadline shall remain with Landlord as its sole property. Tenant shall be solely responsible for timely payment of all costs and expenses relating to the Improvements that are in excess of the Improvement Allowance. At any time prior to the Lease Commencement Date, Tenant may elect, by providing written notice to Landlord, to convert a portion of the Improvement Allowance (not to exceed a total of $25.00 per RSF of the Premises) to additional abatement of Base Rent, which shall be applied against Base Rent otherwise next due under this Lease, and/or up to $7.50 per RSF of the Premises of which may be applied towards the cost of Tenant's furniture, fixtures and equipment in the Premises.
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| EXHIBIT B -5- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
4.3 Disbursement of Improvement Allowance.
4.3.1 Improvement Allowance Items. The Improvement Allowance shall be disbursed by Landlord only for the following items and costs (collectively the "Improvement Allowance Items"):
(i) Payment of the fees of the Architect and the Engineers and other consultants (including any construction manager) retained by or on behalf of Tenant, in connection with space planning and design of the Improvements, which fees shall not exceed an aggregate amount equal to Fifteen and 00/100 Dollars ($15.00) per rentable square foot of the Premises;
(ii) The payment of plan check, plan check expeditor, permit and license fees relating to construction of the Improvements;
(iii) The cost of construction of the Improvements, including, without limitation, all materials and labor to complete the Improvements, testing and inspection costs, freight elevator usage (provided that neither Tenant nor Tenant's agents will be charged for freight elevator usage during construction of the Improvements or during Tenant's initial move into the Premises), hoisting and trash removal costs, and contractors' fees and general conditions;
(iv) Intentionally Omitted;
(v) The cost of any changes to the Construction Drawings or Improvements required by Code (as defined in this Lease);
(vi) Intentionally Omitted;
(vii) Sales and use taxes, Title 24 fees, gross receipts taxes and any other taxes imposed on or pertaining to construction of the Improvements; and
(viii) Fees incurred by, and the actual, out-of-pocket cost of documents and materials supplied by, Landlord and Landlord's consultants in connection with the preparation and review of the Construction Drawings, any third-party costs reasonably incurred by Landlord to obtain any Tenant Deliverables which Tenant fails to timely deliver pursuant to the terms of this Work Letter and all other costs expended by Landlord in connection with the construction of the Improvements; and
(ix) Any costs and/or expenses which are expressly designated in the Lease as costs and/or expenses which may be deducted from the Improvement Allowance.
4.3.2 Disbursement Procedures. Prior to and during the construction of the Improvements, Landlord shall make monthly disbursements of the Improvement Allowance for the Improvement Allowance Items as follows:
4.3.2.1 Monthly Disbursements. On or before the twentieth (20th) day of each calendar month ("Submittal Date") during the design and/or construction of the Improvements (or such other date as Landlord and Tenant may mutually agree upon), Tenant shall deliver to Landlord, via a formal request from Tenant's Representative to Landlord's Representative: (i) a request for payment of the Contractor that has been approved by Tenant and Tenant's Architect on the AIA G702 and G703 forms or such other format reasonably approved by Landlord, showing the schedule, by trade, of percentage of completion of the Improvements (with the Landlord SOV Improvements and Tenant SOV Improvements identified separately), detailing the portion of the work completed and the portion not
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| EXHIBIT B -6- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
completed; (ii) invoices from all of Tenant's Agents for labor rendered and materials delivered in connection with the applicable Improvements, which invoices shall be signed by the Architect and otherwise be in a format acceptable to Landlord and which invoices shall be marked as "paid" for any costs that Tenant has paid and is seeking direct reimbursement for (as opposed to payment directly from Landlord to such Tenant's Agent); (iii) executed conditioned (as for any items which Tenant has not yet paid and is requesting disbursement of funds) and/or unconditional (as to any items which Tenant has paid and is seeking reimbursement or which Landlord paid pursuant to a prior disbursement request), as applicable, mechanic's lien releases from all of Tenant's Agents which shall comply with the appropriate provisions, of California Civil Code Sections 8132, 8134, 8136 and 8138; provided, however, that with respect to fees and expenses of the Architect, or construction or project managers or other similar consultants, and/or any other pre-construction items for which the payment scheme set forth in items (i) through (iii), above, of this Work Letter, is not applicable (collectively, the "Non-Contribution Items"), Tenant shall only be required to deliver to Landlord on or before the applicable Submittal Date, a reasonably particularized invoice of the cost for the applicable Non-Contribution Items (unless Landlord has received a preliminary notice in connection with such costs in which event conditional lien releases must be submitted in connection with such costs); (iv) all of the Tenant Deliverables set forth in Sections 2 and 3 of Schedule 1 attached to this Work Letter, (i.e., the "Ongoing During Construction" and "Prior to Release of Any Funds Related to Hard Costs" categories of Tenant Deliverables, respectively); and (v) all other information reasonably requested by Landlord. As between Landlord and Tenant, Tenant's request for payment shall be deemed Tenant's acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenant's payment request. Thereafter, within thirty (30) days, Landlord shall deliver a check, made payable directly to Tenant's Agents (if Tenant has not already paid such Tenant's Agent) or Tenant (if Tenant is seeking reimbursement of amounts already paid as described in the disbursement request) in payment of the lesser of: (A) the amounts so requested by Tenant applicable to the Improvements, less a ten percent (10%) retention (the aggregate amount of such retentions to be known as the "Final Retention"); provided, however, that no such Final Retention shall be duplicative of any retention already withheld in Tenant's payment application and no such deduction shall be applicable to the fees of the Architect, Engineers, Tenant's project manager and consultants, or to any pure suppliers of furniture systems or appliances delivered to the Premises, and (B) the balance of any remaining available portion of the Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the Approved Working Drawings, or due to any substandard work (provided that Landlord will have fifteen (15) days following receipt of notice of completion from Tenant, and completion of all punch-list items, in which to determine whether any such substandard work exists and notify Tenant of such determination, failing which Landlord shall be deemed to have determined that no such substandard work exists), or for any other reason. Landlord's payment of such amounts shall not be deemed Landlord's approval or acceptance of the work furnished or materials supplied as set forth in Tenant's payment request. In the event that Landlord or Tenant identifies any material non-compliance with the Approved Working Drawings, or substandard work, Landlord or Tenant as appropriate shall be provided a detailed statement identifying such material non-compliance or substandard work by the party claiming the same, and if the work creates a Design Problem (as that term is defined in Section 8.1 of the Lease), Tenant shall cause such work to be corrected so that no Design Problem exists. If Tenant receives a check payable to anyone other than solely to Tenant for a monthly disbursement pursuant to this Section 4.3.2.1, Tenant may return such check to Landlord and receive a check made payable only to Tenant, if Tenant provides the releases and evidence required above to receive a check payable solely to Tenant.
4.3.2.2 Final Retention. A check for the Final Retention payable directly to Tenant's Agents (if Tenant has not already paid such Contractor) or Tenant (if Tenant is seeking reimbursement of amounts already paid as described in the disbursement request), shall be delivered by
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| EXHIBIT B -7- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
Landlord to Tenant within thirty (30) days following the completion of construction of all of the Improvements (i.e., the Landlord SOV Improvements and the Tenant SOV Improvements), provided that (i) Tenant has delivered to Landlord paid invoices for all of the Improvements and related costs and all other Tenant Deliverables set forth in Section 4 of Schedule 1 attached to this Work Letter (i.e., the "Prior to Release of Final Payment" category of Tenant Deliverables), and (ii) Landlord, in Landlord's reasonable good faith judgment, has determined that no Design Problem exists. Notwithstanding anything to the contrary contained herein, Landlord and Tenant acknowledge and agree that the Improvements to the Premises will be performed in phases and each portion of this Work Letter, including the Final Retention, shall apply on a per phase basis as if that phase was a separate and distinct design and construction of Improvements project and the Final Retention for each phase of the Improvements shall be released to Tenant when Tenant has delivered the close-out package for that distinct phase of the Improvements.
4.4 Landlord Coordination Fee. Tenant shall not be obligated to pay a logistical coordination fee to Landlord in connection with the coordination of Tenant's construction of the Improvements.
4.5 Offset Right. If Landlord fails to timely fulfill its obligation to fund any portion of the Improvement Allowance, Tenant shall be entitled to deliver notice (the "Payment Notice") thereof to Landlord, Landlord's Mortgagee and to any other mortgage or trust deed holder of the Building whose identity and address have been previously provided to Tenant. If Landlord still fails to fulfill any such obligation within twenty (20) business days after Landlord's receipt of the Payment Notice from Tenant and if Landlord fails to deliver notice to Tenant within such twenty (20) business day period explaining Landlord's proper good-faith reasons that Landlord believes that the amounts described in Tenant's Payment Notice are not due and payable by Landlord ("Refusal Notice"), Tenant shall be entitled to offset the amount so owed to Tenant by Landlord but not paid by Landlord (or if Landlord delivers a Refusal Notice but only with respect to a portion of the amount set forth in the Payment Notice and Landlord fails to pay such undisputed amount as required by the next succeeding sentence, the undisputed amount so owed to Tenant) with interest at the Interest Rate from the date due until the date of offset, against Tenant's next obligations to pay Rent. Notwithstanding the foregoing, Landlord hereby agrees that if Landlord delivers a Refusal Notice disputing a portion of the amount set forth in Tenant's Payment Notice, in order for the Refusal Notice to be valid, Landlord shall pay to Tenant, concurrently with the delivery of the Refusal Notice, the undisputed portion of the amount set forth in the Payment Notice. However, if Tenant has received notice of a monetary default under Section 19.1 of the Lease (that then remains uncured) at the time that such offset would otherwise be applicable, Tenant shall not be entitled to such offset until such default is cured. If Landlord delivers a Refusal Notice, and if Landlord and Tenant are not able to agree on the disputed amounts to be so paid by Landlord, if any, within ten (10) days after Tenant's receipt of a Refusal Notice, Tenant may submit such dispute to arbitration in accordance with the terms of Section 7.6 of this Work Letter. If Tenant prevails in any such arbitration, Tenant shall be entitled to apply such award with interest at the Interest Rate from the date due until the date of offset as a credit against Tenant's obligations to pay Rent.
SECTION 5
CONSTRUCTION OF IMPROVEMENTS
5.1 Requirements of Tenant's Agents.
5.1.1 Compliance with Construction Drawings and Rules and Regulations. The construction of the Improvements by Tenant and Tenant's Agents shall comply with the following
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| EXHIBIT B -8- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
requirements: (i) the Improvements shall be constructed in material accordance with the Approved Working Drawings, subject to approved Improvement Changes; and (ii) Tenant shall abide, and shall cause Tenant's Agents to abide, by the construction rules and regulations provided by Landlord prior to the Effective Date with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other tenants, and other matters in connection with this Work Letter, including, without limitation, the construction of the Improvements.
5.1.2 Indemnity. Tenant's indemnity of Landlord and Landlord’s indemnity of Tenant as set forth in the Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant's Agents, or any act or omission of Landlord and Landlord’s agents or anyone directly or indirectly employed by any of them, or in connection with Tenant's or Landlord’s, as the case may be, non-payment of any amount required to be paid by such party hereunder and/or Tenant's or Landlord’s disapproval of all or any portion of any request for payment. Such indemnity by Tenant, as set forth in the Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord's performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Improvements, and (ii) to enable Tenant to obtain any Permit or certificate of occupancy for the Premises.
5.1.3 Warranties and Guaranties. Each of Tenant's Agents shall warrant and guarantee that the portion of the Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof (the "Warranty Period"). Each of Tenant's Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within such Warranty Period. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Improvements, and/or the Project and/or Common Areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Improvements shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either; provided that Landlord shall only enforce such guarantee or warranty if Tenant fails to do so in a reasonable time following notice thereof from Landlord. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement.
5.1.4 Insurance Requirements.
5.1.4.1 General Coverages. All of Tenant's Agents shall carry worker's compensation insurance covering all of their respective employees, and shall also carry public liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Tenant as set forth in the Lease (provided that the limits of liability to be carried by Tenant’s Agents and Contractor, shall be in an amount and with companies which are customary for such respective Tenant’s Agents employed by tenants constructing improvements in the Comparable Buildings).
5.1.4.2 Special Coverages. During construction of the Improvements, Tenant or its Contractor shall carry "Builder's All Risk" insurance in an amount not more than the amount of the Contract covering the construction of the Improvements (but in no event greater than 100% of the completed insurable value of the Improvements), and such other insurance as Landlord may reasonably require commensurate with the types of insurance and levels of coverage required by owners of
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| EXHIBIT B -9- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
Comparable Buildings, it being understood and agreed that the Improvements shall be insured by Tenant pursuant to the Lease immediately upon completion thereof. Such insurance shall be in amounts and shall include such customary extended coverage endorsements as may be reasonably required by Landlord and are generally required by landlords of Comparable Buildings, each in amounts not less than $5,000,000 per incident for the Contractor and $1,000,000 per incident for all other Tenant's Agents, and $5,000,000 in aggregate for the Contractor and $1,000,000 in aggregate for all other Tenant's Agents, and in form and with companies as are required to be carried by Tenant as set forth in the Lease.
5.1.4.3 General Terms. Certificates for all insurance carried pursuant to this Section 5.1.4 shall be delivered to Landlord before the commencement of construction of the Improvements and before the Contractor's equipment is moved onto the site. All such policies of insurance must contain a provision that the company writing said policy will give Landlord thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance. Tenant's Agents shall maintain all of the foregoing insurance coverage in force until the Improvements are fully completed and accepted by Landlord, except for any Products and Completed Operation Coverage insurance required by Landlord, which is to be maintained for ten (10) years following completion of the work and acceptance by Landlord and Tenant. All policies carried under this Section 5.1.4 (other than Workers' Compensation coverage) shall insure Landlord and Tenant, as their interests may appear, as well as Contractor and Tenant's Agents. All insurance, except Workers' Compensation, maintained by Tenant's Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the owner and that any other insurance maintained by owner is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under Section 5.1.2 of this Work Letter and each party’s rights with respect to the waiver of subrogation.
5.2 Governmental Compliance. The Improvements shall comply in all respects with the following: (i) the Code and other Applicable Laws, as each may apply according to the rulings of the controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer's specifications.
5.3 Inspection by Landlord. Landlord shall have the right to inspect the Improvements at all times, provided however, that Landlord shall avoid interfering with the progress of the construction of the Improvements, except to the extent that Landlord identifies a Design Problem, emergency or safety issue. Landlord's failure to inspect the Improvements shall in no event constitute a waiver of any of Landlord's rights hereunder nor shall Landlord's inspection of the Improvements constitute Landlord's approval of the same. Should Landlord disapprove any portion of the Improvements because a Design Problem exists (which Design problem was not previously approved by Landlord) or for material non-compliance with the Approved Working Drawings (as may be modified to include Improvements Changes), Landlord shall, as soon as reasonably possible, notify Tenant in writing of such disapproval and shall specify in reasonably sufficient detail the items disapproved. Any portion disapproved by Landlord shall be rectified by Tenant at no expense to Landlord, provided however, that in the event Landlord determines that a Design Problem exists might adversely affect the Base Building, the structure or exterior appearance of the Building or any other tenant's use of such other tenant's leased premises, Landlord may, following notice to Tenant and a reasonable period of time for Tenant to cure (which period shall in no event be less than ten (10) business days), take such action as Landlord reasonably deems necessary to correct the Design Problem, at Tenant's expense (subject to the Improvement Allowance) and without incurring any liability on Landlord's part, to correct such Design Problem, including causing the cessation
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| EXHIBIT B -10- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
of performance of the construction of the Improvements until such time as the Design Problem is corrected to Landlord's reasonable satisfaction. Landlord shall perform any such correction in a diligent and timely manner so as to minimize any delay in the construction of the Improvements.
5.4 Meetings. Tenant shall hold regular meetings with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of the Improvements, which meetings shall be held at a mutually agreed upon time by Landlord and Tenant (which may be at Tenant's existing office within the Building), and Landlord and/or its agents shall receive prior notice of, and shall have the right to attend (including via teleconference or other similar means), all such meetings, and, upon Landlord's request, certain of Tenant's Agents shall attend a meeting to review the Improvement Allowance draw packages and the Improvement design and/or construction status. In addition, minutes shall be taken by Tenant or Tenant's Agents at all such meetings, a copy of which minutes shall be promptly delivered to Landlord. During the construction of the Improvements, one such meeting each month shall include the review of Contractor's most recent request for payment.
5.5 Additional Services. If, during the course of construction of the Improvements, Landlord provides any additional services or facilities at Tenant's request (including, but not limited to, hoisting, cleanup or other cleaning services, trash removal, field supervision, security, engineering, or ordering of materials), then Tenant shall pay Landlord for such services and facilities at Landlord's actual out-of-pocket cost therefor. Landlord shall not have any obligation to provide any of the foregoing services or facilities.
5.6 Completion of Construction. Tenant shall diligently pursue the completion of construction of the Improvements, provided that the Landlord SOV Improvements shall, at a minimum, be at least ninety percent (90%) complete by the "Lease Commencement Date" set forth in the Lease. Upon completion of all Improvements, Tenant shall deliver to Landlord, to the extent not previously delivered, all of the Tenant Deliverables set forth in Section 4 of Schedule 1 attached to this Work Letter (i.e., the "Prior to Release of Final Payment" category of Tenant Deliverables).
5.7 Notice of Completion. Within thirty (30) days after completion of construction of the Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Building is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Landlord upon such recordation. In the event Tenant fails to so record the Notice of Completion as required pursuant to this Section 5.7, then such failure shall not, in and of itself, constitute a default hereunder but Tenant shall (I) indemnify, defend, protect and hold harmless Landlord and the Landlord Parties from any and all loss, cost, damage, expense and liability (including, without limitation, court costs and reasonable attorneys’ fees) in connection with such failure by Tenant to so record the Notice of Completion as required hereunder, and (II) not be entitled to receive the Final Retention pursuant to Section 4.3.2.2 of this Work Letter until such time as the lien period for Tenant's Agents has expired. If Tenant fails to do so, Landlord may execute and file the same as Tenant's agent for such purpose, at Tenant's sole cost and expense.
SECTION 6
DELAYS OF LEASE COMMENCEMENT DATE
6.1 Lease Commencement Date Delays. The Lease Commencement Date shall occur as provided in Section 3.2 of the Summary, provided that the Lease Commencement Date and the Allowance Deadline shall each be extended by the number of days of delay of the Substantial Completion
| | | | | | | | |
| EXHIBIT B -11- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
of the Improvements to the extent caused by a Lease Commencement Date Delay, as that term is defined below. As used herein, the term "Lease Commencement Date Delay" shall mean a Force Majeure Delay or a Landlord Caused Delay that causes the Substantial Completion of the Improvements to occur after the date that is eight (8) months after the Delivery Date. The term "Force Majeure Delay" shall mean only an actual delay resulting from a Tenant Permit Delay (as that term is defined herein below), industry-wide strikes, fire, wind, damage or destruction to the Building, explosion, casualty, flood, hurricane, tornado, the elements, acts of God or the public enemy, sabotage, war, invasion, insurrection, rebellion, civil unrest, riots, earthquakes, or actual, industry-wide delay affecting all similar works of construction in the vicinity of the Building, including by reason of regulation or order of any governmental agency. The term "Tenant Permit Delay" shall mean only an actual delay in the date of substantial construction of the Improvements to the extent caused by the failure of Tenant to receive final building permits for the construction of the Improvements within sixteen (16) weeks after Tenant's submittal of Approved Working Drawings to the applicable governmental agencies for the issuance of building permits. A Tenant Permit Delay shall not include any period of time to receive permits caused by (i) the Approved Working Drawings, as submitted, being incomplete or inadequate in any material respect, or being submitted in a format not allowed by the applicable governmental agencies, (ii) Tenant's failure to respond to requests for information or to make revisions to and re-submittals of the Approved Working Drawings after comment by the applicable governmental agencies within twenty (20) days following receipt of such requests, (iii) the Improvements being non-typical general office improvements, (iv) material and substantial changes to the Approved Working Drawings documents after they are first submitted to the applicable governmental agencies for approval, which changes are not made in response to previous comments from such agencies, or (v) Tenant's failure to use commercially reasonable efforts and due diligence so that the permits shall be obtained as soon as reasonably possible. Tenant shall promptly supply Landlord with any information reasonably requested by Landlord (in writing) with respect to matters relating to or affecting the acquisition of permits (including, without limitation, dates and/or content of responses from governmental authorities and response dates by Tenant to governmental authorities). Tenant acknowledges and agrees that, subject to Tenant's approval (which shall not be unreasonably withheld, conditioned or delayed), Landlord shall have the right, but not the obligation, to participate in and/or assist in the acquisition of permits, and, in any such events, Tenant shall cooperate, on a commercially reasonable basis, with any actions undertaken by Landlord with respect thereto. As used herein, the term "Landlord Caused Delay" shall mean actual delays to the extent resulting from the following acts or omissions of Landlord or Landlord's agents, employees or contractors: (a) interference (when judged in accordance with industry custom and practice) by Landlord, its agents or Landlord Parties (except as otherwise allowed under this Work Letter) with the Substantial Completion of the Improvements (including the impairment of Tenant's contractors' or vendors' or employees' access to the Premises, failure to provide reasonable access to the Building's loading docks or other facilities necessary for the construction of the Improvements and/or the movement of materials and personnel to the Premises for such purpose) and which objectively preclude or delay the construction of the Improvements by any person (provided that the exercise of Landlord's rights under this Work Letter (including, without limitation, approval time periods and inspection rights under this Work Letter) shall in no event constitute a Landlord Caused Delay); (b) failure of Landlord to timely grant any approval or disapproval (but only for the period occurring prior to the date in which Tenant is entitled to cause Landlord's deemed approval pursuant to the terms of this Work Letter); or (c) any compliance with Applicable Laws work required to be performed by Landlord pursuant to Article 24 of this Lease relating to Tenant's ability to obtain or maintain permits for construction of general office Improvements (assuming a typical general office density) to the extent the same was not in compliance with Appliance Laws as of the Possession Date.
6.2 Determination of Lease Commencement Date Delay. If Tenant contends that a Landlord Caused Delay has occurred, Tenant shall notify Landlord in writing of the event which
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| EXHIBIT B -12- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
constitutes such Landlord Caused Delay (the "Delay Notice"). If the Landlord Caused Delay is not cured by Landlord within two (2) business days of Landlord's receipt of the Delay Notice, then a Landlord Caused Delay shall be deemed to have occurred commencing as of the date of Landlord's receipt of the Delay Notice and ending as of the date such delay ends. Similarly, if Tenant contends that a Force Majeure Delay has occurred, Tenant shall notify Landlord in writing (each, a "Tenant Force Majeure Delay Notice") specifying the nature of the Force Majeure Delay and the anticipated number of days of Force Majeure Delay; provided that if any Tenant Force Majeure Delay Notice is given later than three (3) business days after Tenant has actual knowledge of the existence of the Force Majeure Delay, then the Force Majeure Delay occurring during the period commencing on such fourth (4th) business day and ending on the date of such Tenant Force Majeure Delay Notice, shall be disregarded and deemed not to have occurred.
6.3 Definition of Substantial Completion of the Improvements. For purposes of this Section 6, the term "Substantial Completion of the Improvements" shall mean completion of construction of the Improvements pursuant to the Approved Working Drawings, as the same may be revised from time to time subject to Landlord's right to approve any Tenant Change, with the exception of any punch list items.
SECTION 7
MISCELLANEOUS
7.1 Tenant's Representative. Tenant has designated Katie McArthur (###) as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Work Letter.
7.2 Landlord's Representative. Landlord has designated Scott Halfwassen (###) as its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Work Letter.
7.3 Electronic Notices and Approvals. Notwithstanding any provision to the contrary contained in the Lease or this Work Letter, Landlord and Tenant may transmit or otherwise deliver any of the notices and/or approvals required under this Work Letter via electronic mail to Tenant's and Landlord's respective representatives identified in Sections 7.1 and 7.2 of this Work Letter. The foregoing shall not preclude either party from sending any notices or approvals by any of the other means identified under the "Notices" provision of the Lease.
7.4 Time Periods; Approval Process. Unless otherwise indicated, all references herein to a "number of days" shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord.
7.5 Tenant's Default. Notwithstanding any provision to the contrary contained in the Lease or this Work Letter, if any default by Tenant under the Lease or this Work Letter shall occur (including, without limitation, any failure by Tenant to timely fund any costs which are Tenant's responsibility hereunder), then, in addition to all other rights and remedies granted to Landlord pursuant to the Lease, (i) Landlord may, without any liability whatsoever, cause the cessation of construction of the Improvements (in which case, Tenant shall be responsible for any delay in the completion of the Improvements and any
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| EXHIBIT B -13- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
costs occasioned thereby), (ii) at Landlord's sole election, Tenant shall no longer be entitled to any unfunded portion of the Improvement Allowance, and (iii) all other obligations of Landlord under the terms of the Lease and this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease.
7.6 Arbitration. All disputes under this Work Letter, shall be submitted to arbitration under the commercial arbitration rules of JAMS or any successor thereto under the Expedited Procedures provisions (Rules 16.1-16.2 in the current edition) of the JAMS Comprehensive Arbitration Rules and Procedures (and Landlord and Tenant hereby submit to arbitration of such matter by JAMS and the determination of such arbitrator shall be final and binding upon both Landlord and Tenant, and the prevailing party shall be awarded its reasonable attorneys' fees and costs).
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| EXHIBIT B -14- | [Reddit, Inc.]
303 SECOND STREET
South Tower |
SCHEDULE 1 TO EXHIBIT B
LIST OF TENANT DELIVERABLES
1. PRIOR TO START OF CONSTRUCTION OF IMPROVEMENTS
1.1. Approved and permitted Construction Drawings
1.2. Approved subcontractors list
1.3. Copies of all executed Contracts with Contractor
1.4. Construction Schedule
1.5. Copies of Permits for Improvements
1.6. Preliminary Budget and the budget with Final Costs, including the Landlord SOV and Tenant SOV
2. ONGOING DURING CONSTRUCTION
2.1. Budget and Construction Schedule revisions as they occur
2.2. Change orders as they occur
2.3. Construction Drawings revisions as they occur
2.4. Monthly applications of payment certified by Architect with reciprocal releases when received
2.5. Monthly Architect's field report or equivalent
2.6. Monthly 4-week look ahead schedule
2.7. Weekly meeting minutes
2.8. Permit sign off card when received
3. PRIOR TO RELEASE OF ANY FUNDS RELATED TO HARD COSTS
3.1. Final Space Plans approved by both parties
3.2. Construction Drawings approved by both parties
3.3. Project budget
3.4. Project schedule
3.5. Pay applications approved by the Architect
3.6 Formal written request from Tenant's representative requesting specific amounts to be disbursed
4. PRIOR TO RELEASE OF FINAL RETENTION PAYMENT
4.1. Architect's Certificate of Substantial Completion (on the AIA G704 form or such other format approved by Landlord)
4.2. Final Contractor pay application indicating 100% complete, 90% previously paid
4.3. Unconditional mechanic's lien releases from Contractor and all subcontractors in compliance with applicable laws
4.4 Final as-built drawings in PDF (permit stamped) and CAD files (architectural, electrical, mechanical, plumbing, fire sprinkler and fire life safety)
4.5. Physical inspection of the Premises by Landlord inspection team
4.6. Temporary certificate of occupancy, certificate of occupancy or other equivalent form, when received
4.7 Landlord's Standard Close Out Package:
Air Balance Report
O & M Manuals
MSDS Sheets
Final Building Inspection Card(s)
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| SCHEDULE 1 TO EXHIBIT B -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Final General Contractor Project Directory (complete contact info)
Final Subcontractor List (complete contact info)
Warranties/Guaranties
Waste Diversion Documentation
Approved Submittals
Approved Shop Drawings
RFIs
Confirmation all keys/access cards returned
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| SCHEDULE 1 TO EXHIBIT B -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT C
NOTICE OF LEASE TERM DATES
To: _______________________
_______________________
_______________________
_______________________
Re: Office Lease dated ____________, 20__ (the "Lease"), by and between ____________________, a _____________________ ("Landlord"), and _______________________, a _______________________ ("Tenant"), for _____________ rentable square feet of space commonly known as Suite ______ (the "Premises"), located on the ______ (___) floor of that certain office building located at ____________________________, _______________, _________________ (the "Building").
Dear ________________:
Notwithstanding any provision to the contrary contained in the Lease, this letter is to confirm and agree upon the following:
1. Tenant has accepted the above-referenced Premises as being delivered in accordance with the Lease, and there is no deficiency in construction.
2. The Lease Term shall commence on or has commenced on ______________ and will expire on ______________.
3. Rent commenced to accrue on __________________, and is payable in accordance with the following schedule:
[BASE RENT SCHEDULE WITH HARD DATES, INCLUSIVE OF A DESCRIPTION OF EACH ABATEMENT PERIOD, WILL BE INSERTED]
4. If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter shall be for the full amount of the monthly installment as provided for in the Lease.
5. The Termination Exercise Window is the period commencing on ______ 20__ and expiring on ______ 20__.
6. Your rent payments shall be made in accordance with the Lease, subject to any instructions as may be provided by Landlord under separate cover.
7. The Premises contains ____________ rentable square feet.
8. Tenant's Share of Direct Expenses with respect to the Premises is ________% of the Project.
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| EXHIBIT C -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Capitalized terms used herein that are defined in the Lease shall have the same meaning when used herein. Tenant confirms that the Lease has not been modified or altered except as set forth herein, and the Lease is in full force and effect. To each party's actual knowledge, neither party is in default or violation of any covenant, provision, obligation, agreement or condition in the Lease.
If the provisions of this letter correctly set forth our understanding, please so acknowledge by signing at the place provided below on the enclosed copy of this letter and returning the same to Landlord. This letter may be signed and/or transmitted electronically using e-mail (with a .pdf attachment) or electronic signature technology (e.g., DocuSign or similar technologies), and such signed electronic record shall be valid and as effective to bind the party so signing as a paper copy bearing such party's handwritten signature.
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| EXHIBIT C -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
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| "LANDLORD": |
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| KILROY REALTY 303, LLC, |
| a Delaware limited liability company |
|
| By: | KR 303 Second Street Owner, LLC, |
| a Delaware limited liability company |
| Its Sole Member |
|
| By: | 303 Second Street Member, LLC, |
| | a Delaware limited liability company |
| | Its Manager |
|
| | By: | Kilroy Realty, L.P., |
| | | a Delaware limited partnership |
| | | Its Managing Member |
|
| | | By: | Kilroy Realty Corporation, |
| | | | a Maryland corporation |
| | | | Its General Partner |
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| | | | By: | | |
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| | | | Name: | | |
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| | | | Title: | | |
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| AGREED TO AND ACCEPTED | | | | | |
| AS OF ____________, 20__: | | | | | |
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| "TENANT": | | | | | | | | |
| | | | | | | | | |
| ________________________, | | | | | | |
| a _______________________ | | | | | | |
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| By: | | | |
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| Name: | | | |
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| Its: | | | |
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| Its: | | | |
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| EXHIBIT C -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT D
RULES AND REGULATIONS
1. The Common Areas shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress to and egress from their respective premises. The Common Areas are not for the general public, and Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the reasonable judgment of Landlord would be prejudicial to the safety, character, reputation, and interest of the Project and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities.
2. No cooking shall be done or permitted on the Premises except that private use by Tenant of approved microwave ovens, equipment for brewing coffee, tea, hot chocolate, and similar beverages shall be permitted, provided that such use is in accordance with Applicable Laws. In no event may any space heaters or similar devices be used within the Premises.
3. Except as may be expressly permitted in the Lease, no animals (except for Service Animals) shall be brought or kept in the Premises or the Project.
4. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Project (or any portion thereof) of any person in the case of invasion, mob, riot, public excitement, or other circumstances rendering such action advisable in Landlord's opinion. Landlord reserves the right to prevent access to the Project (or particular portions thereof) during the continuance of the same by such action as Landlord may deem appropriate, including, but not limited to, closing or locking doors, closing off parking garage access, locking elevator access, and/or boarding up windows or exterior areas.
5. No curtains, draperies, blinds, shutters, shades, screens, or other coverings, hangings, or decorations shall be attached to, hung, or placed in, or used in connection with, any window of the Project unless approved in writing by Landlord.
6. Tenant shall use commercially reasonable efforts to ensure that all water faucets, water apparatus, and utilities are shut off before Tenant or Tenant's employees leave the Premises so as to prevent waste or damage. For any failure or carelessness in this regard, Tenant shall make good all injuries sustained by other tenants or occupants of the Project or Landlord.
7. The toilet rooms, toilets, urinals, wash bowls, and other apparatus shall not be used for any purpose other than that for which they are constructed, no foreign substance of any kind whatsoever shall be thrown therein, and the expense of any breakage, stoppage, or damage to the portions of the sewer line that are Landlord's responsibility, if any, resulting from the violation of this rule shall be borne by the tenants who, or whose employees or invitee, shall have caused it.
8. Except as otherwise set forth in the Lease, no tenant shall install any radio or television antenna, loudspeaker, or other device on the roof or exterior walls of the Project. No TV or radio or recorder shall be played in such a manner as to cause a nuisance to any other tenant.
9. No material shall be placed in the trash bins or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash
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| EXHIBIT D -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
and garbage in the locale without being in violation of any law or ordinance governing such disposal. Tenant shall not overload or cause to be overloaded the trash bins or trash container areas. Landlord shall have the right to charge Tenant for any extra trash removal necessitated by extraordinary trash volume from the Premises. Each tenant shall comply with all Applicable Laws regarding recycling or with Landlord’s recycling policy as part of Landlord’s sustainability practices if more stringent than Applicable Laws.
10. Canvassing, soliciting, distribution of handbills, or any other written material and peddling in the Project are prohibited, and each tenant shall cooperate to prevent the same.
11. Except in a case of emergency, the requirements of tenants will be attended to only upon application in writing at the office of the Project or by e-mail transmitted to the office of the Project manager (or pursuant to such particular system or method of communication as may be established by Landlord from time to time). Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord.
12. No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.
13. Tenant shall not conduct in or about the Project any auction, public or private, without the prior written approval of Landlord.
14. Tenant shall not cause improper noises, vibrations, or odors to emanate from the Premises.
15. Tenant will not place objects on windowsills or otherwise obstruct the exterior wall window covering.
16. Tenant will keep all fire doors and all smoke doors closed at all times.
17. Tenant shall not use any portion of the Premises for lodging.
18. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs.
19. Tenant shall not ride, park or lock any bicycle, motor driven cycle, powered scooter or other vehicles in, on or about the Premises, Building or Project except in those areas specifically designated by Landlord.
20. This is a non-smoking facility. Smoking, vaping and use of electronic cigarettes is prohibited within the confines of the Project.
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| EXHIBIT D -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
21. Tenant shall comply with all safety, fire protection, and evacuation procedures and regulations established by Landlord or any governmental agency.
22. Tenant shall comply with any additional rules and regulations implemented from time to time by Landlord based upon guidelines, rules and regulations provided by the Center for Disease Control (CDC), BOMA, Occupational Health Standards Association ("OSHA") and others. To the extent the guidelines, rules and regulations promulgated and developed by the CDC, OSHA, BOMA and other applicable organizations (collectively, "Guidelines") or any Applicable Laws conflict with these Rules and Regulations or provide more stringent requirements than these Rules and Regulations
23. , the Guidelines and Applicable Laws shall apply.
RULES AND REGULATIONS FOR BALCONIES AND TERRACES
1. All items installed for use on any Roof Deck or terrace (furniture, trash receptacles, landscaping, etc.) shall be securely fastened or heavy enough to withstand wind load. Cushions must be securely attached to furniture.
2. Installation of umbrellas, awnings, flags, or banners which are capable of being blown from any Roof Deck or terrace is strictly prohibited.
3. Flammable, toxic or otherwise Hazardous Materials are prohibited. Tenant may only place fire pits and heaters that are permitted under Code, and may not utilize any items that use charcoal, propane or another portable fuel source. Subject to compliance with Code, the foregoing restriction does not prohibit the temporary use of warming equipment for food as required in conjunction with catered business functions, however, no cooking is allowed on the balconies or terraces.
4. No items can be affixed, hung, or mounted to the perimeter glass. Standing or sitting on the perimeter ledges, base building planters, and/or structural barriers or elements is strictly prohibited.
5. Smoking cigarettes, pipes, cigars, or e-cigarettes or other similar electronic products on the balconies or terraces is prohibited.
6. No throwing, tossing or hanging of items over the side of the balconies or terraces. Games that include throwing or hitting an object are strictly prohibited.
7. Use of music, recorded or live, and amplified voice devices shall be limited to not disturb other occupants or tenants in the Building.
8. The balconies and terraces shall be used solely for (i) employee leisure space, including the consumption of food and beverages, (ii) business and social functions for Tenant and the Tenant Parties in the nature of special events being held at Tenant’s sole expense, and (iii) other purposes relating to Tenant's business in the Premises.
9. Tenant shall provide appropriate supervision and security for use of any Roof Deck or terrace.
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| EXHIBIT D -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
10. Tenant agrees to control the number of people having access to any particular Roof Deck or terrace, to ensure safety, and to avoid any disruptive or dangerous behavior. The number of occupants shall not exceed any posted value allowed by Code.
11. Tenant shall be responsible for any damage to the roof which may be caused (whether by Tenant or by any other Tenant Parties) by Tenant's use of any Roof Deck or terrace.
12. Tenant agrees to maintain all of Tenant's furniture and property placed on or about any Roof Deck or terrace in satisfactory condition as to appearance and safety, replacing the same from time to time as consistent with and appropriate for the first-class nature of the Building. Tenant agrees to keep the balconies and terraces free of all trash or waste materials.
13. Tenant shall provide Landlord with prior notice of any maintenance or repair of any Roof Deck or terrace and coordinate such work with Landlord in order to avoid voiding or otherwise adversely affecting any warranties granted to Landlord (including, without limitation, any warranties with respect to the roof, perimeter glass, Roof Deck coats, or lighting). Unless otherwise required or approved in advance by Landlord, Tenant, at its sole cost and expense, shall retain any contractor having a then existing warranty in effect to perform such work (to the extent that such warranty may be impacted in connection with any such work).
PARKING RULES AND REGULATIONS
1. Every parker is required to park and lock his/her own vehicle. All responsibility for damage to or loss of vehicles is assumed by the parker and Landlord shall not be responsible for any such damage or loss by water, fire, defective brakes, the act or omissions of others, theft, or for any other cause.
2. Tenant and its employees shall only park in the parking structure on the level(s) of the Parking Facilities designated by Landlord. Tenant, Tenant's customers, invitees and its employees shall not park in the portions of Parking Facilities which are reserved for specific tenants and invitees of the Project, or in any other parking areas that may be designated by Landlord from time to time.
3. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles; (c) where "no parking" signs are posted; (d) on ramps; (e) in cross-hatched areas; and (f) in reserved spaces and in such other areas as may be designated by Landlord.
4. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited.
5. The Parking Facilities shall not be used for overnight parking of vehicles of any type, nor shall the Parking Facilities be used for the storage of vehicles of any type.
6. Landlord may refuse to permit any person who violates these rules to park in the Parking Facilities, and any violation of the rules shall subject the vehicle owner to one (1) warning and thereafter the vehicle shall be subject to removal, at such vehicle owner's expense, except that a violation of rules 3 or 4 shall be subject to the immediate removal of the vehicle without warning, at such vehicle owner's expense.
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| EXHIBIT D -4- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Tenant shall be responsible for the observance of the foregoing Rules and Regulations by Tenant's employees, agents, clients, customers, invitees, guests, visitors and all other Tenant Parties. Landlord reserves the right to exclude or expel from the Project any person who acts in violation of these Rules and Regulations, as the same may be amended. Provided Landlord acts in good faith pursuant to sound operating procedures, Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Project. In the event of any conflict or inconsistency between the foregoing Rules and Regulations and the Lease, the express TCCs of the Lease shall control.
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| EXHIBIT D -5- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT E
FORM OF TENANT'S ESTOPPEL CERTIFICATE
_________ ("Tenant") hereby certifies as follows with respect to that certain Office Lease dated as of _____________ (the "Lease") by and between _______________ ("Landlord"), and Tenant for certain premises (the "Premises") located on the ______________ floor(s) of the office building located at ______________, _______________, California (the "Building"):
1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A.
2. Tenant currently occupies the Premises described in the Lease, the Lease Term commenced on __________, and the Lease Term expires on ___________, and Tenant has no option to purchase all or any part of the Premises, the Building and/or the Project.
3. Base Rent first became payable on ____________, subject to the abatement provisions of the Lease.
4. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:_______________________________.
5. All monthly installments of Base Rent, all Direct Expenses and all monthly installments of estimated Direct Expenses due under the Lease have been paid when due through ___________. The current monthly installment of Base Rent is $_____________________.
6. To Tenant's knowledge, all conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied, and to Tenant's actual knowledge, Landlord is not in default thereunder. In addition, Tenant has not delivered any notice to Landlord regarding a default by Landlord thereunder which remains uncured.
7. Except with respect to the mandatory pre-payment of first (1st) month's Base Rent pursuant to the Lease, no rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord, except as provided in the Lease.
8. As of the date hereof, to Tenant's actual knowledge, there are no existing defenses or offsets, or, to the undersigned's actual knowledge, claims or any basis for a claim, that Tenant has against Landlord.
9. If Tenant is a corporation, partnership, limited liability company or other legal entity, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that (i) Tenant is a duly formed and existing entity qualified to do business in California, (ii) Tenant has full right and authority to execute and deliver this Estoppel Certificate and (iii) each person signing on behalf of Tenant is authorized to do so.
10. There are no actions pending against Tenant under the bankruptcy or similar laws of the United States or any state.
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| EXHIBIT E -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
11. To Tenant's actual knowledge, other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, Tenant has not used or stored any hazardous materials or substances in the Premises.
12. To the undersigned's actual knowledge, all improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by Tenant and all reimbursements and allowances due to Tenant under the Lease in connection with any improvement work have been paid in full.
The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises is a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.
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| EXHIBIT E -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Executed at ______________ on the ____ day of ___________, 20___.
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| EXHIBIT E -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT F
EXTENSION OPTION
1. Option Right. Upon Tenant's election and proper exercise of the Extension Option in accordance with the provisions of this Exhibit F, the Lease Term shall be extended for the Option Term. Landlord shall have the right to require Tenant to provide an increase to the letter of credit, in an amount no greater than six (6) months of the last month of Base Rent due during the Option Term; provided that such amount shall be not greater than three (3) months of the last month of Base Rent due during the Option Term if the L-C Reduction Conditions are met during the commencement of the Option Term and the Renewal Allowance (as defined below) will be equal to or less than $25.00 per rentable square foot of the Premises. If the increased letter of credit will be equal to six (6) months of the last month of Base Rent due during the Option Term, then such letter of credit shall be subject to reduction in one month increments on the first day of the third (3rd), fourth (4th), and fifth (5th) years of the Option Term; provided however, such letter of credit shall never be less than three (3) months of the last month of Base Rent due during the Option Term.
2. Option Rent. The Rent payable by Tenant during the Option Term (the "Option Rent") shall be equal to the Market Rent (as defined below), as derived from an analysis of the Net Equivalent Lease Rates (as defined below) of the Comparable Transactions (as defined below) as of the commencement of the Option Term. The "Market Rent" shall be equal to the annual rent per rentable square foot, at which tenants, are, pursuant to transactions consummated within twelve (12) months prior to the commencement of the Option Term (or First Offer Term, as applicable), leasing non-sublease, non-encumbered space comparable in location and quality to the Premises (or Designated First Offer Space, as applicable) containing a square footage comparable to that of the Premises (or Designated First Offer Space, as applicable) for a term comparable to the Option Term (or First Offer Term, as applicable), in an arm's-length transaction, which comparable space is located in the Project or in Comparable Buildings (transactions satisfying the foregoing criteria shall be known as the "Comparable Transactions"). Notwithstanding the foregoing, Comparable Transactions shall only include renewal and expansion transactions if negotiated at arms-length, with a tenant represented by a leasing broker, and where such tenant's lease contained fair market rent language materially comparable to the Market Rent definition herein. The terms of the Comparable Transactions shall take into consideration only the following terms and concessions: (i) the rental rate and escalations, (ii) the amount of parking rent per parking pass paid, if any, (iii) operating expense and tax protection granted, such as a base year or expense stop, but the base rent for each Comparable Transaction shall be adjusted to a triple net base rent using reasonable estimates of operating expenses and taxes for each such Comparable Transaction (but after such adjustments, when determining the actual Option Rent, the Base Year shall be the calendar year 2030 (and when determining the actual First Offer Rent, the Base Year shall be the calendar year in which the First Offer Term commences), and the Market Rent shall be adjusted as necessary to account for such Base Year) ; (iv) rental abatement concessions, if any, being granted such tenants, (v) any Renewal Allowance (as defined below), to be provided by Landlord in connection with the Option Term (or First Offer Term, as applicable) as compared to the improvements or allowances provided or to be provided in the Comparable Transactions, taking into account the contributory value of the existing improvements in the Premises (or First Offer Space, as applicable), such value to be based upon the age, design, quality of finishes, and layout of the existing improvements, and (vi) all other monetary concessions, if any, being granted such tenants in connection with such Comparable Transactions. Notwithstanding any contrary provision hereof, in determining the Market Rent, no consideration shall be given to (a) any period of rental abatement, if any, granted to tenants in Comparable Transactions in connection with the design,
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| EXHIBIT F -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
permitting and construction of improvements, or (b) any commission paid or not paid in connection with such Comparable Transaction.
2.1 Comparable Buildings. The term "Comparable Buildings" shall mean first-class multi-tenant occupancy office buildings which are comparable to the Project in terms of age (based upon the date of completion of construction or major renovation), institutional ownership, quality of construction, and size and are located in the area which is the "South Financial District" and "South of Market" submarkets on the South side of Market Street in San Francisco.
2.2 Adjustments to Market Rent. The Market Rent in Comparable Transactions, when compared to the Market Rent for the Premises (or First Offer Space, as applicable), shall be adjusted for the following factors (to the extent such factors normally affect the rent received by the landlord of the Comparable Buildings) to reflect the existence or non-existence of such factors: (i) the stated size of the Premises (or First Offer Space, as applicable) based upon the standards of measurement to be utilized during the Option Term (or First Offer Term, as applicable), as compared to the standards of measurement utilized during the Comparable Transactions; (ii) any material changes in the Market Rent following the date of any particular Comparable Transaction up to the date of the commencement of the Option Term (or First Offer Term, as applicable); (iii) rights granted to Tenant for exclusive roof deck usage, and supplemental equipment installation on rooftops as compared to such rights, if any, granted to the tenants in Comparable Transactions; and (iv) the differences between the Building and the Comparable Buildings in terms of: (a) level of LEED certification; (b) proximity to mass transit and shuttle transportation; (c) exterior amenity areas; and (d) amount and type of parking available.
2.3 Net Equivalent Lease Rate. In order to analyze the Comparable Transactions based on the factors to be considered in calculating Market Rent, and given that the Comparable Transactions may vary in terms of length of term, rental rate, concessions, etc., the following steps shall be taken into consideration to "adjust" the objective data from each of the Comparable Transactions. By taking this approach, a net equivalent lease rate for each of the Comparable Transactions shall be determined using the following steps to adjust the Comparable Transactions, which will allow for an "apples to apples" comparison of the Comparable Transactions.
2.3.1. The contractual rent payments for each of the Comparable Transactions should be arrayed monthly or annually over the lease term. All Comparable Transactions should be adjusted to simulate a net rent structure, wherein the tenant is responsible for the payment of all property operating expenses in a manner consistent with this Lease. This results in the estimate of Net Equivalent Rent received by each landlord for each Comparable Transaction being expressed as a periodic net rent payment.
2.3.2 Any free rent or similar inducements received over time should be deducted in the time period in which they occur, resulting in the net cash flow arrayed over the lease term.
2.3.3 The resultant net cash flow from the lease should then be discounted (using an 8% annual discount rate) to the lease commencement date, resulting in a net present value estimate.
2.3.4 From the net present value, up front inducements (improvements allowances and other concessions) should be deducted. These items should be deducted directly, on a "dollar for dollar" basis, without discounting since they are typically incurred at lease commencement, while rent (which is discounted) is a future receipt.
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| EXHIBIT F -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
2.3.5 The net present value should then be amortized back over the lease term as a level monthly or annual net rent payment using the same annual discount rate used in the present value analysis. This calculation will result in a hypothetical level or even payment over the option period, termed the "Net Equivalent Lease Rate" (or constant equivalent in general financial terms).
2.3.6 Once the Net Equivalent Lease Rate is calculated for a particular Comparable Transaction, such Net Equivalent Lease Rate can be adjusted if and to the extent that the operating expenses and tax expenses that are the direct (payable directly by tenant) or indirect (payable as a reimbursement by the tenant to the Landlord) obligations of the tenant as though there is no base year or expense stop protection (collectively, the "Expenses") in connection with a Comparable Transaction are less than or greater than the Expenses payable by Tenant under the Lease during the Option Term (or First Offer Term, as applicable), so that the Market Rent to be determined pursuant to this Exhibit F will reflect whether, if at all, the Expenses payable by Tenant are greater than or less than the Expenses payable by the tenant of a Comparable Transaction.
2.3.7 Once the Net Equivalent Lease Rate is calculated, if the term of a Comparable Transaction is greater than or less than the applicable Option Term, the Net Equivalent Lease Rate will be adjusted to take into account whether or not, based on current market transactions and conditions, the concessions (i.e., tenant improvement allowances and free rent) in the Market Rent should be increased or decreased because of such difference in term, so that the Market Rent will reflect the appropriate level of concessions based on an adjustment of the level of concessions in the Comparable Transactions. For example, if a Comparable Transaction is for an six year term, and the Option Term (or First Offer Term) is for five years, then an adjustment can be made to increase the concessions in the Comparable Transaction to equate such transaction to an five year term, if such adjustment is warranted by market transactions and conditions.
2.3.8 The Net Equivalent Lease Rates for the Comparable Transactions shall then be used to reconcile, in a manner usual and customary for a real estate appraisal process, to a conclusion of Market Rent which shall be converted to a base year (assuming the Base Year applicable to the Option Term (i.e. 2030), or First Offer Term, as applicable, and as described above) with three percent (3%) annual increases in Base Rent applicable to the Option Term (or First Offer Term, as applicable).
2.4 Renewal Allowance. Notwithstanding anything to the contrary set forth in this Exhibit F, once the Market Rent for the Option Term (or First Offer Term) is determined as a Net Equivalent Lease Rate, if, in connection with such determination, it is deemed that Tenant is entitled to an improvement or comparable allowance for the improvement of the Premises, or First Offer Term, as applicable (the total dollar value of such allowance shall be referred to herein as the "Renewal Allowance"), Landlord shall pay the Renewal Allowance to Tenant pursuant to a disbursement procedure substantially similar to the procedure outlined in the Work Letter, and the rental rate component of the Market Rent shall be increased to be a rental rate which takes into consideration that Tenant will receive payment of such Renewal Allowance and, accordingly, such payment with interest shall be factored into the base rent component of the Market Rent.
3. Exercise of Extension Option. The Extension Option shall be exercised by Tenant, if at all, only in the following manner: (i) Tenant shall deliver written notice to Landlord not more than eighteen (18) months nor less than fifteen (15) months prior to the then-scheduled expiration of the Lease Term, stating that Tenant may be interested in exercising the applicable Extension Option ("Tenant's Interest Notice"); (ii) Landlord, after receipt of Tenant's Interest Notice shall deliver notice (the "Option Rent Notice") to Tenant not less than fourteen (14) months prior to the expiration of the then scheduled
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| EXHIBIT F -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
expiration of the Lease Term setting forth Landlord's good faith determination of the Option Rent ("Landlord's Option Rent Calculation"); and (iii) if Tenant wishes to exercise the Extension Option, whether or not Tenant has delivered the Tenant’s Interest Notice, Tenant shall, on or before the date occurring thirteen (13) months prior to the expiration of the initial Lease Term exercise the option by delivering written notice thereof to Landlord (the "Option Exercise Notice"). Upon, and concurrent with, such exercise, Tenant may, at its option, object to the Option Rent contained in the Option Rent Notice, in which case the parties shall follow the procedure, and the Option Rent shall be determined, as set forth in Section 2.2.4 below. If Tenant does not timely deliver the Tenant's Interest Notice, the parties shall follow the procedure, and the Option Rent shall be determined, as set forth in Section 4, below.
4. Determination of Market Rent. In the event Tenant validly objects to, or does not accept, Landlord's Option Rent Calculation, then Landlord and Tenant shall attempt to agree upon the Option Rent using good-faith efforts; provided, however, if they fail to reach agreement upon the Option Rent by the date that is ninety (90) days prior to the then-scheduled expiration of the Lease Term (the "Outside Agreement Date", and such negotiation period, the "Option Rent Negotiation Period"), then each party shall make a separate, binding, determination of the Option Rent (each, a "Submitted Option Rent"), within ten (10) business days following the Outside Agreement Date, and such Submitted Option Rents shall be submitted to arbitration as described below. Submitted Option Rent and Submitted First Offer Rent may each be referred to herein as "Submitted Rent". The failure of Tenant or Landlord to submit a Submitted Option Rent within such ten (10) business day period shall be deemed to be such party's disapproval of the Submitted Option Rent submitted by the other party. Each party’s Submitted Option Rent determination (i) may differ from Option Rent determinations submitted by such party during the Option Rent Negotiation Period (the parties agreeing that neither will be bound by any Option Rent proposals offered during the Option Rent Negotiation Period) and (ii) will include the Comparable Transactions upon which such Submitted Option Rent determination is based, inclusive of any adjustments made to arrive at such Submitted Option Rent determination.
4.1 Neutral Arbitrator. Within fifteen (15) days after the Outside Agreement Date or First Offer Outside Agreement Date, as applicable, Landlord and Tenant shall agree upon and appoint one arbitrator who shall by profession be a, real estate broker (a "Neutral Arbitrator") who shall have been active over the ten (10) year period ending on the date of such appointment in the leasing of Comparable Buildings, and (i) neither Landlord or Tenant may, directly, or indirectly, consult with the Neutral Arbitrator prior or subsequent to his or her appearance, (ii) the Neutral Arbitrator cannot be someone who has represented Landlord (or worked with their counsel on a similar arbitration) and/or Tenant (or worked with their counsel on a similar arbitration) during the ten (10) year period prior to such appointment, and (iii) each party may require the Neutral Arbitrator to demonstrate to the reasonable satisfaction of the parties that the Neutral Arbitrator has no conflicts of interest with either Landlord or Tenant.
4.3 Arbitration Agreement. The Neutral Arbitrator shall be retained via an arbitration agreement (the "Arbitration Agreement") jointly prepared by Landlord's counsel and Tenant's counsel, which Arbitration Agreement shall set forth the following: (i) an agreement by the Neutral Arbitrator to undertake the arbitration and render a decision in accordance with the TCCs of this Lease, as modified by the Arbitration Agreement; (ii) rights for Landlord and Tenant to submit to the Neutral Arbitrator (with a copy to the other party), on or before the date that occurs fifteen (15) days following the appointment of the Neutral Arbitrator, an advocate statement (and any other information such party deems relevant) prepared by or on behalf of Landlord or Tenant, as the case may be, in support of Landlord's or Tenant's respective determination of Market Rent (the "Briefs"); (iii) rights for each party to provide the Neutral Arbitrator (with a copy to the other party), within five (5) days of submittal of
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| EXHIBIT F -4- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Briefs with a written rebuttal to the other party's Brief (the "Rebuttals"); provided, however, such Rebuttals shall be limited to the facts and arguments raised in the other party's Brief and shall identify clearly which argument or fact of the other party's Brief is intended to be rebutted; (iv) the date, time and location of the arbitration, which shall be mutually and reasonably agreed upon by Landlord and Tenant, which date shall in any event be within forty-five (45) days following the appointment of the Neutral Arbitrator; (v) that no discovery or independent investigation shall take place in connection with the arbitration, other than to verify the factual information that is presented by Landlord or Tenant, and the Neutral Arbitrator shall be permitted to visit the Project and the buildings containing the Comparable Transactions; and (vi) rights for each party to present oral arguments to the Neutral Arbitrator at the arbitration for a period of time not to exceed three (3) hours and up to two (2) additional hours to present additional arguments and/or to rebut the arguments of the other party.
4.4 Neutral Arbitrator Ruling. Not later than ten (10) days after the date of the arbitration, the Neutral Arbitrator shall render a decision (the "Ruling") indicating whether Landlord's or Tenant's Submitted Rent is closer to the actual Market Rent. The Submitted Rent that is determined by the Neutral Arbitrator to be closer to the actual Market Rent shall then become the Option Rent (or First Offer Rent, as applicable). The Ruling shall be binding on Landlord and Tenant. In the event that the Option Rent has not been determined pursuant to the terms hereof (or otherwise by written agreement between Landlord and Tenant) prior to the commencement of the Option Term, then upon the commencement of the Option Term, Tenant shall be required to pay the greater of (i) the Rent then in effect for the Premises (immediately prior to the commencement of the Option Term), or (ii) Tenant's Submitted Option Rent, until such time that the Ruling is rendered. In such event, once the Ruling has been rendered it shall be effective retroactively to the commencement of the Option Term, and the payments made by Tenant that are applicable to the Option Term shall be reconciled with the actual amounts due (based on the Ruling), and the appropriate party shall make any corresponding payment to the other party within thirty (30) calendar days after the Ruling is rendered. In the event that the First Offer Rent has not been determined pursuant to the terms hereof (or otherwise by written agreement between Landlord and Tenant) prior to the commencement of the First Offer Term, then upon the commencement of the First Offer Term, Tenant shall be required to pay the greater of (i) the Rent then in effect for the Designated First Offer Space (immediately prior to the commencement of the First Offer Term), or (ii) Tenant's Submitted First Offer Rent, until such time that the Ruling is rendered. In such event, once the Ruling has been rendered it shall be effective retroactively to the commencement of the First Offer Term, and the payments made by Tenant that are applicable to the First Offer Term shall be reconciled with the actual amounts due (based on the Ruling), and the appropriate party shall make any corresponding payment to the other party within thirty (30) calendar days after the Ruling is rendered.
5. Termination of Extension Option. Tenant shall not have the right to exercise the Extension Option if, at the time Tenant delivers an Option Exercise Notice to Landlord, Tenant has then received notice of a default under this Lease that then remains uncured. Tenant's Extension Option shall terminate upon the earliest to occur of (i) Tenant's assignment of this Lease, other than to a Permitted Transferee Assignee, (ii) Tenant's written waiver or failure to timely exercise the Extension Option, (iii) Tenant's sublease of twenty-five percent (25%) or more of the entire then-existing Premises, other than to a Permitted Transferee, for substantially the remaining Lease Term, and (iv) the occurrence of the second (2nd) monetary Event of Default in the twelve (12) month period preceding the commencement of the Option Term.
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| EXHIBIT F -5- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT G
RIGHT OF FIRST OFFER
1. Right of First Offer. Landlord hereby grants Tenant a one-time right of first offer (the "Right of First Offer") for space shown on Schedule 1 attached hereto (the "First Offer Space"). The Right of First Offer shall be subordinate to all rights of other tenants to expand into the First Offer Space set forth in leases of space in the Project existing as of the Effective Date or hereinafter granted after Tenant is then prohibited from leasing such First Offer Space pursuant to the express terms of this Exhibit G, regardless of whether such rights are executed strictly in accordance with their respective terms or pursuant to a lease amendment or a new lease (collectively, the "Superior Rights"). Superior Rights shall continue to be Superior Rights in the event that any lease setting forth the Superior Right is renewed or otherwise modified. To the best of Landlord's knowledge, there are no Superior Rights existing as of the Effective Date.
2. Procedure for Offer. Subject to Superior Rights and the terms of this Exhibit G, Landlord shall notify Tenant (the "First Offer Notice") prior to entering into a lease of First Offer Space to a third party, other than the existing occupant thereof. Pursuant to such First Offer Notice, Landlord shall offer to lease to Tenant any portion of the then available First Offer Space (the "Designated First Offer Space") (and such notice may be made contingent on a Superior Right Holder declining a right to lease such space). Notwithstanding the foregoing, if prior to Landlord's delivery to Tenant of the First Offer Notice, Landlord has received an offer to lease all or part of the First Offer Space from a third party that Landlord intends to respond to in good faith (a "Third Party Offer") and such Third Party Offer includes space in excess of the First Offer Space, then the First Offer Notice shall include a description of such additional space and Tenant shall exercise the Right of First Offer, if at all, as to all of the space contained in the Third Party Offer, and the term "Designated First Offer Space" shall include all such space described in the Third Party Offer for purposes hereof. Except in the case of an unexpected availability of First Offer Space due to an early termination of a Project tenant's lease for such First Offer Space, Landlord shall not deliver a First Offer Notice to Tenant less than four (4) months, or more than eighteen (18) months, prior to the anticipated date of availability of the applicable Designated First Offer Space.
The rent payable during the First Offer Term shall be equal to the Market Rent for the Designated First Offer Space (the "First Offer Rent"). The First Offer Notice shall (i) describe the Designated First Offer Space, (ii) offer to lease to Tenant the Designated First Offer Space on the terms described in the First Offer Notice, (iii) set forth the proposed First Offer Rent upon which Landlord is willing to lease the Designated First Offer Space to Tenant, (iv) set forth the rentable square footage of the Designated First Offer Space, determined by Landlord in accordance with the Landlord's then-current measurement standard for the Project, (v) describe the First Offer Term (as that term is defined below) and the anticipated delivery date for the Designated First Offer Space, (vi) specify any additional Security Deposit, letter of credit or other securitization required to be provided for the Designated First Offer Space, and (vii) specify the number and type of parking passes, if any, to be made available to Tenant in connection with the Designated First Offer Space in accordance with the Parking Pass Ratio.
3. Procedure for Acceptance. If Tenant wishes to exercise Tenant's Right of First Offer with respect to the Designated First Offer Space, then within seven (7) business days of delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord (the "First Offer Exercise Notice") of Tenant's election to exercise its Right of First Offer for the entirety (and not less than the entirety) of the Designated First Offer Space (i) on the terms contained in the First Offer Notice, or (ii) that Tenant rejects the First Offer Rent set forth in the First Offer Notice. If Tenant does not timely deliver a First Offer
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| EXHIBIT G -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Exercise Notice, then Landlord shall be free to enter into a lease (a "Third Party Lease") for the applicable Designated First Offer Space to anyone to whom Landlord desires on any terms Landlord desires; provided, however, if the Third Party Lease will pertain to a materially different configuration of space than set forth in the First Offer Notice (with materially different meaning containing at least five percent (5%) more or less rentable square footage), then Landlord shall first make an offer of such alternative configuration (the "New Offer Terms") to Tenant by written notice (the "Additional Offer Notice") setting forth the New Offer Terms, and Tenant shall have five (5) business days from Tenant's receipt of the Additional Offer Notice in which to accept the New Offer Terms (which procedure shall be repeated until Landlord enters into a Third Party Lease which does not require Landlord to deliver another Additional Offer Notice to Tenant or Tenant exercises the Right of First Offer, as applicable). Designated First Offer Space shall be deemed not to be "available" to the extent the same is subject to any Superior Rights.
If Tenant timely delivers a First Offer Exercise Notice but rejects Landlord's determination of the First Offer Rent set forth in the First Offer Notice, then Landlord and Tenant shall meet and attempt to agree upon the First Offer Rent using good-faith efforts. If Landlord and Tenant fail to reach agreement on the First Offer Rent on or before the date that is thirty (30) days after Tenant's delivery of the First Offer Exercise Notice (the "First Offer Outside Agreement Date"), then each party shall make a separate determination of the First Offer Rent (each, a "Submitted First Offer Rent"), within five (5) days following the First Offer Outside Agreement Date, and such Submitted First Offer Rent shall be submitted to arbitration in accordance with Exhibit F. Each party's Submitted First Offer Rent determination (i) may differ from First Offer Rent determinations submitted by such party during the period prior to the First Offer Outside Agreement Date (the parties agreeing that neither will be bound by any First Offer Rent proposals offered during such period) and (ii) will include the Comparable Transactions upon which such Submitted First Offer Rent determination is based, inclusive of any adjustments made to arrive at such Submitted First Offer Rent determination.
4. First Offer Term. The term of Tenant's lease of the Designated First Offer Space (the "First Offer Term") shall commence upon the date (the "First Offer Commencement Date") set forth in the First Offer Notice and shall expire coterminously with the remainder of the Premises on the Lease Expiration Date. For a proposed lease of First Offer Space that would have a First Offer Commencement Date during the final three (3) years of the then-existing Lease Term, if Tenant has any remaining Extension Option rights, and Tenant elects to exercise its right to lease First Offer Space as provided in this Exhibit F, then Tenant shall be required to also concurrently irrevocably exercise its right to extend this Lease for an "Option Term" as provided in Exhibit F and in such event the First Offer Term will be coterminous with the Option Term.
5. Construction In First Offer Space. Tenant shall take the Designated First Offer Space in its "as is" condition, unless and to the extent that the First Offer Notice includes a provision for Landlord to perform any work to prepare the Designated First Offer Space for delivery to Tenant, and the construction of any initial improvements in the First Offer Space by Tenant shall comply with the terms of the Work Letter. Landlord shall have no obligation to provide any improvement allowance or perform any work in the First Offer Space except as expressly provided in the First Offer Notice.
6. Amendment to Lease. If Tenant timely exercises Tenant's Right of First Offer to lease Designated First Offer Space, then Landlord and Tenant shall within thirty (30) days thereafter execute an amendment to this Lease expanding the Premises to include the Designated First Offer Space upon the terms and conditions as set forth in the First Offer Notice (or any applicable Additional Offer Notice) and this Exhibit G. Notwithstanding the foregoing documentation obligations, Tenant's timely delivery of the
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| EXHIBIT G -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
First Offer Exercise Notice shall, in and of itself, conclusively establish Tenant's lease of the First Offer Space on the express terms set forth in this Exhibit G.
7. Termination of Right of First Offer. Tenant shall not have the right to lease the First Offer Space, and Landlord has no obligation to deliver a First Offer Notice, if (i) Tenant is then in monetary default under this Lease beyond any applicable notice or cure period or a Monetary Event of Default has occurred more than twice in the preceding twelve (12) month period or (ii) as of the date that Landlord is otherwise prepared to deliver a First Offer Notice to Tenant in accordance with the terms of Section 2 above, Tenant subleases twenty-five percent (25%) or more of the entire then-existing Premises, other than to a Permitted Transferee. Tenant's Right of First Offer shall terminate upon the earliest to occur of (a) as to an Designated First Offer Space, Tenant's failure to timely deliver a Tenant First Offer Exercise Notice following Landlord's delivery of a First Offer Notice, subject to Landlord's obligation to re-offer pursuant to Section 3 above, (b) Tenant's exercise of its Right of First Offer for all of the First Offer Space, (c) Tenant's assignment of its interest in the Lease, other than to a Permitted Transferee Assignee, (d) Tenant's failure to timely and properly exercise the Extension Option or, as to any Designated First Offer Space, when the First Offer Term is less than three (3) years and Tenant has no Extension Option remaining, (e) as to any First Offer Space within the South Tower, December 31, 2025, and (f) Tenant's delivery of a Termination Notice pursuant to Section 2.3 of this Lease.
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| EXHIBIT G -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
SCHEDULE 1 TO EXHIBIT G
DEPICTION OF FIRST OFFER SPACE
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| SCHEDULE 1 TO EXHIBIT G -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
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| SCHEDULE 1 TO EXHIBIT G -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
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| SCHEDULE 1 TO EXHIBIT G -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
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| SCHEDULE 1 TO EXHIBIT G -4- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT H
FORM OF LETTER OF CREDIT
(Letterhead of a money center bank
acceptable to the Landlord)
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FAX NO. [(___) ___-____]
SWIFT: [Insert No., if any] | [Insert Bank Name And Address] |
| |
| DATE OF ISSUE: _______________________________ |
| |
BENEFICIARY: KILROY REALTY 303, LLC c/o Kilroy Realty Corporation 12200 W. Olympic Blvd., Suite 200 Los Angeles, CA 90064 Attn: Legal Department With a copy to: KILROY REALTY 303, LLC c/o Kilroy Realty Corporation 100 First Street Office of the Building, Suite 250 San Francisco, California 94105 Attention: Ms. Eileen Kong | APPLICANT:
[Insert Applicant Name And Address – make sure name is Tenant’s name and is exactly accurate] |
| |
| Letter of Credit No. ____________ |
| |
Expiration Date: ______________ at our counters | Amount Available:
USD[Insert Dollar Amount]
(U.S. Dollars [Insert Dollar Amount]) |
Ladies and Gentlemen:
We hereby establish our irrevocable standby Letter of Credit No. ___________ in favor of Beneficiary for the account of Applicant, up to the aggregate amount of USD[insert dollar amount] ([insert dollar amount] U.S. Dollars) effective immediately and expiring on (expiration date) available by payment upon presentation of Beneficiary's draft at sight drawn on [insert bank name] when accompanied by the following document(s):
1. The original of this Letter of Credit and amendment(s), if any.
2. Beneficiary's signed statement purportedly signed by an authorized representative of Beneficiary, stating one or more of the following:
The undersigned hereby certifies that Beneficiary, either (a) under that certain Office Lease dated [insert lease date] (as amended, collectively, the "Lease"), or (b) as a result of the termination of such Lease, has the right to draw down the amount of USD ___________.
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| EXHIBIT H -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
or
The undersigned hereby certifies that Beneficiary has received a written notice of [Insert Bank Name]'s election not to extend its Letter of Credit No. ___________.
or
The undersigned hereby certifies that Beneficiary is entitled to draw down the full amount of Letter of Credit No. ___________ as the result of the filing of a voluntary petition under the U.S. Bankruptcy Code or a state bankruptcy code by the tenant under that certain Office Lease dated [insert lease date] (as amended, collectively, the "Lease").
or
The undersigned hereby certifies that Beneficiary is entitled to draw down the full amount of Letter of Credit No. ___________ as the result of an involuntary petition having been filed under the U.S. Bankruptcy Code or a state bankruptcy code against the tenant under that certain Office Lease dated [insert lease date] (as amended, collectively, the "Lease").
or
The undersigned hereby certifies that Beneficiary is entitled to draw down the full amount of Letter of Credit No. ________________ as the result of the rejection or disaffirmance, or deemed rejection or disaffirmance, of that certain Office Lease dated [insert lease date] (as amended, collectively, the "Lease").
Special Conditions:
Partial drawings and multiple presentations may be made under this Letter of Credit, provided, however, that each such demand that is paid by us shall reduce the amount available under this Letter of Credit.
All information required whether indicated by blanks, brackets or otherwise, must be completed at the time of drawing. [Bank - please provide the required forms for review, and attach as schedules to the letter of credit.]
All signatures must be manually executed in originals.
All banking charges are for the Applicant's account.
It is a condition of this Letter of Credit that it shall be deemed automatically extended without amendment for a period of one year from the present or any future Expiration Date, unless at least sixty (60) days prior to the Expiration Date we send Beneficiary notice by nationally recognized overnight courier service that we elect not to extend this Letter of Credit for any such additional period. Said notice will be sent to the addresses for Beneficiary indicated above, unless a change of address is otherwise notified by Beneficiary to us in writing by receipted mail or recognized overnight courier service. Any notice to us will be deemed effective only upon actual receipt by us at our designated office. In no event, and without further notice from ourselves, shall the Expiration Date be extended beyond a final expiration date of [____________] (120 days from the lease expiration date.
This Letter of Credit may be transferred successively in whole or in part only up to the then available amount in favor of a nominated transferee ("Transferee"), assuming such transfer to such Transferee is in compliance with all applicable U.S. laws and regulations. At the time of transfer, the original letter of credit and original amendment(s) if any, must be surrendered to us together with our transfer form [Bank - please provide the required form for review and attach as schedule to the letter of credit] and payment of our customary transfer fees, which fees shall be payable by Applicant (provided that Beneficiary may, but shall not be obligated to, pay such fees to us on behalf of Applicant, and seek reimbursement thereof from Applicant). In case of any transfer of this Letter of Credit, the
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| EXHIBIT H -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
draft and any required statement must be executed by the Transferee and where the Beneficiary's name appears within this Letter of Credit, the Transferee's name shall be automatically substituted therefor without amendment.
All drafts required under this Letter of Credit must be marked: ''Drawn under [insert bank name] Letter of Credit no. ___________."
We hereby agree with Beneficiary that if drafts are presented to [Insert Bank Name] under this Letter of Credit at or prior to [Insert Time – (e.g., 11:00 AM)], on a business day, and provided that such drafts presented conform to the terms and conditions of this Letter of Credit, payment shall be initiated by us in immediately available funds by our close of business on the succeeding business day. If drafts are presented to [Insert Bank Name] under this Letter of Credit after [Insert Time – (e.g., 11:00 AM)], on a business day, and provided that such drafts conform with the terms and conditions of this Letter of Credit, payment shall be initiated by us in immediately available funds by our close of business on the second succeeding business day. As used in this Letter of Credit, "business day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the state of California are authorized or required by law to close. If the expiration date for this Letter of Credit shall ever fall on a day which is not a business day then such expiration date shall automatically be extended to the date which is the next business day.
Presentation of a drawing under this Letter of Credit may be made on or prior to the then current expiration date hereof by hand delivery, courier service, overnight mail, or facsimile. Presentation by facsimile transmission shall be by transmission of the above required sight draft drawn on us together with this Letter of Credit to our facsimile number, [insert fax number – (___) ___-____], attention: [insert appropriate recipient] or to such other facsimile or telephone numbers, as to which Beneficiary has received written notice from us as being the applicable such number. In the event of facsimile presentation, delivery of the original of the sight draft and letter of credit shall not be required. We agree to notify Beneficiary in writing, by nationally recognized overnight courier service, of any change in such direction. Any facsimile presentation pursuant to this paragraph shall also state thereon that the original of such sight draft and letter of credit are being remitted, for delivery on the next business day, to [insert bank name] at the applicable address for presentment pursuant to the paragraph following this one.
We hereby engage with Beneficiary that all document(s) drawn under and in compliance with the terms of this Letter of Credit will be duly honored if drawn and presented for payment at our office located at [insert bank name], [insert bank address], Attn: [insert appropriate recipient] or by facsimile as provided for herein, on or before the expiration date of this Letter of Credit.
In the event that the original of this Letter of Credit is lost, stolen, mutilated, or otherwise destroyed, we hereby agree to issue a duplicate original hereof upon receipt of a written request from Beneficiary and a certification by Beneficiary (purportedly signed by Beneficiary's authorized representative) of the loss, theft, mutilation, or other destruction of the original hereof.
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| EXHIBIT H -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Except so far as otherwise expressly stated herein, this Letter of Credit is subject to the "International Standby Practices" (ISP 98) international chamber of commerce (Publication No. 590).
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| Very truly yours, | |
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| (Name of Issuing Bank) | |
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| By: | | |
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| EXHIBIT H -4- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT H-1
FORM OF ACCEPTABLE JPM LETTER OF CREDIT
IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER _________
DATED: ________
To: KILROY REALTY 303, LLC
c/o Kilroy Realty Corporation
12200 West Olympic Boulevard, Suite 200
Los Angeles, California 90064
Attention: Legal Department
DEAR SIR/MADAM:
WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT IN YOUR FAVOR.
BENEFICIARY:
KILROY REALTY 303, LLC
c/o Kilroy Realty Corporation
12200 West Olympic Boulevard, Suite 200
Los Angeles, California 90064
Attention: Legal Department
ACCOUNT PARTY: REDDIT, INC. (ADD ADDRESS)
DATE OF EXPIRY:
PLACE OF EXPIRY: OUR COUNTERS
AMOUNT: USD
APPLICABLE RULES: ISP, ICC PUBLICATION NO. 590
Available by payment upon presentation of Beneficiary's draft at sight drawn on [insert bank name] when accompanied by the following document(s):
1. Beneficiary's signed statement purportedly signed by an authorized representative of Beneficiary, signed as such, stating one or more of the following:
“The undersigned hereby certifies that Beneficiary, either (a) under that certain Office Lease dated [insert lease date] (as amended, collectively, the "Lease"), or (b) as a result of the termination of such Lease, has the right to draw down the amount of USD ___________.”
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| -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
or
“The undersigned hereby certifies that Beneficiary has received a written notice of [Insert Bank Name]'s election not to extend its Letter of Credit No. ___________. Therefore we draw down the amount of USD________”.
or
“The undersigned hereby certifies that Beneficiary is entitled to draw down the full amount of Letter of Credit No. ___________ as the result of the filing of a voluntary petition under the U.S. Bankruptcy Code or a state bankruptcy code by the tenant under that certain Office Lease dated [insert lease date] (as amended, collectively, the "Lease"). Therefore we draw down the amount of USD________”.
or
“The undersigned hereby certifies that Beneficiary is entitled to draw down the full amount of Letter of Credit No. ___________ as the result of an involuntary petition having been filed under the U.S. Bankruptcy Code or a state bankruptcy code against the tenant under that certain Office Lease dated [insert lease date] (as amended, collectively, the "Lease"). Therefore we draw down the amount of USD________”.
or
“The undersigned hereby certifies that Beneficiary is entitled to draw down the full amount of Letter of Credit No. ________________ as the result of the rejection or disaffirmance, or deemed rejection or disaffirmance, of that certain Office Lease dated [insert lease date] (as amended, collectively, the "Lease"). Therefore we draw down the amount of USD________”.
Special Conditions:
Partial drawings and multiple presentations may be made under this Letter of Credit, provided, however, that each such demand that is paid by us shall reduce the amount available under this Letter of Credit.
All information required whether indicated by blanks, brackets or otherwise, must be completed at the time of drawing.
All signatures must be manually executed in originals.
All banking charges are for the Applicant's account.
It is a condition of this Letter of Credit that it shall be deemed automatically extended without amendment for a period of one year from the present or any future Expiration Date, unless at least sixty (60) days prior to the Expiration Date we send Beneficiary notice by nationally recognized overnight courier service that we elect not to extend this Letter of Credit for any such additional period. Said notice will be sent to the addresses for Beneficiary indicated above, unless a change of address is otherwise notified by
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| -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
Beneficiary to us in writing by receipted mail or recognized overnight courier service, at such address is amended by us in our usual and customary amendment form. Any such notice to us will be deemed effective only upon actual receipt by us at our designated office, and such amendment by us In no event, and without further notice from ourselves, shall the Expiration Date be extended beyond a final expiration date of [____________] (90 days from the lease expiration date).
THIS LETTER OF CREDIT IS TRANSFERABLE, BUT ONLY IN ITS ENTIRETY, AND MAY BE SUCCESSIVELY TRANSFERRED. TRANSFER OF THIS LETTER OF CREDIT SHALL BE EFFECTED BY US UPON YOUR SUBMISSION OF THIS ORIGINAL LETTER OF CREDIT, INCLUDING ALL AMENDMENTS, IF ANY, ACCOMPANIED BY OUR TRANSFER REQUEST FORM DULY COMPLETED AND EXECUTED. IF YOU WISH TO TRANSFER THE LETTER OF CREDIT, PLEASE CONTACT US FOR THE FORM WHICH WE SHALL PROVIDE TO YOU UPON YOUR REQUEST. IN ANY EVENT, THIS LETTER OF CREDIT MAY NOT BE TRANSFERRED TO ANY PERSON OR ENTITY LISTED IN OR OTHERWISE SUBJECT TO, ANY SANCTION OR EMBARGO UNDER ANY APPLICABLE RESTRICTIONS. CHARGES AND FEES RELATED TO SUCH TRANSFER WILL BE FOR THE ACCOUNT OF THE APPLICANT. [TRANSFER FORM TO BE ATTACHED AS AN EXHIBIT]
In case of any transfer of this Letter of Credit, the draft and any required statement must be executed by the Transferee and where the Beneficiary's name appears within this Letter of Credit, the Transferee's name shall be automatically substituted therefor without amendment.
All drafts required under this Letter of Credit must be marked: ''Drawn under [insert bank name] Letter of Credit no. ___________."
We hereby agree with Beneficiary that if drafts are presented to [Insert Bank Name] under this Letter of Credit at or prior to 11:00 AM Eastern Time, on a business day, and provided that such drafts presented conform to the terms and conditions of this Letter of Credit, payment shall be initiated by us in immediately available funds by our close of business on the second following business day. If drafts are presented to [Insert Bank Name] under this Letter of Credit after 11:00 AM Eastern Time, on a business day, and provided that such drafts conform with the terms and conditions of this Letter of Credit, payment shall be initiated by us in immediately available funds by our close of business on the third succeeding business day. As used in this Letter of Credit, "business day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the state of Florida are authorized or required by law to close, and a day on which payments can be effected on the Fedwire payment system. If the expiration date for this Letter of Credit shall ever fall on a day which is not a business day then such expiration date shall automatically be extended to the date which is the next business day.
Presentation of a drawing under this Letter of Credit may be made on or prior to the then current expiration date hereof by courier service, overnight mail, or facsimile. Presentation by facsimile transmission shall be by transmission of the above required sight draft drawn on us to our facsimile number, [insert fax number – (___) ___-____], attention: [insert appropriate recipient] or to such other facsimile or telephone numbers, as to which Beneficiary has received written notice from us as being the applicable such number. In the event of facsimile presentation, delivery of the original of the sight draft and letter of credit shall not be required. We agree to notify Beneficiary in writing, by nationally recognized overnight courier service, of any change in such direction.
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| -3- | [Reddit, Inc.] 303 SECOND STREET South Tower |
We hereby engage with Beneficiary that all document(s) drawn under and in compliance with the terms of this Letter of Credit will be duly honored if drawn and presented for payment at our office located at [insert bank name], [insert bank address], Attn: [insert appropriate recipient] or by facsimile as provided for herein, on or before the expiration date of this Letter of Credit. ALL PAYMENTS DUE HEREUNDER SHALL BE MADE BY WIRE TRANSFER TO THE BENEFICIARY’S ACCOUNT PER THEIR INSTRUCTIONS. ALL DOCUMENTS PRESENTED MUST BE IN ENGLISH.
In the event that the original of this Letter of Credit is lost, stolen, mutilated, or otherwise destroyed, we hereby agree to issue a true copy of the original hereof upon receipt of a written request from Beneficiary and a certification by Beneficiary (purportedly signed by Beneficiary's authorized representative) of the loss, theft, mutilation, or other destruction of the original hereof.
THIS LETTER OF CREDIT IS GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND, EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, TO THE INTERNATIONAL STANDBY PRACTICES, ICC PUBLICATION NO. 590 (THE "ISP98"), AND IN THE EVENT OF ANY CONFLICT BETWEEN THE LAWS OF THE STATE OF NEW YORK AND THE ISP98, THE ISP98 WILL CONTROL, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. ANY DISPUTES ARISING FROM OR IN CONNECTION WITH THIS STANDBY LETTER OF CREDIT SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTION OF UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN.
ALL INQUIRIES REGARDING THIS TRANSACTION MAY BE DIRECTED TO OUR CLIENT SERVICE GROUP AT THE FOLLOWING TELEPHONE NUMBER OR EMAIL ADDRESS QUOTING OUR REFERENCE _________.
TELEPHONE NUMBER 1-800-634-1969
EMAIL ADDRESS: GTS.CLIENT.SERVICES@JPMCHASE.COM
YOURS FAITHFULLY,
JPMORGAN CHASE BANK, N.A.
…………………………………………………..
Authorized Signature
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| -4- | [Reddit, Inc.] 303 SECOND STREET South Tower |
EXHIBIT I
LIST OF EXISTING FF&E
Existing Furniture Items S500
(288) Sit/Stand Desks
(136) Desk Credenzas
(28) Black Rectangle Conference Room Tables (all-hands room)
(21) Wood Conference Room Tables
(17) Black Side Tables
(15) White Dining Area Tables
(7) White Round Conference Room Tables
(3) Black Conference Room Tables
(3) High White Rectangle Tables
(1) L Shaped Reception Desk
(282) Black Desk Chairs
(105) Black Conference Room Chairs
(70) Black Short Dining Area Chairs
(35) High Stools
(14) Black Leather Conference Room Chairs
(48) Black Swivel Chairs
(28) Gray Swivel Chairs
(11) Black Soft Lounge Chairs
(10) Gray Dining Area Sofa Seating
(9) Beige Soft Lounge Chairs
(7) Gray Stub Seats
(4) Gray Office Chairs
(2) Brown Soft Lounge Chairs
(1) Brown Leather Chair
(1) Black L-Shaped Sofa (Large)
(1) Black Sofa
(1) Gray Sofa
(1) Gray Chaise Lounge Seater
(19) Phone Booths (single person units)
(6) Stand-Alone Meeting Pods (each with 2 chairs)
(3) Gray Private Seating Units
(66) White Stackable Lockers (small)
(48) White Tall Locker Cabinets (copy/supply areas)
(28) White Wall Storage Units (copy rooms)
(11) Black Cabinet Drawer Sets (4 door and 5 door units)
(2) White Large 10-door Cabinet Unites
(4) Black Large Display Shelving Units
(10) 3-stream Waste Sorting Bins
(70) Planter Boxes (varying styles & heights)
(38) Wall Mounted White Boards
(25) Wall Mounted TV’s
(4) Refrigerators
(4) Microwaves
(3) Wine Chillers
| | | | | | | | |
| EXHIBIT I -1- | [Reddit, Inc.] 303 SECOND STREET South Tower |
(2) Dishwashers
Patio Furniture
o (7) Round Tables (varying heights)
o (12) Black Patio Chairs
o (8) Black Tall Patio Stools
o (2) Gray Weave Chairs
o (2) Gray Weave Pod Chairs
o (1) Patio Umbrella
| | | | | | | | |
| EXHIBIT I -2- | [Reddit, Inc.] 303 SECOND STREET South Tower |
$750,000,000
Credit and Guarantee Agreement
Reddit, Inc.
as Borrower
JP MORGAN CHASE BANK, N.A.,
as Administrative Agent and an Issuing Bank,
The Other Lenders and Issuing Banks Party Hereto,
JPMORGAN CHASE BANK, N.A.,
BOFA SECURITIES, INC.,
GOLDMAN SACHS BANK USA, and
MORGAN STANLEY SENIOR FUNDING, INC.,
as Joint Lead Arrangers and Joint Bookrunners
CITIBANK, N.A.
as Documentation Agent
Closing Date: October 8, 2021
TABLE OF CONTENTS
| | | | | | | | |
| | Page |
| | |
| ARTICLE I |
| DEFINITIONS AND ACCOUNTING TERMS |
| | |
| 1.01 | Defined Terms | 1 |
| 1.02 | Other Interpretive Provisions | 49 |
| 1.03 | Accounting Terms | 50 |
| 1.04 | Rounding | 50 |
| 1.05 | Times of Day | 50 |
| 1.06 | Letter of Credit Amounts | 50 |
| 1.07 | Interest Rates | 51 |
| 1.08 | Exchange Rates; Currency Equivalents | 52 |
| 1.09 | Additional Foreign Currencies | 52 |
| 1.10 | Change of Currency | 53 |
| 1.11 | Basket Amounts and Application of Multiple Relevant Provisions | 53 |
| | 53 |
| ARTICLE II |
| THE COMMITMENTS AND CREDIT EXTENSIONS |
| | |
| 2.01 | Committed Loans | 54 |
| 2.02 | Borrowings, Conversions and Continuations of Committed Loans | 54 |
| 2.03 | Prepayments | 56 |
| 2.04 | Termination or Reduction of Commitments | 57 |
| 2.05 | Repayment of Loans | 57 |
| 2.06 | Interest | 57 |
| 2.07 | Fees | 58 |
| 2.08 | Computation of Interest and Fees | 59 |
| 2.09 | Evidence of Debt | 60 |
| 2.10 | Payments Generally; Administrative Agent’s Clawback | 60 |
| 2.11 | Sharing of Payments by Lenders | 62 |
| 2.12 | Extension of Maturity Date | 62 |
| 2.13 | Increase in Commitments | 63 |
| 2.14 | Letters of Credit | 66 |
| 2.15 | Defaulting Lenders | 70 |
| 2.16 | Determination of Dollar Equivalents | 73 |
| 2.17 | Judgment Currency | 73 |
| | |
| ARTICLE III |
| TAXES, YIELD PROTECTION AND ILLEGALITY |
| | |
| 3.01 | Taxes | 73 |
| 3.02 | Illegality | 76 |
| 3.03 | Inability to Determine Rates | 77 |
| | | | | | | | |
| | Page |
| | |
| 3.04 | Increased Costs; Reserves on Term Benchmark Loans | 78 |
| 3.05 | Compensation for Losses | 79 |
| 3.06 | Mitigation Obligations; Replacement of Lenders | 80 |
| 3.07 | Survival | 80 |
| 3.08 | LIBOR Successor | 81 |
| 3.09 | Issuing Banks | 83 |
| | |
| ARTICLE IV |
| CONDITIONS PRECEDENT |
| | |
| 4.01 | Conditions of Closing | 83 |
| 4.02 | Conditions to all Borrowings | 85 |
| | |
| ARTICLE V |
| REPRESENTATIONS AND WARRANTIES |
| | 85 |
| 5.01 | Existence, Qualification and Power | 85 |
| 5.02 | Authorization; No Contravention | 86 |
| 5.03 | Governmental Authorization; Other Consents | 86 |
| 5.04 | Binding Effect | 86 |
| 5.05 | Financial Statements; No Material Adverse Effect | 86 |
| 5.06 | Ownership of Property | 86 |
| 5.07 | Taxes | 86 |
| 5.08 | ERISA Compliance; Foreign Plans | 87 |
| 5.09 | Margin Regulations; Investment Company Act | 87 |
| 5.10 | Disclosure | 87 |
| 5.11 | Intellectual Property; Licenses, Etc. | 87 |
| 5.12 | Anti-Corruption Laws and Sanctions | 88 |
| 5.13 | Solvency | 88 |
| 5.14 | Equity Interests and Ownership | 88 |
| 5.15 | Real Estate Assets | 88 |
| 5.16 | Collateral | 88 |
| 5.17 | Litigation and Environmental Matters. | 88 |
| 5.18 | Compliance with Laws and Agreements. | 89 |
| 5.19 | Affected Financial Institutions. | 89 |
| | |
| ARTICLE VI |
| AFFIRMATIVE COVENANTS |
| | |
| 6.01 | Financial Statements | 89 |
| 6.02 | Certificates; Other Information | 90 |
| 6.03 | Notices | 91 |
| 6.04 | Payment of Taxes | 91 |
| 6.05 | Preservation of Existence, Etc. | 91 |
| | | | | | | | |
| | Page |
| | |
| 6.06 | Maintenance of Properties | 92 |
| 6.07 | Maintenance of Insurance | 92 |
| 6.08 | Compliance with Laws | 93 |
| 6.09 | Books and Records | 93 |
| 6.10 | Use of Proceeds | 93 |
| 6.11 | [Reserved] | 93 |
| 6.12 | Additional Guarantors | 93 |
| 6.13 | Designation of Subsidiaries | 94 |
| 6.14 | Material Real Estate | 95 |
| 6.15 | Further Assurances | 96 |
| 6.16 | Certain Post-Closing Obligations | 96 |
| 6.17 | ERISA | 96 |
| | |
| ARTICLE VII |
| NEGATIVE COVENANTS |
| | |
| 7.01 | Liens | 97 |
| 7.02 | Fundamental Changes | 100 |
| 7.03 | Use of Proceeds | 101 |
| 7.04 | Restricted Payments | 101 |
| 7.05 | Indebtedness | 103 |
| 7.06 | Affiliate Transactions | 106 |
| 7.07 | Burdensome Agreements | 106 |
| 7.08 | Financial Covenant | 107 |
| 7.09 | Investments | 107 |
| 7.10 | Change Line of Business | 109 |
| 7.11 | Change in Fiscal Year | 109 |
| | |
| ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES |
| | |
| 8.01 | Events of Default | 109 |
| 8.02 | Remedies Upon Event of Default | 111 |
| 8.03 | Application of Funds | 112 |
| | |
| ARTICLE IX |
| ADMINISTRATIVE AGENT |
| | |
| 9.01 | Appointment and Authority | 113 |
| 9.02 | Rights as a Lender | 114 |
| 9.03 | Exculpatory Provisions | 114 |
| 9.04 | Reliance by Administrative Agent | 115 |
| 9.05 | Delegation of Duties | 115 |
| 9.06 | Resignation of Administrative Agent | 116 |
| 9.07 | Non-Reliance on Administrative Agent and Other Lenders | 116 |
| | | | | | | | |
| | Page |
| | |
| 9.08 | No Other Duties, Etc. | 118 |
| 9.09 | Withholding Tax | 118 |
| 9.10 | Administrative Agent May File Proofs of Claim | 119 |
| 9.11 | Agent Discretion | 119 |
| | |
| ARTICLE X |
| GUARANTY |
| | |
| 10.01 | Guarantee | 121 |
| 10.02 | No Subrogation | 122 |
| 10.03 | Amendments, etc. with respect to the Obligations | 122 |
| 10.04 | Guarantee Absolute and Unconditional | 122 |
| 10.05 | Reinstatement | 123 |
| 10.06 | Payments | 123 |
| 10.07 | Independent Obligations | 123 |
| 10.08 | Customer Obligations | 123 |
| | |
| ARTICLE XI |
| MISCELLANEOUS |
| | |
| 11.01 | Amendments, Etc. | 124 |
| 11.02 | Notices; Effectiveness; Electronic Communication | 126 |
| 11.03 | No Waiver; Cumulative Remedies | 127 |
| 11.04 | Expenses; Indemnity; Limitation of Liability | 127 |
| 11.05 | Payments Set Aside | 129 |
| 11.06 | Successors and Assigns | 129 |
| 11.07 | Treatment of Certain Information; Confidentiality | 134 |
| 11.08 | Right of Setoff | 135 |
| 11.09 | Interest Rate Limitation | 136 |
| 11.10 | Counterparts; Integration; Effectiveness; Electronic Execution | 136 |
| 11.11 | Survival | 137 |
| 11.12 | Severability | 137 |
| 11.13 | Replacement of Lenders | 137 |
| 11.14 | Governing Law; Jurisdiction; Etc. | 138 |
| 11.15 | Waiver of Jury Trial | 139 |
| 11.16 | No Advisory or Fiduciary Responsibility | 139 |
| 11.17 | USA PATRIOT Act Notice | 140 |
| 11.18 | Release of Liens and Guarantees | 140 |
| 11.19 | Acknowledgement and Consent to Bail-In of Affected Financial Institutions | 141 |
| 11.20 | Acknowledgement Regarding Any Supported QFCs | 142 |
| 11.21 | Certain ERISA Matters | 142 |
| | | | | |
| SCHEDULES |
| |
| 2.01 | Commitments and Applicable Percentages |
| 6.12 | Guarantors |
| 6.16 | Certain Post-Closing Obligations |
| 11.02 | Administrative Agent’s Office; Certain Address for Notices |
| |
| EXHIBITS |
| |
| Form of |
| |
| A | Committed Loan Notice |
| B | Note |
| C | Compliance Certificate |
| D | Assignment and Assumption |
| E | U.S. Tax Compliance Certificate |
| F | Form of Collateral Agreement |
| G | [Reserved] |
| H | Form of Counterpart Agreement |
CREDIT AND GUARANTEE AGREEMENT
This CREDIT AND GUARANTEE AGREEMENT (this “Agreement”) is entered into as of October 8, 2021, among REDDIT, INC., a Delaware corporation (the “Borrower”), the Guarantors from time to time party hereto, each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and JPMORGAN CHASE BANK, N.A., as Administrative Agent.
The Borrower has requested that the Lenders provide a revolving credit facility, and the Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
“ABR” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the NYFRB Rate in effect on such day plus ½ of 1.00% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1.00%; provided that for the purpose of this definition, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate (or if the LIBO Screen Rate is not available for such one month Interest Period, the LIBO Interpolated Rate) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 3.03 (for the avoidance of doubt, only until the Benchmark Replacement has been determined pursuant to Section 3.08), then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the ABR as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00% for the purposes of this Agreement.
“ABR Loan” means a Loan that bears interest based on the ABR.
“Acquired EBITDA” means, with respect to any Acquired Entity or Business or any Converted Restricted Subsidiary for any period, the amount for such period of Consolidated EBITDA of such Acquired Entity or Business or Converted Restricted Subsidiary (determined as if references to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were references to such Acquired Entity or Business and its Subsidiaries or to such Converted Restricted Subsidiary and its Subsidiaries), as applicable, all as determined on a consolidated basis for such Acquired Entity or Business or Converted Restricted Subsidiary, as applicable.
“Acquired Entity or Business” has the meaning specified in the definition of “Consolidated EBITDA”.
“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock,
partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary of the Borrower).
“Actual Knowledge” means, with respect to any information or event, that a Responsible Officer of the Borrower has actual knowledge of such information or event.
“Additional Commitment Lender” has the meaning specified in Section 2.12(d).
“Adjusted AUD Rate” means, with respect to any Term Benchmark Borrowing denominated in Australian Dollars for any Interest Period, an interest rate per annum equal to (a) the AUD Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Adjusted CDOR Rate” means, with respect to any Term Benchmark Borrowing denominated in Canadian Dollars for any Interest Period, an interest rate per annum equal to (a) the CDOR Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Adjusted Daily Simple SONIA” means, (i) with respect to any SONIA Borrowing denominated in Sterling, an interest rate per annum equal to (a) the Daily Simple SONIA for Sterling, plus (b) 0.0326%.
“Adjusted EURIBOR Rate” means, with respect to any Term Benchmark Borrowing denominated in Euros for any Interest Period, an interest rate per annum equal to (a) the EURIBOR Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Adjusted LIBO Rate” means, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars for any Interest Period, an interest rate per annum equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate; provided that the Adjusted LIBO Rate for any Interest Period shall not be less than 0.00% per annum.
“Administrative Agent” means JPMorgan, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent. It is understood that, without limiting the other provisions of this Agreement, the Administrative Agent may utilize the services of its Affiliates in connection with administrative matters related to Agreed Currencies.
“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 11.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” shall mean (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Affiliated Lender” has the meaning specified in Section 11.06(b)(v).
“Agent Parties” has the meaning specified in Section 9.12(b).
“Aggregate Commitments” means the Commitments of all the Lenders.
“Agreed Currencies” means (a) U.S. Dollars, (b) Euros, (c) Pounds Sterling, (d) Australian Dollars and (e) Canadian Dollars.
“Agreement” means this Credit Agreement.
“Alternative Currency Sublimit” means the Dollar Equivalent of $100,000,000.
“Alternative Currencies” means (a) Euros, (b) Pounds Sterling, (c) Australian Dollars and (d) Canadian Dollars.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or any of its Subsidiaries from time to time concerning or relating to bribery or corruption.
“Anti-Terrorism Laws” means any of the Laws relating to terrorism or money laundering, including Executive Order No. 13224, the PATRIOT Act, the Bank Secrecy Act, the Money Laundering Control Act of 1986 (i.e., 18 USC. §§ 1956 and 1957), the Laws administered by OFAC, and all Laws comprising or implementing these Laws.
“Applicable Jurisdiction” has the meaning specified in Section 11.04(a).
“Applicable Percentage” means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender’s Commitment at such time; provided that in the case of Section 2.15 when a Defaulting Lender shall exist, “Applicable Percentage” shall mean the percentage of the total Commitments (disregarding any Defaulting Lender’s Commitment) represented by such Lender’s Commitment. If the commitment of each Lender to make Loans has been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments and to any Lender’s status as a Defaulting Lender at the time of determination. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
“Applicable Rate” means, with respect to (i) any Committed Loan, the applicable rate per annum set forth below under the caption “ABR Spread or Canadian Prime Rate Spread”, “Term Benchmark Spread”, or “SONIA Loan Spread” as the case may be and (ii) with respect to the Commitment Fees payable hereunder, the rate per annum set forth below under the caption “Commitment Fee”:
| | | | | | | | | | | | | | | | | |
| | | | | |
| ABR
Spread or
Canadian
Prime
Spread | Term
Benchmark
Spread | SONIA Loan
Spread | Commitment
Fee | |
| | | | | |
| 0.25% | 1.25% | 1.25% | 0.15% | |
| | | | | |
“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Arrangers” means JPMorgan Chase Bank, N.A., BofA Securities, Inc., Goldman Sachs Bank USA and Morgan Stanley Senior Funding, Inc.
“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 11.06(b)), and accepted by the Administrative Agent (and the Borrower, in the case that the Borrower’s consent is required hereunder), in substantially the form of Exhibit D or any other form (including electronic documentation generated by use of an electronic platform) approved by the Administrative Agent and the Borrower.
“Audited Financial Statements” means the audited consolidated balance sheet of the Borrower and its Subsidiaries for each of the fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018, and the related audited consolidated statements of income (loss), stockholders’ equity (deficit) and cash flows for suc h fiscal year of the Borrower and its Subsidiaries, including the notes thereto.
“AUD Interpolated Rate” means, at any time, the rate per annum determined by the Administrative Agent to be equal to the rate that results from interpolating on a linear basis between: (a) the AUD Screen Rate for the longest period for which that AUD Screen Rate is available that is shorter than the Impacted AUD Interest Period and (b) the AUD Screen Rate for the shortest period for which that AUD Screen Rate is available that exceeds the Impacted AUD Interest Period, in each case, at such time. If at any time the AUD Interpolated Rate is less than zero, the AUD Interpolated Rate shall be deemed to be zero for purposes of this Agreement.
“AUD Rate” means, with respect to any Term Benchmark Borrowing denominated in Australian Dollars and for any Interest Period, the AUD Screen Rate at approximately 11:00 A.M., Sydney, Australia time, two Business Days prior to the beginning of such Interest Period; provided, that, if the AUD Screen Rate shall not be available at such time for such Interest Period (an “Impacted AUD Interest Period”), then the AUD Rate shall be the AUD Interpolated Rate.
“AUD Screen Rate” means with respect to any Interest Period, the average bid reference rate administered by ASX Benchmarks Pty Limited (ACN 616 075 417) (or any other Person that takes over the administration of such rate) for Australian Dollar bills of exchange with a tenor equal in length to such Interest Period as displayed on page BBSY of the Reuters screen (or, in the event such rate does not appear on such Reuters page, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate as shall be selected by the Administrative Agent from time to time in its reasonable discretion) at or about 11:00 a.m. (Sydney, Australia time) on the first day of such Interest Period. If the AUD Screen Rate shall be less than zero, the AUD Screen Rate shall be deemed to be zero for purposes of this Agreement.
“Australian Dollars” means lawful money of the Commonwealth of Australia.
“Available Increase Amount” has the meaning specified in Section 2.13(a).
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, for any Agreed Currency, as applicable, any tenor for such Benchmark (or component thereof) or any payment period for interest calculated with reference to such Benchmark (or component thereof), as applicable, that is or may be used for determining the length of an Interest Period for any term rate or otherwise, for determining any frequency of making payments of interest calculated pursuant to this Agreement as of such date and, for the avoidance of doubt, not including any tenor for such Benchmark that is then removed from the definition of “Interest Period” pursuant to clause (e) of Section 3.08.
“Availability Period” means the period from and including the Closing Date to, but not including, the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.04, and (c) the date of termination of the commitment of each Lender to make Loans pursuant to Section 8.02.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bank Secrecy Act” means The Currency and Foreign Transactions Reporting Act, 31 U.S.C. §§ 5311-5330.
“Bankruptcy Code” means Title 11 of the United States Code, as amended.
“Bankruptcy Plan” has the meaning specified in Section 11.06(h)(iii).
“Basel III” means, collectively, those certain agreements on capital and liquidity standards contained in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems,” “Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring,” and “Guidance for National Authorities Operating the Countercyclical Capital Buffer,” each as published by the Basel Committee on Banking Supervision in December 2010 (as revised from time to time), and “Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools,” as published by the Basel Committee on Banking Supervision in January 2013 (as revised from time to time), and, in each case, as implemented by a Lender’s primary U.S. bank regulatory authority.
“Benchmark” means, initially, with respect to any (i) SONIA Loan, the applicable Relevant Rate for Sterling or (ii) Term Benchmark Loan, the Relevant Rate for U.S. Dollars or such applicable Alternative Currency; provided that if a Benchmark Transition Event, a Term SOFR Transition Event, an Early Opt-in Election or an Other Benchmark Rate Election, as applicable, and its related Benchmark Replacement Date have occurred with respect to the applicable Relevant Rate or the then-current Benchmark for U.S. Dollars or such Alternative Currency, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 3.03.
“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date; provided that, in the case of any Committed Loan denominated in an Alternative Currency or in the case of an Other Benchmark Rate Election, “Benchmark Replacement” shall mean the alternative set forth in (3) below:
(1) in the case of any Committed Loan denominated in U.S. Dollars, the sum of: (a) Term SOFR and (b) the related Benchmark Replacement Adjustment;
(2) in the case of any Committed Loan denominated in U.S. Dollars, the sum of: (a) Daily Simple SOFR and (b) the related Benchmark Replacement Adjustment;
(3) the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for syndicated credit facilities denominated in the applicable currency at such time in the United States and (b) the relevant Benchmark Replacement Adjustment;
provided that, in the case of clause (1), such Unadjusted Benchmark Replacement is displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion; provided further that, in the case of clause (3), when such clause is used to determine the Benchmark Replacement in connection with the occurrence of an Other Benchmark Rate Election, the alternate benchmark rate selected by the Administrative Agent and the Borrower shall be the term benchmark rate that is used in lieu of a LIBOR-based rate in the relevant other U.S. Dollar-denominated syndicated credit facilities; provided further that, notwithstanding anything to the contrary in this Agreement or in any other Loan Document, upon the occurrence of a Term SOFR Transition Event, and the delivery of a Term SOFR Notice, on the applicable Benchmark Replacement Date the “Benchmark Replacement” shall revert to and shall be deemed to be the sum of (a) Term SOFR and (b) the related Benchmark Replacement Adjustment, as set forth in clause (1) of this definition (subject to the first proviso above).
If the Benchmark Replacement as determined pursuant to clause (1), (2) or (3) of this definition would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement:
(1) for purposes of clauses (1) and (2) of the definition of “Benchmark Replacement,” the first alternative set forth in the order below that can be determined by the Administrative Agent:
(a) the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that has been selected or recommended by the Relevant Governmental Body for
the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for the applicable Corresponding Tenor;
(b) the spread adjustment (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that would apply to the fallback rate for a derivative transaction referencing the ISDA Definitions to be effective upon an index cessation event with respect to such Benchmark for the applicable Corresponding Tenor; and
(2) for purposes of clause (3) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date and/or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for syndicated credit facilities denominated in the applicable Agreed Currency at such time;
provided that, in the case of clause (1) above, such adjustment is displayed on a screen or other information service that publishes such Benchmark Replacement Adjustment from time to time as selected by the Administrative Agent in its reasonable discretion.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “ABR,” the definition of “Business Day,” the definition of “SONIA Business Day”, the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means, with respect to any Benchmark, the earliest to occur of the following events with respect to such then-current Benchmark:
(1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof);
(2) in the case of clause (3) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be no longer representative; provided, that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (3) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date;
(3) in the case of a Term SOFR Transition Event, the date that is thirty (30) days after the date a Term SOFR Notice is provided to the Lenders and the Borrower pursuant to Section 3.08(b); or
(4) in the case of an Early Opt-in Election or an Other Benchmark Rate Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election or Other Benchmark Rate Election, as applicable, is provided to the Lenders, so long as the Administrative Agent has not received, by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election or Other Benchmark Rate Election, as applicable, is provided to the Lenders, written notice of objection to such Early Opt-in Election or Other Benchmark Rate Election, as applicable, from Lenders comprising the Required Lenders.
For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means, with respect to any Benchmark, the occurrence of one or more of the following events with respect to such then-current Benchmark:
(1) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(2) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the NYFRB, the central bank for the currency applicable to such Benchmark, , an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), in each case, which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors
of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(3) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer, or as of a specified future date will no longer be, representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means, with respect to any Benchmark, the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Sections 3.03 and 3.08 and (y) ending at the time that a Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.03 and 3.08.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan.”
“BHC Act Affiliate” has the meaning specified in Section 11.20(b).
“Board of Governors” means the Board of Governors of the United States Federal Reserve System.
“Borrower” has the meaning specified in the introductory paragraph hereto.
“Borrower Materials” means materials and/or information made available to the Lenders by the Administrative Agent or provided by or on behalf of the Borrower under this Agreement.
“Borrowing” means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Term Benchmark Loans, having the same Interest Period, made by each of the Lenders pursuant to Section 2.01.
“Business Day” means, any day (other than a Saturday or a Sunday) on which banks are open for business in New York City, or (a) in relation to the calculation or computation of LIBOR, any day (other than a Saturday or a Sunday) on which banks are open for business in London, (b) in relation to
Committed Loans denominated in Euros and in relation to the calculation or computation of EURIBOR, any day which is a TARGET Day, (c) in relation to Committed Loans denominated in Australian Dollars and in relation to the calculation or computation of BBSY, any day (other than a Saturday or a Sunday) on which banks are open for business in Australia, (d) in relation to Committed Loans denominated in Canadian Dollars and in relation to the calculation or computation of CDOR, any day (other than a Saturday or a Sunday) on which banks are open for business in Canada and (e) in relation to SONIA Loans and any interest rate settings, fundings, disbursements, settlements or payments of any such SONIA Loan, or any other dealings in Sterling, any such day that is only a SONIA Business Day.
“Canadian Dollar” mean lawful money of Canada.
“Canadian Prime Rate” means, on any day, the rate determined by the Administrative Agent to be the higher of (i) the rate equal to the PRIMCAN Index rate that appears on the Bloomberg screen at 10:15 a.m. Toronto time on such day (or, in the event that the PRIMCAN Index is not published by Bloomberg, any other information services that publishes such index from time to time, as selected by the Administrative Agent in its reasonable discretion) and (ii) the average rate for thirty (30) day Canadian Dollar bankers’ acceptances that appears on the Reuters Screen CDOR Page (or, in the event such rate does not appear on such page or screen, on any successor or substitute page or screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time, as selected by the Administrative Agent in its reasonable discretion) at 10:15 a.m. Toronto time on such day, plus 1% per annum; provided, that if any of the above rates shall be less than 1%, such rate shall be deemed to be 1% for purposes of this Agreement. Any change in the Canadian Prime Rate due to a change in the PRIMCAN Index or the CDOR shall be effective from and including the effective date of such change in the PRIMCAN Index or CDOR, respectively.
“Canadian Prime Rate Loan” or “Canadian Prime Rate Borrowing” means a Loan or Borrowing, respectively, denominated in Canadian Dollars the rate of interest applicable to which is based upon the Canadian Prime Rate.
“Cash Management Services” has the meaning assigned to such term in the definition of the term “Secured Cash Management Obligations.”
“CDOR Interpolated Rate” means, at any time, the rate per annum determined by the Administrative Agent to be equal to the rate that results from interpolating on a linear basis between: (a) the CDOR Screen Rate for the longest period for which the CDOR Screen Rate is available that is shorter than the Impacted CDOR Interest Period and (b) the CDOR Screen Rate for the shortest period for which the CDOR Screen Rate is available that exceeds the Impacted CDOR Interest Period, in each case, at such time. If at any time the CDOR Interpolated Rate is less than zero, the CDOR Interpolated Rate shall be deemed to be zero for purposes of this Agreement.
“CDOR Rate” means, with respect to any Term Benchmark Borrowing denominated in Canadian Dollars and for any Interest Period, the CDOR Screen Rate at approximately 11:00 A.M., Toronto, Ontario time, two Business Days prior to the beginning of such Interest Period; provided, that, if the CDOR Screen Rate shall not be available at such time for such Interest Period (a “Impacted CDOR Interest Period”) with respect to Canadian Dollars, then the CDOR Rate for Canadian Dollars shall be the CDOR Interpolated Rate at such time.
“CDOR Screen Rate” means on any day for the relevant Interest Period, the annual rate of interest equal to the average rate applicable to Canadian Dollar Canadian bankers’ acceptances for the applicable
period that appears on the “Reuters Screen CDOR Page” as defined in the International Swap Dealer Association, Inc. definitions, as modified and amended from time to time (or, in the event such rate does not appear on such page or screen, on any successor or substitute page or screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time, as selected by the Administrative Agent in its reasonable discretion), rounded to the nearest 1/100th of 1% (with .005% being rounded up), as of 10:15 a.m. Toronto local time on the first day of such Interest Period and, if such day is not a business day, then on the immediately preceding business day (as adjusted by Administrative Agent after 10:15 a.m. Toronto local time to reflect any error in the posted rate of interest or in the posted average annual rate of interest). If the CDOR Screen Rate shall be less than zero, the CDOR Screen Rate shall be deemed to be zero for purposes of this Agreement.
“Central Bank Rate” means (A) the greater of (i) for any Committed Loan denominated in (a) Sterling, the Bank of England (or any successor thereto)’s “Bank Rate” as published by the Bank of England (or any successor thereto) from time to time, and (b) Euro, one of the following three rates as may be selected by the Administrative Agent in its reasonable discretion: (1) the fixed rate for the main refinancing operations of the European Central Bank (or any successor thereto), or, if that rate is not published, the minimum bid rate for the main refinancing operations of the European Central Bank (or any successor thereto), each as published by the European Central Bank (or any successor thereto) from time to time, (2) the rate for the marginal lending facility of the European Central Bank (or any successor thereto), as published by the European Central Bank (or any successor thereto) from time to time or (3) the rate for the deposit facility of the central banking system of the Participating Member States, as published by the European Central Bank (or any successor thereto) from time to time, and (c) any other Alternative Currency determined after the Closing Date, a central bank rate as determined by the Administrative Agent in its reasonable discretion and (ii) 0% ; plus (B) the applicable Central Bank Rate Adjustment.
“Central Bank Rate Adjustment” means, for any day, for any Committed Loan denominated in (a) Sterling, a rate equal to the difference (which may be a positive or negative value or zero) of (i) the average of Adjusted Daily Simple SONIA for the five most recent SONIA Business Days preceding such day for which Adjusted Daily Simple SONIA was available (excluding, from such averaging, the highest and the lowest Adjusted Daily Simple SONIA applicable during such period of five SONIA Business Days) minus (ii) the Central Bank Rate in respect of Sterling in effect on the last SONIA Business Day in such period, (b) Euro, a rate equal to the difference (which may be a positive or negative value or zero) of (i) the average of the EURIBOR Rate for the five most recent Business Days preceding such day for which the EURIBOR Screen Rate was available (excluding, from such averaging, the highest and the lowest EURIBOR Rate applicable during such period of five Business Days) minus (ii) the Central Bank Rate in respect of Euro in effect on the last Business Day in such period and (c) any other Alternative Currency, a Central Bank Rate Adjustment as determined by the Administrative Agent in its reasonable discretion. For purposes of this definition, (x) the term Central Bank Rate shall be determined disregarding clause (B) of the definition of such term and (y) each of the EURIBOR Rate and the TIBOR Rate on any day shall be based on the EURIBOR Screen Rate or the TIBOR Screen Rate, as applicable, on such day at approximately the time referred to in the definition of such term for deposits in the applicable Agreed Currency for a maturity of one month; provided that if such rate shall be less than 0.00%, such rate shall be deemed to be 0.00%.
“Change in Law” means the occurrence, after the date of this Agreement or, with respect to any Issuing Bank or Lender, such later date on which such Issuing Bank or Lender becomes a party to this Agreement), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or
application thereof by any Governmental Authority or (c) the making or issuance of any guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and all rules, guidelines or directives thereunder or issued in connection therewith and (y) all rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, in each case shall be deemed to be a “Change in Law,” to the extent enacted, adopted, promulgated or issued after the date of this Agreement, but only to the extent such rules, regulations, or published interpretations or directives are applied to the Borrower and its Subsidiaries by the Administrative Agent or any Lender in substantially the same manner as applied to other similarly situated borrowers under comparable syndicated credit facilities, including, without limitation, for purposes of Section 3.04.
“Change of Control” means any of the following:
(i) at any time prior to the consummation of an IPO, the failure by the Permitted Holders to beneficially own at least 50.1% of the aggregate voting interests in the Equity Interests of the Borrower on a fully diluted basis; or
(ii) at any time after the consummation of an IPO, any Person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, or any successor provision) other than the Permitted Holders (a) shall have acquired beneficial ownership of 35% or more on a fully diluted basis of the voting interests in the Equity Interests of the Relevant Public Company or (b) shall have obtained the power (whether or not exercised) to elect a majority of the members of the Board of Directors of the Relevant Public Company.
For purposes of this definition, (i) “beneficial ownership” shall be as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act, (ii) the phrase Person or “group” is within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such Person or “group” and its subsidiaries and any Person acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and (iii) if any Person or “group” includes one or more Permitted Holders, the issued and outstanding Equity Interests of the Borrower, directly or indirectly, owned by the Permitted Holders that are part of such Person or “group” shall not be treated as being owned by such Person or “group” (other than Permitted Holders specified in clause (1) of the definition thereof) for purposes of determining whether this definition is triggered.
“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 11.01.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Collateral” means, collectively, all of the real, personal and mixed property (including Equity Interests) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Secured Obligations, but excluding any Excluded Assets.
“Collateral Agreement” means the Collateral Agreement among the Borrower, each other Loan Party and the Administrative Agent, substantially in the form of Exhibit F.
“Collateral Documents” means the Collateral Agreement, the Mortgages, if any, the Intellectual Property Security Agreements, if any, and all other instruments, documents and agreements delivered by or on behalf or at the request of any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to, or perfect in favor of, the Administrative Agent, for the benefit of the Secured Parties, a Lien on any real, personal or mixed property of that Loan Party as security for the Secured Obligations.
“Collateral Period” means the period commencing on the Closing Date and ending on the date on which the Collateral Release Event occurs.
“Collateral Release Event” means the first date, if any, that occurs after Closing Date, on which the following conditions are satisfied: (a) no Default or Event of Default shall exist and be continuing, (b) the Ratings Condition shall have been satisfied and (c) the Administrative Agent shall have received a certificate executed by a Responsible Officer of the Borrower confirming the satisfaction of the foregoing conditions and requesting that the Administrative Agent release all Liens.
“Commitment” means, as to any Lender, the obligation of such Lender, if any, to make Loans and Letters of Credit in an aggregate principal amount and/or face amount not to exceed the amount set forth under the heading “Commitment” opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms and conditions hereof. The aggregate amount of the Commitments on the Closing Date is $750,000,000.
“Commitment Fee” has the meaning specified in Section 2.07(a).
“Committed Loan” has the meaning specified in Section 2.01.
“Committed Loan Notice” means a notice of (a) a Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Term Benchmark Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A, or such other form as may be approved by the Administrative Agent (including any form on an electronic platform or electronic transmission system as shall be approved by the Administrative Agent), appropriately completed and signed by a Responsible Officer of the Borrower.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“Compliance Certificate” means a certificate substantially in the form of Exhibit C.
“Computation Date” means (a) with respect to any Loan denominated in any Alternative Currency, each of the following: (i) the date of the Borrowing of such Loan and (ii) with respect to any Term Benchmark Loan, each date of a conversion into or continuation of such Loan pursuant to the terms of this Agreement; (b) with respect to any Letter of Credit denominated in an Alternative Currency, each of the following: (i) the date on which such Letter of Credit is issued, (ii) the first Business Day of each calendar month and (iii) the date of any amendment of such Letter of Credit that has the effect of increasing the face amount thereof; and (c) any additional date as the Administrative Agent may determine at any time when an Event of Default exists.
“Consolidated EBITDA” means, for any period, for the Borrower and its Restricted Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income for such period plus the following to the extent deducted in calculating such Consolidated Net Income:
(a) provision for income taxes,
(b) interest expense and other income (expense),
(c) depreciation and amortization expense (including amortization or impairment of Intangible Assets for Acquisitions or Dispositions) for such period,
(d) stock-based compensation expense,
(e) restructuring charges,
(f) payroll taxes on exercise of stock options or vesting of restricted stock units or other equity awards in such period,
(g) impairment of goodwill or other assets in such period,
(h) unusual or non-recurring charges or losses,
(i) any GAAP transaction expenses related to Acquisitions and other investments, Dispositions, the incurrence of any Indebtedness permitted pursuant to clause 7.05 and the transfer of Intellectual Property to any Restricted Subsidiary, in each case, whether or not consummated,
(j) (x) unrealized net losses on obligations under any Swap Contract or other derivative instruments and from the revaluation of foreign currency denominated assets or liabilities, (y) bank and letter of credit fees and other financing fees and (z) costs of equity or debt offerings, including surety bonds, in connection with financing activities,
(k) any other non-cash expenses, non-cash losses and non-cash charges, including any write-offs or write-downs reducing Consolidated Net Income for such period (provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future period, (A) the Borrower may elect not to add back such non-cash charge in the current period and (B) to the extent the Borrower elects to add back such non-cash charge, the cash payment in respect thereof in such future period shall be subtracted from Consolidated EBITDA to such extent), but excluding amortization of a prepaid cash item that was paid in a prior period,
(l) “run rate” cost savings, operating expense reductions and synergies related to mergers and other business combinations, Acquisitions, divestitures, restructurings, cost savings initiatives and other similar initiatives consummated after the Closing Date that are reasonably identifiable and factually supportable and projected by the Borrower, in good faith to result from actions that have been taken or with respect to which substantial steps have been taken or are expected to be taken (in the reasonable and good faith determination of the Borrower and as certified to by the chief executive officer, chief financial officer, treasurer, chief accounting officer or controller of the Borrower in a certificate delivered to the Administrative Agent), within 24 months after a merger or other business combination, Acquisition, divestiture, restructuring, cost savings initiative or other initiative is consummated, net of the amount of actual benefits realized during
such period from such actions, in each case calculated on a pro forma basis as though such cost savings, operating expense reductions and synergies had been realized on the first day of such period for which Consolidated EBITDA is being determined and as if such cost savings, operating expense reductions and synergies were realized during the entirety of such period; provided that the aggregate amount added pursuant to this clause (l) together with any cost savings included pursuant to the definition of Pro Forma Adjustment for such period, collectively, shall not exceed 15.0% of Consolidated EBITDA for such period (calculated prior to giving effect to the addition of all such amounts),
(m) any net loss for such period from disposed, abandoned or discontinued operations,
(n) net changes to the reserves for goods and services tax, value add taxes, lodging taxes or similar taxes for which management believes it is probable that the Borrower may be held jointly liable with hosts for collecting and remitting such taxes, and other similar taxes and
(o) any GAAP expenses incurred associated with an initial public offering or other offering of Equity Interests, including related payroll taxes (regardless of whether or not a registration statement is declared effective)
and minus the following to the extent included in calculating such Consolidated Net Income: (w) extraordinary gains, (x) interest income, (y) any reversals of non-cash exit and disposal costs during such period and any non-cash gains increasing Consolidated Net Income of the Borrower for such period, excluding any non-cash gains to the extent they represent the reversal of an accrual or reserve for a potential cash item that reduced Consolidated EBITDA in any prior period and any non-cash gains with respect to cash actually received in a prior period so long as such cash did not increase Consolidated EBITDA in such prior period and (z) any net income for such period from disposed, abandoned or discontinued operations.
There shall be included in determining Consolidated EBITDA for any period, without duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by the Borrower or any Restricted Subsidiary during such period (but not the Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired), to the extent not subsequently sold, transferred or otherwise disposed by the Borrower or such Restricted Subsidiary during such period (each such Person, property, business or asset acquired and not subsequently so disposed of, an “Acquired Entity or Business”) and the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during such period (each, a “Converted Restricted Subsidiary”), based on the actual Acquired EBITDA of such Acquired Entity or Business or Converted Restricted Subsidiary for such period (including the portion thereof occurring prior to such Acquisition or conversion) and (B) for the purposes of calculating the Senior Leverage Ratio, an adjustment in respect of each Acquired Entity or Business equal to the amount of the Pro Forma Adjustment with respect to such Acquired Entity or Business for such period (including the portion thereof occurring prior to such Acquisition) as specified in a certificate executed by the chief executive officer, chief financial officer, treasurer, chief accounting officer or controller of the Borrower and delivered to the Lenders and the Administrative Agent. There shall be excluded in determining Consolidated EBITDA for any period the Disposed EBITDA of any Person, property, business or asset (other than an Unrestricted Subsidiary) sold, transferred or otherwise disposed of or, closed or classified as discontinued operations (but if such operations are classified as discontinued due to the fact that they are subject to an agreement to dispose of such operations, only when and to the extent such operations are actually disposed of) by the Borrower or any Restricted Subsidiary during such period (each such Person, property, business or asset so sold or disposed of, a “Sold Entity or
Business”) and the Disposed EBITDA of any Restricted Subsidiary that is converted into an Unrestricted Subsidiary during such period (each, a “Converted Unrestricted Subsidiary”), based on the actual Disposed EBITDA of such Sold Entity or Business or Converted Unrestricted Subsidiary for such period (including the portion thereof occurring prior to Disposition).
“Consolidated Net Income” means, for any period, for the Borrower and its Restricted Subsidiaries on a consolidated basis, the net income of the Borrower and its Restricted Subsidiaries (excluding extraordinary gains and extraordinary losses) for that period and computed in accordance with GAAP.
“Consolidated Total Assets” means, as of any date of determination, all assets that would, in conformity with GAAP, be set forth under the caption “total assets” (or any like caption) on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries at such date.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Controlled Foreign Corporation” means a “controlled foreign corporation” within the meaning of Section 957(a) of the Code.
“Converted Restricted Subsidiary” has the meaning specified in the definition of “Consolidated EBITDA”.
“Converted Unrestricted Subsidiary” has the meaning specified in the definition of “Consolidated EBITDA”.
“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.
“Convertible Notes” mean Indebtedness (including debt securities) of the Borrower, (a) the terms of which provide for conversion and/or exchange into shares of common stock of the Borrower, cash by reference to the price of the Borrower’s common stock or a combination thereof, (b) that matures after, and does not provide for scheduled cash payments of principal or mandatory redemption in cash (other than cash payments for fractional shares and as a result of a fundamental change) prior to the 91st day following the Maturity Date and (c) has no obligors other than the Borrower.
“Counterpart Agreement” means a joinder to this Agreement substantially in the form of Exhibit H.
“Covered Entity” has the meaning specified in Section 11.20(b).
“Covered Party” has the meaning specified in Section 11.20(a).
“Credit Extension” means each of the following: (a) a Borrowing and (b) an LC Credit Extension.
“Credit Party” means the Administrative Agent or any Issuing Bank (and, for purposes of Section 2.17, each Lender).
“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which may include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for business loans; provided that, if the Administrative Agent decides that any such convention is not administratively feasible for the Administrative Agent, then the Administrative Agent may establish another convention in its reasonable discretion.
“Daily Simple SONIA” means, for any day (an “SONIA Interest Day”), an interest rate per annum equal to the greater of (a) SONIA for the day that is five Business Days prior to (A) if such SONIA Interest Day is a Business Day, such SONIA Interest Day or (B) if such SONIA Interest Day is not a Business Day, the Business Day immediately preceding such SONIA Interest Day and (b) 0%. Any change in Daily Simple SONIA due to a change in SONIA shall be effective from and including the effective date of such change in SONIA without notice to the Borrower.
“Debtor Relief Laws” means the Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
“Default Rate” means, with respect to the Obligations, an interest rate equal to (i) the ABR plus (ii) the Applicable Rate, if any, applicable to ABR Loans plus (iii) 2% per annum; provided, however, that with respect to a Term Benchmark, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum.
“Default Right” has the meaning specified in Section 11.20(b).
“Defaulting Lender” means any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied), (c) has failed, within three Business Days after written request by a Credit Party, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations to fund prospective Loans and participations in then outstanding Letters of Credit under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance reasonably satisfactory to such Credit Party and the Administrative Agent or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other
state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.
“Disclosure Letter” means the disclosure letter and schedules attached thereto, dated as of the Closing Date, as amended or supplemented from time to time to the extent expressly required by the terms of this Agreement, delivered by the Borrower to the Administrative Agent for the benefit of the Lenders.
“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property, right or asset by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
“Disposed EBITDA” means, with respect to any Sold Entity or Business or any Converted Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA of such Sold Entity or Business (determined as if references to the Borrower and the Restricted Subsidiaries in the definition of “Consolidated EBITDA” (and in the component definitions used therein) were references to such Sold Entity or Business and its Subsidiaries or such Converted Unrestricted Subsidiary and its Subsidiaries) or such Converted Unrestricted Subsidiary, all as determined on a consolidated basis for such Sold Entity or Business or such Converted Unrestricted Subsidiary.
“Disqualified Equity Interests” means any Equity Interests that, by their terms (or by the terms of any security or other Equity Interest into which they are convertible or for which they are exchangeable) or upon the happening of any event or condition, (a) mature or are mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), (b) are redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests) (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), in whole or in part, (c) provide for the scheduled payment of dividends in cash or (d) are or become convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is 91 days after the Maturity Date; provided that if such Equity Interests are issued pursuant to a plan for the benefit of the Borrower or its Subsidiaries or by any such plan to such officers or employees, such Equity Interests shall not constitute Disqualified Equity Interests solely because they may be required to be repurchased by the Borrower or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations.
“Disqualified Lenders” means (a) those Persons identified by the Borrower to the Arrangers in writing prior to the Closing Date, (b) those Persons who are competitors of the Borrower and its Subsidiaries identified by the Borrower to the Administrative Agent (or, if prior to the Closing Date, to the Arrangers) from time to time in writing (including by email) and (c) in the case of each Persons
identified pursuant to clauses (a) and (b) above, any of their Affiliates that are either (i) identified in writing by the Borrower to ### from time to time (which designation shall become effective two (2) days after delivery of each such written designation to ###, but which shall not apply retroactively to disqualify any persons that have previously acquired an assignment or participation interest in any Loan) or (ii) reasonably identifiable as Affiliates on the basis of such Affiliate’s name (other than Affiliates that are bona fide diversified debt investment funds or banks or financial institutions or other entities which are regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets in the loan market); provided that no updates to the Disqualified Lender list shall be deemed to retroactively disqualify any parties that have previously acquired an assignment or participation in respect of the Loans or Commitments from continuing to hold or vote such previously acquired assignments and participations on the terms set forth herein for Lenders that are not Disqualified Lenders. Any supplement to the list of Disqualified Lenders pursuant to clause (b) or (c) above shall be sent by the Borrower to ### Agent in writing (including by email) and such supplement shall take effect two (2) days after such notice is received by the Administrative Agent (it being understood that no such supplement to the list of Disqualified Lenders shall operate to disqualify any Person that is already a Lender).
“Dollar Equivalent” means, for any amount, at the time of determination thereof, (a) if such amount is expressed in U.S. Dollars, such amount, (b) if such amount is expressed in an Alternative Currency, the equivalent of such amount in dollars determined by using the rate of exchange for the purchase of dollars with the Alternative Currency last provided (either by publication or otherwise provided to the Administrative Agent) by Reuters on the Business Day (New York City time) immediately preceding the date of determination or if such service ceases to be available or ceases to provide a rate of exchange for the purchase of dollars with the Alternative Currency, as provided by such other publicly available information service which provides that rate of exchange at such time in place of Reuters chosen by the Administrative Agent in its sole discretion (or if such service ceases to be available or ceases to provide such rate of exchange, the equivalent of such amount in dollars as determined by the Administrative Agent using any method of determination it deems appropriate in its sole discretion) and (c) if such amount is denominated in any other currency, the equivalent of such amount in dollars as determined by the Administrative Agent using any method of determination it deems appropriate in its sole discretion.
“Domestic Subsidiary” means any Subsidiary that is organized under the laws of the United States, any state thereof or the District of Columbia.
“DQ List” has the meaning specified in Section 11.06(h)(iv).
“Early Opt-in Election” means, if the then current Benchmark with respect to U.S. Dollar is the LIBO Rate, the occurrence of:
(1) a notification by the Administrative Agent to (or the request by the Borrower to the Administrative Agent to notify) each of the other parties hereto that at least five currently outstanding U.S. Dollar denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed) a SOFR-based rate (including SOFR, a term SOFR or any other rate based upon SOFR) as a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review), and
(2) the joint election by the Administrative Agent and the Borrower to trigger a fallback from the LIBO Rate and the provision, as applicable, by the Administrative Agent of written notice of such election to the Borrower and the Lenders.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country that is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country that is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 11.06(b) (subject to such consents, if any, as may be required under Section 11.06(b)(iii)).
“Engagement Letter” means the Engagement Letter, dated as of September 22, 2021, between the Borrower and JPMorgan.
“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to (i) the environment, (ii) preservation or reclamation of natural resources, (iii) the management, release or threatened release of any Hazardous Material or (iv) health and safety matters.
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests, (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and (f) any and all warrants, rights, restricted stock units, options or other instruments to purchase any of the foregoing; provided that Equity Interests shall not include any Convertible Notes.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with any Loan Party is (i) treated as a “single employer” within the meaning of Sections 414(b) or (c) of the Code (or Sections 414(m) or (o) of the Code for purposes of provisions relating to Sections 412 and 430 of the Code) or (ii) under common control, within the meaning of Section 4001(a)(14) of ERISA.
“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan; (d) the failure of any Loan Party or any ERISA Affiliate to make by its due date a required installment under Section 430(j) of the Code with respect to any Pension Plan or any failure by any Pension Plan to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Pension Plan, whether or not waived in accordance with Section 412(c) of the Code or Section 302(c) of ERISA; (e) the filing pursuant to Section 412 of the Code or Section 302 of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (f) the failure by any Loan Party or any of its ERISA Affiliates to pay when due (after expiration of any applicable grace period) any installment payment with respect to Withdrawal Liability under Section 4201 of ERISA; (g) the filing of a notice of intent to terminate a Pension Plan or Multiemployer Plan, the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA, the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan, or the appointment of a trustee to administer any Pension Plan or Multiemployer Plan pursuant to Section 4042 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any ERISA Affiliate.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“EURIBOR Interpolated Rate” means, at any time, with respect to any Term Benchmark Borrowing denominated in Euros and for any Interest Period, the rate per annum (rounded to the same number of decimal places as the EURIBOR Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the EURIBOR Screen Rate for the longest period for which the EURIBOR Screen Rate is available that is shorter than the Impacted EURIBOR Rate Interest Period; and (b) the EURIBOR Screen Rate for the shortest period for which the EURIBOR Screen Rate is available that exceeds the Impacted EURIBOR Rate Interest Period, in each case, at such time; provided that, if any EURIBOR Interpolated Rate shall be less than 0%, such rate shall be deemed to be 0% for the purposes of this Agreement.
“EURIBOR Rate” means, with respect to any Term Benchmark Borrowing denominated in Euros and for any Interest Period, the EURIBOR Screen Rate at approximately 11:00 a.m., Brussels time, two TARGET Days prior to the commencement of such Interest Period; provided that, if the EURIBOR Screen Rate shall not be available at such time for such Interest Period (an “Impacted EURIBOR Rate Interest Period”) with respect to Euros then the EURIBOR Rate shall be the EURIBOR Interpolated Rate.
“EURIBOR Screen Rate” means the euro interbank offered rate administered by the European Money Markets Institute (or any other person which takes over the administration of that rate) for the relevant period displayed (before any correction, recalculation or republication by the administrator) on page EURIBOR01 of the Thomson Reuters screen (or any replacement Thomson Reuters page which displays that rate) or on the appropriate page of such other information service which publishes that rate from time to time in place of Thomson Reuters as of 11:00 a.m. Brussels time two TARGET Days prior to the commencement of such Interest Period. If such page or service ceases to be available, the Administrative Agent may specify another page or service displaying the relevant rate after consultation with the Borrower. If the EURIBOR Screen Rate shall be less than 0%, the EURIBOR Screen Rate shall be deemed to be 0% for purposes of this Agreement.
“Euro” means the single currency of the participating member states of the European Union.
“Event of Default” has the meaning specified in Section 8.01.
“Exchange Act” means the Securities Exchange Act of 1934.
“Excluded Assets” means:
(i) any Real Estate Asset that (a) is a leasehold interest (with no requirement to obtain leasehold mortgages, landlord waivers, bailee waivers, estoppels or collateral access letters), or (b) is not a Material Real Estate;
(ii) except to the extent a security interest therein can be perfected by filing of a UCC financing statement, assets located outside the United States or assets that require action under the law of any non-U.S. jurisdiction to create or perfect a security interest in such assets under such non-U.S. jurisdiction (it being understood that no security agreements or pledge agreements governed under the laws of any non-U.S. jurisdiction shall be required;
(iii) property and assets to the extent that the Administrative Agent may not validly possess a security interest therein under, or such security interest is restricted by, applicable Laws or the pledge or creation of a security interest in which would require governmental consent, approval, license or authorization, other than to the extent such prohibition or limitation is rendered ineffective under the UCC or other applicable Law notwithstanding such prohibition;
(iv) assets of and Equity Interests in any Person (other than a wholly owned Subsidiary) that is not a Loan Party to the extent a security interest is not permitted to be granted by the terms of such Person’s Organization Documents, joint venture documents, partnership documents or other equity documents;
(v) leases, licenses, permits or agreements (including with respect to any Purchase Money Indebtedness) to the extent that, and so long as, a grant of a security interest therein, or in the property or assets that secure the underlying obligations with respect thereto (a) is prohibited by applicable Law other than to the extent such prohibition is rendered ineffective under the UCC or other applicable Law notwithstanding such prohibition or (b) would violate or invalidate such lease, license, permit or agreement, or create a right of termination in favor of, or require the consent of, any other party thereto (other than the Borrower and its Subsidiaries) (in each case, after
giving effect to the relevant provisions of the UCC or other applicable Laws), in each case, other than the proceeds thereof;
(vi) governmental licenses, state or local franchises, charters and authorizations and any other property and assets to the extent that the Administrative Agent may not validly possess a security interest therein under, or such security interest is restricted by, applicable Laws (including, without limitation, rules and regulations of any Governmental Authority or agency) or the pledge or creation of a security interest in which would require governmental consent, approval, license or authorization, other than to the extent such prohibition or limitation is rendered ineffective under the UCC or other applicable Law notwithstanding such prohibition (but excluding proceeds of any such governmental license), or otherwise require governmental consent thereunder (after giving effect to the applicable anti-assignment provisions of the UCC or other applicable law);
(vii) Margin Stock;
(viii) Equity Interests of all Controlled Foreign Corporations of a Grantor in excess of 65% of the voting Equity Interests of such Controlled Foreign Corporations;
(ix) Equity Interests of any Foreign Subsidiary Holding Company in excess of 65% of the voting Equity Interests of such Foreign Subsidiary Holding Company;
(x) any intent-to-use trademark application prior to the filing of a “Statement of Use” or “Amendment to Allege Use” with respect thereto and acceptance of such filing by the United States Patent and Trademark Office, solely to the extent that, and during the period, if any, in which, the grant of a security interest therein would impair the validity or enforceability of any registration that issues from such intent-to-use application under applicable federal law (it being understood that after such period such intent-to-use application shall be automatically subject to the security interest granted herein and deemed to be included in the Collateral);
(xi) motor vehicles, airplanes, vessels and other assets subject to certificate of title;
(xii) payroll accounts, employee benefit accounts, withholding tax and other fiduciary accounts, escrow accounts, in each case of the foregoing, in respect of arrangements with non-affiliated third parties, worker’s compensation, customs accounts, customer cash accounts, trust and tax withholding which are funded by the Loan Parties in the ordinary course of business or as is required by Law and, cash collateral accounts subject to Liens permitted under the Credit Agreement; in each case of this clause (xii), other than proceeds that are held in such accounts that would otherwise constitute Collateral;
(xiii) particular assets if, and for so long as, in each case, reasonably agreed by the Administrative Agent and the Borrower, the cost of creating or perfecting such pledges or security interests in such assets exceed the practical benefits to be obtained by the Lenders therefrom;
(xiv) assets for which the grant of a security interest therein would result in material adverse tax or regulatory costs or consequences as reasonably determined by the Borrower and the Administrative Agent;
(xv) commercial tort claims where the amount of damages claimed is not in excess of $25,000,000;
(xvi) letter of credit rights, except to the extent constituting supporting obligations;
(xvii) any asset of any Foreign Subsidiary that is a Controlled Foreign Corporation or any Foreign Subsidiary Holding Company;
(xviii) cash held on behalf of customers by the Borrower or any Subsidiary of the Borrower and cash constituting minimum regulatory cash or capital requirements; and
(xix) Equity Interests of any Excluded Subsidiary (other than Subsidiaries described in clauses (i), (iii) or (vi) of the definition thereof that are wholly-owned and are not otherwise Subsidiaries described in clause (ii), (iv), (v), (viii) or (xiii) of the definition of “Excluded Subsidiary”, but subject to the other limitations in this definition, including, without limitation, in clauses (viii) and (ix) of this definition).
Notwithstanding the foregoing, (i) “Excluded Assets” shall not include proceeds, substitutions or replacements of any Excluded Asset unless such proceeds, substitutions or replacements would independently constitute Excluded Assets and (ii) no assets shall constitute Excluded Assets if such assets constitute collateral for any Material Indebtedness.
“Excluded Earnout” means any contingent obligations of the Borrower or any Subsidiary to pay additional consideration in connection with any Acquisition, if (a) such additional consideration is payable (i) in capital stock or other Equity Interests, (ii) in cash or (iii) any combination of the foregoing and (b) such obligation is contingent upon, or varies in amount based upon, the performance of the Person or of the assets so acquired, continued employment of any individual(s) or one or more financial, business, performance or other customary criteria.
“Excluded Subsidiary” means (i) any Subsidiary that is not a wholly-owned Domestic Subsidiary of the Borrower or a Guarantor, (ii) any Subsidiary that is prohibited or restricted by applicable Law or by contractual obligations existing on the Closing Date (or, in the case of any newly acquired Subsidiary, in existence at the time of Acquisition but not entered into in contemplation thereof) from guaranteeing the Obligations or if guaranteeing the Obligations would (1) require governmental (including regulatory) consent, approval, license or authorization or (2) that could result in material adverse tax consequences to the Borrower and its Subsidiaries as reasonably determined by the Borrower and the Administrative Agent, (iii) any Foreign Subsidiary Holding Company, (iv) any captive insurance company, license insurance company, insurance agency(ies), risk purchase group or any insurance company that is a Subsidiary of the Borrower, (v) any Immaterial Subsidiary, (vi) any direct or indirect Foreign Subsidiary of the Borrower that is a Controlled Foreign Corporation, (vii) any direct or indirect Domestic Subsidiary that is a direct or indirect Subsidiary of a Foreign Subsidiary that is a Controlled Foreign Corporation, (viii) any not-for-profit Subsidiaries, (ix) any special purpose entity or special purpose securitization vehicle (or similar entity), (x) any joint venture or (xi) any Subsidiary with respect to which, in the reasonable judgment of the Borrower and the Administrative Agent, the burden or cost of providing a Guarantee shall be excessive in view of the benefits to be obtained by the Lenders therefrom.
Notwithstanding anything set forth herein, no Subsidiary providing any guarantee or that is a borrower in respect of any Material Indebtedness shall constitute an Excluded Subsidiary.
“Excluded Swap Obligation” means, with respect to any Guarantor, (a) any Swap Contract if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, as applicable, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the U.S. Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act (determined after giving effect to any applicable keep well, support, or other agreement for the benefit of such Guarantor and any and all Guarantees of such Guarantor’s Swap Obligations by other Loan Parties) at the time the Guarantee of such Guarantor, or a grant by such Guarantor of a security interest, becomes effective with respect to such Swap Obligation or (b) any other Swap Obligation designated as an “Excluded Swap Obligation” of such Guarantor as specified in any agreement between the relevant Loan Parties and counterparty applicable to such Swap Obligations. If a Swap Obligation arises under a Master Agreement governing more than one Swap Contract, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to Swap Contracts for which such Guarantee or security interest is or becomes excluded in accordance with the first sentence of this definition.
“Excluded Taxes” means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party under any Loan Document: (a) Taxes imposed on or measured by net income (however denominated), and franchise Taxes imposed on it (in lieu of net income taxes), by any jurisdiction as a result of (i) such recipient being organized under the laws of or having its principal office located in or, in the case of any Lender, having its applicable Lending Office located in such jurisdiction (or any political subdivision thereof), or (ii) any other present or former connection between such recipient and such jurisdiction (other than a connection arising solely from such recipient having executed, delivered, enforced, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document); (b) any branch profits Taxes under Section 884(a) of the Code, or any similar tax, imposed on such recipient by any jurisdiction described in clause (a) above; (c) in the case of a Lender, any U.S. federal withholding Tax that is imposed on amounts payable to or for the account of such Lender pursuant to a Law in effect at the time such Lender becomes a party hereto (other than pursuant to an assignment request by any Loan Party under Section 11.13) or designates a new Lending Office, except to the extent that such Lender’s assignor was entitled, immediately prior to the assignment, or such Lender was entitled, immediately prior to the designation of a new Lending Office, to receive additional amounts from any Loan Party with respect to such withholding Tax pursuant to Section 3.01(a); (d) any Taxes attributable to such recipient's failure to comply with Section 3.01(f); and (e) any withholding Taxes imposed pursuant to FATCA.
“Existing Letters of Credit” means each of the letters of credit listed on Schedule 1.01 to the Disclosure Letter.
“Existing Maturity Date” has the meaning specified in Section 2.12(a).
“Extending Lender” has the meaning specified in Section 2.12(b).
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations thereunder or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“Federal Funds Effective Rate” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions, as determined in such manner as shall be set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as the effective federal funds rate; provided that if the Federal Funds Effective Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“Federal Reserve Board” means the Board Governors of the Federal Reserve System of the United States of America.
“FEMA” means the Federal Emergency Management Agency, a component of the U.S. Department of Homeland Security that administers the NFIP.
“Finance Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a finance lease on the balance sheet of that Person; provided, that “Finance Lease” shall not include obligations or liabilities of any Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations would be required to be classified and accounted for as an operating lease under GAAP as in effect on December 31, 2015.
“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
“Fitch” means Fitch Ratings, Inc. and any affiliate thereof and any successor thereto that is a nationally-recognized rating agency.
“Flood Notice” has the meaning assigned thereto in Section 6.14(a)(v).
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the LIBO Rate, Adjusted EURIBOR Rate, EURIBOR Rate, Adjusted CDOR Rate, CDOR Rate, Adjusted AUD Rate, AUD Rate or Adjusted Daily Simple SONIA, as applicable. For the avoidance of doubt the initial Floor for each of LIBO Rate, Adjusted EURIBOR Rate, EURIBOR Rate, Adjusted CDOR Rate, CDOR Rate, Adjusted AUD Rate, AUD Rate or Adjusted Daily Simple SONIA shall be zero.
“Foreign Benefit Arrangement” means any employee benefit arrangement mandated by non-US law that is maintained or contributed to by the Borrower or any Subsidiary.
“Foreign Currencies” means Agreed Currencies other than U.S. Dollars and any other currency requested by the Borrower and approved in accordance with Section 1.09.
“Foreign Currency Payment Office” of the Administrative Agent means, for each Foreign Currency, the office, branch, affiliate or correspondent bank of the Administrative Agent for such currency as specified from time to time by it, in the case of the Administrative Agent by notice to the Borrower and each Lender.
“Foreign Lender” means any Lender that is not a “United States person” as defined in Section 7701(a)(30) of the Code.
“Foreign Plan” means each employee benefit plan (within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA) that is not subject to US law and is maintained or contributed to by the Borrower or any Subsidiary.
“Foreign Plan Event” means, with respect to any Foreign Benefit Arrangement or Foreign Plan, (a) the failure to make or, if applicable, accrue in accordance with normal accounting practices, any employer or employee contributions required by applicable law or by the terms of such Foreign Benefit Arrangement or Foreign Plan; (b) the failure to register or loss of good standing with applicable regulatory authorities of any such Foreign Benefit Arrangement or Foreign Plan required to be registered; or (c) the failure of any Foreign Benefit Arrangement or Foreign Plan to comply with any provisions of applicable law and regulations or with the terms of such Foreign Benefit Arrangement or Foreign Plan.
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
“Foreign Subsidiary Holding Company” means any Domestic Subsidiary of the Borrower substantially all of the assets of which consist of the Equity Interests (or Equity Interests and other Securities) of one or more Controlled Foreign Corporations.
“Fronting Exposure” means, at any time there is a Defaulting Lender, with respect to any Issuing Bank, such Defaulting Lender’s Applicable Percentage of the total LC Exposure at such time other than LC Exposure as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or cash collateralized in accordance with the terms hereof.
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state, local, provincial or otherwise and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Grantor” as defined in the Collateral Agreement.
“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any
other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any Acquisition or Disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined in good faith by a Responsible Officer. The term “Guarantee” as a verb has a corresponding meaning.
“Guarantors” means, collectively, (a) each Subsidiary of the Borrower that is a signatory hereto and each other Subsidiary of the Borrower that executes a Counterpart Agreement until such Subsidiary is released in accordance with Section 11.18(a) and (b) the Borrower, solely with respect to Secured Swap Obligations (other than with respect to Secured Swap Obligations where the Borrower is the direct obligor). Each Guarantor as of the Closing Date (other than the Borrower) is listed on Schedule 6.12.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“IFRS” means international financial reporting standards and interpretations issued by the International Accounting Standards Board or any successor thereto (or the Financial Accounting Standards Board, the Accounting Principles Board of the American Institute of Certified Public Accountants or any successor to either such Board, or the SEC, as the case may be), as in effect from time to time.
“Immaterial Subsidiary” means, as of any date of determination, any Subsidiary of the Borrower that has been designated by the Borrower by written notice to the Administrative Agent as an “Immaterial Subsidiary” from time to time and (a) whose total assets as of the most recent available quarterly or year-¬end financial statements do not exceed 5.00% of Consolidated Total Assets (excluding intercompany amounts and balances) of the Borrower and its Subsidiaries at such date or (b) whose revenues for the most recently ended four quarter period for which financial statements are available do not exceed 5.00% of the consolidated revenues (excluding intercompany amounts and balances) of the Borrower and its Subsidiaries for such period, in each case determined in accordance with GAAP; provided that (i) the total assets of all such Subsidiaries as of the most recent available quarterly or year-end financial statements shall not exceed 15.00% of Consolidated Total Assets (excluding intercompany amounts and balances) of the Borrower and its Subsidiaries at such date and (ii) the revenues of all such Subsidiaries for the most recently ended four-quarter period for which financial statements are available shall not exceed 15.00% of the consolidated revenues (excluding intercompany amounts and balances) of the Borrower and its Subsidiaries for such period, in each case determined in accordance with GAAP. For any determination made as of or prior to the time any Person becomes an indirect or direct Subsidiary of
the Borrower, such determination and designation shall be made based on financial statements provided by or on behalf of such Person in connection with the Acquisition of such Person or such Person’s assets. The Borrower may change the designation of any Subsidiary as an Immaterial Subsidiary by providing written notice to the Administrative Agent; provided that any Subsidiary of the Borrower formed or acquired after the Closing Date, as applicable, that meets the requirements of an “Immaterial Subsidiary” set forth herein shall be deemed designated as an “Immaterial Subsidiary” unless the Borrower otherwise notifies the Administrative Agent in writing.
“Impacted AUD Interest Period” has the meaning assigned to such term in the definition of “AUD Rate.”
“Impacted CDOR Interest Period” has the meaning assigned to such term in the definition of “CDOR Rate.”
“Impacted EURIBOR Rate Interest Period” has the meaning assigned to such term in the definition of “EURIBOR Rate.”
“Impacted LIBO Rate Interest Period” has the meaning assigned to such term in the definition of “LIBO Rate.”
“Increase” has the meaning specified in Section 2.13(a).
“Increase Effective Date” has the meaning specified in Section 2.13(d).
“Incremental Amount” means, as of any date of determination, the sum of the aggregate principal amount of (a) any Increases incurred at or prior to such date and (b) Incremental Equivalent Debt incurred at or prior to such date.
“Incremental Equivalent Debt” means Indebtedness issued, incurred or otherwise obtained by the Borrower in the form of one or more series of subordinated loans or notes or senior secured or junior lien or unsecured loans or notes (in each case in respect of the issuance of notes, issued in a public offering, Rule 144A or other private placement or bridge financing in lieu of the foregoing (and any registered equivalent notes issued in exchange therefor)), or secured or unsecured mezzanine Indebtedness; provided that any Incremental Equivalent Debt shall (a) if subordinated, be expressly subordinated in right of payment to the Obligations pursuant to a written agreement, (b) subject to the Inside Maturity Basket, have a final maturity date no earlier than the date that is ninety-one (91) days following the Maturity Date, (c) subject to the Inside Maturity Basket, not have a weighted average life to maturity shorter than the Maturity Date, (d) not be guaranteed by any Person that is not a Loan Party, (d) if secured, (i) be subject to the relevant Intercreditor Agreement and (ii) not be secured by any property or assets other than Collateral, (e) shall not provide for any mandatory repayment (except scheduled principal amortization payments), redemption or sinking fund payment obligations prior to the Maturity Date, as determined at the time of issuance of incurrence of such Indebtedness (other than, in each case, customary offers or obligations to repurchase, redeem or repay upon a change of control, asset sale, debt incurrence, casualty or condemnation events or similar events) and (f) have terms and conditions consistent with the foregoing clauses (a) through (e), as applicable, and otherwise have terms and conditions (excluding pricing, interest rate margins, rate floors, discounts, fees, premiums and prepayment or redemption provisions), taken as a whole, that are not materially more favorable to the lenders or investors providing such Indebtedness than those applicable to the Commitments and Committed Loans, taken as a whole, unless applicable solely to periods after the Maturity Date existing at the time of such incurrence or added for the benefit of the Commitments and Committed Loans.
“Indebtedness” means, as to any Person at a particular time, without duplication, (i) indebtedness for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; (ii) that portion of obligations with respect to Finance Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) any obligation owed for all or any part of the deferred purchase price of property or services, including earn-outs earned but past due (excluding trade or similar payables, accrued income taxes, VAT, deferred taxes, sales taxes, equity taxes and accrued liabilities incurred in the ordinary course of such Person’s business and excluding Excluded Earnouts); (iv) the undrawn face amount of any letter of credit, bankers’ acceptances, bank guarantees, surety bonds, performance bonds, and similar instruments issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (v) Disqualified Equity Interests; (vi) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Indebtedness of another; (vii) any obligation of such Person in respect of the Indebtedness described in clauses (i) through (vi) hereof the primary purpose or intent of which is to provide assurance to an obligee that the Indebtedness of the primary obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof; (viii) any liability of such Person for the Indebtedness of another in respect of the Indebtedness described in clauses (i) through (vi) hereof through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (a) or (b) of this clause (viii), the primary purpose or intent thereof is as described in clause (vii) above; (ix) net obligations of such Person under any Swap Contract; and (x) Indebtedness of the type referred to in clauses (i) through (ix) above secured by a Lien on any property or asset owned or held by that Person regardless of whether the Indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; provided, the amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date; provided, further that the following shall not constitute Indebtedness: (i) any right of use liabilities recorded in accordance with Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), (ii) liabilities recorded under GAAP related to lease accounting (ASC 840) (other than in respect of Finance Leases), and (iii) any liabilities resulting from equity awards accounted for as a liability.
“Indemnified Taxes” means (a) all Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” has the meaning specified in Section 11.04(b).
“Information” has the meaning specified in Section 11.07.
“Inside Maturity Basket” has the meaning specified in Section 7.05.
“Intangible Assets” means assets that are considered to be intangible assets under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.
“Intellectual Property” has the meaning assigned to such term in the Collateral Agreement.
“Intellectual Property Security Agreement” has the meaning assigned to that term in the Collateral Agreement.
“Intercreditor Agreement” means (a) to the extent executed in connection with the incurrence of Indebtedness secured by Liens on the Collateral which are intended to rank equal in priority to the Liens on the Collateral securing the Secured Obligations a customary intercreditor agreement in form and substance reasonably acceptable to the Administrative Agent and the Borrower, which agreement shall provide that the Liens on the Collateral securing such Indebtedness shall rank equal in priority to the Liens on the Collateral securing the Secured Obligations and (b) to the extent executed in connection with the incurrence of Indebtedness secured by Liens on the Collateral which are intended to rank junior to the Liens on the Collateral securing the Secured Obligations, a customary intercreditor agreement in form and substance reasonably acceptable to the Administrative Agent and the Borrower, which agreement shall provide that the Liens on the Collateral securing such Indebtedness shall rank junior to the Liens on the Collateral securing the Secured Obligations. With regard to clauses (a) or (b), such agreement, as applicable, shall be posted to the Lenders not less than five (5) Business Days, or such shorter time as is acceptable to the Required Lenders, before execution thereof and, if the Required Lenders shall not have objected to such changes within five (5) Business Days after posting, then the Required Lenders shall be deemed to have agreed that the Administrative Agent’s entry into such intercreditor agreement (including with such changes) is reasonable and to have consented to such intercreditor agreement (including with such changes) and to the Administrative Agent’s execution thereof.
“Interest Payment Date” means (a) as to any ABR Loan, the last Business Day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Term Benchmark Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Term Benchmark Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, (d) as to any SONIA Loan, (1) each date that is on the numerically corresponding day in each calendar month that is one month after the Borrowing of such Loan (or if there is no numerically corresponding day in such month, then the last day of such month) and (2) the Maturity Date, and (e) as to any Loan (other than any Loan that is an ABR Loan), the date of any repayment or prepayment made in respect thereof.
“Interest Period” means as to any Term Benchmark Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Term Benchmark Loan and ending one, (with respect to Canadian Dollar Loans only) two, three or (other than with respect to Canadian Dollars Loans) six or (if available from all Lenders under the relevant Facility) twelve months (or such other period acceptable to all such Lenders) thereafter, as selected by the Borrower in its Committed Loan Notice given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Term Benchmark Loan and ending one, (with respect to Canadian Dollar Loans only) two, three or (other than with respect to Canadian Dollar Loans) six or (with the consent of each affected Lender under the relevant Facility) twelve months (or such other period acceptable to all such Lenders) thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not later than 1:00 P.M., New York City time, on the date that is three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that all of the foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is not a Business Day, such interest Period shall be extended to the next succeeding Business Day unless the result of
such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the scheduled Maturity Date or beyond the date final payment is due on the Loans shall end on the Maturity Date or such due date, as applicable; and
(iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month.
“Investment” means any loan, advance (other than advances to employees or other providers of services for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business), extension of credit (by way of Guarantee or otherwise) or capital contributions by the Borrower or any of its Restricted Subsidiaries to any other Person.
“IPO” means (i) the issuance by the Borrower or any parent thereof that holds 100% of the Equity Interests in the Borrower of its Securities in an underwritten primary public offering (other than a public offering pursuant to a registration statement on Form S-8) pursuant to an effective registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act or a direct listing of the Borrower’s Equity Interests in the United States on a national securities exchange or (ii) the merger by the Borrower, or any parent thereof that holds 100% of the Equity Interests in the Borrower, with, or the acquisition of all of the Equity Interests of the Borrower or any parent thereof that holds 100% of the Equity Interests in the Borrower by, any special purpose acquisition company following which, the common stock of the surviving company or acquirer (or any parent thereof that holds 100% of the surviving company or acquirer) is listed in the United States on a national securities exchange.
“IRS” means the United States Internal Revenue Service.
“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.
“ISP” means the International Standby Practices, International Chamber of Commerce Publication No. 590 (or such later version thereof as may be in effect at the applicable time).
“Issuing Bank” means (i) with respect to the Existing Letters of Credit, Silicon Valley Bank and (ii) with respect to other Letters of Credit issued under this Agreement, each of JPMorgan, Bank of America, N.A., Citibank, N.A. and Morgan Stanley Senior Funding, Inc. and any other Lender to be selected with such Lender’s consent from time to time and reasonably satisfactory to the Borrower and the Administrative Agent, each in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.14(i); provided that Morgan Stanley Senior Funding, Inc. shall be under no obligation issue any Letter of Credit other than standby Letters of Credit. An Issuing Bank may arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank acceptable to the Borrower, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
“JPMorgan” means JPMorgan Chase Bank, N.A.
“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“LC Commitment” means, as to any Issuing Bank, the obligation of such Issuing Bank to issue Letters of Credit in an aggregate amount not to exceed the Dollar Equivalent of the amount set forth under the heading “LC Commitment” opposite such Issuing Bank’s name on Schedule 2.01, as the same may be changed from time to time pursuant to the terms and conditions hereof. The LC Commitment of any Issuing Bank may be modified by written agreement between the Borrower and such Issuing Bank without consent of any other party thereto.
“LC Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
“LC Disbursement” means a payment made by an Issuing Bank pursuant to a Letter of Credit.
“LC Exposure” means, at any time, the sum of the Dollar Equivalent of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.
“LC Sublimit” has the meaning specified in Section 2.14(b)(i).
“Lender” has the meaning specified in the introductory paragraph hereto.
“Lender-Related Person” has the meaning specified in Section 11.04(d).
“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
“Letter of Credit” means any letter of credit issued pursuant to this Agreement, including each Existing Letter of Credit.
“Liability” means any losses, claims (including intraparty claims), demands, damages or liabilities of any kind.
“LIBO Interpolated Rate” means, at any time, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars and for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period (for which
the LIBO Screen Rate is available for the applicable Agreed Currency) that is shorter than the Impacted LIBO Rate Interest Period; and (b) the LIBO Screen Rate for the shortest period (for which the LIBO Screen Rate is available for the applicable Agreed Currency) that exceeds the Impacted LIBO Rate Interest Period, in each case, at such time; provided that if any LIBO Interpolated Rate shall be less than 0.00% per annum with respect to any Committed Loans, such rate shall be deemed to be 0.00% for the purposes of this Agreement.
“LIBO Rate” means, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars and for any Interest Period, the LIBO Screen Rate at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period; provided that if the LIBO Screen Rate shall not be available at such time for such Interest Period (an “Impacted LIBO Rate Interest Period”) with respect to such Agreed Currency then the LIBO Rate shall be the LIBO Interpolated Rate.
“LIBO Screen Rate” means, for any day and time, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars and for any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for such Agreed Currency for a period equal in length to such Interest Period as displayed on such day and time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the First Lien Administrative Agent in its reasonable discretion); provided that if the LIBO Screen Rate as so determined would be less 0.00% per annum with respect to any Committed Loans, such rate shall be deemed to be 0.00% for the purposes of this Agreement.
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
“Limited Conditionality Acquisition” means any Acquisition not prohibited by this Agreement whose consummation is not conditioned on the availability of, or on obtaining, third party financing.
“Liquidity” means the amount of unrestricted cash and cash equivalents of the Borrower and its Restricted Subsidiaries (excluding funds receivable and amounts held on behalf of customers), plus the unused Commitments then in effect, minus, for the avoidance of doubt, the LC Exposure.
“Liquidity Covenant” has the meaning assigned to such term in Section 7.08.
“Loan” means an extension of credit by a Lender to the Borrower under Article II of this Agreement. For the avoidance of doubt, the Loans shall include the Committed Loans.
“Loan Documents” means this Agreement, the Disclosure Letter, any Counterpart Agreements, the Collateral Agreement, the other Collateral Documents, any Notes and each other document jointly identified by the Borrower and the Administrative Agent from time to time.
“Loan Parties” means the Borrower and each Guarantor.
“Local Time” means New York City time.
“London Banking Day” means any day on which dealings in dollar deposits are conducted by and between banks in the London interbank market.
“Margin Stock” has the meaning assigned thereto in Regulation U of the Board of Governors.
“Master Agreement” has the meaning assigned to such term in the definition of “Swap Contract.”
“Material Adverse Effect” means any event, change or condition that, individually or in the aggregate, has had, or could reasonably be expected to have (i) a material adverse effect on the business, assets, results of operations or financial condition of the Borrower and its Subsidiaries, taken as a whole or (ii) a material adverse effect on the rights and remedies of the Administrative Agent and any other Secured Party under the Loan Documents, taken as a whole, including the legality, validity, binding effect or enforceability of the Loan Documents.
“Material Indebtedness” means (i) Indebtedness (other than the Obligations) of any one or more of the Borrower and its Subsidiaries in an aggregate outstanding principal amount of at least $100,000,000.
“Material Intellectual Property” means any Intellectual Property (other than Reddit Intellectual Property) that is material to the business of the Borrower and its Subsidiaries taken as a whole other than such Intellectual Property acquired after the Closing Date in connection with an Acquisition permitted hereunder and that is no longer used or useful in the business of the Borrower and its Restricted Subsidiaries.
“Material Real Estate” means any wholly-owned, fee-owned Real Estate Asset having a fair market value in excess of $25,000,000.
“Maturity Date” means the later of (a) October 8, 2026 and (b) if maturity is extended pursuant to Section 2.12, such extended maturity date as determined pursuant to such Section; provided, however, that, in each case, if such date is not a Business Day, the Maturity Date shall be the immediately preceding Business Day.
“Maximum Rate” has the meaning specified in Section 11.09.
“Moody’s” means Moody’s Investors Service, Inc. and any affiliate thereof and any successor thereto that is a nationally-recognized rating agency.
“Mortgage” means a mortgage in form and substance reasonably agreed to by the Borrower and the Administrative Agent.
“Mortgaged Property” means each Material Real Estate for which a Mortgage is required pursuant to Section 6.14.
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
“NFIP” means the National Flood Insurance Program created by the U.S. Congress pursuant to the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as revised by the National Flood Insurance Reform Act of 1994 and the Flood Insurance Reform Act of 2004, that mandates the purchase of flood insurance to cover real property improvements located in Special Flood Hazard Areas in participating communities and provides protection to property owners through a federal insurance program.
“Non-Extending Lender” has the meaning specified in Section 2.12(b).
“Note” means a promissory note made by the Borrower in favor of a Lender requesting such a promissory note evidencing Loans made by such Lender, substantially in the form of Exhibit B.
“Notice Date” has the meaning specified in Section 2.12(b).
“NYFRB” means the Federal Reserve Bank of New York.
“NYFRB’s Website” means the website of the NYFRB at http://www.newyorkfed.org, or any successor source.
“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m. on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided, further, that if any of the aforesaid rates as so determined be less than 0.00%, such rate shall be deemed to be 0.00% for purposes of this Agreement.
“Obligations” means (a) the due and punctual payment by the Borrower of (i) the principal of and interest at the applicable rate or rates provided in this Agreement (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar case or proceeding, regardless of whether allowed or allowable in such case or proceeding) on the Loans including all obligations in respect of the LC Exposure, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations of the Borrower under or pursuant to this Agreement and each of the other Loan Documents, including obligations to reimburse LC Disbursements and pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar case or proceeding, regardless of whether allowed or allowable in such case or proceeding), (b) the due and punctual payment and performance of all other obligations of the Borrower under or pursuant to each of the Loan Documents and (c) the due and punctual payment and performance of all the obligations of each other Loan Party under or pursuant to this Agreement and each of the other Loan Documents (including interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar case or proceeding, regardless of whether allowed or allowable in such case or proceeding).
“OFAC” means the US Department of Treasury Office of Foreign Assets Control, or any successor thereto.
“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of
formation or organization and operating agreement (or equivalent comparable constitutive documents with respect to any non-U.S. jurisdiction); and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
“Other Benchmark Rate Election” means, with respect to any Loan denominated in Dollars, if the then-current Benchmark is the LIBO Rate, the occurrence of:
(a) a request by the Borrower to the Administrative Agent to notify each of the other parties hereto that, at the determination of the Borrower, U.S. Dollar-denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed), in lieu of a LIBOR-based rate, a term benchmark rate as a benchmark rate, and
(b) the Administrative Agent, in its sole discretion, and the Borrower jointly elect to trigger a fallback from the LIBO Rate and the provision, as applicable, by the Administrative Agent of written notice of such election to the Borrower and the Lenders.
“Other Taxes” means all present or future stamp, recording, filing or documentary Taxes or any other excise or property Taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery, performance, enforcement or registration of, or from the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement or any other Loan Document, except any such Taxes imposed with respect to an assignment (other than an assignment pursuant to a request by any Loan Party under Section 11.13) (“Assignment Taxes”), but only if such Assignment Taxes are imposed as a result of a present or former connection between a recipient and the jurisdiction imposing such Tax (other than connections arising from such recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Outstanding Amount” means, with respect to any Lender at any time, the sum of (a) the aggregate outstanding principal amount of Committed Loans at such time after giving effect to any borrowings and prepayments or repayments of Committed Loans plus (b) its LC Exposure at such time.
“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnight eurodollar transactions denominated in Dollars by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate.
“Parent Entity” means any Person that is a direct or indirect parent of the Borrower.
“Participant” has the meaning specified in Section 11.06(d).
“Participant Register” has the meaning specified in Section 11.06(d).
“Patriot Act” has the meaning specified in Section 11.17.
“Payment” has the meaning specified in Section 9.07(b).
“Payment Notice” has the meaning specified in Section 9.07(b).
“PBGC” means the Pension Benefit Guaranty Corporation.
“PCAOB” means the Public Company Accounting Oversight Board.
“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and (i) is sponsored or maintained by any Loan Party or any ERISA Affiliate or to which any Loan Party or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years or (ii) with respect to which any Loan Party or any ERISA Affiliate has any actual or contingent liability.
“Perfection Certificate” has the meaning assigned to such term in the Collateral Agreement.
“Permitted Call Spread Option” means any option (for the avoidance of doubt, whether purchased or sold by the Borrower) that is settled (after payment of any premium or any prepayment thereunder) through the delivery of cash and/or of Equity Interests of the Borrower and is entered into concurrently or in connection with the offering of any Convertible Notes, the purpose of which is to mitigate dilution upon conversion of such Convertible Notes or to offset the cost of any option with such purpose (including, but not limited to, any bond hedge transaction, warrant transaction, or capped call transaction), as the same may be amended, restated, supplemented or otherwise modified from time to time.
“Permitted Holders” means (i) the founders of the Borrower (and their respective estate planning vehicles), (ii) holders of preferred equity interests of the Borrower as of the Closing Date and (iii) any Person which is an Affiliate of any of the foregoing.]
“Permitted Investments” means Investments permitted pursuant to the Borrower’s investment policy as approved by the board of directors (or a committee thereof) from time to time.
“Permitted Refinancing” means, with respect to any Person, any refinancing, refunding, renewal or extension of any Indebtedness of such Person; provided that (a) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so modified, refinanced, refunded, renewed or extended except by an amount equal to unpaid accrued interest and premium thereon plus other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing, refunding, renewal or extension and by an amount equal to any existing commitments unutilized thereunder; provided, that any such amount equal to any unutilized existing commitments is both permitted to be incurred pursuant to Sections 7.01 and 7.05 and is so incurred under Sections 7.01 and 7.05 and (b) if such Indebtedness being modified, refinanced, refunded, renewed or extended is subordinated in right of payment to the Obligations, such Indebtedness after modification, refinancing, refunding, renewal or extension continues to be subordinated in right of payment to the Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being so modified, refinanced, refunded, renewed or extended.
“Permitted Repricing Transaction” has the meaning specified in Section 11.01.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established or maintained by any Loan Party or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate, other than a Foreign Plan or Foreign Benefit Arrangement.
“Platform” means SyndTrak or another similar electronic system.
“Pledged Equity Interests” has the meaning specified in the Collateral Agreement.
“Prime Rate” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being effective.
“Pro Forma Adjustment” means, for the latest four consecutive fiscal quarters of the Borrower for which financial statements have been delivered to the Administrative Agent on or prior to the Closing Date and/or for which financial statements are required to be delivered pursuant to Section 6.01, as applicable, that includes all or any part of a fiscal quarter included in any Pro Forma Period, with respect to the Acquired EBITDA of the applicable Acquired Entity or Business or Converted Restricted Subsidiary or the Consolidated EBITDA of the Borrower, the pro forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, projected by the Borrower reasonably and in good faith as a result of (a) actions described under clause (l) of the definition of “Consolidated EBITDA” or (b) any additional costs incurred during such Pro Forma Period, in each case in connection with the combination of the operations of such Acquired Entity or Business or Converted Restricted Subsidiary with the operations of the Borrower and the Restricted Subsidiaries; provided that (i) such Pro Forma Adjustment shall be required to be determined for any Acquired Entity or Business or Converted Restricted Subsidiary if either (x) the aggregate consideration paid in connection with such Acquisition (or deemed consideration, in the case of a conversion) was $100,000,000 or more or (y) the pro forma increase or decrease in the Borrower’s Consolidated EBITDA is greater than 5.00% of such Consolidated EBITDA (whether positive or negative) (and, if neither such test is satisfied, such determination may be made at the election of the Borrower) and (ii) so long as such actions are taken during such Pro Forma Period or such costs are incurred during such Pro Forma Period, as applicable, for purposes of projecting such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, it may be assumed that such cost savings will be realizable during the entirety of such four consecutive fiscal quarter period, or such additional costs, as applicable, will be incurred during the entirety of such period; provided, further, that any such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without duplication for cost savings or additional costs already included in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, for such period.
“Pro Forma Period” means, with respect to any Acquisition, Disposition or the conversion of any Unrestricted Subsidiary into a Restricted Subsidiary, the period beginning on the date such Acquisition,
Disposition or conversion is consummated and ending on the first anniversary of the date on which such Acquisition, Disposition or conversion is consummated.
“Pounds Sterling” means the lawful currency of the United Kingdom.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Public Company” means, after the IPO, the Person that shall have issued Equity Interests pursuant to such IPO (such person being either the Borrower or any Parent Entity).
“Purchase Money Indebtedness” means Indebtedness of a Person incurred for the purpose of financing all or any part of the purchase price or cost of acquisition, repair, construction or improvement of property or assets used or useful in the business of such Person or any of its Subsidiaries.
“QFC” has the meaning specified in Section 11.20(b).
“QFC Credit Support” has the meaning specified in Section 11.20.
“Qualified Equity Interests” means any Equity Interests that are not Disqualified Equity Interests.
“Rate Determination Date” means two Business Days prior to the commencement of an Interest Period (or such other day as is generally treated as the rate fixing day by market practice in such interbank market, as determined by the Administrative Agent; provided that to the extent such market practice is not administratively feasible for the Administrative Agent, such other day as otherwise reasonably determined by the Administrative Agent).
“Ratings Condition” means the attainment by the Borrower of two of the following: (i) BBB- or better, in the case of S&P (or its equivalent under any successor rating categories of S&P), (ii) Baa3 (stable) or better, in the case of Moody’s (or its equivalent under any successor rating categories of Moody’s) and (iii) BBB- or better, in the case of Fitch (or its equivalent under any successor rating categories of Fitch).
“Real Estate Asset” means an interest in any real property.
“Reddit Intellectual Property” means any Intellectual Property containing or comprised of “REDDIT”, the disposition of which would materially adversely affect the business and operations of the Borrower and its Subsidiaries taken as a whole.
“Reference Time” with respect to any setting of the then-current Benchmark means (1) if such Benchmark is LIBO Rate, 11:00 a.m. (London time) on the day that is two London banking days preceding the date of such setting, (2) if such Benchmark is EURIBOR Rate, 11:00 a.m. Brussels time two TARGET Days preceding the date of such setting, (3) if such Benchmark is AUD Rate, 11:00 a.m. Sydney, Australia time two Business Days preceding the date of such setting, (4) if such Benchmark is CDOR Rate, 11:00 a.m. Toronto, Ontario time two Business Days preceding the date of such setting, (5) if such Benchmark is SONIA, then 4 Business Days prior to such setting or (7) if such Benchmark is none of the LIBO Rate, the EURIBOR Rate, CDOR Rate, AUD Rate or SONIA, the time determined by the Administrative Agent in its reasonable discretion.
“Register” has the meaning specified in Section 11.06(c).
“Related Parties” means, with respect to any Person, such Person’s Affiliates, permitted successors and permitted assigns and the partners, members, directors, officers, employees, agents, and advisors, controlling persons and equity holders of such Person and of such Person’s Affiliates.
“Relevant Anniversary Date” has the meaning specified in Section 2.12(a).
“Relevant Governmental Body” means (i) with respect to a Benchmark Replacement in respect of Committed Loans denominated in U.S. Dollars, the Federal Reserve Board and/or the NYFRB, or a committee officially endorsed or convened by the Federal Reserve Board and/or the NYFRB or, in each case, any successor thereto, (ii) with respect to a Benchmark Replacement in respect of Committed Loans denominated in Sterling, the Bank of England, or a committee officially endorsed or convened by the Bank of England or, in each case, any successor thereto, (iii) with respect to a Benchmark Replacement in respect of Committed Loans denominated in Euros, the European Central Bank, or a committee officially endorsed or convened by the European Central Bank or, in each case, any successor thereto, and (iv) with respect to a Benchmark Replacement in respect of Committed Loans denominated in any other currency, (a) the central bank for the currency in which such Benchmark Replacement is denominated or any central bank or other supervisor which is responsible for supervising either (1) such Benchmark Replacement or (2) the administrator of such Benchmark Replacement or (b) any working group or committee officially endorsed or convened by (1) the central bank for the currency in which such Benchmark Replacement is denominated, (2) any central bank or other supervisor that is responsible for supervising either (A) such Benchmark Replacement or (B) the administrator of such Benchmark Replacement, (3) a group of those central banks or other supervisors or (4) the Financial Stability Board or any part thereof.
“Relevant Public Company” means the Borrower or any Parent Entity that is (or is to be) the registrant with respect to an IPO.
“Relevant Rate” means (i) with respect to any Term Benchmark Borrowing denominated in U.S. Dollars, the LIBO Rate, (ii) with respect to any Term Benchmark Borrowing denominated in Euros, the EURIBOR Rate, (iii) with respect to any Term Benchmark Borrowing denominated in Canadian Dollars, the CDOR Rate, (iv) with respect to any Term Benchmark Borrowing denominated in Australian Dollars, the AUD Rate, or (v) with respect to any Borrowing denominated in Sterling, Daily Simple SONIA.
“Relevant Screen Rate” means (i) with respect to any Term Benchmark Borrowing denominated in U.S. Dollars, the LIBO Screen Rate, (ii) with respect to any Term Benchmark Borrowing denominated in Euros, the EURIBOR Screen Rate, (iii) with respect to any Term Benchmark Borrowing denominated in Canadian Dollars, the CDOR Screen Rate and (iv) with respect to any Term Benchmark Borrowing denominated in Australian Dollars, the AUD Screen Rate, as applicable.
“Removal Effective Date” has the meaning specified in Section 9.06(b).
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30-day notice period has been waived.
“Required Lenders” means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans has been terminated pursuant to Section 8.02, Lenders holding in the aggregate more than 50% of the Total Outstandings; provided that the Commitment of, and the portion of the Total Outstandings held or deemed to be held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
“Resignation Effective Date” has the meaning specified in Section 9.06(a).
“Resolution Authority” shall mean an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer, chief accounting officer or controller of any Loan Party and the secretary or assistant secretary of any Loan Party and, solely for purposes of notices and certifications, any other officer or employee of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent or any other officer or employee of the applicable Loan Party designated in or pursuant to an agreement between the applicable Loan Party and the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. To the extent requested by the Administrative Agent prior to the time of execution of any document required to be executed pursuant to the terms hereof, each Responsible Officer that has not previously provided an incumbency certificate will provide an incumbency certificate, in form and substance satisfactory to the Administrative Agent.
“Restricted Payment” means any (i) dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Restricted Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower and (ii) payments of cash upon (A) settlement of conversions of any Convertible Notes or (B) redemption by the issuer of any Convertible Notes, in each case, other than to the extent such settlement or redemption is financed with proceeds of any offering of Equity Interests (other than Disqualified Equity Interests) of the Borrower or any Parent Entity or other Convertible Notes. For the avoidance of doubt (i) the receipt or acceptance by the Borrower or any Restricted Subsidiary of the return of Equity Interests issued by the Borrower or any Restricted Subsidiary to the seller of a Person, business or division as consideration for the purchase of such Person, business or division, which return is in settlement of indemnification claims owed by such seller in connection with such acquisition and (ii) any payment (including payment of any premium) or delivery with respect to, or early unwind or settlement of, any Permitted Call Spread Option shall not be deemed to be a Restricted Payment.
“Restricted Subsidiary” means any Subsidiary of the Borrower that is not an Unrestricted Subsidiary.
“S&P” means Standard & Poor’s Financial Services LLC and any affiliate thereof and any successor thereto that is a nationally-recognized rating agency.
“Sanctioned Country” means, at any time, a country, region or territory which is itself the subject or target of any comprehensive Sanctions (at the time of this Agreement, limited to Crimea, Cuba, Iran, North Korea and Syria).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, U.S. Department of Commerce or by the United Nations Security Council, the European Union or any European Union member state, (b) any Person operating, organized
or resident in a Sanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b) or (d) any Person otherwise the subject of any Sanctions.
“Sanctions” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, any European Union member state in which the Borrower does business or Her Majesty’s Treasury of the United Kingdom.
“Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
“Secured Cash Management Obligations” means the due and punctual payment and performance of all obligations of the Loan Parties in respect of any overdraft, reimbursement and related liabilities arising from treasury, depository, cash pooling arrangements and cash management services, corporate credit and purchasing cards and related programs or any automated clearing house transfers of funds (collectively, “Cash Management Services”) provided to any Loan Party (whether absolute or contingent and howsoever and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor)) that are (a) owed to the Administrative Agent or any of its Affiliates, (b) owed on the Closing Date to a Person that is a Lender or an Affiliate of a Lender as of the Closing Date or (c) owed to a Person that is the Administrative Agent, a Lender or an Affiliate of the Administrative Agent or Lender at the time such obligations are incurred, to the extent, in each case, that such obligations have been designated in writing by the Borrower and the provider of such Cash Management Services to the Administrative Agent as Secured Cash Management Obligations; it being understood that each such provider of such Cash Management Services to the Borrower or any Guarantor shall be deemed (i) to appoint the Administrative Agent as its agent under the applicable Loan Documents and (ii) to agree to be bound by the provisions of Article IX, Section 11.04, Section 11.14 and any applicable Intercreditor Agreement as if it were a Lender.
“Secured Obligations” means (a) the Obligations, (b) the Secured Cash Management Obligations and (c) the Secured Swap Obligations (excluding with respect to any Loan Party, Excluded Swap Obligations of such Loan Party).
“Secured Parties” means (a) each Lender and Issuing Bank, (b) the Administrative Agent, (c) each Person to whom any Secured Cash Management Obligations are owed, (d) each counterparty to any Swap Contract the obligations under which constitute Secured Swap Obligations and (e) the permitted successors and assigns of each of the foregoing.
“Secured Swap Obligations” means all obligations of the Borrower and the Guarantors under each Swap Contract that (a) is in effect on the Closing Date with a counterparty that is a Lender, the Administrative Agent or an Affiliate of a Lender or the Administrative Agent as of the Closing Date, or (b) is entered into after the Closing Date with any counterparty that is a Lender, the Administrative Agent or an Affiliate of a Lender or the Administrative Agent at the time such Swap Contract is entered into, in each case, to the extent, in each case, that such obligations have been designated in writing by the Borrower and the counterparty to such Swap Contract to the Administrative Agent as Secured Swap Obligations (for the avoidance of doubt, one notice with respect to a specified Master Agreement may designate all Swap Contracts thereunder as being “Secured Swap Obligations”, without the need for
separate notices for each individual Swap Contract thereunder); it being understood that such counterparty shall be deemed (i) to appoint the Administrative Agent as its agent under the applicable Loan Documents and (ii) to agree to be bound by the provisions of Article IX, Section 11.04, Section 11.14 and any applicable Intercreditor Agreement as if it were a Lender.
“Securities” means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
“Securities Act” means the Securities Act of 1933.
“Securities Laws” means the Securities Act, the Exchange Act, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.
“Securitization” means the securitization by the Borrower or any Subsidiary of accounts receivable or other assets.
“Senior Indebtedness” means (a) the aggregate principal amount of Indebtedness of the Borrower and its Restricted Subsidiaries (other than Indebtedness of the type described in clause (iv) of the definition thereof) minus (b) up to $400,000,000 of unrestricted cash and cash equivalents of the Borrower and its Restricted Subsidiaries as of such date.
“Senior Leverage Ratio” means, as of any date of determination, the ratio of (a) Senior Indebtedness as of such date to (b) Consolidated EBITDA for the most recently ended period of four fiscal quarters ended on such date.
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day published by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding Business Day.
“SOFR Administrator” means the NYFRB (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the NYFRB website, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“Sold Entity or Business” has the meaning specified in the definition of “Consolidated EBITDA”.
“Solvent” means, with respect to the Borrower and the Restricted Subsidiaries on a particular date, that on such date (a) the fair value of the present assets of the Borrower and the Restricted Subsidiaries, taken as a whole, is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of the Borrower and the Restricted Subsidiaries, taken as a whole, (b) the present fair saleable value of the assets of the Borrower and the Restricted Subsidiaries, taken as a whole, is not less than the amount that will be required to pay the probable liability of the Borrower and the Restricted
Subsidiaries, taken as a whole, on their debts as they become absolute and matured, (c) the Borrower and the Restricted Subsidiaries, taken as a whole, do not intend to, and do not believe that they will, incur debts or liabilities (including current obligations and contingent liabilities) beyond their ability to pay such debts and liabilities as they mature in the ordinary course of business and (d) the Borrower and the Restricted Subsidiaries, taken as a whole, are not engaged in business or a transaction, and are not about to engage in business or a transaction, in relation to which their property would constitute unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Accounting Standards Codification 450, Contingencies).
“SONIA” means, with respect to any Business Day, a rate per annum equal to the Sterling Overnight Index Average for such Business Day published by the SONIA Administrator on the SONIA Administrator’s Website on the immediately succeeding Business Day.
“SONIA Administrator” means the Bank of England (or any successor administrator of the Sterling Overnight Index Average).
“SONIA Administrator’s Website” means the Bank of England’s website, currently at http://www.bankofengland.co.uk, or any successor source for the Sterling Overnight Index Average identified as such by the SONIA Administrator from time to time.
“SONIA Borrowing” means, as to any Borrowing, the SONIA Loans comprising such Borrowing.
“SONIA Business Day” means, for any SONIA Loan, any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which banks are closed for general business in London.
“SONIA Interest Day” has the meaning specified in the definition of “Daily Simple SONIA”.
“SONIA Loan” means a Committed Loan that bears interest at a rate based on Adjusted Daily Simple SONIA.
“Special Flood Hazard Area” means an area that FEMA’s current flood maps indicate has at least a one percent (1%) chance of a flood equal to or exceeding the base flood elevation (a 100-year flood) in any given year.
“Specified Event of Default” means an Event of Default of the type described in Section 8.01(a) or (f).
“Specified Indebtedness” has the meaning specified in Section 8.01(e).
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate or Adjusted AUD Rate, as applicable, for eurocurrency funding (currently referred to as “Eurocurrency liabilities” in
Regulation D) or any other reserve ratio or analogous requirement of any central banking or financial regulatory authority imposed in respect of the maintenance of the Commitments or the funding of the Loans. Such reserve percentage shall include those imposed pursuant to Regulation D. Term Benchmark Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity deemed to constitute a subsidiary of such Person under GAAP. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a direct or indirect Subsidiary or direct or indirect Subsidiaries of the Borrower, unless the context otherwise requires.
“Supported QFC” has the meaning specified in Section 11.20.
“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any similar master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement. For the avoidance of doubt, a Permitted Call Spread Option shall not constitute a Swap Contract.
“Swap Obligation” means, with respect to any Person, any obligation to pay or perform under any Swap Contract.
“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease or (b) an agreement for the use or possession of real property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
“TARGET2” means the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilizes a single shared platform and which was launched on November 19, 2007 (or, if such payment system ceases to be operative, such other payment system (if any) reasonably determined by the Administrative Agent to be a suitable replacement) for the settlement of payments in Euro.
“TARGET Day” means any day on which TARGET2 (or, if such payment system ceases to be operative, such other payment system, if any, determined by the Administrative Agent to be a suitable replacement) is open for the settlement of payments in Euro.
“Tax Compliance Certificate” has the meaning specified in Section 3.01(f)(ii)(B)(3).
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, (including backup withholding) assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Benchmark” when used in reference to any Committed Loan or Borrowing, refers to whether such Committed Loan, or the Committed Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate, the Adjusted EURIBOR Rate, the Adjusted AUD Rate or the Adjusted CDOR Rate.
“Term SOFR” means, for the applicable Corresponding Tenor as of the applicable Reference Time, the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.
“Term SOFR Notice” means a notification by the Administrative Agent to the Lenders and the Borrower of the occurrence of a Term SOFR Transition Event.
“Term SOFR Transition Event” means the determination by the Administrative Agent that (a) Term SOFR has been recommended for use by the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for the Administrative Agent and (c) a Benchmark Transition Event or an Early Opt-in Election, as applicable (and for the avoidance of doubt, not in the case of an Other Benchmark Rate Election), has previously occurred resulting in a Benchmark Replacement in accordance with Section 3.08 that is not Term SOFR.
“Termination Date” means the date on which (a) all Commitments shall have been terminated, (b) all Obligations (other than in respect of contingent indemnification and contingent expense reimbursement claims not then due) have been paid in full and (c) all Letters of Credit (other than those that have been 103% cash collateralized) have been cancelled or have expired (without any drawing having been made thereunder that has not been rejected or honored) and all amounts drawn or paid thereunder have been reimbursed in full.
“Threshold Amount” means the Dollar Equivalent of $100,000,000.
“Title Policy” means, with respect to any Mortgaged Property, an A.L.T.A. mortgagee title insurance policy or unconditional commitment therefor issued by one or more title companies reasonably satisfactory to the Administrative Agent with respect to such Mortgaged Property, in an amount not less than the fair market value of such Mortgaged Property, in form and substance reasonably satisfactory to the Administrative Agent.
“Total Outstandings” means the aggregate Outstanding Amount of each Lender.
“Type” when used in reference to any Committed Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Committed Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Adjusted EURIBOR Rate, the Adjusted CDOR Rate, the Adjusted AUD Rate, the Alternate Base Rate or Adjusted Daily Simple SONIA.
“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that, at any time, if by reason of mandatory provisions of law, any or all of the perfection or priority of the Administrative Agent’s security interest in any item or portion of the Collateral is governed by the Uniform Commercial Code as in effect in a U.S. jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect, at such time, in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority and for purposes of definitions relating to such provisions.
“UCP” means the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 600 (or such later version thereof as may be in effect at the applicable time).
“UK Financial Institution” shall mean any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” shall mean the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the Benchmark Replacement Adjustment with respect thereto.
“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
“United States” and “U.S.” mean the United States of America.
“Unrestricted Subsidiary” means any Subsidiary of the Borrower that is designated by the Borrower as an Unrestricted Subsidiary hereunder in accordance with the provisions of Section 6.13.
“U.S. Dollar” and “$” mean lawful money of the United States.
“U.S. Special Resolution Regimes” has the meaning specified in Section 11.20.
“Withdrawal Liability” means any liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are used in sections 4203 and 4205, respectively, of ERISA.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” The word “or” shall not be exclusive. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, and the definitions of “Affiliate” and “Subsidiary” shall include Persons who shall meet the terms of such definitions, at any time, on and after the date hereof, (iii) the words “herein,” “hereof’ and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including.”
(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
(d) Any reference herein to a merger, transfer, consolidation, amalgamation, consolidation, assignment, sale, disposition or transfer, or similar term, shall be deemed to apply to a division of or by a limited liability company, or an allocation of assets to a series of a limited
liability company (or the unwinding of such a division or allocation), as if it were a merger, transfer, consolidation, amalgamation, consolidation, assignment, sale, disposition or transfer, or similar term, as applicable, to, of or with a separate Person. Any division of a limited liability company shall constitute a separate Person hereunder (and each division of any limited liability company that is a Subsidiary, joint venture or any other like term shall also constitute such a Person or entity).
1.03 Accounting Terms.
(a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein (provided that all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made without giving effect to any election under Accounting Standards Codification 825-10-25 (previously referred to as Statement of Financial Accounting Standards 159) (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value,” as defined therein) and without including the effect of any changes to lease accounting in respect of finance leases.
(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Local Time.
1.06 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Dollar Equivalent of the undrawn face amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Loan Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the Dollar Equivalent of the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
1.07 Interest Rates ; LIBOR Notification. The interest rate on a Committed Loan denominated in U.S. Dollars or an Alternative Currency may be derived from an interest rate benchmark that is, or may in the future become, the subject of regulatory reform. Regulators have signaled the need to use alternative benchmark reference rates for some of these interest rate benchmarks and, as a result, such interest rate benchmarks may cease to comply with applicable laws and regulations, may be permanently discontinued, and/or the basis on which they are calculated may change. The London interbank offered rate (“LIBOR”) is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London interbank market. On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) publicly announced that: (a) immediately after December 31, 2021, publication of all seven euro LIBOR settings, the overnight, 1-week, 2-month and 12-month British Pound Sterling LIBOR settings, and the 1-week and 2-month U.S. Dollar LIBOR settings will permanently cease; immediately after June 30, 2023, publication of the overnight and 12-month U.S. Dollar LIBOR settings will permanently cease; immediately after December 31, 2021, the 1-month, 3-month and 6-month British Pound Sterling LIBOR settings will cease to be provided or, subject to consultation by the FCA, be provided on a changed methodology (or “synthetic”) basis and no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored; and immediately after June 30, 2023, the 1-month, 3-month and 6-month U.S. Dollar LIBOR settings will cease to be provided or, subject to the FCA’s consideration of the case, be provided on a synthetic basis and no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored. There is no assurance that dates announced by the FCA will not change or that the administrator of LIBOR and/or regulators will not take further action that could impact the availability, composition, or characteristics of LIBOR or the currencies and/or tenors for which LIBOR is published. Each party to this agreement should consult its own advisors to stay informed of any such developments. Public and private sector industry initiatives are currently underway to identify new or alternative reference rates to be used in place of LIBOR. Upon the occurrence of a Benchmark Transition Event, a Term SOFR Transition Event, an Early Opt-in Election or an Other Benchmark Rate Election, Section 3.08(a) and (b) provide a mechanism for determining an alternative rate of interest. The Administrative Agent will promptly notify the Borrower, pursuant to Section 3.08(d), of any change to the reference rate upon which the interest rate on Term Benchmark Loans is based. However, the Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to Daily Simple SONIA, LIBOR or other rates in the definition of “LIBO Rate” (or “EURIBOR Rate”, “CDOR Rate” or “AUD Rate” as applicable) or with respect to any alternative or successor rate thereto, or replacement rate thereof (including, without limitation, (i) any such alternative, successor or replacement rate implemented pursuant to Section 3.08(a) or (b), whether upon the occurrence of a Benchmark Transition Event, a Term SOFR Transition Event, an Early Opt-in Election or an Other Benchmark Rate Election, and (ii) the implementation of any Benchmark Replacement Conforming Changes pursuant to Section 3.08(c)), including without limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, Daily Simple SONIA, the LIBO Rate (or the EURIBOR Rate, the CDOR Rate or AUD Rate as applicable) or have the same volume or liquidity as did the London interbank offered rate (or the euro interbank offered rate) prior to its discontinuance or unavailability. The Administrative Agent and its affiliates and/or other related entities may engage in transactions that affect the calculation of any Daily Simple SONIA, any alternative, successor or alternative rate (including any Benchmark Replacement) and/or any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain any SONIA, Daily Simple SONIA or any Term Benchmark Rate, any component thereof, or rates referenced in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any
other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service
1.08 Exchange Rates; Currency Equivalents.
(a) The Administrative Agent or the applicable Issuing Banks, as applicable, shall determine the Dollar Equivalent amounts of Term Benchmark Borrowings, SONIA Borrowings or Letters Credit Extensions denominated in Alternative Currencies. Such Dollar Equivalent shall become effective as of such Computation Date and shall be the Dollar Equivalent of such amounts until the next Computation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any Agreed Currency (other than U.S. Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or the applicable Issuing Bank, as applicable.
(b) Wherever in this Agreement in connection with a Committed Loan, conversion, continuation or prepayment of a Term Benchmark Loan, SONIA Loan or the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Committed Loan Borrowing, Term Benchmark Loan or Letter of Credit is denominated in a Foreign Currency, such amount shall be the Dollar Equivalent of such Dollar amount (rounded to the nearest unit of such Foreign Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the applicable Issuing Bank, as the case may be.
1.09 Additional Foreign Currencies.
(a) The Borrower may from time to time request that Term Benchmark Loans be made and/or Letters of Credit be issued in a currency other than those specifically listed in the definition of “Foreign Currencies”; provided that such requested currency is a lawful currency (other than U.S. Dollars) that is readily available and freely transferable and convertible into U.S. Dollars. In the case of any such request with respect to the making of Term Benchmark Loans, such request shall be subject to the approval of the Administrative Agent and the Lenders; and in the case of any such request with respect to the issuance of Letters of Credit, such request shall be subject to the approval of the Administrative Agent and the applicable Issuing Bank.
(b) Any such request shall be made to the Administrative Agent not later than 2:00 p.m. Local Time, 20 Business Days prior to the date of the desired Credit Extension (or such other time or date as may be agreed by the Administrative Agent and, in the case of any such request pertaining to Letters of Credit, the applicable Issuing Bank, in its or their sole discretion). In the case of any such request pertaining to Term Benchmark, the Administrative Agent shall promptly notify each Lender thereof; and in the case of any such request pertaining to Letters of Credit, the Administrative Agent shall promptly notify the applicable Issuing Bank thereof. Each Lender (in the case of any such request pertaining to Term Benchmark Loans) or the applicable Issuing Bank (in the case of a request pertaining to Letters of Credit) shall notify the Administrative Agent, not later than 11:00 a.m. Local Time, ten Business Days after receipt of such request whether it consents, in its sole discretion, to the making of Term Benchmark Loans or the issuance of Letters of Credit, as the case may be, in such requested currency.
(c) Any failure by a Lender or an Issuing Bank, as the case may be, to respond to such request within the time period specified in the preceding sentence shall be deemed to be a refusal by such Lender or Issuing Bank, as the case may be, to permit Term Benchmark Loans to be made or Letters of Credit to be issued in such requested currency. If the Administrative Agent and all the Lenders consent to making Term Benchmark Loans in such requested currency, the Administrative Agent shall so notify the Borrower and such currency shall thereupon be deemed for all purposes to be a Foreign Currency hereunder for purposes of any Borrowings of Term Benchmark Loans; and if the Administrative Agent and the applicable Issuing Bank consent to the issuance of Letters of Credit in such requested currency, the Administrative Agent shall so notify the Borrower and such currency shall thereupon be deemed for all purposes to be a Foreign Currency hereunder for purposes of any Letter of Credit issuances. If the Administrative Agent shall fail to obtain consent to any request for an additional currency under this Section 1.09, the Administrative Agent shall promptly so notify the Borrower.
1.10 Change of Currency.
(a) Each obligation of the Borrower to make a payment denominated in the national currency unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall be redenominated into Euro at the time of such adoption. If, in relation to the currency of any such member state, the basis of accrual of interest expressed in this Agreement in respect of that currency shall be inconsistent with any convention or practice in the London interbank market for the basis of accrual of interest in respect of the Euro, such expressed basis shall be replaced by such convention or practice with effect from the date on which such member state adopts the Euro as its lawful currency; provided that if any Borrowing in the currency of such member state is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Borrowing, at the end of the then current Interest Period.
(b) Each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect the adoption of the Euro by any member state of the European Union and any relevant market conventions or practices relating to the Euro.
1.11 Basket Amounts and Application of Multiple Relevant Provisions. Notwithstanding anything to the contrary, (a) unless specifically stated otherwise herein, any dollar, number, percentage or other amount available under any carve-out, basket, exclusion or exception to any affirmative, negative or other covenant in this Agreement or the other Loan Documents may be accumulated, added, combined, aggregated or used together by any Loan Party and its Subsidiaries without limitation for any purpose not prohibited hereby, and (b) any action or event permitted by this Agreement or the other Loan Documents need not be permitted solely by reference to one provision permitting such action or event but may be permitted in part by one such provision and in part by one or more other provisions of this Agreement and the other Loan Documents. For purposes of determining compliance with Sections 7.01, 7.04 and 7.05 in the event that an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Indebtedness (or any portion thereof) described in Section 7.05 or any Restricted Payment meets the criteria of one or more of the categories of permitted Restricted Payments described in Section 7.04 or any Lien meets the criteria of one or more of the categories of permitted Liens described in Section 7.01, the Borrower may, in its sole discretion, classify or reclassify, or later divide, classify or reclassify (as if incurred at such later time to the extent such Indebtedness, Lien or Restricted Payment would have been permitted pursuant to such provision at the time originally made or incurred), such item of Indebtedness (or any portion thereof) and/or Restricted Payment and/or Liens in any manner that complies with Sections 7.01, 7.04 and 7.05 , as applicable.
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01 Committed Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a “Committed Loan”) in Agreed Currencies and other Foreign Currencies to the Borrower from time to time, on any Business Day during the Availability Period, in an aggregate U.S. Dollar amount not to exceed at any time outstanding the amount of such Lender’s Commitment; provided, however, that after giving effect to any Borrowing, (x) the Dollar Equivalent of the Total Outstandings of the Lenders shall not exceed the Aggregate Commitments, (y) the Dollar Equivalent of the Outstanding Amount of any Lender shall not exceed such Lender’s Commitment and (z) the Dollar Equivalent of the Total Outstandings of the Lenders borrowed in Alternative Currencies shall not exceed the Alternative Currency Sublimit. Within the limits of each Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01, prepay under Section 2.03, and reborrow under this Section 2.01. Committed Loans may be ABR Loans, Term Benchmark Loans or SONIA Loans, as further provided herein; provided that ABR Loans shall only be made in U.S. Dollars. Each Lender may, at its option, make any Committed Loan available to the Borrower by causing any foreign or domestic branch or Affiliate of such Lender to make such Committed Loan; provided that, any exercise of such option shall not affect the obligation of the Borrower to repay such Committed Loan in accordance with the terms and subject to the conditions of this Agreement, and such Affiliate shall be treated as a Lender for purposes of this Agreement.
2.02 Borrowings, Conversions and Continuations of Committed Loans.
(a) Each Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Term Benchmark Loans shall be made upon the Borrower’s delivery of an irrevocable Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower, to the Administrative Agent. Each such notice must be received by the Administrative Agent not later than (i) in the case of Term Benchmark Loans denominated in U.S. Dollars, prior to 11:00 a.m., New York City time, three Business Days prior to the requested Borrowing Date, (ii) in the case of a Term Benchmark Borrowing denominated in Euros, not later than 12:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing, (iii) in the case of ABR Loans, prior to 10:00 a.m., New York City time, on the proposed Borrowing Date, (iv) in the case of Term Benchmark Loans denominated in an Alternative Currency (other than Euros), prior to 12:00 Noon, New York City time, four Business Days prior to the requested Borrowing Date and (iv) in the case of SONIA Loans denominated in Sterling, not later than 12:00 Noon, New York City time, five Business Days before the date of the requested Borrowing Date). Each Borrowing of, conversion to or continuation of Term Benchmark Loans shall be in a principal amount of the Dollar Equivalent of $5,000,000 or a whole multiple of the Dollar Equivalent of $1,000,000 in excess thereof, or if the remaining amount available under the Commitments is less than the Dollar Equivalent of $5,000,000, in multiples of the Dollar Equivalent of $1,000,000. Each Borrowing of SONIA Loans shall be in the Dollar Equivalent of $5,000,000 or a whole multiple of the Dollar Equivalent of $1,000,000 in excess thereof, or if the remaining amount available under the Commitments is less than the Dollar Equivalent of $5,000,000, in multiples of the Dollar Equivalent of $1,000,000. Each Borrowing of or conversion to ABR Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof, or if the remaining amount available under the Commitments is less than $5,000,000, in multiples of $1,000,000. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Term Benchmark Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be
borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the duration of the Interest Period and the currency with respect thereto. If the Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then (i) in the case of a Borrowing denominated in U.S. Dollars, the applicable Committed Loans shall be made as, or converted to, ABR Loans and (ii) in the case of a Borrowing denominated in a Foreign Currency, such Borrowing shall be made as a Term Benchmark Loan in the same Foreign Currency with an Interest Period of one month. Any such automatic conversion to ABR Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Term Benchmark Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Term Benchmark Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month.
(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to ABR Loans described in the preceding subsection. In the case of a Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 11:00 a.m. (or, in the case of ABR Loans, 1:00 p.m.) Local Time on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Borrowing, Section 4.01), the Administrative Agent shall make all funds so received available to the Borrower, as applicable, in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower, as applicable, on the books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.14(e) shall be remitted by the Administrative Agent to the applicable Issuing Bank.
(c) Except as otherwise provided herein, a Term Benchmark Loan may be continued or converted only on the last day of an Interest Period for such Term Benchmark. During the existence of an Event of Default, no Term Benchmark Loans denominated may be requested as, converted to or continued as Term Benchmark Loans without the consent of the Required Lenders and unless repaid, (i) each Term Benchmark Revolving Borrowing denominated in U.S. Dollars shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto, (ii) each Term Benchmark Revolving Borrowing denominated in Canadian Dollars shall be converted to a Canadian Prime Borrowing at the end of the Interest Period applicable thereto, and (iii) each Term Benchmark Borrowing denominated in an Alternative Currency (other than Canadian Dollars) shall bear interest at the Central Bank Rate for the applicable Agreed Currency plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for the applicable Agreed Currency cannot be determined, any outstanding affected Term Benchmark Loans denominated in any Agreed Currency other than Dollars or Canadian Dollars shall either be (A) converted to an ABR Borrowing denominated in Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) at the end of the Interest Period, as applicable, therefor or (B) prepaid at the end of the applicable Interest Period, as applicable, in full; provided that if no election is made by the Borrower by the earlier of (x) the date that is three Business Days after receipt by the Borrower of such notice and (y) the last day of the current Interest Period for the applicable Term Benchmark Loan, the Borrower shall be deemed to have elected clause (A) above; provided further that
notwithstanding the foregoing, the Required Lenders may demand that any or all of the then outstanding Term Benchmark Loans denominated in an Alternative Currency be redenominated into U.S. Dollars in the amount of the Dollar Equivalent thereof, on the last day of the then current Interest Period with respect thereto.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Term Benchmark Loans upon determination of such interest rate. At any time that ABR Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in the prime rate used in determining the ABR promptly following the public announcement of such change.
(e) After giving effect to all Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than ten Interest Periods in effect with respect to Committed Loans.
(f) If an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a SONIA Borrowing and (ii) unless repaid, (x) each SONIA Borrowing shall bear interest at the Central Bank Rate for Sterling plus the Applicable Rate for SONIA Loans; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for Sterling cannot be determined, any outstanding SONIA Loans shall either be (A) converted to an ABR Borrowing denominated in U.S. Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) at the end of the Interest Period or on the Interest Payment Date, as applicable, therefor or (B) prepaid at the end of the applicable Interest Period or on the Interest Payment Date, as applicable, in full; provided that if no election is made by the Borrower by the earlier of (x) the date that is five Business Days after receipt by the Borrower of such notice and (y) the last day of the current Interest Period, the Borrower shall be deemed to have elected clause (A) above.
2.03 Prepayments.
(a) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 2:00 p.m. Local Time (A) three Business Days prior to any date of prepayment of Term Benchmark Loans, (C) five Business Days prior to any date of prepayment of SONIA Loans and (B) on the date of prepayment of ABR Loans; (ii) any prepayment of Term Benchmark Loans shall be in a principal amount of the Dollar Equivalent of $5,000,000 or a whole multiple of the Dollar Equivalent of $1,000,000 in excess thereof; (iii) any prepayment of SONIA Loans shall be in a principal amount of the Dollar Equivalent of $5,000,000 or a whole multiple of the Dollar Equivalent of $1,000,000 in excess thereof and (iv) any prepayment of ABR Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid and, if Term Benchmark Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein; provided, such notice may state that such notice is conditional upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other
Indebtedness or the occurrence of some other identifiable event or condition, in which case such notice of prepayment may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified date of prepayment) if such condition is not satisfied. Any prepayment of a Term Benchmark Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Applicable Percentages.
(b) If at any time, (i) other than as a result of fluctuations in currency exchange rates, the sum of the aggregate principal Dollar Equivalent of the Total Outstandings (calculated, with respect to Loans and LC Exposure denominated in Foreign Currencies, as of the most recent Computation Date with respect to each such Loans and LC Exposure) exceeds the Aggregate Commitments, or (ii) solely as a result of fluctuations in currency exchange rates, the aggregate principal Dollar Equivalent of the Total Outstandings (so calculated), as of the most recent Computation Date, exceeds one hundred five percent (105%) of the Aggregate Commitments, the Borrower shall promptly repay Borrowings or cash collateralize LC Exposure in accordance with the procedures set forth in Section 2.14(j) in an aggregate principal amount sufficient to cause (x) the Dollar Equivalent of the Total Outstandings (so calculated) to be less than or equal to the Aggregate Commitments or (y) the Dollar Equivalent of the aggregate Outstanding Amounts of the Lenders in respect of the Commitments (so calculated) to be less than or equal to the total Commitments.
2.04 Termination or Reduction of Commitments. The Borrower may, upon notice to the Administrative Agent, terminate the Aggregate Commitments, or from time to time permanently reduce the Aggregate Commitments; provided that (i) any such notice shall be received by the Administrative Agent not later than 2:00 p.m. Local Time three Business Days prior to the date of termination or reduction and may be conditional upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other Indebtedness or the occurrence of some other identifiable event or condition, in which case such notice of termination or reduction may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified date of prepayment) if such condition is not satisfied, (ii) any such partial reduction shall be in an aggregate amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof, and (iii) the Borrower shall not terminate or reduce the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Dollar Equivalent of the Total Outstandings would exceed the Aggregate Commitments. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments shall be applied to the Commitment of each Lender according to its Applicable Percentage. All interest and fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination. Each reduction of the Aggregate Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.
2.05 Repayment of Loans. The Borrower shall repay to the Lenders on the Maturity Date the aggregate principal amount of Committed Loans outstanding to it on such date.
2.06 Interest.
(a) Subject to the provisions of subsection (b) below, (i) each Term Benchmark Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Adjusted LIBOR Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate or Adjusted AUD Rate, as applicable, for such Interest Period plus the Applicable Rate; (ii) each SONIA Loan shall bear interest on the outstanding principal amount thereof at a rate per annum equal to Adjusted Daily Simple
SONIA plus the Applicable Rate and (iii) each ABR Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the ABR plus the Applicable Rate.
(b) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(i) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (after giving effect to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) Accrued and unpaid interest on past due amounts after giving effect to any applicable grace periods referenced in clause (i) above (including interest on past due interest) shall be due and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any case or proceeding under any Debtor Relief Law.
2.07 Fees.
(a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee (the “Commitment Fee”) equal to the Applicable Rate times the actual daily amount by which the Aggregate Commitments exceed the Total Outstandings. The Commitment Fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and ending on the last day of the Availability Period. The Commitment Fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.
(b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender, a participation fee with respect to such Lender’s participations in Letters of Credit, which shall accrue at the same Applicable Rate used to determine the interest rate applicable to Term Benchmark Loans on the average daily Dollar Equivalent of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Closing Date to but excluding the later of the date on which (x) such Lender’s Commitment terminates and (y) the date on which such Lender ceases to have any LC Exposure, and (ii) to each Issuing Bank, a fronting fee, which shall accrue at the rate of 0.125% per annum (or such other rate separately agreed upon between the Borrower and such Issuing Bank) on the Dollar Equivalent of the stated amount of such Letter of Credit (including any increase in such stated amount pursuant to such Letter of Credit) during the period from and including the Closing Date to but excluding the later of (A)
the date of termination of the Commitments and (B) the date on which there ceases to be any LC Exposure in respect of such Issuing Bank, as well as such Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on such day, commencing on the first such date to occur after the Closing Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to an Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The Administrative Agent shall use commercially reasonable efforts to provide to each Issuing Bank, on the date such fees are payable by the Borrower, an invoice from the Administrative Agent to the Borrower reflecting the calculation of such fees. To the extent of any difference in fee calculations between the Administrative Agent and any Issuing Bank, the fee calculation applicable to the immediately succeeding payment period may be adjusted as mutually agreed between the Administrative Agent and the Issuing Bank to account for any such difference.
(c) [Reserved]
(d) Other Fees. The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates as set forth in any fee agreements with the Administrative Agent and to perform any other obligations contained therein. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
(e) Fees Generally. All fees payable hereunder shall be paid on the dates due, in U.S. Dollars, in immediately available funds, to the Administrative Agent (or to an Issuing Bank, in the case of fees payable to it) for distribution, in the case of Commitment Fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.
2.08 Computation of Interest and Fees. Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that interest on ABR Loans (other than when ABR is determined by reference to the Prime Rate) and SONIA Loans shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed, or, in the case of interest in respect of Loans denominated in Alternative Currencies as to which market practice differs from the foregoing, in accordance with such market practice. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a LIBO Rate, EURIBOR Rate, CDOR Rate, AUD Rate and/or SONIA, as applicable. Any change in the interest rate on a Loan resulting from a change in the ABR or the Statutory Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is repaid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.10(a), bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. Any change in the interest rate on a Loan resulting from a change in the ABR shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall promptly notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate.
2.09 Evidence of Debt.
(a) The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The Administrative Agent shall maintain the Register in accordance with Section 11.06(c). The accounts or records maintained by each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of any of the Borrower hereunder to pay any amount owing by it with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the Register, the Register shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and end of the Interest Period of its Loans and payments with respect thereto.
(b) In addition to the accounts and records referred to in Section 2.09(a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.10 Payments Generally; Administrative Agent’s Clawback.
(a) General. All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, (x) in the case of payments denominated in U.S. Dollars, at the Administrative Agent’s Office and in immediately available funds not later than 2:00 p.m. Local Time on the date specified herein and (y) in the case of payments denominated in a Foreign Currency, its Foreign Currency Payment Office for such Foreign Currency; provided that any payments to be made directly to each Issuing Bank as expressly provided herein shall be made directly to the Persons entitled thereto. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein, including, in the case of prepayments of and interest on commitments, if the outstanding Committed Loans are not ratable in proportion to the Applicable Percentages, to each Lender ratable based on the amount owed to it) with respect to payments received in respect of the Commitments. All payments received by the Administrative Agent after 2:00 p.m. Local Time shall be deemed received on the next Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be. All payments hereunder of principal or interest in respect of any Loan or LC Disbursement shall, except as otherwise expressly provided herein, be made in the currency of such Loan or LC Disbursement, and all other payments hereunder and under each other Loan Document shall be made in U.S. Dollars. Notwithstanding the foregoing provisions of this Section 2.10, if, after the making of any Borrowing in any Foreign Currency, currency control or exchange regulations are imposed in the country which issues such Foreign Currency with the result that such Foreign Currency no longer exists or the Borrower is not able to make payment to the Administrative Agent for the account of the Lenders in such Foreign Currency, then all payments to be
made by the Borrower hereunder in such Foreign Currency shall instead be made when due in a currency that replaced such Foreign Currency or, if no such replacement currency exists, in U.S. Dollars in an amount equal to the Dollar Equivalent (as of the date of repayment) of such payment due, it being the intention of the parties hereto that the Borrower takes all risks of the imposition of any such currency control or exchange regulations.
(b) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of Term Benchmark Loans (or, in the case of any Borrowing of ABR Loans, prior to 11:00 a.m., Local Time on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Borrowing of ABR Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the rate determined by the Administrative Agent in accordance with banking industry rules and conventions on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to the applicable Loan or, if such payment is in U.S. Dollars, ABR Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by it for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Committed Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(c) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules and conventions on interbank compensation. Any payment by any Lender pursuant to this subsection (c) shall be without prejudice to any claim such Lender or the Administrative Agent may have against the Borrower, as applicable, for having failed to make such payment to the Administrative Agent.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error.
(d) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Borrowings set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender within one Business Day, without interest.
(e) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Committed Loans and to make payments pursuant to Section 11.04(c) are several and not joint. The failure of any Lender to make any Committed Loan or to make any payment under Section 11.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under Section 11.04(c).
(f) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
2.11 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Committed Loans made by it or participations in LC Disbursements resulting in such Lender receiving payment of a proportion of the aggregate amount of such Committed Loans and participations in LC Disbursements and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Committed Loans and participations in LC Disbursements, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Committed Loans and participations in LC Disbursements and other amounts owing them, provided that: (i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and (ii) the provisions of this Section 2.11 shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section 2.11 shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
2.12 Extension of Maturity Date.
(a) Requests for Extension. The Borrower may, by written notice to the Administrative Agent (who shall promptly notify the Lenders) not earlier than 60 Business Days and not later than 35 Business Days prior to any anniversary of the Closing Date (each, a “Relevant Anniversary Date”), request that each Lender extend such Lender’s Maturity Date for an additional year from the Maturity Date then in effect hereunder (the “Existing Maturity Date”); provided that the Borrower may not request such extension on more than two Relevant Anniversary Dates.
(b) Lender Elections to Extend. Each Lender, acting in its sole and individual discretion, shall, by written notice to the Administrative Agent given not earlier than 30 Business Days prior to the Relevant Anniversary Date and not later than the date (the “Notice Date”) that is 20 Business Days prior to the Relevant Anniversary Date, advise the Administrative Agent whether or not such Lender agrees to such extension (each Lender that agrees to extend the Maturity Date applicable to the Commitments held by such Lender, an “Extending Lender” and each Lender that determines not to extend the Maturity Date applicable to the Commitments held by such Lender (or does not provide any response prior to the relevant Notice Date, a “Non-Extending Lender”). The election of any Lender to agree to such extension shall not obligate any other Lender to so agree. Following any extension, the LC Exposure shall continue to be held ratably among the Lenders, but on the Maturity Date applicable to the Commitments of any Non-Extending Lender, the LC Exposure of such Non-Extending Lender shall be ratably reallocated, to the extent of the unused Commitments of the Extending Lenders, to such Extending Lenders (without regard to whether the conditions set forth in Section 4.02 can then be satisfied) and the Borrower shall cash collateralize the balance of such LC Exposure in accordance with Section 2.14(j).
(c) Notification by Administrative Agent. The Administrative Agent shall notify the Borrower in writing of each Lender’s determination (or deemed determination not to extend in the case of a Lender that does not provide any response prior to the relevant Notice Date) under this Section 2.12 no later than the date 15 Business Days prior to the Relevant Anniversary Date (or, if such date is not a Business Day, on the immediately preceding Business Day).
(d) Additional Commitment Lenders. The Borrower shall have the right on or before the sixtieth day after the Relevant Anniversary Date to replace each Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) as provided in Section 11.13, each of which Additional Commitment Lenders shall have entered into an Assignment and Assumption pursuant to which such Additional Commitment Lender shall, effective as of the later of the date thereof (the “Assignment Date”) and the Relevant Anniversary Date, undertake a Commitment of such Non-Extending Lender (and, if any such Additional Commitment Lender is already a Lender, its Commitment of such Non-Extending Lender shall be in addition to such Lender’s Commitment hereunder on such date), and shall have agreed to the relevant extension.
(e) Effect of Extension Requirement. Effective as of the Relevant Anniversary Date, the Maturity Date of each Extending Lender and, as of the later of the Assignment Date and the Relevant Anniversary Date, of each Additional Commitment Lender shall be extended to the date falling 364 days after the Existing Maturity Date (except that, if such date is not a Business Day, such Maturity Date as so extended shall be the immediately preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement.
(f) Conditions to Effectiveness of Extensions. Notwithstanding the foregoing, the extension of the Maturity Date pursuant to this Section 2.12 shall not be effective with respect to any Lender unless: (i) no Default shall have occurred and be continuing on the date of such extension and after giving effect thereto and (ii) the representations and warranties contained in this Agreement that are qualified by materiality shall be true and correct on and as of the date of such extension and after giving effect thereto, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the date of such extension and after giving effect thereto, in each case as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, true and correct in all material respects as of such specific date (provided that such materiality qualifier shall not be applicable to any representation or warranty that already is
qualified or modified by materiality in the text thereof) and, for purposes of this Section 2.12, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent financial statements delivered pursuant to clauses (a) and (b) respectively, of Section 6.01). Notwithstanding any provision of this Agreement to the contrary, no such extension shall be conditioned on Lenders and/or Additional Commitment Lenders representing more than 50% of the aggregate amount of the Commitments in effect immediately prior to the Relevant Anniversary Date having agreed to extend the Maturity Date of their Commitments.
(g) Issuing Banks. Each Issuing Bank shall be deemed to be a Lender for purposes of this Section 2.12 with respect to the extension of its LC Commitment.
(h) Conflicting Provisions. This Section 2.12 shall supersede any provisions in Section 2.11 or 11.01 to the contrary.
2.13 Increase in Commitments.
(a) Request for Increase. So long as no Default or Event of Default exists or would result therefrom (or, in the case of any Increase the proceeds of which are to be used primarily to finance a Limited Conditionality Acquisition, no Specified Event of Default exists or would result therefrom, which condition shall, at the option of the Borrower, be tested on the date the acquisition agreement with respect to such Limited Conditionality Acquisition is signed), upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Borrower may from time to time, request an increase in the Commitments (an “Increase” and such additional Commitments, “New Commitments”) by an aggregate amount (for all such requests) not exceeding at any time outstanding the Dollar Equivalent of $250,000,000 (such amount, the “Available Increase Amount”) less the aggregate principal amount of any then outstanding Incremental Equivalent Debt; provided that (i) any such request for an increase shall be in a minimum amount of $50,000,000, and (ii) the Borrower may make a maximum of five such requests. The Borrower may approach any Lender or any Person (other than a natural Person) to provide all or a portion of the New Commitments, subject, if applicable, to the approval thereof by the Administrative Agent and the Issuing Banks in the case of a Person that is not a Lender, to the extent such approval is required in the case of an assignment to such Person pursuant to Section 11.06(b); provided that (i) no Lender shall have the right to provide any portion of the New Commitments and (ii) any Lender approached to provide all or a portion of the New Commitments may elect or decline, in its sole discretion, to provide such New Commitments. At the time of sending such notice, to the extent applicable, the Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten Business Days from the date of delivery of such notice to the Lenders). Each Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Commitment and, if so, whether by an amount equal to, greater than, or less than its Applicable Percentage of such requested increase. Any Lender not responding within such time period shall be deemed to have declined to increase its Commitment.
(b) [Reserved].
(c) Notification by Administrative Agent: Additional Lenders. The Administrative Agent shall notify the Borrower and each Lender of the Lenders’ responses to each request made hereunder. To achieve the full amount of a requested increase and subject to the approval of the Administrative Agent (which approval shall not be unreasonably withheld), the Borrower may also invite additional Eligible
Assignees to become Lenders pursuant to a joinder agreement in form and substance satisfactory to the Administrative Agent and its counsel.
(d) Increase Effective Date and Allocations. If the Commitments are increased in accordance with this Section 2.13, the Administrative Agent and the Borrower shall determine the effective date (the “Increase Effective Date”) and the final allocation of such increase among the Lenders. The Administrative Agent shall promptly notify the Borrower and the Lenders of the final allocation of such increase and the Increase Effective Date.
(e) Conditions to Effectiveness of Increase. As conditions precedent to such increase, the Borrower shall deliver to the Administrative Agent (x) a certificate dated as of the Increase Effective Date (in sufficient copies for each Lender) signed by a Responsible Officer (i) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such increase and (ii) certifying that, before and after giving effect to such increase, (A) the representations and warranties contained in Article V and the other Loan Documents that are qualified by materiality shall be true and correct on and as of the Increase Effective Date, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date (provided that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof), and except that for purposes of this Section 2.13, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent financial statements delivered pursuant to clauses (a) and (b), respectively, of Section 6.01 (provided that if the proceeds of the Loans under such New Commitments are to be used to consummate a Limited Conditionality Acquisition, the requirements of this clause (A) shall be subject to, if agreed to by the Lenders providing such New Commitments, customary “SunGard” or other customary applicable “certain funds” conditionality provisions) and (B) no Default or Event of Default (or, in the case of a Limited Conditionality Acquisition, no Specified Event of Default) shall have occurred and be continuing on the date of such Increase Effective Date and after giving effect thereto and (y) (i) upon the reasonable request of any Lender made at least ten days prior to the Increase Effective Date, the Borrower shall have provided to such Lender, and such Lender shall be reasonably satisfied with, the documentation and other information so reasonably requested in connection with applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the PATRIOT Act, in each case at least five days prior to the Increase Effective Date and (ii) upon the reasonable request of any Lender made at least ten days prior to the Increase Effective Date, at least three days prior to the Increase Effective Date, any Loan Party that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation shall have delivered, to each Lender that so requests, a Beneficial Ownership Certification in relation to such Loan Party. The Borrower shall prepay any Committed Loans outstanding on the Increase Effective Date (and pay any additional amounts required pursuant to Section 3.05) to the extent necessary to keep the outstanding Committed Loans ratable with any revised Applicable Percentages arising from any nonratable increase in the Commitments under this Section 2.13. Notwithstanding any provision of this Agreement to the contrary, no such increase shall be conditioned on any Lenders representing more than 50% of the aggregate amount of the Commitments in effect immediately prior to any Increase Effective Date having agreed to any such increase.
(f) Conflicting Provisions. This Section 2.13 shall supersede any provisions in Section 2.11 or 11.01 to the contrary.
2.14 Letters of Credit.
(a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit denominated in Agreed Currencies or other Foreign Currencies as the applicant thereof for the support of its or its Subsidiaries’ obligations, in a form reasonably acceptable to the Administrative Agent and the applicable Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the applicable Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. Notwithstanding Section 1.05, unless otherwise specified in such Letter of Credit, all references in any Letter of Credit to times of day shall be references to Local Time. No Issuing Bank shall be under any obligation to issue any Letter of Credit if: any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank from issuing the Letter of Credit, or any Law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon such Issuing Bank with respect to the Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such Issuing Bank any loss, cost or expense which was not applicable on the Closing Date (for which such Issuing Bank is not otherwise compensated hereunder) and which such Issuing Bank in good faith deems material to it.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions; Reporting.
(i) To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank) to such Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension, but in any event no less than three Business Days) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section 2.14), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the applicable Issuing Bank, the Borrower shall also submit a letter of credit application on such Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, subject to Sections 2.03(b) and 2.16, (i) the LC Exposure shall not exceed $100,000,000 (such amount, the “LC Sublimit”), (ii) the LC Exposure of any Issuing Bank shall not exceed the aggregate amount of its LC Commitment and (iii) the Dollar Equivalent of the Total Outstandings shall not exceed the Aggregate Commitments.
(ii) Other than to the extent provided to the Administrative Agent by the Borrower pursuant to clause (i) above, within one Business Day of the date of any issuance, amendment, renewal, extension or termination of any Letter of Credit, the applicable Issuing Bank shall provide to the Administrative Agent the information required by clause (i) above with respect to such issuance, amendment, renewal,
extension or termination, along with a true and complete copy of such Letter of Credit, amendment, renewal, extension or termination, if applicable.
(iii) No later than 9:00 a.m., Local Time, on the second Business Day prior to the last day of each calendar quarter (the “Reporting Time”), each Issuing Bank shall provide the Administrative Agent with a summary of all (A) outstanding issuances at such time and (B) Letter of Credit activity during such calendar quarter. It is understood and agreed that, for purposes of the calculation of fees payable pursuant to Section 2.07(b), any Letter of Credit activity occurring after the Reporting Time shall be deemed to have occurred in the immediately succeeding calendar quarter.
(c) Expiration Date. Each Letter of Credit shall expire (or be subject to termination by notice from the applicable Issuing Bank to the beneficiary thereof) at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) or such longer period consented to by the applicable Issuing Bank and (ii) the date that is five Business Days prior to the Maturity Date of the Committed Loans of such Issuing Bank; provided, however, that any Letter of Credit with a term of one year may provide for its automatic renewal for additional periods not exceeding one year so long as neither the applicable Issuing Bank nor the Borrower shall permit any such renewal to extend such expiration date beyond the date set forth in clause (ii) above (unless such Letter of Credit is cash collateralized by delivery to the Administrative Agent of an amount of cash equal to 103% of the amount of Letter of Credit Obligations to be held for the benefit of the Issuing Bank, the Administrative Agent and the Lenders entitled thereto as additional collateral security for Obligations in respect of such Letter of Credit at least five (5) Business Days prior to the Maturity Date).
(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the applicable Issuing Bank or the Lenders, such Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the applicable Issuing Bank, the Dollar Equivalent of such Lender’s Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section 2.14, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 2:00 p.m., Local Time, on the Business Day immediately following the day that the Borrower receives such notice; provided that, unless the Borrower notifies the Administrative Agent and the applicable Issuing Bank otherwise prior to such time, the Borrower shall be deemed, subject to the conditions to borrowing set forth herein, to have requested in accordance with Section 2.02(b) that such payment be financed with a Borrowing of ABR Loans in the Dollar Equivalent of such LC Disbursement and the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting Borrowing of ABR Loans. If the Borrower fails to make such
payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.02(b) with respect to Loans made by such Lender (and Section 2.10 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the applicable Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the applicable Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank, as applicable. Any payment made by a Lender pursuant to this paragraph to reimburse an Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower’s obligations to reimburse LC Disbursements as provided in paragraph (e) of this Section 2.14 shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by an Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.14, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders nor any Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of such Issuing Bank; provided that the foregoing shall not be construed to excuse an Issuing Bank from liability to the Borrower, to the extent of any direct damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of an Issuing Bank (as determined by a court of competent jurisdiction in a final, non-appealable judgment), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, (i) an Issuing Bank may replace a purportedly lost, stolen, or destroyed original Letter of Credit or missing amendment thereto with a certified true copy marked as such or waive a requirement for its presentation and (ii) with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, an Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. Without limiting the foregoing, none of the Administrative Agent, the Lenders, any
Issuing Bank, or any of their Related Parties shall have any liability or responsibility by reason of (i) any presentation that includes forged or fraudulent documents or that is otherwise affected by the fraudulent, bad faith, or illegal conduct of the beneficiary or other Person, (ii) an Issuing Bank declining to take-up documents and make payment (A) against documents that are fraudulent, forged, or for other reasons by which that it is entitled not to honor or (B) following a Borrower’s waiver of discrepancies with respect to such documents or request for honor of such documents or (iii) an Issuing Bank retaining proceeds of a Letter of Credit based on an apparently applicable attachment order, blocking regulation, or third-party claim notified to such Issuing Bank.
(g) Disbursement Procedures. An Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall promptly notify the Administrative Agent, the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If an Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans; provided that if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section 2.14, then Section 2.06(b) shall apply. Interest accrued pursuant to this paragraph shall be for the account of such Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section 2.14 to reimburse such Issuing Bank shall be for the account of such Lender to the extent of such payment.
(i) Replacement and Resignation of an Issuing Bank. An Issuing Bank may resign at any time by giving 30 days’ prior notice to the Administrative Agent, the Lenders and the Borrower, or may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank or in accordance with Section 11.13. The Administrative Agent shall notify the Lenders of any such replacement or resignation of an Issuing Bank. At the time any such replacement or resignation shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced or resigned Issuing Bank pursuant to Section 2.07(b). From and after the effective date of any such replacement or resignation, (i) the successor Issuing Bank shall have all the rights and obligations of the replaced or resigned Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement or resignation of an Issuing Bank hereunder, the replaced or resigned Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement or resignation, but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph,
the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash or provide a “back-to-back” letter of credit or alternative collateral as the Administrative Agent may approve in its sole discretion in good faith, equal to the LC Exposure owing by it as of such date plus any accrued and unpaid interest thereon; provided that the obligation of the Borrower to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in Section 8.01(f). Such deposit shall be held by the Administrative Agent as collateral so long as any LC Exposure exists hereunder for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the applicable Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Borrower under this Agreement; provided, however, that if prior to the acceleration of the maturity of the Loans the LC Exposure shall cease to exist, moneys in such account shall be returned to the Borrower as provided below. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after the earlier of (a) all Events of Default having been cured or waived or (b) the LC Exposure ceasing to exist.
(k) Existing Letters of Credit. The Existing Letters of Credit will, as of the Closing Date, be deemed to be Letters of Credit issued under this Agreement and subject to and governed by the terms of this Agreement.
(l) Applicability of ISP and UCP. Unless otherwise expressly agreed by the applicable Issuing Bank and the Borrower when a Letter of Credit is issued by it, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the UCP shall apply to each commercial Letter of Credit. Notwithstanding the foregoing, no Issuing Bank shall be responsible to the Borrower for, and no Issuing Bank’s rights and remedies against the Borrower shall be impaired by, any action or inaction of any Issuing Bank required or permitted under any law, order, or practice that is required or permitted to be applied to any Letter of Credit or this Agreement, including the law or any order of a jurisdiction where any Issuing Bank or the beneficiary is located, the practice stated in the ISP or UCP, as applicable, or in the decisions, opinions, practice statements, or official commentary of the ICC Banking Commission, the Bankers Association for Finance and Trade – International Financial Services Association (BAFT-IFSA), or the Institute of International Banking Law & Practice, whether or not any Letter of Credit chooses such law or practice.
2.15 Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 2.07(a);
(b) the Commitment and Outstanding Amount of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, waiver or other modification pursuant to Section 11.01); provided, that this clause (b) shall not apply to the vote of a Defaulting Lender in the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender affected thereby;
(c) with respect to any Lender becoming a Defaulting Lender, if any LC Exposure exists at the time such Lender becomes a Defaulting Lender then:
(i) all or any part of the LC Exposure of such Defaulting Lender shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent that (x) after giving effect to such reallocation, the sum of all non-Defaulting Lenders’ Outstanding Amounts under such Commitments plus such Defaulting Lender’s LC Exposure does not exceed the total of all non-Defaulting Lenders’ Commitments, (y) after giving effect to such reallocation, the sum of each non-Defaulting Lender’s Outstanding Amount plus such non-Defaulting Lender’s LC Exposure does not exceed such non-Defaulting Lender’s individual Commitments and (z) the conditions set forth in Section 4.02 are satisfied at such time;
(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shall within one Business Day following notice by the Administrative Agent, cash collateralize for the benefit of the Issuing Banks only the obligations corresponding to such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.14(j) for so long as such LC Exposure is outstanding;
(iii) if the Borrower cash collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to clause (ii) above, the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.07(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is cash collateralized;
(iv) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Lenders pursuant to Section 2.07(a) and Section 2.07(b) shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; and
(v) if all or any portion of such Defaulting Lender’s LC Exposure is neither reallocated nor cash collateralized pursuant to clause (i) or (ii) above, then, without prejudice to any rights or remedies of any Issuing Bank or any other Lender hereunder, all letter of credit fees payable under Section 2.07(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to the applicable Issuing Bank until and to the extent that such LC Exposure is reallocated and/or cash collateralized; and
(d) any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any
amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to any Issuing Bank hereunder; third, to cash collateralize the Issuing Banks’ Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.14(j); fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) cash collateralize the Issuing Banks’ future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.14(j); sixth, to the payment of any amounts owing to the Lenders, the Issuing Banks as a result of any judgment of a court of competent jurisdiction obtained by any Lender, any Issuing Bank against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or LC Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and LC Exposure owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or LC Exposure owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in then outstanding Letters of Credit are held by the Lenders pro rata in accordance with the Commitments hereunder without giving effect to Section 2.15(c)(i). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post cash collateral pursuant to this Section 2.15(d) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto;
(e) so long as such Lender is a Defaulting Lender, the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure and the Defaulting Lender’s then outstanding LC Exposure will be 100% covered by the Commitments of the non-Defaulting Lenders that are Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.15(c), and participating interests in any newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders that are Lenders in a manner consistent with Section 2.15(c)(i) (and such Defaulting Lender shall not participate therein).
In the event that the Administrative Agent and the Borrower and, with respect to a Lender that is a Defaulting Lender and the Issuing Banks each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the LC Exposure of the relevant Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment (if any) and on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.
2.16 [Reserved]
2.17 Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due from the Borrower hereunder in the currency expressed to be payable herein (the “specified currency”) into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which the Administrative Agent could, in accordance with normal banking procedures applicable to arm’s length transactions, purchase the specified currency with such other currency at the Administrative Agent’s main New York City office on the Business Day immediately preceding that on which final, non-appealable judgment is given. The obligations of the Borrower in respect of any sum due to any Credit Party hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Credit Party of any sum adjudged to be so due in such other currency such Credit Party may in accordance with normal, reasonable banking procedures purchase the specified currency with such other currency. If the amount of the specified currency so purchased is less than the sum originally due to such Credit Party in the specified currency, the Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Credit Party against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to any Credit Party in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Section 2.11, such Credit Party agrees to remit such excess to the Borrower.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Payments Free of Taxes. All payments by or on account of any obligation of any Loan Party hereunder or under any other Loan Document shall be made free and clear of and without deduction or withholding for any Taxes, except as required by applicable Law, provided that if applicable Law (as determined in the good faith discretion of the applicable withholding agent) requires the deduction or withholding of any Taxes from such payments, then (i) the applicable withholding agent shall make such deductions or withholding, (ii) the applicable withholding agent shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable Law and (iii) to the extent that the deduction or withholding is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after making all required deductions or withholding (including deductions or withholding applicable to additional sums payable under this Section 3.01) each Lender (or, in the case of a payment made to the Administrative Agent for its own account, the Administrative Agent) receives an amount equal to the sum it would have received had no such deductions or withholding been made.
(b) Payment of Other Taxes by any Loan Party. Without limiting the provisions of subsection (a) above, any Loan Party, as applicable, shall timely pay any Other Taxes required to be paid to the relevant Governmental Authority in accordance with applicable Law, or, at the option of the Administrative Agent, timely reimburse it for the payment thereof.
(c) Indemnification by the Loan Parties. The Loan Parties shall indemnify the Administrative Agent and each Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed, asserted on or attributable to amounts payable
under this Section 3.01) paid or payable by the Administrative Agent or such Lender, as the case may be, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Loan Parties have not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (ii) any Taxes attributable to such Lender's failure to comply with the provisions of Section 11.6(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this Section 3.01(d).
(e) Evidence of Payments. As soon as practicable after any payment of Taxes pursuant to this Section 3.01 by any Loan Party to a Governmental Authority, such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(f) Status of Lenders.
(i) Each Lender that is entitled to an exemption from or reduction of withholding Tax with respect to any payments hereunder or under any other Loan Document shall deliver to such Loan Party and the Administrative Agent, at the time or times reasonably requested by such Loan Party or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by any Loan Party, or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by such Loan Party or the Administrative Agent as will enable such Loan Party or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Each Lender agrees that if any documentation it previously delivered pursuant to this Section 3.01(f) expires or becomes obsolete or inaccurate in any respect, it shall promptly update such documentation or promptly notify the Borrower and the Administrative Agent in writing of its legal ineligibility to do so.
(ii) Without limiting the generality of the foregoing,
(A) each Lender that is a “U.S. person” as defined in Section 7701(a)(30) of the Code shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the
reasonable request of the Borrower or the Administrative Agent), two duly completed executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B) each Foreign Lender shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), two duly completed executed originals of whichever of the following is applicable:
(1) IRS Form W-8BEN or W-8BEN-E claiming eligibility for benefits of an income Tax treaty to which the United States is a party,
(2) IRS Form W-8ECI,
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit E to the effect that such Foreign Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code and that no interest payments under any Loan Document are effectively connected with such Foreign Lender’s conduct of a United States trade or business (a “Tax Compliance Certificate”) and (y) IRS Form W-8BEN, W-8BEN-E or W-8IMY, as applicable,
(4) to the extent a Foreign Lender is not the beneficial owner, IRS Form W-8IMY, accompanied by the applicable IRS Form W-8ECI, W-8BEN, W-8BEN-E, and/or W-9, a Tax Compliance Certificate and any other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a Tax Compliance Certificate on behalf of such direct and indirect partner(s),
(5) any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(C) the Administrative Agent shall deliver to the Borrower two duly completed originals of IRS Form W-9 on or prior to the date hereof certifying that the Administrative Agent is exempt from U.S. federal backup withholding tax.
(iii) If a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by Law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by
Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for any Loan Party and the Administrative Agent to comply with their obligations under FATCA and to determine whether such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold, if any, from such payment. Solely for purposes of this clause (iii), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
(iv) Notwithstanding anything to the contrary, no Lender shall be required to deliver any documentation pursuant to this Section 3.01(f) that it is not legally eligible to deliver.
(v) Each Lender hereby authorizes the Administrative Agent to deliver to the Loan Parties and to any successor Administrative Agent any documentation provided by such Lender pursuant to this Section 3.01(f).
(g) Treatment of Certain Refunds. If the Administrative Agent or any Lender determines, in its sole discretion exercised in good faith, that it has received a refund of any Indemnified Taxes as to which it has been indemnified by any Loan Party or with respect to which any Loan Party has paid additional amounts pursuant to this Section 3.01, it shall promptly pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party under this Section 3.01 with respect to the Indemnified Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to it pursuant to this Section 3.01(g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 3.01(g), in no event will the Administrative Agent or any Lender be required to pay any amount to any Loan Party pursuant to this Section 3.01(g) the payment of which would place the Administrative Agent or Lender in a less favorable net after-Tax position than such Person would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amount with respect to such Tax had never been paid. This subsection shall not be construed to require the Administrative Agent or any Lender to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to any Loan Party or any other Person.
(h) Defined Terms. For purposes of this Section 3.01, the term “Lender” includes any Issuing Bank and the term “applicable Law” includes FATCA.
3.02 Illegality. If any Lender reasonably determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Term Benchmark Loans, or to determine or charge interest rates based upon the Term Benchmark, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, the applicable Agreed Currency in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Term Benchmark Loans or to convert ABR Loans to Term Benchmark Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to
the Administrative Agent), prepay or, if applicable, convert all affected Term Benchmark Loans denominated in U.S. Dollars of such Lender to it to ABR Loans, and to repay all affected Term Benchmark Loans in any other Agreed Currency, either on the last day of the Interest Period, therefor, if such Lender may lawfully continue to maintain such Term Benchmark Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Term Benchmark Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 3.05. The Borrower shall have the rights in respect of any such Lender specified in Section 11.13.
3.03 Inability to Determine Rates. Subject to Section 3.08, (i) if the Administrative Agent determines (which determination shall be conclusive absent manifest error) (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, that adequate and reasonable means do not exist for ascertaining the LIBO Rate, the Adjusted LIBO Rate, the Adjusted EURIBOR Rate, the EURIBOR Rate, the Adjusted CDOR Rate or the Adjusted AUD Rate, as applicable (including because the Relevant Screen Rate is not available or published on a current basis), for the applicable currency and such Interest Period or (B) at any time that adequate and reasonable means do not exist for ascertaining Adjusted Daily Simple SONIA or Daily Simple SONIA; or
(ii) the Administrative Agent is advised by the Required Lenders that (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, the Adjusted LIBO Rate, the LIBO Rate, the Adjusted EURIBOR Rate, the EURIBOR Rate, the Adjusted CDOR Rate or the Adjusted AUD Rate for the applicable currency and such Interest Period will not adequately and fairly reflect the cost to such Lender (or Lenders) of making or maintaining their Committed Loans (or its Committed Loan) included in such Borrowing for the applicably currency and such Interest Period or (B) at any time, the Adjusted Daily Simple SONIA or Daily Simple SONIA, as applicable, for Sterling, will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Committed Loans (or its Committed Loan) included in such Borrowing;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone, telecopy or electronic mail as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (A) any notice of an interest rate election that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Term Benchmark Borrowing shall be ineffective, (B) if any Committed Loan Notice requests a Term Benchmark Borrowing in U.S. Dollars, such Borrowing shall be made as an ABR Borrowing, (C) if any Committed Loan Notice requests a Term Benchmark Borrowing in Canadian Dollars, such borrowing shall be made as Canadian Prime Rate Borrowing and (C) if any Committed Loan Notice requests a Term Benchmark Borrowing or a SONIA Borrowing for the relevant rate above in an Alternative Currency, then such request shall be ineffective; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then all other Types of Borrowings shall be permitted. Furthermore, if any Term Benchmark Loan or SONIA Loan in any Alternative Currency is outstanding on the date of the Borrower’s receipt of the notice from the Administrative Agent referred to in this Section 3.08 with respect to a Relevant Rate applicable to such Term Benchmark Loan or SONIA Loan, then until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) if such Term Benchmark Loan is denominated in U.S. Dollars, then on the last day of the Interest Period applicable to such Committed Loan (or the next succeeding Business Day if such day is not a Business Day), such Committed Loan shall be converted by the Administrative Agent to, and shall constitute, an ABR Loan denominated in U.S. Dollars on such day, (ii) of such Term Benchmark Loan is denominated in Canadian Dollars, then on the last day of the Interest Period applicable to such Loan (or the next succeeding
Business Day if such day is not a Business Day), such Loan shall be converted by the Administrative Agent to, and shall constitute, a Canadian Prime Rate Loan denominated in Canadian Dollars on such day, (iii) if such Term Benchmark Loan is denominated in any Alternative Currency, then such Loan shall, on the last day of the Interest Period applicable to such Committed Loan (or the next succeeding Business Day if such day is not a Business Day) bear interest at the Central Bank Rate for the applicable Alternative Currency plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for the applicable Alternative Currency cannot be determined, any outstanding affected Term Benchmark Loans denominated in any Alternative Currency shall, at the Borrower’s election prior to such day: (A) be prepaid by the Borrower on such day or (B) solely for the purpose of calculating the interest rate applicable to such Term Benchmark Loan, such Term Benchmark Loan denominated in any Alternative Currency shall be deemed to be a Term Benchmark Loan denominated in U.S. Dollars and shall accrue interest at the same interest rate applicable to Term Benchmark Loans denominated in U.S. Dollars at such time or (iv) any such SONIA Loan shall bear interest at the Central Bank Rate for Sterling plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for Sterling cannot be determined, any outstanding affected SONIA Loans, at the Borrower’s election, shall either (A) be converted into ABR Loans denominated in U.S. Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) immediately or (B) be prepaid in full immediately.
3.04 Increased Costs; Reserves on Term Benchmark Loans. Increased Costs Generally. If any Change in Law shall (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e); (ii) subject any Lender to any Tax of any kind whatsoever with respect to this Agreement or any Term Benchmark Loan made by it or any Letter of Credit or participation therein, or change the basis of taxation of payments to such Lender in respect thereof (except for Indemnified Taxes and any Excluded Taxes); or (iii) impose on any Lender or any Issuing Bank or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Term Benchmark Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Term Benchmark Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or such Issuing Bank of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered; provided that any such amount or amounts shall not be duplicative of any amounts to the extent otherwise paid by the Borrower under any other provision of this Agreement. The Borrower shall have the rights specified in Section 11.13 in respect of any Lender for whose account the Borrower makes any payment under this Section 3.04.
(b) Capital Requirements. If any Lender or Issuing Bank determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by any Issuing Bank, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect
to capital adequacy or liquidity), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender setting forth in reasonable detail the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section 3.04 and delivered to the Borrower shall be conclusive absent manifest error. Such Lender shall also certify that it is generally charging such costs to similarly situated customers of the applicable Lender under agreements having provisions similar to this Section 3.04 after consideration of such factors as such Lender then reasonably determines to be relevant (which determination shall be made in good faith (and not on an arbitrary or capricious basis)). The Borrower shall pay such Lender the amount shown as due on any such certificate within 30 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section 3.04 shall not constitute a waiver of such Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section 3.04 for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof).
(e) Reserves on Term Benchmark Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Term Benchmark Loan made to it equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.
3.05 Compensation for Losses.
(a) With respect to Loans that are not SONIA Loans, upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (a) any continuation, conversion, payment or prepayment of any Loan made to it other than an ABR Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by it (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than an ABR Loan on the date or in the amount notified by it; or (c) any assignment of a Term Benchmark Loan on a day other than the last day of the Interest Period therefor as a result of a request by it pursuant to Section 11.13; including any loss or expense (excluding loss of anticipated profits) arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary
administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Term Benchmark Loan made by it at the Adjusted LIBO Rate, the Adjusted EURIBOR Rate, the Adjusted AUD Rate or the Adjusted CDOR Rate, as applicable, for such Loan by a matching deposit or other borrowing in the London interbank eurocurrency market for a comparable amount and for a comparable period, whether or not such Term Benchmark Loan was in fact so funded.
(b) With respect to SONIA Loans, upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (a) any payment or prepayment of any SONIA Loan made to it on a day other than the Interest Payment Date for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by it (for a reason other than the failure of such Lender to make a Loan) to prepay or borrow any SONIA Loan on the date or in the amount notified by it; or (c) any assignment of a SONIA Loan on a day other than the Interest Payment Date therefor as a result of a request by it pursuant to Section 11.13; including any loss or expense (excluding loss of anticipated profits) arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each SONIA Loan made by it at SONIA.
3.06 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. Each Lender may make any Loans and each Issuing Bank may issue Letters of Credit to the Borrower through any Lending Office, provided that the exercise of this option shall not affect the obligation of the Borrower to repay the Loans or Letters of Credit in accordance with the terms of this Agreement. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay (or will be required to pay) any additional amounts or indemnification payments in respect of any Indemnified Taxes to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04 as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) Replacement of Lenders. If any Lender requests compensation under Section 3.02 or Section 3.04, or if the Borrower is required to pay (or will be required to pay) any additional amounts or indemnification payments in respect of any Indemnified Taxes to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrower may replace such Lender in accordance with Section 11.13.
3.07 Survival. Each Loan Party’s obligations under this Article III shall survive the termination of this Agreement, the termination of the Aggregate Commitments, repayment of all other
Obligations hereunder, the resignation or replacement of the Administrative Agent and any assignment of rights by, or the replacement of, a Lender.
3.08 LIBOR Successor.
(a) Notwithstanding anything to the contrary herein or in any other Loan Document, if a Benchmark Transition Event, an Early Opt-in Election or Other Benchmark Rate Election, as applicable, and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (1) or (2) of the definition of “Benchmark Replacement” with respect to U.S. Dollars for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (3) of the definition of “Benchmark Replacement” with respect to any Agreed Currency for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders of each affected Facility.
(b) Notwithstanding anything to the contrary herein or in any other Loan Document and subject to the proviso below in this paragraph, with respect to a Loan denominated in U.S. Dollars, if a Term SOFR Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then the applicable Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder or under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings, without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document; provided that, this clause (c) shall not be effective unless the Administrative Agent has delivered to the Lenders and the Borrower a Term SOFR Notice. For the avoidance of doubt, the Administrative Agent shall not be required to deliver a Term SOFR Notice after the occurrence of a Term SOFR Transition Event and may do so in its sole discretion.
(c) In connection with the implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(d) The Administrative Agent will promptly notify the Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event, an Early Opt-in Election or Other Benchmark Rate Election, as applicable, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes, (iv) the removal or reinstatement of any tenor of a Benchmark pursuant to clause (e) below and (v) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.08, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an
event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 3.08.
(e) Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including Term SOFR, LIBO Rate, EURIBOR Rate, CDOR Rate or AUD Rate) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is or will be no longer representative, then the Administrative Agent may modify the definition of “Interest Period” for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is or will no longer be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(f) Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any request for a Term Benchmark Borrowing or SONIA Borrowing of, conversion to or continuation of Term Benchmark Loans or SONIA Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, either (x) the Borrower will be deemed to have converted any request for a Term Benchmark Borrowing denominated in U.S. Dollars into a request for a Borrowing of or conversion to ABR Loans, (y) the Borrower will be deemed to have converted any request for a Term Benchmark Borrowing denominated in Canadian Dollars into a request for a Borrowing of or conversion to Canadian Prime Rate Loans or (z) any Term Benchmark Borrowing or SONIA Borrowing denominated in an Alternative Currency (other than Canadian Dollars) shall be ineffective. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of ABR based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of ABR. Furthermore, if any Term Benchmark Loan or SONIA Loan in any Alternative Currency is outstanding on the date of the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period with respect to a Relevant Rate applicable to such Term Benchmark Loan or SONIA Loan, then until such time as a Benchmark Replacement for such Alternative Currency is implemented pursuant to this Section 3.08, (i) if such Term Benchmark Loan is denominated in U.S. Dollars, then on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), such Loan shall be converted by the Administrative Agent to, and shall constitute, an ABR Loan denominated in U.S. Dollars on such day, (ii) if such Term Benchmark Loan is denominated in Canadian Dollars, then on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), such Loan shall be converted by the Administrative Agent to, and shall constitute, an Canadian Prime Rate Loan denominated in Canadian Dollars on such day, (iii) if such Term Benchmark Loan is denominated in any Alternative Currency other than Canadian Dollars, then such Loan shall, on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day) bear interest at the Central Bank Rate for the applicable Alternative Currency plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and
binding absent manifest error) that the Central Bank Rate for the applicable Alternative Currency cannot be determined, any outstanding affected Term Benchmark Loans denominated in any Alternative Currency shall, at the Borrower’s election prior to such day: (A) be prepaid by the Borrower on such day or (B) solely for the purpose of calculating the interest rate applicable to such Term Benchmark Loan, such Term Benchmark Loan denominated in any Alternative Currency shall be deemed to be a Term Benchmark Loan denominated in U.S. Dollars and shall accrue interest at the same interest rate applicable to Term Benchmark Loans denominated in U.S. Dollars at such time or (iv) such SONIA Loan shall bear interest at the Central Bank Rate for the applicable Alternative Currency plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for the applicable Alternative Currency cannot be determined, any outstanding affected SONIA Loans, at the Borrower’s election, shall either (A) be converted into ABR Loans denominated in U.S. Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) immediately or (B) be prepaid in full immediately.
3.09 Issuing Banks. Each Issuing Bank shall be deemed to be a Lender for purposes of this Article III.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 Conditions of Closing. The obligation of each Lender to make its initial Loan and of each Issuing Bank to issue any Letters of Credit hereunder shall not become effective, and the Closing Date shall not occur, until the date on which each of the following conditions is satisfied:
(a) The Administrative Agent’s receipt of the following, each properly executed by a Responsible Officer of the Borrower and/or the Guarantors, as applicable, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance reasonably satisfactory to the Administrative Agent and its legal counsel:
(i) executed counterparts of this Agreement;
(ii) a Note executed by the Borrower in favor of each Lender requesting a Note;
(iii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each of the Borrower and each of the Guarantors as the Administrative Agent may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents;
(iv) such documents and certifications as the Administrative Agent may reasonably require to evidence that each of the Borrower and each Guarantor is duly organized, and that each of the Borrower and each Guarantor is validly existing, in good standing in its state of organization;
(v) a favorable written opinion of Cooley LLP, counsel to the Borrower, addressed to the Administrative Agent and each Lender and dated as of the Closing Date,
covering such matters relating to the Borrower, this Agreement or other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require;
(vi) executed counterparts of the Collateral Agreement;
(vii) the Disclosure Letter;
(viii) a Perfection Certificate executed by each Loan Party;
(ix) evidence that the Administrative Agent shall have received all stock certificates representing the issued and outstanding Equity Interests of each Subsidiary of the Borrower required by the Collateral Agreement to be delivered to the Administrative Agent (or its designee) with endorsements and stock powers in form and substance reasonably satisfactory to the Administrative Agent; and
(x) a certificate signed by a Responsible Officer of the Borrower (on behalf of the Borrower) certifying that the conditions specified in Sections 4.02(a) and (b) have been satisfied.
(b) Any fees required to be paid on or before the Closing Date pursuant to the Engagement Letter, and all expenses required to be reimbursed by the Borrower, for which invoices have presented at least three (3) Business Days prior to the Closing Date, shall have been paid.
(c) The Administrative Agent and the Lenders shall have received, at least five Business Days in advance of the Closing Date, all documentation and other information as is reasonably requested in writing at least ten Business Days prior to the Closing Date by the Administrative Agent or the Lenders about the Loan Parties and required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act and at least three days prior to the Closing Date, any Loan Party that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation shall have delivered, to each Lender that so requests, a Beneficial Ownership Certification in relation to such Loan Party.
(d) The Administrative Agent shall have received a certificate from the Borrower’s insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to Section 6.07 is in full force and effect and that the Administrative Agent, for the benefit of the Secured Parties, has been named as additional insured and loss payee thereunder to the extent required under Section 6.07; provided, that any requirement under this clause (d) shall not be required to be satisfied on the Closing Date and shall not be a condition to the availability of the initial Loans on the Closing Date but shall be required to be satisfied within ninety (90) days following the Closing Date or such later date as the Administrative Agent may agree in its reasonable discretion.
Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender and Issuing Bank that has signed this Agreement (and each such Lender’s or Issuing Bank’s Affiliates, successors and/or assigns) shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a
Lender and Issuing Bank unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
4.02 Conditions to all Borrowings. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of any Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions precedent:
(a) The representations and warranties of the Borrower contained in Article V or any other Loan Document that are qualified by materiality shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, and the representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date (provided, that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof), and except that for purposes of this Section 4.02, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent financial statements delivered pursuant to clauses (a) and (b) respectively, of Section 6.01.
(b) No Default and no Event of Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.
(c) After giving effect to such Credit Extension, the Borrower would be in pro forma compliance with the Liquidity Covenant, recalculated as of the date of such Credit Extension.
(d) The Administrative Agent shall have received a Committed Loan Notice in accordance with the requirements hereof.
Each Committed Loan Notice in respect of a Borrowing submitted by the Borrower, each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to be a representation and warranty that the conditions specified in this Section 4.02 have been satisfied on and as of the date of the applicable Borrowing or issuance, amendment, renewal or extension of such Letter of Credit.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower and each Guarantor represents and warrants to the Administrative Agent and the Lenders, as to itself and its Subsidiaries, that:
5.01 Existence, Qualification and Power. The Borrower and each Guarantor (a) is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation as identified on Schedule 5.01 to the Disclosure Letter and (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to carry on its business as now conducted and to execute, deliver and perform its obligations under the Loan Documents.
5.02 Authorization; No Contravention. The execution, delivery and performance by the Borrower and each Guarantor of each Loan Document to which such Person is party, have been duly authorized by all necessary corporate action, and do not and will not contravene (a) the terms of any of
the Borrower’s or any Guarantor’s Organizational Documents or (b) any Law or any contractual restriction binding on or affecting it, except, in each case referred to in this clause (b), to the extent such contravention could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Borrower or any Guarantor of this Agreement or any other Loan Document except (a) such as have been obtained and are in full force and effect, (b) for filings and recordings with respect to the Collateral to be made, or otherwise delivered to the Administrative Agent for filing and/or recordation, as of the Closing Date and (c) those which, if not obtained or made, would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by the Borrower and each Guarantor. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of the Borrower and each Guarantor, enforceable against the Borrower and each Guarantor in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, arrangement, moratorium and other similar laws affecting creditors’ rights generally and to the application of general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.
5.05 Financial Statements; No Material Adverse Effect.
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein.
(b) The unaudited consolidated balance sheets of the Borrower and its Subsidiaries dated March 31, 2021 and June 30, 2021, and the related unaudited consolidated statements of income (loss), stockholders’ equity (deficit) and cash flows for the fiscal quarters ended on such dates (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the dates thereof and their results of operations, cash flows and changes in shareholders’ equity for the periods covered thereby, subject to the absence of footnotes and to normal year-end audit adjustments.
(c) Since December 31, 2020, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
5.06 Ownership of Property. Each of the Borrower and each Subsidiary has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.07 Taxes. As of the Closing Date, the Borrower and its Subsidiaries have paid all Taxes that were due and payable by them, except those which are being contested in good faith by appropriate
proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP or to the extent that the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
5.08 ERISA Compliance; Foreign Plans. Except as has not resulted or could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, (i) each Plan is in compliance with the applicable provisions of ERISA, the Code and other Federal or state Laws and each Foreign Plan is in compliance with the applicable provisions of the laws applicable to such Foreign Plan, (ii) there are no pending or, to the knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan or Foreign Plan, (iii) there exists no Unfunded Pension Liability with respect to any Plan, and (iv) no ERISA Event or Foreign Plan Event has occurred or is reasonably expected to occur.
5.09 Margin Regulations; Investment Company Act.
(a) Neither the Borrower nor any Guarantor is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors), or extending credit for the purpose of purchasing or carrying margin stock.
(b) Neither the Borrower nor any Guarantor is required to be registered as an “investment company” under the Investment Company Act of 1940.
5.10 Disclosure. No report, financial statement, certificate or other written information concerning the Borrower and its Subsidiaries (other than information of a general economic or industry specific nature) furnished by or on behalf of the Borrower to the Administrative Agent or any Lender prior to the Closing Date in connection with the transactions contemplated hereby and the negotiation of this Agreement (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact, and no such document, when considered collectively with all other such documents, omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading; provided that, with respect to projections and forward-looking statements, the Borrower represents only that such projections and forward-looking statements are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made, it being recognized by the Administrative Agent and the Lenders that such projected financial information as to future events and forward-looking statements may not occur and are not to be viewed as facts or a guarantee of performance and are subject to significant uncertainties and contingencies many of which are beyond the control of the Borrower and its Restricted Subsidiaries and that actual results during the period or periods covered by any such projected financial information may differ significantly from the projected results and such differences may be material.
5.11 Intellectual Property; Licenses, Etc. Except as has not resulted or could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, (i) each of the Borrower and its Subsidiaries owns or has the right to use, all trademarks, services marks, trade dress, trade names, copyrights, domain names, trade secrets, know-how, patents, copyrights in software, data and databases and other similar proprietary or intellectual property rights used in or necessary to its business as currently conducted (the “IP Rights”); (ii) the operation of the business of the Borrower and its Subsidiaries does not infringe, misappropriate or otherwise violate the Intellectual Property rights of any other Person and (iii) the Borrower and its Subsidiaries have taken commercially reasonable actions to protect and maintain their ownership in and validity and enforceability of their owned IP Rights.
5.12 Anti-Corruption Laws and Sanctions. The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Borrower, its Subsidiaries and their respective officers and employees and, to the knowledge of the Borrower, directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrower, any Subsidiary or any of their respective directors, officers or, employees, or (b) to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing, Letter of Credit, use of proceeds or other transaction contemplated by this Agreement will violate any Anti-Corruption Law or applicable Sanctions.
5.13 Solvency. The Borrower and its Subsidiaries, on a consolidated basis, are Solvent.
5.14 Equity Interests and Ownership. The Equity Interests constituting Pledged Equity Interests have been duly authorized and validly issued and are fully paid and non-assessable. Except as set forth on Schedule 5.14 to the Disclosure Letter, as of the Closing Date there is no existing option, warrant, call, right, commitment or other agreement (including preemptive rights) to which Borrower or any of its Subsidiaries is a party requiring, and there is no Equity Interest constituting Pledged Equity Interests outstanding which upon conversion or exchange would require, the issuance by Borrower or any of its Subsidiaries of any additional Equity Interests constituting Pledged Equity Interests of Borrower or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, Equity Interests constituting Pledged Equity Interests of Borrower or any of its Subsidiaries. Schedule 5.14 to the Disclosure Letter correctly sets forth the ownership interest of the Borrower and its Subsidiaries in their respective Subsidiaries in which Equity Interests constituting Pledged Equity Interests are held as of the Closing Date.
5.15 Real Estate Assets. As of the Closing Date, Schedule 5.15 to the Disclosure Letter is a complete and correct list of (a) all Real Estate Assets, and (b) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Estate Asset of any Loan Party, regardless of whether such Loan Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment.
5.16 Collateral. During the Collateral Period and subject to Sections 4.01(a)(ix), 4.01(d) and 6.16 of this Agreement (including with respect to any security interest that cannot be created, pledged or perfected on the Closing Date after the use by the Borrower of commercially reasonable efforts to create, pledge or perfect any such security interest in the Collateral on the Closing Date), the security interest of the Administrative Agent in the Collateral constitutes a valid, perfected first priority security interest in and continuing Lien on all of each Loan Party’s right, title and interest in, to and under the Collateral (subject to permitted Liens).
5.17 Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened in writing (including “cease and desist” letters and invitations to take a patent license) against or affecting the Borrower or any of its Restricted Subsidiaries (i) that could reasonably be expected, individually or in the aggregate, to result in
a Material Adverse Effect or (ii) that involve this Agreement, any other Loan Document or the transactions contemplated under this Agreement.
(b) Except with respect to any matter that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Restricted Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, or (iii) has received notice of any claim with respect to any Environmental Liability.
5.18 Compliance with Laws and Agreements. Each of the Borrower and its Restricted Subsidiaries is in compliance with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property and rights and all indentures, agreements, and other instruments binding upon it or its property and rights, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
5.19 Affected Financial Institutions. No Loan Party is an Affected Financial Institution.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation (other than inchoate indemnity obligations) hereunder shall remain unpaid or unsatisfied, any Letter of Credit remains outstanding or any LC Disbursement shall not have been reimbursed or cash collateralized on terms reasonably acceptable to the applicable Issuing Bank (or other arrangements are made with respect thereto reasonably satisfactory to the applicable Issuing Bank):
6.01 Financial Statements. The Borrower shall deliver to the Administrative Agent and each Lender (for further distribution to the Lenders):
(a) commencing with the fiscal year ended December 31, 2021, within (x) prior to an IPO, 120 days after the end of each fiscal year of the Borrower and (y) after an IPO, 90 days after the end of each fiscal year end of the Public Company, the audited consolidated balance sheet and the related audited consolidated statements of income (loss), stockholders’ equity (deficit) and cash flows of the Borrower (or, after an IPO, the Public Company) as of the end of and for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP; audited and accompanied by a report and opinion of KPMG LLP or another independent certified public accounting firm of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception (other than a qualification related to the maturity of the Commitments and the Loans at the Maturity Date or any other Indebtedness maturing within one year from the time such report is delivered) or any qualification or exception as to the scope of such audit or with respect to the absence of any material misstatement;
(b) commencing with the fiscal quarter ended September 30 , 2021, within (x) prior to an IPO, 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower and (y) after an IPO, 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Public Company, the consolidated balance sheet and the related unaudited consolidated statements of income (loss), stockholders’ equity (deficit) and cash flows of the
Borrower (or, after an IPO, the Public Company) as of the end of and for such fiscal quarter and for the portion of the fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by its chief executive officer, chief financial officer, treasurer, chief accounting officer or controller as fairly presenting in all material respects the financial condition, results of operations, stockholders’ equity and cash flow of the Borrower (or, after an IPO, the Public Company) and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and
(c) concurrently with any delivery of financial statements under clause (a) above and within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, the Borrower shall provide unaudited financial statements of corresponding character and for dates and periods as in clauses (a) and (b) covering the Unrestricted Subsidiaries, together with a consolidating statement reflecting eliminations or adjustments required to reconcile the financial statements of such Unrestricted Subsidiaries to the financial statements delivered pursuant to such clauses (a) and (b).
6.02 Certificates; Other Information. The Borrower shall deliver to the Administrative Agent (for further distribution to the Lenders), in the case of clauses (a) and (b) below or to each requesting Lender, in the case of clauses (c) and (d) below:
(a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by the chief executive officer, chief accounting officer, chief financial officer, treasurer or controller of the Borrower;
(b) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Restricted Subsidiary with the SEC, or any Governmental Authority succeeding to any or all of the functions of the SEC, or with any national securities exchange, as the case may be, in each case that is not otherwise required to be delivered to the Administrative Agent pursuant hereto; provided that such information shall be deemed to have been delivered on the date on which such information has been posted on the Borrower’s website on the Internet on any investor relations page at http://www.redditinc.com (or any successor page) or at http://www.sec.gov;
(c) subject to any confidentiality obligations imposed on the Borrower or any Subsidiary by applicable Law, court order, contract or otherwise, promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request in connection with this Agreement; and
(d) promptly following any request therefor, information and documentation reasonably requested by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the PATRIOT Act and the Beneficial Ownership Regulation.
Notwithstanding the foregoing, the information required to be delivered pursuant to Section 6.01(a) or (b) shall be (x) deemed to have been delivered on the date (A) on which such information has been posted on the Internet at www.sec.gov or such other website previously notified by the Borrower to the Administrative Agent to which each Lender and the Administrative Agent have access (whether a
commercial, third-party website or whether sponsored by the Administrative Agent) or (B) on which the Public Company files its Form 10-K or 10-Q, as applicable, with the SEC and (y) to the extent relating to a Public Company that is a Parent Entity, accompanied by consolidating information that explains in reasonable detail the differences between the information relating to the Public Company, on the one hand, and the information relating to the Borrower and its Subsidiaries on a stand-alone basis, on the other hand. The Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Documents required to be delivered pursuant to Section 6.01 and Section 6.02(b) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which such information has been posted on the internet at www.sec.gov or such other website previously notified by the Borrower to the Administrative Agent to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent), (ii) on which the Relevant Public Company files its Form 10-K or 10-Q, as applicable, with the SEC; provided that, in the case of this clause (ii), to the extent relating to a Relevant Public Company that is a Parent Entity, such delivery is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to the Relevant Public Company, on the one hand, and the information relating to the Borrower and its Subsidiaries on a stand-alone basis, on the other hand or (iii) on which such documents are posted on the Borrower’s behalf on Syndtrak or another relevant website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent). Each Lender shall be solely responsible for timely accessing posted documents and maintaining its copies of such documents.
6.03 Notices. Promptly after the Borrower’s obtaining Actual Knowledge thereof, the Borrower shall notify the Administrative Agent, for prompt further notification of the Lenders by the Administrative Agent:
(a) of the occurrence of any Default; and
(b) of any matter (including litigation, governmental proceedings or investigations), that has resulted or could reasonably be expected to result in a Material Adverse Effect.
Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a Responsible Officer of the Borrower (on behalf of the Borrower) setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
6.04 Payment of Taxes. Except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Borrower shall, and shall cause each of its Restricted Subsidiaries to, pay and discharge as the same shall become due and payable, all Taxes upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary.
6.05 Preservation of Existence, Etc. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, (a) preserve, renew and maintain in full force and effect its legal existence, and solely in
the case of the Borrower and the Guarantors, maintain such existence in the United States, in each case, except in a transaction permitted by Section 7.02, and except that no Restricted Subsidiary shall be required to preserve, renew and maintain its corporate existence, if the Borrower or such Restricted Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower and its Restricted Subsidiaries, taken as a whole, and that the loss thereof could not be reasonably expected to have a Material Adverse Effect and (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution, or the transactions permitted under Section 7.02.
6.06 Maintenance of Properties. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.07 Maintenance of Insurance.
(a) Except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Borrower shall (a) use commercially reasonable efforts to maintain or cause to maintain with financially sound and reputable insurance companies insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar businesses, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, and/or (b) retain risk through a self-insurance mechanism or by agreement with an Affiliate or externally regulated vehicle for funding loss normally provided through insurance coverage carried by companies engaged in the same or similar businesses and owning similar properties. Without limiting the generality of the foregoing, during the Collateral Period, the Borrower and its Restricted Subsidiaries will maintain or cause to be maintained actual casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses. Each such policy of insurance of property and/or liability shall, within ninety (90) days of the Closing Date (or such later date as may be agreed by the Administrative Agent in its reasonable discretion), (i) in the case of liability insurance policies, name the Administrative Agent, on behalf of the Secured Parties, as an additional insured thereunder as its interests may appear and (ii) during the Collateral Period, in the case of each casualty insurance policy, contain a loss payable clause or endorsement, reasonably satisfactory in form and substance to the Administrative Agent, that names the Administrative Agent, on behalf of the Secured Parties, as the loss payee thereunder for any covered loss and the Borrower shall use its commercially reasonable efforts to have each such loss payable clause or endorsement, as the case may be, provide for at least thirty days’ (or such lesser period as is reasonably acceptable to the Administrative Agent) prior written notice to the Administrative Agent of any modification or cancellation of such policy, except, in each case, where the failure to do so could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. If at any time the area in which any improved Mortgaged Property is located is designated a Special Flood Hazard Area, the applicable Loan Party shall use commercially reasonable efforts to obtain customary flood insurance.
6.08 Compliance with Laws and Agreements. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, (a) comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it to its business or property and all indentures, agreements and other instruments binding upon it or its property and rights, except in such instances in which (i) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (ii) the failure to comply therewith could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and (b) maintain in effect and enforce policies and procedures reasonably designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
6.09 Books and Records. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, maintain proper books of record and account that permit the preparation of consolidated financial statements of the Borrower materially in accordance with GAAP or IFRS, applicable. The Borrower will, and will cause each of its Restricted Subsidiaries to, permit any representatives designated by the Administrative Agent or, solely during the existence of an Event of Default, any Lender (pursuant to the request made through the Administrative Agent), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records to the extent reasonably necessary, and to discuss its affairs, finances and condition with its officers and independent accountants (provided that the Borrower or such Restricted Subsidiary shall be afforded the opportunity to participate in any discussions with such independent accountants), all at such reasonable times and as often as reasonably requested (but no more than once annually if no Event of Default exists). Notwithstanding anything to the contrary in this Section 6.09, none of the Borrower or any of its Restricted Subsidiaries shall be required to disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, (ii) in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives) is prohibited by applicable law or any third party contract legally binding on Borrower or such Restricted Subsidiary, or (iii) is subject to attorney, client or similar privilege or constitutes attorney work-product.
6.10 Use of Proceeds. The Borrower shall use the proceeds of the Borrowings for working capital, capital expenditures, Acquisitions, investments, permitted Restricted Payments and other purposes not in contravention of any Law or of any Loan Document.
6.11 [Reserved].
6.12 Additional Guarantors. Within 45 days (or such longer period as acceptable to the Administrative Agent) after the date any Person becomes a Restricted Subsidiary of the Borrower, other than an Immaterial Subsidiary, or ceases to be an Excluded Subsidiary, shall:
(a) Notice to Administrative Agent. Promptly send to the Administrative Agent written notice setting forth with respect to such Person, if applicable, (x) the date on which such Person became a Restricted Subsidiary of the Borrower or ceased to be an Excluded Subsidiary and (y) all of the data required to be set forth in Schedules 5.01 and 5.14 to the Disclosure Letter with respect to the Borrower and its applicable Subsidiaries, and such written notice shall be deemed to supplement Schedules 5.01 and 5.14 to the Disclosure Letter for all purposes hereof;
(b) Counterpart Agreement. Other than with respect to an Excluded Subsidiary, promptly cause such Subsidiary to become a Guarantor hereunder and, during the Collateral Period, a Grantor
under the Collateral Agreement by executing and delivering to the Administrative Agent a Counterpart Agreement and, if applicable, a supplement to the Collateral Agreement in form and substance reasonably satisfactory to the Administrative Agent;
(c) Corporate Documents and Opinions. Other than with respect to an Excluded Subsidiary, (i) take all such corporate or limited liability company or other entity organizational actions, as applicable, and execute and deliver, or cause to be executed and delivered, all such applicable documents, instruments, agreements, and certificates as are similar to those described in Section 4.01(a)(iii) and (iv) and (ii) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions consistent with the legal opinions delivered on the Closing Date, which opinions shall be in form and substance reasonably satisfactory to the Administrative Agent; and
(d) Collateral Documents. Other than with respect to an Excluded Subsidiary and only during the Collateral Period, deliver all such applicable documents, instruments, agreements, and certificates consistent with those delivered on the Closing Date and take all of the actions necessary to grant and to perfect a first priority Lien (subject to Liens permitted by Section 7.01) in favor of the Administrative Agent, for the benefit of the Secured Parties, under the Collateral Agreement (but subject to any limitations sets forth therein) in the Equity Interests of such Subsidiary and in substantially all of the personal property of such Subsidiary (other than Excluded Assets).
6.13 Designation of Subsidiaries.
(a) Subject to Section 6.13(b), the Borrower may at any time designate any Restricted Subsidiary as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Restricted Subsidiary. The designation of any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the incurrence at the time of designation of any Indebtedness, Liens and Investments (as applicable) of such Subsidiary existing at such time.
(b) The Borrower may not (x) designate any Restricted Subsidiary as an Unrestricted Subsidiary or (y) designate an Unrestricted Subsidiary as a Restricted Subsidiary, in each case unless:
(i) no Event of Default exists or would result therefrom;
(ii) in the case of clause (x) only, immediately after giving pro forma effect to such designation, the total assets of all Unrestricted Subsidiaries shall not exceed 10.0% of Consolidated Total Assets as of such date; and
(iii) in the case of clause (x) only, the Subsidiary to be so designated does not own any (i) Equity Interests of the Borrower or any Restricted Subsidiary or (ii) (x) any Reddit Intellectual Property or (y) Material Intellectual Property (except to the extent permitted pursuant to Section 7.09).
(c) If, at any time, any Unrestricted Subsidiary holds the legal or beneficial ownership interest in any (x) Reddit Intellectual Property or (y) Material Intellectual Property (except to the extent permitted pursuant to Section 7.09), it will, without any further action necessary, immediately cease to be an Unrestricted Subsidiary and will automatically be deemed to be designated as a Restricted Subsidiary (whether or not clause (b)(i) above is satisfied at the time of such deemed designation).
6.14 Material Real Estate.
(a) Within ninety (90) days after the acquisition of any Material Real Estate (or such later date as may be agreed by the Administrative Agent in its reasonable discretion), the Borrower or the applicable Guarantor shall execute and/or deliver, or cause to be executed and/or delivered, to the Administrative Agent, for each Material Real Estate, the following, each in form and substance reasonably satisfactory to the Administrative Agent:
(i) to the extent an appraisal is required under FIRREA, an appraisal complying with FIRREA;
(ii) a fully executed and acknowledged Mortgage in form suitable for filing or recording in all filing or recording offices that the Administrative Agent may reasonably deem necessary or desirable in order to create a valid and enforceable first priority Lien (subject only to permitted Liens) on the Mortgaged Property described therein in favor of the Administrative Agent;
(iii) a Title Policy insuring that the Mortgage is a valid and enforceable first priority Lien on the respective property, free and clear of all defects, encumbrances and Liens other than permitted Liens;
(iv) then current A.L.T.A. surveys in respect of such Mortgaged Property, certified to the Administrative Agent by a licensed surveyor or an update to an existing A.L.T.A. survey or an existing A.L.T.A. survey with a “no change” affidavit sufficient to allow the issuer of the lender’s title insurance policy to issue such policy without a survey exception;
(v) the Borrower shall use commercially reasonable efforts to deliver (A) a completed “Life of Loan” standard flood hazard determination form as to any improved Mortgaged Property, (B) if the improvements located on a Mortgaged Property are located in a Special Flood Hazard Area, a notification to the Borrower (a “Flood Notice”) and (if applicable) notification to the Borrower that flood insurance coverage under the NFIP is not available because the community in which the Mortgaged Property is located does not participate in the NFIP, and (C) if the Flood Notice is required to be given (x) documentation evidencing the Borrower’s receipt of the Flood Notice (e.g., a countersigned Flood Notice) and (y) evidence of flood insurance as required by Section 6.07;
(vi) a PZR Zoning Report, or equivalent zoning report or municipal zoning letter, providing that the continued operation of the properties and assets as currently conducted conforms with all applicable zoning and building laws, rules or regulations or a zoning endorsement to the Lender’s title policy;
(vii) an opinion of local counsel in each state in which such Mortgaged Property is located with respect to the enforceability of the form of Mortgage to be recorded in such state and such other matters as are customary and as the Administrative Agent may reasonably request.
(b) In addition to the obligations set forth in Section 6.14(a), within forty-five (45) days after written notice from the Administrative Agent to the Borrower that any Mortgaged Property which was not previously located in an area designated as a Special Flood Hazard Area has been redesignated as a Special Flood Hazard Area, the Loan Parties shall satisfy the flood insurance requirements of Section 6.07.
(c) From time to time, if the Administrative Agent reasonably determines that obtaining appraisals is necessary in order for the Administrative Agent or any Lender to comply with applicable laws or regulations (including any appraisals required to comply with FIRREA), and at any time if an Event of Default shall have occurred and be continuing, the Administrative Agent may, or may require the Borrower to, in either case at the Borrower’s expense, obtain appraisals in form and substance and from appraisers reasonably satisfactory to the Administrative Agent stating the then current fair market value of all or any portion of the personal property of any Loan Party and the fair market value or such other value as determined by the Administrative Agent (for example, replacement cost for purposes of flood insurance) of any Material Real Estate of any Loan Party.
6.15 Further Assurances. Subject to the express limitations set forth herein and in the Collateral Documents, at any time or from time to time upon the request of the Administrative Agent, each Loan Party will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as the Administrative Agent may reasonably request in order to effect fully the purposes of the Loan Documents. In furtherance and not in limitation of the foregoing, each Loan Party shall take such actions as the Administrative Agent may reasonably request from time to time to ensure that the Secured Obligations are guaranteed by the Guarantors and, during the Collateral Period, are secured by substantially all of the assets of the Borrower, and its Subsidiaries that are Grantors and all of the outstanding Equity Interests of the Subsidiaries of the Borrower (subject to limitations contained in the Loan Documents with respect to Foreign Subsidiaries and any Excluded Subsidiaries).
6.16 Certain Post-Closing Obligations. As promptly as practicable, and in any event within the time periods after the Closing Date specified in Schedule 6.16 (which may be extended by the Administrative Agent in its sole discretion), the Borrower and each other Loan Party shall deliver the documents or take the actions specified on Schedule 6.16.
6.17 ERISA. The Borrower shall supply to the Administrative Agent (in sufficient copies for all the Lenders, if the Administrative Agent so requests): (a) promptly, and in any event within 30 days, after the Borrower, any Restricted Subsidiary or any ERISA Affiliate knows that any ERISA Event or Foreign Plan Event has occurred that, when taken together with all other ERISA Events and Foreign Plan Events that have occurred, or are reasonably expected to occur, has or could reasonably be expected to have a Material Adverse Effect, a certificate of the chief financial officer of the Borrower describing such ERISA Event and/or Foreign Plan Event and the action, if any, proposed to be taken with respect to such ERISA Event and/or Foreign Plan Event and a copy of any notice filed with the PBGC, IRS or any other domestic or foreign Governmental Authority pertaining to such ERISA Event and/or Foreign Plan Event and any notices received by the Borrower, Restricted Subsidiary, or ERISA Affiliate from the PBGC, IRS or any other domestic or foreign Governmental Authority with respect thereto and (b) if, at any time after the Effective Date, the Borrower, any Restricted Subsidiary or any ERISA Affiliate maintains, or contributes to (or incurs an obligation to contribute to), a Pension Plan or Multiemployer Plan which is not set forth in Schedule 5.08 to the Disclosure Letter, then the Borrower shall deliver to the Administrative Agent an updated Schedule 5.08 to the Disclosure Letter as soon as practicable, and in any event within 20 days after the Borrower, such Restricted Subsidiary or such ERISA Affiliate maintains, or contributes to (or incurs an obligation to contribute to), thereto.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation (other than inchoate indemnity obligations) shall remain unpaid or unsatisfied, any Letter of Credit
remains outstanding or any LC Disbursement shall not have been reimbursed or cash collateralized on terms reasonably acceptable to the applicable Issuing Bank (or other arrangements are made with respect thereto reasonably satisfactory to the applicable Issuing Bank):
7.01 Liens. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:
(a) Liens pursuant to any Loan Document;
(b) Liens existing on the date hereof and listed on Schedule 7.01 to the Disclosure Letter and any replacements, renewals or extensions thereof, provided that (x) the property covered thereby is not changed other than (A) after-acquired property that is affixed or incorporated into the property covered by such Lien or financed by Indebtedness permitted under Section 7.05 and (B) proceeds and products thereof and (y) the replacement, renewal, extension or refinancing of the obligations secured or benefited by such Liens, to the extent constituting Indebtedness, is permitted by Section 7.05;
(c) Liens for taxes, fees, assessments or other governmental charges, levies or claims that are not overdue for a period of more than thirty days which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
(d) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, supplier’s or other like Liens arising in the ordinary course of business;
(e) (i) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA and (ii) pledges and deposits in the ordinary course of business securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to the Borrower or any of its Subsidiaries;
(f) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory or regulatory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
(h) Liens securing Indebtedness incurred pursuant to Section 7.05(j); provided that such Liens do not at any time encumber any property other than the property financed by such Indebtedness (except for replacements, additions and accessions to such assets);
(i) Liens existing on property at the time of its acquisition or existing on the property of any Person at the time such Person becomes a Restricted Subsidiary (other than by designation as a Restricted Subsidiary pursuant to Section 6.13), in each case after the Closing Date; provided that (i) such Lien is not created solely in contemplation of such acquisition or such Person becoming a Subsidiary, as the case may be; (ii) such Lien shall not apply to any other
property or assets of the Borrower or any other Subsidiary (other than the proceeds or products thereof and other than after-acquired property subjected to a Lien securing Indebtedness and other obligations incurred prior to such time and which Indebtedness and other obligations are permitted hereunder that require, pursuant to their terms at such time, a pledge of after-acquired property, it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition); and (iii) the Indebtedness secured thereby is permitted by Section 7.05;
(j) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(g);
(k) Liens that are contractual, statutory or common law provision relating to banker’s liens, rights of set-off, rights of pledge or similar rights and remedies (A) relating to the establishment of depository relations with banks or other deposit-taking financial institutions or investment or securities accounts, (B) relating to pooled deposit or sweep accounts of the Borrower or any of its Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower or any of its Subsidiaries or (C) relating to purchase orders and other agreements entered into with customers of the Borrower or any of its Subsidiaries in the ordinary course of business;
(l) Liens arising under repurchase agreements, reverse repurchase agreements, securities lending and borrowing agreements and similar transactions;
(m) Liens arising under master netting agreements and other Swap Contracts to hedge exposure to currency and interest rate risks entered into in the ordinary course of business and not for speculative purposes;
(n) Liens arising from precautionary Uniform Commercial Code financing statement or similar filings;
(o) Liens arising from leases, licenses, subleases or sublicenses granted to others in the ordinary course of business which would not reasonably be expected to have a Material Adverse Effect;
(p) any interest or title of a lessor in the property (and the proceeds, accession or products thereof) subject to any operating lease, and Liens arising from Uniform Commercial Code financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to true leases or leases permitted hereunder;
(q) Liens (i) in favor of the Borrower or a Restricted Subsidiary on assets of a Restricted Subsidiary that is not a Loan Party securing permitted intercompany Indebtedness and (ii) in favor of the Borrower or any Guarantor;
(r) Liens arising in connection with any Securitization, provided that such Liens do not encumber any assets other than the receivables or other assets being financed, the property securing or otherwise relating to such receivables or other assets, and the proceeds thereof;
(s) Liens solely on deposits, advances, contractual payments, including implementation allowances or escrows to or with landlords, customers or clients or in connection with insurance arrangement in the ordinary course of business;
(t) [Reserved];
(u) Liens arising in connection with any Sale Lease-Back Transaction, provided that (i) such Sale Lease-Back Transaction involves a lease for a term of not more than three years, (ii) such Sale Lease-Back Transaction is between the Borrower and one of its Restricted Subsidiaries, or between any of its Restricted Subsidiaries or (iii) the Borrower or any of its Restricted Subsidiaries applies an amount equal to the net proceeds of such Sale Lease-Back Transaction within 365 days after such Sale Lease-Back Transaction to any of (or a combination of) (A) the prepayment or retirement of bonds, notes, debentures or similar instruments or Indebtedness of the Borrower or a Restricted Subsidiary of the Borrower that by its terms matures more than 12 months after its creation or (B) the purchase, construction, development, expansion or improvement of properties or facilities that are used in or useful to the business of the Borrower or any of its Restricted Subsidiaries;
(v) Liens on Collateral securing Indebtedness incurred pursuant to Section 7.05(f); provided that, the applicable holders of such Indebtedness (or a representative thereof on behalf of such holders) shall have entered into the applicable Intercreditor Agreement;
(w) Liens securing Indebtedness or other obligations in an aggregate principal amount at any time outstanding not to exceed the greater of (i) $500,000,000 and (ii) 15.0% of Consolidated Total Assets; provided that during the Collateral Period (i) Liens incurred in reliance on this clause (w) on property that does not constitute Collateral shall not exceed $200,000,000 in the aggregate at any time outstanding and (ii) to the extent any such Liens are on Collateral, the applicable holders of such Indebtedness (or a representative thereof on behalf of such holders) shall have entered into the applicable Intercreditor Agreement;
(x) [Reserved];
(y) in the case of any non-wholly owned Subsidiary, any put and call arrangements related to its Equity Interests set forth in its organizational documents or any related joint venture or similar agreement;
(z) Liens solely on any cash earnest money deposits made by the Borrower or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement;
(aa) Liens (i) in favor of customs and revenue authorities arising as a matter of Law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business, and (ii) Liens on specific items of inventory or other goods and proceeds thereof of any Person securing such Person’s obligations in respect of bankers’ acceptances or letters of credit issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business;
(bb) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods entered into by the Borrower or any of its Restricted Subsidiaries in the ordinary course of business permitted by this Agreement;
(cc) ground leases in respect of Real Estate Assets on which facilities owned or leased by the Borrower or any of its Restricted Subsidiaries are located;
(dd) (i) zoning, building, entitlement and other land use regulations by Governmental Authorities with which the normal operation of the business complies, and (ii) any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate the use of any real property that does not materially interfere with the ordinary conduct of the business of the Borrower and its Restricted Subsidiaries, taken as a whole;
(ee) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(ff) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;
(gg) deposits of cash with the owner or lessor of premises leased and operated by the Borrower or its Restricted Subsidiaries to secure the performance of the Borrower’s or such Restricted Subsidiary’s obligations under the terms of the lease for such premises;
(hh) Liens arising by operation of law in the United States under Article 2 of the UCC in favor of a reclaiming seller of goods or buyer of goods;
(ii) Liens disclosed as an exception to a Title Policy;
(jj) Liens on amounts deposited as “security deposits” (or their equivalent) in the ordinary course of business in connection with actions or transactions not prohibited by this Agreement;
(kk) Liens on cash and cash equivalents securing obligations under master netting agreements and other Swap Contracts permitted hereunder; and
(ll) Liens on cash collateral securing any letters of credit in an aggregate face amount at any time outstanding not to exceed $25,000,000.
7.02 Fundamental Changes. The Borrower and each Restricted Subsidiary shall not: merge, dissolve, liquidate or consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the assets of itself and its Restricted Subsidiaries (whether now owned or hereafter acquired), to or in favor of any Person; provided, however, that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing, (i) any Person may merge with or into or consolidate with the Borrower or a Restricted Subsidiary, if (A) the Borrower or such Restricted Subsidiary (which Restricted Subsidiary shall have assumed the Obligations of the applicable Guarantor by operation of Law or through assumption documents satisfactory to the Administrative Agent to the extent a Guarantor is merged with or into or consolidated with such Restricted Subsidiary and such Guarantor is not the surviving Person) is the surviving Person or (B) if the Borrower or the applicable Restricted Subsidiary, as the case may be, is not the surviving Person, (x) all Obligations of the Borrower or the applicable Guarantor, as the case may be, shall have been expressly assumed by the surviving Person in a written instrument in form and substance reasonably satisfactory to the Administrative Agent (y) the surviving Person shall be a corporation or limited liability company organized under the laws of the United States, any state thereof or the District of Columbia) and (z) such corporation shall have delivered to the Administrative Agent and the Lenders such legal opinions as the Administrative Agent may reasonably request in connection with the matters specified in the preceding clauses (x) and (y),
provide such documentation and information as each Lender or the Administrative Agent reasonably requests in connection with applicable “know-your-customer” and anti-money laundering rules and regulations, including the Patriot Act, (ii) the Borrower or a Restricted Subsidiary may (A) merge into any of its Subsidiaries for the purpose of effecting a change in its state of incorporation in the United States (if all Obligations shall have been assumed by such Restricted Subsidiary by operation of Law or through assumption documents reasonably satisfactory to the Administrative Agent), and (B) reincorporate under the laws of the United States, any state thereof or the District of Columbia but must in each case promptly notify the Administrative Agent thereof and (iii) any Restricted Subsidiary may be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Borrower or any other Restricted Subsidiary. Notwithstanding the foregoing, none of the Borrower or any of its Restricted Subsidiaries will Dispose of (x) Reddit Intellectual Property or (y) Material Intellectual Property to any Person that is not the Borrower or a Restricted Subsidiary in reliance on this Section 7.02 (other than, solely in the case of clause (y) above and solely to the extent otherwise permitted pursuant to this Section 7.02, Dispositions of Material Intellectual Property for fair market value in an aggregate amount not to exceed the greater of $100,000,000 and 10.0% of Consolidated Total Assets).
7.03 Use of Proceeds.
(a) The Borrower will not, and will not permit any of its Subsidiaries to, use the proceeds of any Borrowing, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the Board of Governors) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose, in each case in violation of, or for a purpose which violates, or would be inconsistent with, Regulation T, U or X of the Board of Governors.
(b) The Borrower will not request any Borrowing or Letter of Credit, and the Borrower will not, and will not permit any of its Subsidiaries to, use, directly or, to its knowledge, indirectly, the proceeds of any Borrowing or Letter of Credit or lend, contribute to or otherwise make available such proceeds to any Subsidiary, joint venture partner or other Person (i) to finance an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person by the Borrower or any of its Subsidiaries in violation of any Anti-Corruption Laws or (ii) for the purpose of funding, financing or facilitating any activities, business or transaction by the Borrower or any of its Subsidiaries with any Sanctioned Person, or in any Sanctioned Country, to the extent such activities, businesses or transaction would be prohibited by Sanctions if conducted by a corporation incorporated in the United States or in a European Union member state or in any manner that would result in the violation of any Sanctions applicable to the Loan Parties.
7.04 Restricted Payments. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, declare or make any Restricted Payments with respect to the Borrower or any of its Restricted Subsidiaries, except:
(a) any Restricted Subsidiary of the Borrower may make Restricted Payments to the Borrower or to any direct or indirect wholly-owned Restricted Subsidiary of the Borrower, and any non-wholly-owned Restricted Subsidiary may make Restricted Payments to the Borrower or any of its other Restricted Subsidiaries and to each other owner of Equity Interests of such Restricted Subsidiary ratably based on their relative ownership interests of the relevant class of Equity Interests;
(b) the Borrower may declare and make dividends payable solely in additional shares of Borrower’s Equity Interests and may exchange Equity Interests for its Equity Interests (other than, in each case, Disqualified Equity Interests);
(c) the Borrower may (x) repurchase fractional shares of its Equity Interests, or make cash payments in lieu of the issuance of fractional shares, arising out of stock dividends, splits or combinations, business combinations or conversions of convertible securities (including the Convertible Notes) or exercises of warrants, options or restricted stock units, (y) “net exercise” or “net share settle” warrants, options or restricted stock units or (z) so long as no Event of Default then exists or would result therefrom, make cash settlement payments upon the exercise of warrants, options or restricted stock units to purchase its Equity Interests;
(d) the Borrower may redeem or otherwise cancel Equity Interests or rights in respect thereof granted to (or make payments on behalf of) directors, officers, employees or other providers of services to the Borrower and the Restricted Subsidiaries in an amount required to satisfy tax withholding obligations relating to the vesting, settlement or exercise of such Equity Interests or rights;
(e) the Borrower may declare or make Restricted Payments not otherwise permitted under this Section 7.04, so long as no Event of Default then exists or would result therefrom, in an aggregate amount not to exceed $100,000,000;
(f) following an IPO, the Borrower may repurchase Equity Interests pursuant to any accelerated stock repurchase or similar agreement; provided that the payment with respect to such repurchase would otherwise be permitted under clause (g) of this Section 7.04 at the time such agreement is entered into and at the time such payment is made;
(g) the Borrower may declare or make Restricted Payments if, after giving pro forma effect to such Restricted Payment (i) prior to an IPO, the Borrower and its Restricted Subsidiaries have Liquidity of at least $500,000,000 and the Senior Leverage Ratio does not exceed 3.00 to 1.00 and (ii) following an IPO, the Borrower and its Restricted Subsidiaries have Liquidity of at least $500,000,000; and
(h) the Borrower may make Restricted Payments:
(i) for any taxable period for which the Borrower and/or any of its Subsidiaries are members of a group filing a consolidated, combined or similar income tax return with any Parent Entity, to such Parent Entity to pay any consolidated, combined or similar income taxes for which such Parent Entity is liable that are attributable to the income of the Borrower and/or such Subsidiaries; provided that (i) the amount of any such Restricted Payments made with respect to any taxable period shall not exceed the amount of such income taxes that the Borrower and/or such Subsidiaries (as applicable) would have been required to pay if the Borrower and/or such Subsidiaries had paid such tax on a separate company basis or a separate group basis (as applicable) for all relevant taxable periods, (ii) any such Restricted Payments attributable to income of an Unrestricted Subsidiary shall be limited to the amount of any cash paid by such Unrestricted Subsidiary to the Borrower or any Restricted Subsidiary for such purpose and (iii) with respect to any taxable period (or portion thereof) ending prior to the Closing Date, distributions otherwise permitted under this definition shall be permitted only to the extent such tax distributions relate to income or similar tax audit adjustments that arise after the Closing Date;
(ii) the proceeds of which shall be used by any Parent Entity hereunder to pay its operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including administrative, legal, accounting and similar expenses provided by third parties), which are reasonable and customary and incurred in the ordinary course of business in any fiscal year plus any reasonable and customary indemnification claims made by directors or officers of any Parent Entity attributable to the ownership or operations of the Borrower and its Subsidiaries;
(iii) the proceeds of which shall be used by any Parent Entity to pay franchise or similar taxes and other fees and expenses required to maintain its corporate existence;
(iv) the proceeds of which shall be used to pay customary salary, bonus and other benefits payable to officers and employees of any Parent Entity to the extent such salaries, bonuses and other benefits are attributable to the ownership or operations of the Borrower and its Restricted Subsidiaries; and
(v) to allow any Parent Entity to pay fees and expenses (other than to Affiliates) related to any unsuccessful equity or debt offering by any Parent Entity that is directly attributable to the ownership or operations of the Borrower and its Restricted Subsidiaries.
Notwithstanding anything herein to the contrary, none of the Borrower or any of its Restricted Subsidiaries will Dispose of or declare or make a Restricted Payment of (x) Reddit Intellectual property or (y) Material Intellectual Property to any Person that is not the Borrower or a Restricted Subsidiary in reliance on this Section 7.04 (other than, solely in the case of clause (y) above and solely to the extent otherwise permitted pursuant to this Section 7.04, Dispositions or Restricted Payments of Material Intellectual Property for fair market value in an aggregate amount not to exceed the greater of $100,000,000 and 10.0% of Consolidated Total Assets).
7.05 Indebtedness. Neither the Borrower nor any Restricted Subsidiary will create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness under any Loan Document;
(b) Indebtedness outstanding on the date hereof and listed on Schedule 7.05 to the Disclosure Letter and any Permitted Refinancing thereof;
(c) Guarantees of the Borrower or any Restricted Subsidiary in respect of Indebtedness otherwise permitted hereunder of the Borrower or any Restricted Subsidiary, so long as, (i) in the case of guarantee provided by a Loan Party in respect of Indebtedness of a Subsidiary that is not a Loan Party, such guarantee is in the ordinary course of business and (ii) a Subsidiary that is not a Loan Party shall not guarantee any Indebtedness for borrowed money of any Loan Party;
(d) obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person for non-speculative purposes and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
(e) other Indebtedness (including any Permitted Refinancing thereof) of the Borrower or any Restricted Subsidiary in an aggregate principal amount at any time outstanding not to exceed (i) $1,000,000,000 plus (ii) an additional amount so long as the Senior Leverage Ratio does not exceed 3.00 to 1.00, determined on a pro forma basis after giving effect to the Indebtedness incurred pursuant to clause (ii) hereof (but excluding, for purposes of calculating the leverage ratio under this clause (e), any Indebtedness incurred pursuant to clause (i) hereof and any Convertible Notes incurred pursuant to Section 7.05(u), in each case, substantially concurrently or as part of the same transaction or series of related transactions), as of the most recently ended period for which financial statements have been delivered and, in each case of this clause (e), treating (x) any new commitments incurred on such date (or, in the case of a Limited Conditionality Acquisition, to be incurred in connection with such Acquisition) and (y) any such Indebtedness consisting of a revolving credit facility in each case as fully drawn; provided, that, in the case of any such Indebtedness the proceeds of which are to be used primarily to consummate a Limited Conditionality Acquisition substantially concurrently with the issuance or incurrence of such Indebtedness, the Senior Leverage Ratio shall be determined on the date the acquisition agreement with respect to such Limited Conditionality Acquisition is signed and not on the date such Indebtedness is incurred or issued; provided, that, any Indebtedness incurred pursuant to this clause (e) shall have terms and conditions (excluding any collateral, pricing, rate floors, discounts, fees, premiums and optional prepayment or redemption terms) that, taken as a whole, shall not be materially less favorable (taken as a whole) to the Loan Parties than those applicable to the Commitments (taken as a whole), as determined in good faith by the board of directors of Borrower (except for covenants or other provisions applicable only to periods after the Maturity Date);
(f) Incremental Equivalent Debt; provided that it shall be a condition precedent to the effectiveness of any Incremental Equivalent Debt that (x) after giving effect thereto, the Incremental Amount does not exceed the Available Increase Amount, and (y) no Default shall have occurred and be continuing immediately prior to or immediately after giving effect to such Incremental Equivalent Debt;
(g) Indebtedness consisting of cash management services, including treasury, depository, overdraft, credit or debit card, purchasing cards, electronic funds transfer and other cash management arrangements of Borrower or any Restricted Subsidiary;
(h) Indebtedness in respect of bid bonds, performance bonds, surety bonds and similar obligations, in each case, incurred by Borrower or any of its Restricted Subsidiaries in the ordinary course of business, including guarantees or obligations with respect to letters of credit supporting such bid bonds, performance bonds, surety bonds and similar obligations;
(i) Indebtedness representing the financing of insurance premiums in the ordinary course of business;
(j) Indebtedness in respect of finance leases (inclusive of build to suit accounting under ASC 840), Synthetic Lease Obligations, purchase money obligations and other obligations the proceeds of which are used to acquire or construct fixed or capital assets or improvements with respect thereto or any refinancings, refundings, renewals, amendments or extensions thereof (provided that the amount of such Indebtedness is not increased at the time of any such refinancing, refunding, renewal, amendment or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred,
in connection with such refinancing, refunding, renewal, amendment or extension) and Sale Lease-Back Transactions, in an aggregate principal amount at any time outstanding not to exceed $250,000,000;
(k) Indebtedness of the Borrower or any Restricted Subsidiary owing to the Borrower or any other Restricted Subsidiary; provided that all such Indebtedness of any Loan Party owed to any Person that is not a Loan Party shall be subject to subordination terms reasonably acceptable to the Administrative Agent;
(l) Indebtedness representing deferred compensation to employees of the Borrower or any of its Restricted Subsidiaries incurred in the ordinary course of business or in connection with an Acquisition or other investment;
(m) Indebtedness of the Borrower and the Restricted Subsidiaries assumed in connection with any Acquisition, together with any Permitted Refinancing thereof, in an aggregate principal amount not to exceed $100,000,000 at any time outstanding; provided that (i) such Indebtedness is not incurred in contemplation of such Acquisition and (ii) both immediately prior to and after giving effect to the assumption of such Indebtedness and the incurrence of all Indebtedness resulting from any Permitted Refinancing thereof, no Default shall exist or result therefrom;
(n) Indebtedness that may be deemed to exist pursuant to any guaranties, performance, surety, statutory, appeal or similar obligations (but not with respect to letters of credit) incurred in the ordinary course of business or in respect of workers’ compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement-type obligations regarding workers’ compensation claims or with respect to host protection insurance programs for which the host is a beneficiary;
(o) Indebtedness of the Borrower or any of its Restricted Subsidiaries in respect of netting services, overdraft protections and otherwise in connection with deposit and securities accounts arising in the ordinary course of business;
(p) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, such Indebtedness is extinguished within 30 days after its incurrence;
(q) guaranties in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of the Borrower and its Restricted Subsidiaries;
(r) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business;
(s) unsecured Indebtedness of the Borrower or any of its Subsidiaries (which may consist of promissory notes issued by the Borrower or any of its Subsidiaries) to current or former officers, managers, consultants, directors and employees, their respective estates, spouses or former spouses to finance the purchase or redemption of Equity Interests of the Borrower or any parent thereof permitted by Section 7.04; provided, such Indebtedness shall be subordinated in right of payment to the payment in full of the Obligations pursuant to terms reasonably satisfactory to the Administrative Agent;
(t) surety bonds, guarantees, insurance or similar instruments allowable to meet the safeguarding requirements of Payments and Electronic Money Institution regulators with the purpose of enabling greater utilization of cash held on behalf of customers for working capital purposes;
(u) following an IPO, Indebtedness in the form of Convertible Notes in an aggregate principal amount not to exceed $1,750,000,000; and
(v) allowances for tenant improvements in the ordinary course of business.
Notwithstanding anything to the contrary herein, (i) the aggregate outstanding principal amount of Indebtedness that is either incurred by non-Guarantor Restricted Subsidiaries or secured by a Lien incurred pursuant to Section 7.01(r) or (u) shall not exceed the greater of (i) $100,000,000 and (b) 10.0% of Consolidated Total Assets and (ii) the aggregate amount of Indebtedness incurred under Section 7.05(b) (with respect to Permitted Refinancings only), Section 7.05(e) or Section 7.05(f) and Permitted Refinancings thereof that has either a final maturity date that is earlier than the date that is 91 days after the Maturity Date or a weighted average life to maturity less than the Maturity Date shall not exceed (a) $250,000,000 plus (b) an additional amount if, after giving pro forma effect to the incurrence of such Indebtedness, the Senior Leverage Ratio does not exceed 2.50 to 1.00 (this clause (ii), the “Inside Maturity Basket”).
7.06 Affiliate Transactions. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates (other than between or among the Borrower and its Restricted Subsidiaries and not involving any other Affiliate), except (a) on terms and conditions not less favorable to the Borrower or such Restricted Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, (b) payment of customary directors’ fees, reasonable out-of-pocket expense reimbursement, indemnities (including the provision of directors and officers insurance) and compensation arrangements for members of the board of directors, officers or other employees of the Borrower or any of its Subsidiaries, (c) transactions approved by a majority of the disinterested directors of the Borrower’s board of directors or as in accordance with the Borrower’s related party transaction policy, (d) any transaction involving amounts less than $1,000,000 individually and $10,000,000 in the aggregate, (e) any Restricted Payment permitted by Section 7.04, (f) any transaction existing on the Closing Date and set forth on Schedule 7.06 to the Disclosure Letter or any amendment thereto to the extent such amendment is not adverse to the Lenders in any material respect and (h) loans and other transactions by the Borrower and its Restricted Subsidiaries to the extent not prohibited by this Article VII.
7.07 Burdensome Agreements. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Restricted Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets to secure the Obligations or (b) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any shares of its Equity Interests or to make or repay loans or advances to the Borrower or any other Restricted Subsidiary or of any Restricted Subsidiary to guarantee Indebtedness of the Borrower or any other Restricted Subsidiary under the Loan Documents; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement or any other Loan Document, (ii) the foregoing shall not apply to customary prohibitions, restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary or assets of the Borrower or any
Restricted Subsidiary pending such sale; provided such restrictions and conditions apply only to the Restricted Subsidiary or assets to be sold and such sale is not prohibited hereunder, (iv) the foregoing shall not apply to any agreement, prohibition, or restriction or condition in effect at the time any Restricted Subsidiary becomes a Restricted Subsidiary of the Borrower, so long as such agreement was not entered into solely in contemplation of such Person becoming a Restricted Subsidiary of the Borrower (and any amendments or modifications thereof that do not materially expand the scope of any such prohibition restriction or condition), (v) the foregoing shall not apply to customary provisions in joint venture agreements and other similar agreements applicable to joint ventures, (vi) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (vii) clause (a) of the foregoing shall not apply to customary restrictions in leases, subleases, licenses or asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets subject thereto, (viii) the foregoing shall not apply to restrictions or conditions set forth in any agreement governing Indebtedness not prohibited by Section 7.05; provided that such restrictions and conditions are customary for such Indebtedness, (ix) the foregoing shall not apply to restrictions on cash or other deposits (including escrowed funds) imposed under contracts entered into in the ordinary course of business or restrictions imposed by the terms of a permitted Lien on the property subject to such permitted Lien, (x) the foregoing shall not apply to transactions pursuant to agreements in existence on the Closing Date and set forth on Schedule 7.07 to the Disclosure Letter or any amendment thereto to the extent such amendment is not adverse to the Lenders in any material respect, (xi) the foregoing shall not apply to restrictions that are customary provisions restricting assignment of any agreement entered into in the ordinary course of business and (xii) the foregoing shall not apply to customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or any Restricted Subsidiary.
7.08 Financial Covenant. As of the last day of each fiscal quarter of the Borrower, commencing with the fiscal quarter ending December 31, 2021, the Borrower shall have Liquidity of at least $250,000,000 (the “Liquidity Covenant”).
7.09 Investments. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make or own any Investment in any Person, except:
(a) Investments in cash, cash equivalents and Permitted Investments;
(b) Investments outstanding on the date hereof and listed on Schedule 7.09 to the Disclosure Letter;
(c) Investments by the Borrower or any Restricted Subsidiary in any other Restricted Subsidiary;
(d) payroll, travel, moving, entertainment and similar advances to directors and employees of the Borrower or any Subsidiary to cover matters that are expected at the time of such advances to be treated as expenses of the Borrower or such Subsidiary for accounting purposes and that are made in the ordinary course of business;
(e) loans or advances to directors and employees of the Borrower or any Subsidiary made in the ordinary course of business; provided that the aggregate amount of such loans and advances outstanding at any time shall not exceed $10,000,000;
(f) Investments to the extent that payment for such Investments is made with Qualified Equity Interests of Borrower or any Parent Entity;
(g) Investments of any Person in existence at the time such Person becomes a Restricted Subsidiary; provided such Investment was not made in connection with or anticipation of such Person becoming a Restricted Subsidiary;
(h) other Investments if, after giving pro forma effect to such Investment (i) prior to an IPO, the aggregate principal amount of Committed Loans then outstanding plus the aggregate amount of LC Disbursements that have not been reimbursed within one Business Day by or on behalf of the Borrower at such time shall not exceed 25% of the aggregate principal amount of Commitments and (ii) following an IPO, the Borrower and its Restricted Subsidiaries have Liquidity of at least $375,000,000;
(i) Investments not otherwise permitted by the foregoing provisions of this Section 7.09 in an aggregate outstanding amount for all such Investments under this clause (j) not to exceed $125,000,000;
(j) on or following an IPO, loans or advances to directors and employees of the Borrower or any Subsidiary made to satisfy tax obligations relating to the vesting, settlement or exercise of Equity Interests or rights;
(k) following an IPO, any Permitted Call Spread Option;
(l) Investments consisting of Swap Contracts;
(m) Investments consisting of trade receivables in the ordinary course of business;
(n) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers and in good faith settlement of delinquent obligations of, and other disputes with, customers arising in the ordinary course of business;
(o) lease, utility and other similar deposits in the ordinary course of business;
(p) Investments in or relating to a Restricted Subsidiary that, in the good faith determination of the Borrower, are necessary or advisable to effect any Securitization or any obligation in respect of a Securitization in connection therewith (including the contribution or lending of cash equivalents to Restricted Subsidiaries to finance the purchase of such assets from the Borrower or any Restricted Subsidiary or to otherwise fund required reserves; and
(q) Investments made as a result of the receipt of noncash consideration from any Disposition of any asset of the Borrower or a Restricted Subsidiary.
Notwithstanding anything herein to the contrary, none of the Borrower or any of its Restricted Subsidiaries will make an Investment of (x) Reddit Intellectual Property or (y) Material Intellectual Property to any Person that is not the Borrower or a Restricted Subsidiary in reliance on this Section 7.09 (other than, solely in the case of clause (y) above and solely to the extent otherwise permitted pursuant to this Section 7.09, Investments of Material Intellectual Property for fair market value in an aggregate amount not to exceed the greater of $100,000,000 and 10.0% of Consolidated Total Assets).
7.10 Change Line of Business. The Borrower and the Restricted Subsidiaries, taken as a whole, will not fundamentally and substantively alter the character of their business, taken as a whole, from the business conducted by them on the Closing Date and other business activities which are extensions thereof or otherwise incidental, reasonably related or ancillary to any of the foregoing.
7.11 Change in Fiscal Year . The Borrower will not permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower’s method of determining fiscal quarters.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default. Any of the following shall constitute an “Event of Default”:
(a) Non-Payment. The Borrower fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any reimbursement obligation in respect of any LC Disbursement, or (ii) within five Business Days after the same becomes due, any interest on any Loan, or any fee due hereunder, or any other amount payable hereunder or under any other Loan Document; or
(b) Specific Covenants. The Borrower fails to perform or observe any term, covenant or agreement contained in any of Section 6.03(a) or 6.05(a) (with respect to the Borrower’s or any Guarantor’s existence), or Article VII; or
(c) Other Defaults. The Borrower or any Restricted Subsidiary fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days after the receipt by the Borrower of notice from the Administrative Agent or any Lender thereof; or
(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any Restricted Subsidiary herein, in any other Loan Document, or in any document delivered in connection herewith or therewith (i) if not qualified by materiality, shall be incorrect in any material respect when made or deemed made, or (ii) if qualified by materiality, shall be incorrect when made or deemed made; or
(e) Cross-Default. (i) The Borrower or any Restricted Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount of more than the Threshold Amount (“Specified Indebtedness”), after giving effect to any applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or (B) fails to observe or perform any other agreement or condition relating to any Specified Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, after giving effect to any applicable grace period, if any, specified in the agreement or instrument relating to such Specified Indebtedness, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Specified Indebtedness or the beneficiary or beneficiaries of any Specified Indebtedness constituting a Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Specified Indebtedness to be demanded or to become due or to be repurchased,
prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Specified Indebtedness to be made, prior to its stated maturity, or such Specified Indebtedness consisting of a Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which the Borrower or any Restricted Subsidiary is the Defaulting Party (as defined in such Swap Contract) and the Swap Termination Value owed by the Borrower or such Restricted Subsidiary as a result thereof is greater than the Threshold Amount, or (B) any Termination Event (as so defined, but which shall not under any circumstances include any “Additional Termination Event” (however described)) under such Swap Contract as to which the Borrower or any Restricted Subsidiary is an Affected Party (as so defined) and (x) the Borrower or such Restricted Subsidiary is required to make a payment in connection with such Termination Event, (y) the Swap Termination Value owed by the Borrower or such Restricted Subsidiary as a result thereof is greater than the Threshold Amount, and (z) the Borrower or such Restricted Subsidiary shall fail to make such payment within the later to occur of five Business Days after the due date thereof and the expiration of any grace periods in such Swap Contract applicable to such payment obligation; provided that this clause (e) shall not apply to (i) secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness in a transaction permitted hereunder, (ii) any redemption, repurchase, conversion, exchange, settlement or event with respect to any Convertible Notes pursuant to its terms (or the occurrence of any event that permits such redemption, repurchase, conversion, exchange or settlement) unless such redemption, repurchase, conversion, exchange or settlement results from a default thereunder or an event of the type that constitutes an Event of Default or (iii) any early payment requirement or unwinding or termination with respect to any Swap Contract (other than any such payment requirement or termination resulting from an Early Termination Date); or
(f) Inability to Pay Debts; Insolvency Proceedings, Etc. The Borrower or any Restricted Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due; or the Borrower or any of its Restricted Subsidiaries institutes or consents to the institution of any case or proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of the Borrower or such Restricted Subsidiary and the appointment continues undischarged or unstayed for 60 calendar days; or any case or proceeding under any Debtor Relief Law relating to the Borrower or such Restricted Subsidiary or to all or any material part of its property is instituted without the consent of the Borrower or such Restricted Subsidiary and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such case or proceeding; or
(g) Judgments. There is entered against the Borrower or any Restricted Subsidiary one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments or orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer does not deny coverage) and (i) enforcement proceedings are commenced by any creditor upon such judgment or order, or (ii) there is a period of 60 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
(h) ERISA. An ERISA Event or Foreign Plan Event shall have occurred that, when taken together with all other ERISA Events and Foreign Plan Events that have occurred, has resulted in or could reasonably be expected to result in a Material Adverse Effect; or
(i) Invalidity of Loan Documents. Any Loan Document (or any material provision thereof), at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or the Borrower or a Guarantor contests in any manner the validity or enforceability of any Loan Document; or the Borrower denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or
(j) Change of Control. There occurs any Change of Control; or
(k) Guarantee. The guarantee contained in Article X shall cease, for any reason, to be in full force and effect or the Borrower or any Guarantor shall so assert in writing; or
(l) Collateral. During the Collateral Period (i) the Administrative Agent shall not have or shall cease to have a valid and perfected Lien in a material portion of the Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document or the Lien securing the Secured Obligations shall cease to constitute first priority security interests (subject to Liens permitted by Section 7.01) or (ii) the Borrower or any of its Subsidiaries shall contest in writing the validity or perfection of any Lien in a material portion of Collateral purported to be covered by the Collateral Documents.
Solely for the purpose of determining whether a Default or Event of Default has occurred under Section 8.01(f) or (g), any reference in any such clause to any Restricted Subsidiary shall be deemed to include only any Restricted Subsidiary that is not an Immaterial Subsidiary.
8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the Commitment of each Lender to make Loans to be terminated, whereupon such Commitments and obligation shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower;
(c) if the Loans have been declared due and payable pursuant to clause (b) above, demand cash collateral pursuant to Section 2.14(j);
(d) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;
provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower or any Restricted Subsidiary under the Bankruptcy Code or any other applicable Debtor Relief Law, the obligation of each Lender to make Loans shall automatically terminate, the unpaid
principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Lender and the Administrative Agent shall be deemed to have made a demand for cash collateral to the full extent permitted under Section 2.14(j). No Lender shall have any right individually to realize upon any of the Collateral or to enforce any Guarantee of the Secured Obligations, it being understood and agreed that all powers, rights and remedies under the Loan Documents may be exercised solely by the Administrative Agent on behalf of the Lenders in accordance with the terms thereof.
8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable), any amounts received on account of the Secured Obligations (and proceeds of Collateral) shall be applied by the Administrative Agent in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit fees) payable to the Lenders and Issuing Banks (including fees, charges and disbursements of counsel to the respective Lenders and Issuing Banks and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid interest and Letter of Credit fees on the Loans, LC Disbursements and other Obligations under the Loan Documents, ratably among the Lenders and Issuing Banks in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Secured Obligations constituting unpaid principal of the Loans and reimbursement obligations in respect of Letters of Credit (including to cash collateralize outstanding Letters of Credit), Secured Obligations then owing under Secured Cash Management Obligations and Secured Swap Obligations and all other Secured Obligations, ratably among the applicable Secured Parties in proportion to the respective amounts described in this clause Fourth held by them; and
Last, the balance, if any, after all of the Secured Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
Notwithstanding the foregoing, Excluded Swap Obligations with respect to any Guarantor shall not be paid with amounts received from such Guarantor or its assets, but appropriate adjustments shall be made with respect to payments from other Loan Parties to preserve the allocation to Secured Obligations otherwise set forth above and/or the similar provisions in the other Loan Documents.
Subject to Sections 2.14(b), amounts used to cash collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fourth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as cash collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
Notwithstanding the foregoing, Secured Cash Management Obligations and Secured Swap Obligations shall be excluded from the application described above if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may request, from the applicable provider of such Secured Cash Management Obligations or Secured Swap Obligations.
ARTICLE IX
ADMINISTRATIVE AGENT
9.01 Appointment and Authority.
(a) Each of the Lenders and each Issuing Bank hereby irrevocably appoints the entity named as Administrative Agent in the heading of this Agreement and its successors and assigns to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions (including, for the avoidance of doubt, pursuant to Section 11.18) on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article IX are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Banks, and the Borrower shall not have rights as a third-party beneficiary of any of such provisions, other than Section 9.07(b). It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties. Without limiting the foregoing, each Lender and each Issuing Bank hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under, each of the Loan Documents to which the Administrative Agent is a party, and to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents.
(b) The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders and the Issuing Banks hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender and the Issuing Banks for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Secured Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof granted under the Loan Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article XI (including Section 11.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto. Without limiting the generality of the foregoing, the Administrative Agent is further authorized on behalf of all the Lenders and Issuing Banks, without the necessity of any notice to or further consent from the Lenders or Issuing Banks, from time to time to take any action, or permit the any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent to take any action, with respect to any Collateral or the Loan Documents which may be necessary to perfect and maintain perfected the Liens upon any Collateral granted pursuant to any Loan Document. The Administrative Agent is further authorized to file with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country) such documents as may be necessary or advisable for the
purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by each Grantor, without the signature of any Grantor, and naming any Grantor or the Grantors as debtors and the Administrative Agent as secured party.
9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
9.03 Exculpatory Provisions. The Administrative Agent or the Arrangers, as applicable, shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent or the Arrangers, as applicable: (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing (and it is understood and agreed that the use of the term “agent” (or any similar term) herein or in any other Loan Document with reference to the Administrative Agent is not intended to connote any fiduciary duty or other implied or (express) obligations arising under agency doctrine of any applicable law, and that such term is used as a matter of market custom and is intended to create or reflect only an administrative relationship between contracting parties) and additionally each Lender agrees that it will not assert any claim against the Administrative Agent based on an alleged breach of fiduciary duty by the Administrative Agent in connection with this Agreement and/or the transactions contemplated hereby; (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and (c) shall not have any duty or responsibility to disclose, and shall not be liable for the failure to disclose, to any Lender or any Issuing Bank, any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Loan Parties or any of their Affiliates, that is communicated to, obtained or in the possession of, the Administrative Agent, the Arrangers or any of their Related Parties in any capacity, except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent herein. Neither the Administrative Agent nor any Arranger shall be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 8.02 and 11.01) or (ii) in the absence of its own gross negligence or willful misconduct (which gross negligence or willful misconduct shall be as determined by a court of competent jurisdiction in a final, non-appealable judgment). The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or an Issuing Bank. Neither the Administrative Agent nor any Arranger shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document (v) the value or the sufficiency of any Collateral or creation, perfection or priority of any Lien purported to be created by the Collateral Documents or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall not be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or enforce, compliance with the provisions hereof relating to Disqualified Lenders or Affiliated Lenders. Without limiting the generality of the foregoing, the Administrative Agent shall not (a) be obligated to ascertain, monitor or inquire as to whether any Lender or participant or prospective Lender or Participant is a Disqualified Lender or Affiliated Lender or (b) have any liability with respect to or arising out of any assignment or participation of Loans or Commitments, or disclosure of confidential information, to any Disqualified Lender or Affiliated Lender. Nothing in this Agreement or any Loan Document shall require the Administrative Agent to account to any Lender for any sum or the profit element of any sum received by the Administrative Agent for its own account. Nothing in this Agreement shall require the Administrative Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
9.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, increase, reinstatement or renewal of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an Issuing Bank, the Administrative Agent may presume that such condition is satisfactory to such Lender or Issuing Bank unless the Administrative Agent shall have received notice to the contrary from such Lender or Issuing Bank prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article IX shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction
determines in a final and non-appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
9.06 Resignation of Administrative Agent.
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders, each Issuing Bank and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right with the consent Borrower (not to be unreasonably withheld or delayed) unless a Specified Event of Default shall have occurred and be continuing to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders (the “Resignation Effective Date”), then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders and each Issuing Bank, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that in no event shall any such successor Administrative Agent be a Defaulting Lender or a Disqualified Lender. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable Law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (ii) except for any indemnity payments owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and Issuing Bank directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to the retiring or removed Administrative Agent, and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article IX and Section 11.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
9.07 Non-Reliance on Administrative Agent and Other Lenders; Payments. (a) Each Lender and each Issuing Bank expressly acknowledges that neither the Administrative Agent nor any of the Arrangers has made any representation or warranty to it, and that no act by the Administrative Agent or
any of the Arrangers hereafter taken, including any consent to, and acceptance of any assignment or review of the affairs of any Loan Party of any Affiliate thereof, shall be deemed to constitute any representation or warranty by the Administrative Agent or any of the Arrangers to any Lender or any Issuing Bank as to any matter, including whether the Administrative Agent or any of the Arrangers have disclosed material information in their (or their Related Parties’) possession. Each Lender and each Issuing Bank represents to the Administrative Agent and the Arrangers that it has, independently and without reliance upon the Administrative Agent, the Arrangers, or any other Lender or any Issuing Bank, or any of their Related Parties of any of the foregoing, and based on such documents and information as it has deemed appropriate, made its own credit analysis of, appraisal of, and investigation into, the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties and their Subsidiaries, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Lender and Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Arrangers, or any Issuing Bank, or any other Lender or any of their Related Parties of any of the foregoing, and based on such documents and information as it shall from time to time deem appropriate, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under or based upon this Agreement or any other Loan Document or any related agreement or any document furnished hereunder or thereunder, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties. Without limiting the foregoing, each Lender acknowledges and agrees that neither such Lender, nor any of its respective Affiliates, participants or assignees, may rely on the Administrative Agent to carry out such Lender’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the PATRIOT Act or the regulations thereunder, including the regulations contained in 31 C.F.R. 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with any of the Loan Parties, their Affiliates or their agents, the Loan Documents or the transactions hereunder or contemplated hereby: (a) any identity verification procedures, (b) any recordkeeping, (c) comparisons with government lists, (d) customer notices or (e) other procedures required under the CIP Regulations or such other Laws. Each Lender and each Issuing Bank represents and warrants that (i) the Loan Documents set forth the terms of a commercial lending facility and (ii) it is engaged in making, acquiring or holding commercial loans in the ordinary course and is entering into this Agreement as a Lender or Issuing Bank for the purpose of making, acquiring or holding commercial loans and providing other facilities set forth herein as may be applicable to such Lender or Issuing Bank, and not for the purpose of purchasing, acquiring or holding any other type of financial instrument, and each Lender and each Issuing Bank agrees not to assert a claim in contravention of the foregoing. Each Lender and each Issuing Bank represents and warrants that it is sophisticated with respect to decisions to make, acquire and/or hold commercial loans and to provide other facilities set forth herein, as may be applicable to such Lender or such Issuing Bank, and either it, or the Person exercising discretion in making its decision to make, acquire and/or hold such commercial loans or to provide such other facilities, is experienced in making, acquiring or holding such commercial loans or providing such other facilities.
(b) (i) Each Lender and Issuing Bank hereby further agrees that (x) if the Administrative Agent notifies such Lender or Issuing Bank that the Administrative Agent has determined in its sole discretion that any funds received by such Lender or Issuing Bank from the Administrative Agent or any of its Affiliates (whether as a payment, prepayment or repayment of principal, interest, fees or otherwise; individually and collectively, a “Payment”) were erroneously transmitted to such Lender or Issuing Bank (whether or not known to such Lender or Issuing Bank), and demands the return of such Payment (or a portion thereof), such Lender or Issuing Bank shall promptly, but in no event later than one Business Day
thereafter, return to the Administrative Agent the amount of any such Payment (or portion thereof) as to which such a demand was made in same day funds, together with interest thereon in respect of each day from and including the date such Payment (or portion thereof) was received by such Lender or Issuing Bank to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect, and (y) to the extent permitted by applicable law, such Lender or Issuing Bank shall not assert, and hereby waives, as to the Administrative Agent, any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Payments received, including without limitation any defense based on “discharge for value” or any similar doctrine. A notice of the Administrative Agent to any Lender or Issuing Bank under this Section 9.07(b) shall be conclusive, absent manifest error.
(ii) Each Lender and Issuing Bank hereby further agrees that if it receives a Payment from the Administrative Agent or any of its Affiliates (x) that is in a different amount than, or on a different date from, that specified in a notice of payment sent by the Administrative Agent (or any of its Affiliates) with respect to such Payment (a “Payment Notice”) or (y) that was not preceded or accompanied by a Payment Notice, it shall be on notice, in each such case, that an error has been made with respect to such Payment. Each Lender and Issuing Bank agrees that, in each such case, or if it otherwise becomes aware a Payment (or portion thereof) may have been sent in error, such Lender or Issuing Bank shall promptly notify the Administrative Agent of such occurrence and, upon demand from the Administrative Agent it shall promptly, but in no event later than one Business Day thereafter, return to the Administrative Agent the amount of any such Payment (or portion therefor) as to which such demand was made in same day funds, together with interest thereon in respect of each day from including the date such Payment (or portion thereof) was received by such Lender or Issuing Bank to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
(iii) The Borrower and each other Loan Party hereby agrees that (x) in the event an erroneous Payment (or portion thereof) are not recovered from any Lender or Issuing Bank that has received such Payment (or portion thereof) for any reason, the Administrative Agent shall be subrogated to all the rights of such Lender or Issuing Bank with respect to such amount and (y) an erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by the Borrower or any other Loan Party.
(iv) Each party’s obligations under this Section 9.07(b) shall survive the resignation or replacement of the Administrative Agent or any transfer of rights or obligations by, or the replacement of, a Lender, the termination of the Commitments or the repayment, satisfaction or discharge of all Obligations under any Loan Document.
9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder. Without limiting the foregoing, none of such Lenders shall have or be deemed to have a fiduciary relationship with any Lender. The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender.
9.09 Withholding Tax. To the extent required by any applicable Laws (as determined in good faith by the Administrative Agent), the Administrative Agent may withhold from any payment to any
Lender under any Loan Document an amount equivalent to any applicable withholding Tax. Without limiting or expanding the provisions of Section 3.01, each Lender shall indemnify and hold harmless the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Borrower or any Guarantor pursuant to Section 3.01 and without limiting or expanding the obligation of any Loan Party to do so) against, and shall make payable in respect thereof within 10 days after demand therefor, all Taxes and all related losses, claims, liabilities and expenses (including fees, charges and disbursements of any counsel for the Administrative Agent) incurred by or asserted against the Administrative Agent by the IRS or any other Governmental Authority as a result of the failure of the Administrative Agent to properly withhold Tax from amounts paid to or for the account of such Lender for any reason (including because the appropriate documentation was not delivered or not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstance that rendered the exemption from, or reduction of withholding Tax ineffective), in each case, whether or not such tax was correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due the Administrative Agent under this Section 9.09. The agreements in this Section 9.09 shall survive the resignation or replacement of the Administrative Agent, the replacement of any Lender, the termination of this Agreement, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations. For the avoidance of doubt, for purposes of this Section 9.09, the term “Lender” shall include any Issuing Bank.
9.10 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Loan or LC Exposure shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, LC Exposures and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Banks and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuing Banks and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the Issuing Banks and the Administrative Agent under Section 11.04) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and each Issuing Bank to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the Issuing Banks, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 11.04. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or Issuing Bank or to authorize the Administrative Agent to vote in respect of the claim of any Lender or Issuing Bank in any such proceeding.
9.11 Agent Discretion. Notwithstanding anything set forth herein or in the other Loan Documents to the contrary, to the extent any such Loan Document grants any Agent Party discretion to
act or refrain from acting without the direction of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent Party shall believe in good faith shall be necessary, under the circumstances as provided in Section 11.01 and Sections 8.01, 8.02 and 8.03), such Agent Party shall nonetheless be entitled to request direction from the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent Party shall believe in good faith shall be necessary, under the circumstances as provided in Section 11.01 and Sections 8.01, 8.02 and 8.03) as to the matter over which such Agent Party has been granted discretion, and no Agent Party shall be required to exercise or be liable for failure to exercise such discretion until such time as it has obtained the requested direction from the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent Party shall believe in good faith shall be necessary, under the circumstances as provided in Section 11.01 and Sections 8.01, 8.02 and 8.03).
9.12 Posting of Communications. The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make any Communications available to the Lenders and the Issuing Banks by posting the Communications on IntraLinks™, DebtDomain, SyndTrak, ClearPar or any other electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “Approved Electronic Platform”).
(a) Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Closing Date, a user ID/password authorization system) and the Approved Electronic Platform is secured through a per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders, each of the Issuing Banks and the Borrower acknowledges and agrees that the distribution of material through an electronic medium is not necessarily secure, that the Administrative Agent is not responsible for approving or vetting the representatives or contacts of any Lender that are added to the Approved Electronic Platform, and that there may be confidentiality and other risks associated with such distribution. Each of the Lenders, each of the Issuing Banks and the Borrower hereby approves distribution of the Communications through the Approved Electronic Platform and understands and assumes the risks of such distribution.
(b) THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS ARE PROVIDED “AS IS” AND “AS AVAILABLE”. THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE APPROVED ELECTRONIC PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD-PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT, ANY ARRANGER, ANY DOCUMENTATION AGENT OR ANY OF THEIR RESPECTIVE RELATED PARTIES (COLLECTIVELY, “AGENT PARTIES”) HAVE ANY LIABILITY TO ANY LOAN PARTY, ANY LENDER, ANY ISSUING BANK OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTY’S OR THE ADMINISTRATIVE AGENT’S
TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET OR THE APPROVED ELECTRONIC PLATFORM.
“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower or any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or any Issuing Bank by means of electronic communications pursuant to this Section, including through an Approved Electronic Platform.
(c) Each Lender and each Issuing Bank agrees that notice to it (as provided in the next sentence) specifying that Communications have been posted to the Approved Electronic Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender and Issuing Bank agrees (i) to notify the Administrative Agent in writing (which could be in the form of electronic communication) from time to time of such Lender’s or Issuing Bank’s (as applicable) email address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such email address.
(d) Each of the Lenders, each of the Issuing Banks and the Borrower agrees that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally applicable document retention procedures and policies.
(e) Nothing herein shall prejudice the right of the Administrative Agent, any Lender or any Issuing Bank to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.
ARTICLE X
GUARANTY
10.01 Guarantee. In order to induce the Administrative Agent, the Lenders and each Issuing Bank to execute and deliver this Agreement, make or maintain the Loans and issue the Letters of Credit, as applicable, and to induce each counterparty to any Swap Contract the obligations under which constitute Secured Swap Obligations to enter into such Swap Contract, and in considerationof all of the foregoing, each Guarantor hereby unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, to the Administrative Agent, for the benefit of the Secured Parties, the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, and such Guarantor further agrees to pay any and all reasonable expenses (including, without limitation, all reasonable fees, charges and disbursements of counsel) which may be paid or incurred by any Secured Party in enforcing, or obtaining advice of counsel in respect of, any of their rights under the guarantee contained in this Article X. The guarantee contained in this Article X, subject to Section 10.05, shall remain in full force and effect until the Termination Date, notwithstanding that from time to time prior thereto the Borrower may be free from any Obligations.
Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to any Secured Party on account of its liability under this Article X, it will notify the Administrative Agent and such other Secured Party, as applicable, in writing that such payment is made under the guarantee contained in this Article X for such purpose. No payment or payments made by the Borrower or any other Person or received or collected by any Secured Party from the Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application, at any
time or from time to time, in reduction of or in payment of the Secured Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of such Guarantor under this Article X which, notwithstanding any such payment or payments, shall remain liable for the unpaid and outstanding Secured Obligations until, subject to Section 10.05, the Termination Date.
10.02 No Subrogation. Notwithstanding any payment made by any Guarantor pursuant to this Article X or any set-off or application of funds of such Guarantor by any Secured Party in connection with the guarantee contained in this Article X, no Guarantor shall be entitled to be subrogated to any of the rights of any Secured Party against the Borrower or any collateral security or guarantee or right of offset held by any Secured Party for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower in respect of payments made by such Guarantor under this Article X, until the Termination Date. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Secured Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Secured Parties, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Secured Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. The provisions of this Section 10.02 shall survive the term of the guarantee contained in this Article X and the Termination Date.
10.03 Amendments, etc. with respect to the Obligations. Each Guarantor shall remain obligated under this Article X notwithstanding that, without any reservation of rights against such Guarantor, and without notice to or further assent by such Guarantor, any demand for payment of or reduction in the principal amount of any of the Secured Obligations made by any Secured Party may be rescinded by such Secured Party, as applicable, and any of the Secured Obligations continued, and the Secured Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by such Secured Party, and this Agreement and any other documents executed and delivered in connection herewith may be amended, modified, supplemented or terminated, in whole or in part, as the Lenders (or the Required Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by any Secured Party for the payment of the Secured Obligations may be sold, exchanged, waived, surrendered or released. No Secured Party shall have any obligation to protect, secure, perfect or insure any lien at any time held by it as security for the Secured Obligations or for the guarantee contained in this Article X or any property subject thereto.
10.04 Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Secured Obligations and notice of or proof of reliance by any Secured Party upon the guarantee contained in this Article X or acceptance of the guarantee contained in this Article X; the Secured Obligations shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Article X; and all dealings between the Borrower or any Guarantor, on the one hand, and the Secured Parties, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Article X. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon such Guarantor or the Borrower with respect to the Secured Obligations. To the full extent permitted by law, the guarantee contained in this Article X shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of this Agreement, any of the
Secured Obligations or any collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by any Secured Party, (b) the legality under applicable Laws of repayment by the Borrower of the Secured Obligations or the adoption of any requirement of law purporting to render any Secured Obligations null and void, (c) any defense, setoff or counterclaim (other than a defense of payment or performance by the Borrower) which may at any time be available to or be asserted by such Guarantor against any Secured Party, (d) any change in ownership of the Borrower, any merger or consolidation of the Borrower into another Person or any loss of the Borrower separate legal identity or existence, or (e) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or any Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Secured Obligations, or of any Guarantor under the guarantee contained in this Article X in bankruptcy or in any other instance. When any Secured Party is pursuing its rights and remedies under this Article X against any Guarantor, any such Secured Party may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Borrower or any other Person or against any collateral security or guarantee for the Secured Obligations or any right of offset with respect thereto, and any failure by any Secured Party to pursue such other rights or remedies or to collect any payments from the Borrower or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower or any such other Person or of any such collateral security, guarantee or right of offset, shall not relieve the Borrower of any liability under this Article X and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Secured Parties against any Guarantor.
10.05 Reinstatement. The guarantee contained in this Article X shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Secured Obligations is rescinded, avoided, or must otherwise be restored or returned by any Secured Party upon or in connection with the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property, or otherwise, all as though such payments had not been made.
10.06 Payments. Each Guarantor hereby agrees that any payments in respect of the Secured Obligations pursuant to this Article X will be paid to the Administrative Agent without setoff or counterclaim in U.S. Dollars, at the office of the Administrative Agent specified in Section 11.02.
10.07 Independent Obligations. The obligations of each Guarantor under the guarantee contained in this Article X are independent of the obligations of the Borrower, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not the Borrower is joined in any such action or actions. Each Guarantor waives, to the full extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrower or other circumstance which operates to toll any statute of limitations as to the Borrower shall operate to toll the statute of limitations as to such Guarantor.
10.08 Customer Obligations. Each Secured Party acknowledges and agrees that it shall have no equitable or beneficial interest in any cash held in trust for the benefit of customers and/or as eligible securities that are held pursuant to section 2081 of the California Financial Code by any Guarantor, and any such money in its possession at any time is, and at all times shall remain, the property of the relevant customer, and shall not, in the event of a bankruptcy or similar proceeding involving any Guarantor, become property of any Guarantor’s bankruptcy or other estate.
ARTICLE XI
MISCELLANEOUS
11.01 Amendments, Etc. Except as otherwise expressly set forth in this Agreement, no amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower therefrom, shall be effective unless in writing signed by the Required Lenders (or the Administrative Agent at the direction of the Required Lenders) and the Borrower, and acknowledged by the Administrative Agent and each Issuing Bank, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01(a) without the written consent of each Lender;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) or any scheduled or mandatory reduction of the Aggregate Commitments hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or LC Disbursement, or any fees or other amounts payable hereunder or under any other Loan Document, without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate;
(e) change Section 2.11 or Section 8.03 (or similar “waterfall” provisions in the other Loan Documents) in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;
(f) change Section 2.14 or Section 2.15 without the consent of the Administrative Agent and each Issuing Bank;
(g) subject to Section 11.18 (in which case such release may be made by the Administrative Agent acting alone), release the value of all or substantially all of the guaranty contained in Article X without the written consent of each Lender;
(h) change any provision of this Section 11.01 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders (or, subject to the penultimate sentence of this Section 11.01, the Lenders of any class) required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender;
(i) subject to Section 11.18 (in which case such release may be made by the Administrative Agent acting alone), release all or substantially all the Collateral from the Liens of the Collateral Documents, without the written consent of each Lender (except as expressly provided in the Loan Documents);
(j) extend the stated expiration date of any Letter of Credit beyond the Maturity Date without the written consent of each Lender directly affected thereby;
(k) contractually subordinate the Obligations (including any guarantee thereof) or the Administrative Agent’s Lien on all or substantially all of the Collateral without the written consent of each Lender; or
(l) permit the Borrower to incur Loans in additional currencies, including pursuant to Section 1.09, without the written consent of each Lender, or in the case of Letters of Credit, without the consent of the Administrative Agent and the applicable Issuing Bank;
and, provided further, that no such amendment, waiver or consent shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or any Issuing Bank under this Agreement without the prior written consent of the Administrative Agent or each Issuing Bank, as the case may be, in addition to the Lenders required above. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time. Notwithstanding anything to the contrary herein, (i) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of Lenders holding Loans of a particular class (but not the Lenders holding Loans of any other class) or Commitments may be effected by an agreement or agreements in writing entered into by the Borrower and the requisite percentage in interest of the affected Lenders that would be required to consent thereto under this Section 11.01 if such Lenders were the only Lenders hereunder at such time, (ii) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent under this Agreement, except that (x) the Commitment of such Lender may not be increased or extended without the consent of such Lender and (y) the principal amount of, or interest or fees payable on, Loans or LC Disbursements may not be reduced or excused or the scheduled date of payment may not be postponed as to such Defaulting Lender without such Defaulting Lender’s consent and (iii) in connection with an amendment that addresses solely a re-pricing transaction in which any Commitments and/or Loans are refinanced with a replacement class of commitments and/or loans bearing (or is modified in such a manner such that the resulting commitments and/or loans bear) a lower yield (with the comparative determinations to be made by the Administrative Agent consistent with generally accepted financial practices, after giving effect to, among other factors, margin, interest rate floors, upfront or similar fees or original issue discount, but excluding the effect of any arrangement, structuring, syndication or other fees payable to any lead arranger (or its affiliates) and which may include other customary technical amendments related thereto, including providing that such replacement commitments and/or loans may have a prepayment premium in connection therewith) (a “Permitted Repricing Transaction”), only the consent of the Lenders holding Commitments and/or Loans subject to such Permitted Repricing Transaction that will continue as a Lender in respect of the repriced Commitments and/or Loans or modified Commitments and/or Loans shall be required for such Permitted Repricing Transaction.
Furthermore, notwithstanding the foregoing, the Administrative Agent, with the consent of the Borrower, may amend, modify or supplement any Loan Document without the consent of any Lender or the Required Lenders in order to correct, amend or cure any ambiguity, inconsistency or defect or correct any typographical error or other manifest error in any Loan Document.
11.02 Notices; Effectiveness; Electronic Communication.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows: (i) if to any Loan Party or the Administrative Agent, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 11.02; provided that any Loan Party shall be notified by electronic mail of any notice sent by telecopier; and (ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire. Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
(b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under Article II by electronic communication. The Administrative Agent and each Loan Party may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it (or in the case of any Loan Party, the Borrower), provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c) Change of Address, Etc. Each Loan Party and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.
(d) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower, provided that such indemnity shall not be available as to any Indemnitee (as defined in Section 11.04(b)) to the extent that such losses, costs, expenses and liabilities result from the gross negligence or willful misconduct of such Indemnitee. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
11.03 No Waiver; Cumulative Remedies. No failure by any Lender, any Issuing Bank or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
11.04 Expenses; Indemnity; Limitation of Liability.
(a) Costs and Expenses. The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent and the Arrangers (including the reasonable and documented fees, charges and disbursements of one counsel for the Administrative Agent and the Arrangers), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable and documented out-of-pocket expenses incurred by each Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, any Issuing Bank, any Arranger or any Lender ((including the reasonable and documented out-of-pocket fees, charges and disbursements of one counsel for the Administrative Agent, each Issuing Bank, the Arrangers and one, and, if reasonably necessary, of a single local counsel in each appropriate jurisdiction (such jurisdiction, the “Applicable Jurisdiction”) (and, in the case of an actual or perceived conflict of interest where the Administrative Agent and/or its Affiliates, each Issuing Bank and/or the Arrangers affected by such conflict has retained its own counsel, of another law firm acting as counsel for such Person and, if reasonably necessary, a single local counsel in each Applicable Jurisdiction)) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section 11.04, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Issuing Bank, the Arrangers, each Lender and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all Liabilities, penalties, and related expenses ((including the
reasonable and documented fees, charges and disbursements of one counsel for the Indemnitees, taken as a whole, and, if reasonably necessary, one local counsel for the Indemnitees, taken as a whole, in each Applicable Jurisdiction) (and, in the case of an actual or perceived conflict of interest where the Indemnitee affected by such conflict has retained its own counsel, of another law firm acting as counsel for such Indemnitee and, if reasonably necessary, another local counsel in each Applicable Jurisdiction)) incurred by any Indemnitee or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit) and (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower, its equity holders, affiliates or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) result from the gross negligence or willful misconduct of such Indemnitee as determined by a court of competent jurisdiction in a final non-appealable judgment, (y) result from a claim brought by the Borrower against an Indemnitee for a material breach of such Indemnitee’s obligations hereunder or under any other Loan Document, as determined by a court of competent jurisdiction in a final non-appealable judgment or (z) arising from any dispute between or among Indemnitees that does not involve any act or omission by the Borrower or its Subsidiaries as determined by a court of competent jurisdiction in a final non-appealable judgment, other than any proceeding against the Administrative Agent or any Arranger, in each case acting in such capacity. All amounts due under this Section 11.04(b) shall be paid within thirty (30) days after written demand therefor (together with reasonable backup documentation supporting such reimbursement request); provided, however, that such Indemnitee shall promptly refund the amount of any payment, to the extent determined by a court of competent jurisdiction in a final, non-appealable judgment that such Indemnitee was not entitled to indemnification rights with respect to such payment pursuant to the express terms of this Section 11.04(b). This Section 11.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section 11.04 to be paid by it to the Administrative Agent (or any sub-agent thereof), each Issuing Bank or any Related Party of any of the foregoing, but without releasing the Borrower from its obligation to do so, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), each Issuing Bank or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or each Issuing Bank in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.10(d).
(d) Waiver of Consequential Damages, etc. To the fullest extent permitted by applicable law, (i) no Loan Party shall assert, and hereby waives, any claim against any other party, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof to the extent permitted by applicable law and (ii) the Borrower and any Loan Party shall not assert, and the Borrower and each Loan Party hereby waives, any claim against the Administrative Agent (and any sub-agent thereof), each Issuing Bank, the Arrangers, each Lender and each Related Party of any of the foregoing Persons (each such Person being called a “Lender-Related Person”) for any Liabilities arising from the use others of any information or other materials distributed (including, without limitation, personal data) through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a court of competent jurisdiction in a final non-appealable judgment; provided that, nothing in this Section 11.04(d) shall relieve the Borrower and each Loan Party of any obligation it may have to indemnify an Indemnitee, as provided in Section 11.04(b), against any special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.
(e) Payments. All amounts due under this Section 11.04 shall be payable not later than 30 days after demand therefor.
(f) Survival. The agreements in this Section 11.04 shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of this Agreement, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.
11.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently avoided, invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any case or proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Effective Rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
11.06 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent, each Issuing Bank and each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) pursuant to Section 9.10 hereof, (ii) to an assignee in accordance with the provisions of subsection (b) of this Section 11.06, (iii)
by way of participation in accordance with the provisions of subsection (d) of this Section 11.06, or (iv) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section 11.06 (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, the Arrangers, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), Participants to the extent provided in subsection (d) of this Section 11.06 and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, each Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts. (A) in the case of an assignment (i) of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, or (ii) pursuant to Section 9.10, no minimum amount need be assigned; and (B) in any case not described in subsection (b)(i)(A) of this Section 11.06, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Specified Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single assignee (or to an assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met.
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned;
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section 11.06 and the last sentence of this subsection (b)(iii) and, in addition: (A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) a Specified Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and (B) the consent of the Administrative Agent and each Issuing Bank (such consent not to be unreasonably withheld or delayed) shall be required. Notwithstanding the foregoing, the Borrower shall be deemed to have consented to any assignment unless it shall object thereto by written notice to the Administrative Agent within 15 Business Days after having received written notice thereof.
(iv) Assignment and Assumption. Other than in connection with an assignment pursuant to Section 9.10, the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower’s Affiliates or Subsidiaries (each, an “Affiliated Lender”).
(vi) No Assignment to Certain Persons. No such assignment shall be made to (i) a natural person (or to a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of a natural person), (ii) any Disqualified Lender or (iii) any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (ii).
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section 11.06, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 11.04 with respect to facts and circumstances, in each case, occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section 11.06.
(c) Register. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and related stated interest amounts) of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall, in the absence of manifest error, be conclusive, and the Borrower, the Administrative Agent, each Issuing Bank and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, each Issuing Bank and any Lender (with respect to such Issuing Bank or Lender’s interest only), at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Any Lender may, without the consent of, or notice to, the Borrower, the Administrative Agent, the Issuing Banks or any other Person, at any time sell participations to any Person (other than a natural person, a Disqualified Lender or an Affiliated Lender) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent, each Issuing
Bank and the Lenders shall continue to deal solely and directly, with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in Sections 11.01(b), (c), (d), (g) or (h) that affects such Participant. Subject to subsection (e) of this Section 11.06, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 (subject to the requirements and limitations of such Sections (it being understood that the documentation required under Section 3.01(f) shall be delivered solely to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section 11.06. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.08 as though it were a Lender, provided such Participant shall be subject to Section 2.11 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant to which it sells a participation and the principal amounts (and related stated interest amounts) of each such Participant’s interest in the Commitments, Loans, Letters of Credit or other obligations under this Agreement (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participant’s interest in any obligations under any Loan Document) except to the extent that such disclosure is necessary to establish that such obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.
(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant (except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation) unless the sale of the participation to such Participant is made with the Borrower’s prior written consent, not to be unreasonably withheld or delayed.
(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or any other relevant central bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g) [Reserved].
(h) Disqualified Lenders.
(i) No assignment or participation shall be made to any Person that was a Disqualified Lender as of the date (the “Trade Date”) on which the assigning Lender entered into a binding agreement to sell and assign all or a portion of its rights and obligations under this Agreement to such Person (unless the Borrower has consented to such assignment in writing in its sole and absolute discretion, in which case such Person will not be considered a Disqualified
Lender for the purpose of such assignment or participation). For the avoidance of doubt, with respect to any assignee that becomes a Disqualified Lender after the applicable Trade Date (including as a result of the delivery of a notice pursuant to, and/or the expiration of the notice period referred to in, the definition of “Disqualified Lender”), (x) such assignee shall not retroactively be disqualified from becoming a Lender and (y) the execution by the applicable Borrower of an Assignment and Assumption with respect to such assignee will not by itself result in such assignee no longer being considered a Disqualified Lender. Any assignment in violation of this clause (h)(i) shall not be void, but the other provisions of this clause (h) shall apply.
(ii) If any assignment or participation is made to any Disqualified Lender without the Borrower’s prior written consent in violation of clause (i) above, or if any Person becomes a Disqualified Lender after the applicable Trade Date, the Borrower may, at its sole expense and effort, upon notice to the applicable Disqualified Lender and the Administrative Agent, (A) terminate any Commitment of such Disqualified Lender and repay all obligations of the Borrower owing to such Disqualified Lender in connection with such Commitment; provided that proceeds of Loans may not be used for such purpose and/or (B) require such Disqualified Lender to assign, without recourse (in accordance with and subject to the restrictions contained in this Section 11.06), all of its interest, rights and obligations under this Agreement to one or more Eligible Assignees at the lesser of (x) the principal amount thereof and (y) the amount that such Disqualified Lender paid to acquire such interests, rights and obligations, in each case plus accrued interest, accrued fees and all other amounts (other than principal amounts) payable to it hereunder.
(iii) Notwithstanding anything to the contrary contained in this Agreement, Disqualified Lenders (A) will not (x) have the right to receive information, reports or other materials provided to Lenders by the Borrower, the Administrative Agent or any other Lender, (y) attend or participate in meetings attended by the Lenders and the Administrative Agent, or (z) access any electronic site established for the Lenders or confidential communications from counsel to or financial advisors of the Administrative Agent or the Lenders and (B) (x) for purposes of any consent to any amendment, waiver or modification of, or any action under, and for the purpose of any direction to the Administrative Agent or any Lender to undertake any action (or refrain from taking any action) under this Agreement or any other Loan Document, each Disqualified Lender will be deemed to have consented in the same proportion as the Lenders that are not Disqualified Lenders consented to such matter, and (y) for purposes of voting on any plan of reorganization or plan of liquidation pursuant to any Debtor Relief Laws (a “Bankruptcy Plan”), each Disqualified Lender party hereto hereby agrees (1) not to vote on such Bankruptcy Plan, (2) if such Disqualified Lender does vote on such Bankruptcy Plan notwithstanding the restriction in the foregoing clause (1), such vote will be deemed not to be in good faith and shall be “designated” pursuant to Section 1126(e) of the Bankruptcy Code (or any similar provision in any other Debtor Relief Laws), and such vote shall not be counted in determining whether the applicable class has accepted or rejected such Bankruptcy Plan in accordance with Section 1126(c) of the Bankruptcy Code (or any similar provision in any other Debtor Relief Laws) and (3) not to contest any request by any party for a determination by the court hearing such proceeding (or other applicable court of competent jurisdiction) effectuating the foregoing clause (2).
(iv) The Administrative Agent shall have the right, and the Borrower hereby expressly authorizes the Administrative Agent, to (A) post the list of Disqualified Lenders provided by the Borrower and any updates thereto from time to time (collectively, the “DQ List”)
on the Platform, including that portion of the Platform that is designated for “public side” Lenders and/or (B) provide the DQ List to each Lender requesting the same.
11.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, each Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates (other than portfolio companies) and to its and its Related Parties on a need-to-know basis, in each case, who are informed of the confidential nature of such Information and who are subject to customary confidentiality obligations of professional practice or who are and have been advised to keep the same confidential), (b) to the extent required or requested by any regulatory authority having jurisdiction over it or any of its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners) provided, unless prohibited by applicable Law or court order each of the Administrative Agent, Issuing Bank and Lenders, as applicable, shall make reasonable efforts to notify the Borrower of any request by such regulatory authority (other than any such request in connection with any examination of the financial condition or other routine audits and examination of such Person by such regulatory authority) for disclosure of any such non-public information prior to the actual disclosure thereof, (c) in any legal, judicial, administrative proceeding or in accordance with a judicial or other governmental order, subpoena, interrogatory, discovery request, investigative demand or other legal process or as required by applicable law or regulations (in which case, except with respect to any routine audit or examination conducted by the bank accountants or any self-regulatory authority or governmental or regulatory authority exercising examination or regulatory authority) to the extent such disclosure only relates to Information unique to the Borrower, the Administrative Agent, such Issuing Bank or such Lender shall promptly notify the Borrower in writing, in advance, and give the Borrower the opportunity to seek confidential treatment of the information prior to such disclosure, to the extent practical and not prohibited by law), (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 11.07, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its Related Parties) to any Securitization, swap or derivative transaction relating to the Borrower and its obligations, or any Subsidiary and its obligations, or any credit insurance provider relating to the Borrower and its Obligations, in each case, prior to an IPO and so long as no Specified Event of Default has occurred and is continuing, with the consent of the Borrower (not to be unreasonably withheld or delayed); provided that such consent shall not be required to the extent such assignee or Participant is a Lender, an Affiliate of a Lender or an Approved Fund, (g) with the consent of the Borrower, (h) to rating agencies or, on a confidential basis, to the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the Loans, (i) to service providers providing administrative and ministerial services solely in connection with the syndication and administration of the Loan Documents and the facilities (e.g., identities of parties, maturity dates, interest rates, etc.) on a confidential basis or (j) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 11.07, (y) becomes available to the Administrative Agent, any Issuing Bank, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower or any of its Subsidiaries or (z) to the extent that such Information is independently developed by the Administrative Agent, any Lender or any Issuing Bank. In addition, the Administrative Agent may disclose the existence of this Agreement and information about this Agreement to (i) service providers to the lending industry and service providers to the Administrative Agent, in each case, (x) who are informed of the confidential nature of such information and who are subject to customary confidentiality obligations of professional practice or who are and have been advised to keep the same confidential and (y) to the extent required in
connection with the administration of this Agreement, the other Loan Documents and the Commitments and (ii) following an IPO, to market data collectors.
For purposes of this Section 11.07, “Information” means all information received from or on behalf of the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by or on behalf of the Borrower or any Subsidiary; provided that all information received after the Closing Date from or on behalf of the Borrower or any of its Subsidiaries shall be deemed confidential unless such information is clearly identified at the time of delivery as not being confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 11.07 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each of the Administrative Agent, each Issuing Bank and the Lenders acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Securities Laws.
Notwithstanding anything herein to the contrary, the Administrative Agent, the Lenders and their respective Affiliates shall not, directly or indirectly, use the name of the Borrower or its Affiliates in any publicity, advertising or other media and may not issue a press release or otherwise publicize to any person, directly or indirectly, orally or in writing, any information related to the existence of this Credit Agreement, the transactions contemplated herein or the terms or conditions hereof or thereof; provided that such party may repeat information about the transactions contemplated hereby that has been publicly disclosed by the Borrower and no additional information can be publicized.
11.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, each Issuing Bank and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Issuing Bank, such Lender or such Affiliate to or for the credit or the account of any Loan Party against any and all of the obligations of any Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Issuing Bank or such Lender, irrespective of whether or not such Issuing Bank or such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of any Loan Party may be contingent or unmatured or are owed to a branch or office of such Issuing Bank or such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Issuing Bank and each Lender under this Section 11.08 are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. Each Issuing Bank and each Lender agrees to notify the applicable Loan Party and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. Notwithstanding the foregoing, if any Defaulting Lender shall exercise any such right of setoff, (i) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of this Agreement and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, each Issuing Bank and the Lenders and (ii) the Defaulting Lender shall provide
promptly to the Administrative Agent a statement describing in reasonable detail the obligations owing to such Defaulting Lender as to which it exercised such right of setoff.
11.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
11.10 Counterparts; Integration; Effectiveness; Electronic Execution.
(a) Counterparts: This Agreement and each of the other Loan Documents may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents, and the Engagement Letter constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.
(b) Electronic Execution: Delivery of an executed counterpart of a signature page of (x) this Agreement, (y) any other Loan Document and/or (z) any document, amendment, approval, consent, information, notice (including, for the avoidance of doubt, any notice delivered pursuant to this Agreement), certificate, request, statement, disclosure or authorization related to this Agreement, any other Loan Document and/or the transactions contemplated hereby and/or thereby (each an “Ancillary Document”) that is an Electronic Signature transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement, such other Loan Document or such Ancillary Document, as applicable. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Agreement, any other Loan Document and/or any Ancillary Document shall be deemed to include Electronic Signatures, deliveries or the keeping of records in any electronic form (including deliveries by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page), each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be; provided that nothing herein shall require the Administrative Agent to accept Electronic Signatures in any form or format without its prior written consent and pursuant to procedures approved by it; provided, further, without limiting the foregoing, (i) to the extent the Administrative Agent has agreed to accept any Electronic Signature, the Administrative Agent and each of the Lenders shall be entitled to rely on such Electronic Signature purportedly given by or on behalf of the Borrower or any other Loan Party without further verification thereof and without any obligation to review the appearance or form of any such Electronic signature and (ii) upon the reasonable request of the Administrative Agent, any Electronic Signature shall be promptly followed by a manually executed
counterpart. Without limiting the generality of the foregoing, the Borrower and each Loan Party hereby (A) agrees that, for all purposes, including without limitation, in connection with any workout, restructuring, enforcement of remedies, bankruptcy proceedings or litigation among the Administrative Agent, the Lenders, the Borrower and the Loan Parties, Electronic Signatures transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page and/or any electronic images of this Agreement, any other Loan Document and/or any Ancillary Document shall have the same legal effect, validity and enforceability as any paper original, (B) the Administrative Agent and each of the Lenders may, at its option, create one or more copies of this Agreement, any other Loan Document and/or any Ancillary Document in the form of an imaged electronic record in any format, which shall be deemed created in the ordinary course of such Person’s business, and destroy the original paper document (and all such electronic records shall be considered an original for all purposes and shall have the same legal effect, validity and enforceability as a paper record), (C) waives any argument, defense or right to contest the legal effect, validity or enforceability of this Agreement, any other Loan Document and/or any Ancillary Document based solely on the lack of paper original copies of this Agreement, such other Loan Document and/or such Ancillary Document, respectively, including with respect to any signature pages thereto and (D) waives any claim against any Lender-Related Person for any Liabilities arising solely from the Administrative Agent’s and/or any Lender’s reliance on or use of Electronic Signatures and/or transmissions by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page, including any Liabilities arising as a result of the failure of the Borrower and/or any Loan Party to use any available security measures in connection with the execution, delivery or transmission of any Electronic Signature.
11.11 Survival. All covenants, agreements, representations and warranties made by any Loan Party herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount or Obligation payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 3.04, 3.05, 11.04, 11.09 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the payment in full of the Obligations, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.
11.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
11.13 Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay (or will be required to pay) any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 or if any Lender determines pursuant to Section 3.02 that it is not permitted to make Term Benchmark Loans, or if any
Lender is a Defaulting Lender, or if any Lender declines to approve any waiver, amendment or modification of this Agreement or any Loan Document that requires approval of all Lenders pursuant to Section 11.01 or if any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a party hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that: (a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 11.06(b); (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts); (c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and (d) such assignment does not conflict with applicable Laws. A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Each party hereto agrees that (a) an assignment required pursuant to this Section 11.13 may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee and (b) the Lender required to make such assignment need not be a party thereto in order for such assignment to be effective and shall be deemed to have consented to an be bound by the terms thereof; provided that, following the effectiveness of any such assignment, the other parties to such assignment agree to execute and deliver such documents necessary to evidence such assignment as reasonably requested by the applicable Lender, provided, further that any such documents shall be without recourse to or warranty by the parties thereto.
Notwithstanding anything in this Section 11.13 to the contrary, any Lender that acts as an Issuing Bank may not be replaced hereunder at any time it has any Letter of Credit outstanding hereunder unless arrangements satisfactory to such Lender (including the furnishing of a backstop standby letter of credit in form and substance, and issued by an issuer, reasonably satisfactory to such Issuing Bank or the depositing of cash collateral into a cash collateral account in amounts required by Section 2.14(c) and pursuant to arrangements reasonably satisfactory to such Issuing Bank) have been made with respect to such outstanding Letter of Credit.
11.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) SUBMISSION TO JURISDICTION. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT SITTING IN NEW YORK COUNTY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW
(c) WAIVER OF VENUE. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION 11.14. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
11.15 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.15.
11.16 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby, the Borrower acknowledges and agrees that (except, with respect to clauses (ii) and (iii) below, as expressly set forth in any other engagement agreement between the Borrower and/or any of its Affiliates, on the one hand, and the Administrative Agent, any Lender or any Arranger, on the other hand): (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, the Lenders and the Arrangers, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof);
(ii) in connection with the process leading to such transaction, the Administrative Agent, the Lenders and the Arrangers each is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its Affiliates, stockholders, creditors or employees or any other Person; (iii) neither the Administrative Agent, any Lender nor any other Arrangers have assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether the Administrative Agent, the Lenders or the Arrangers have advised or are currently advising the Borrower or any of its Affiliates on other matters) and neither the Administrative Agent, any Lender nor any other Arranger has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent, the Lenders and the Arrangers and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and neither the Administrative Agent, any Lender nor any other Arranger has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Administrative Agent, the Lenders and the other Arrangers have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent, the Lenders and the other Arrangers with respect to any breach or alleged breach of agency or fiduciary duty.
11.17 USA PATRIOT Act Notice. Each Lender that is subject to the Patriot Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Patriot Act.
11.18 Release of Liens and Guarantees.
(a) A Guarantor shall automatically be released from its obligations under the Loan Documents, and all security interests created by the Collateral Documents in Collateral owned by such Guarantor shall be automatically released, (1) upon the consummation of any transaction permitted by this Agreement as a result of which such Guarantor ceases to be a Restricted Subsidiary (including pursuant to a merger with a Subsidiary that is not a Loan Party or a designation as an Unrestricted Subsidiary) or (2) upon the request of the Borrower, upon any Guarantor becoming an Excluded Subsidiary (other than as a result of becoming a non-wholly-owned Subsidiary).
(b) Upon (i) any sale or other transfer by any Loan Party (other than to the Borrower or any other Loan Party) of any Collateral in a transaction permitted under this Agreement or (ii) the effectiveness of any written consent to the release of the security interest created under any Collateral Document in any Collateral or the release of any Loan Party from its Guarantee hereunder pursuant to Section 11.01, the security interests in such Collateral created by the Collateral Documents or such guarantee shall be automatically released. Upon the occurrence of the Termination Date, all obligations under the Loan Documents and all security interests created by the Collateral Documents shall be automatically released. In connection with any termination or release pursuant to this Section, the
Administrative Agent shall execute and deliver to any Loan Party, at such Loan Party’s expense, all documents that such Loan Party shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section shall be without recourse to or warranty by the Administrative Agent.
(c) The Lenders irrevocably authorize the Administrative Agent to release or subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Sections 7.01(h) and 7.01(r), to the extent required by the terms of the obligations secured by such Liens pursuant to documents reasonably acceptable to the Administrative Agent). Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interests in particular types or items of property or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 11.18. The Administrative Agent shall be entitled to rely on an officer’s certificate of the Borrower (including as to its authority hereunder) in connection with the matters described in this Section 11.18, which shall be delivered to the Administrative Agent by the Borrower upon reasonable request.
(d) Upon the occurrence of a Collateral Release Event, the Administrative Agent shall promptly release the Liens and security interests in the Collateral, all at the expense of the Loan Parties. In connection with any termination or release pursuant to this Section, the Administrative Agent shall execute and deliver to any Loan Party, at such Loan Party’s expense, all documents that such Loan Party shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section shall be without recourse to or warranty by the Administrative Agent.
11.19 Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Solely to the extent an Affected Financial Institution is a party to this Agreement and notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender or Issuing Bank that is an Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder that may be payable to it by any Lender or Issuing Bank that is an Affected Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(A) a reduction in full or in part or cancellation of any such liability;
(B) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(C) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of the applicable Resolution Authority.
11.20 Acknowledgement Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for any Swap Contract or any other agreement or instrument that is a QFC (such support, “QFC Credit Support,” and each such QFC, a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):
(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
(b) As used in this Section 11.20, the following terms have the following meanings:
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
11.21 Certain ERISA Matters.
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date
such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Arrangers and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of Section 3(42) of ERISA or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) of one or more Benefit Plans with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments or this Agreement;
(ii) the prohibited transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable so as to exempt from prohibitions of Section 406 of ERISA and Section 4975 of the Code such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement;
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement; or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
In addition, unless either (I) sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or (II) a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Arrangers and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that the Administrative Agent, the Arrangers or any of their respective Affiliates is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
(Remainder of Page Intentionally Left Blank)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
| | | | | | | | | | | |
| REDDIT, INC. |
| | | |
| | | |
| By: | /s/ Andrew Vollero |
| | Name: | Andrew Vollero |
| | Title: | Chief Financial Officer |
[Signature Page to Credit and Guarantee Agreement]
| | | | | | | | | | | |
| JPMORGAN CHASE BANK, N.A., as |
| Administrative Agent |
| | | |
| | | |
| By: | /s/ Bruce S. Borden |
| | Name: | Bruce S. Borden |
| | Title: | Executive Director |
| | | |
| | | |
| JPMORGAN CHASE BANK, N.A., as |
| an Issuing Bank and a Lender |
| | | |
| | | |
| By: | /s/ Bruce S. Borden |
| | Name: | Bruce S. Borden |
| | Title: | Executive Director |
[Signature Page to Credit and Guarantee Agreement]
| | | | | | | | | | | |
| Morgan Stanley Senior Funding, Inc., as a Lender and |
| Issuing Bank |
| | | |
| | | |
| By: | /s/ Michael King |
| | Name: | Michael King |
| | Title: | Vice President |
[Signature Page to Credit and Guarantee Agreement]
| | | | | | | | | | | |
| GOLDMAN SACHS LENDING PARTNERS LLC, as a |
| Lender |
| | | |
| | | |
| By: | /s/ Kevin Raisch |
| | Name: | Kevin Raisch |
| | Title: | Authorized Signatory |
[Signature Page to Credit and Guarantee Agreement]
| | | | | | | | | | | |
| BANK OF AMERICA, N.A., as an Issuing Bank and a |
| Lender |
| | | |
| | | |
| By: | /s/ Ravi Patel |
| | Name: | Ravi Patel |
| | Title: | Vice President |
[Signature Page to Credit and Guarantee Agreement]
| | | | | | | | | | | |
| Citicorp North America, Inc., as a Lender |
| | | |
| | | |
| By: | /s/ Doug Baird |
| | Name: | Doug Baird |
| | Title: | Vice President & Managing Director |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Citibank, N.A., as Documentation Agent and Issuing |
| Bank |
| | | |
| | | |
| By: | /s/ Doug Baird |
| | Name: | Doug Baird |
| | Title: | Vice President & Managing Director |
[Signature Page to Credit and Guarantee Agreement]
| | | | | | | | | | | |
| SILICON VALLEY BANK, as an Issuing Bank and a |
| Lender |
| | | |
| | | |
| By: | /s/ Trefor Bacon |
| | Name: | Trefor Bacon |
| | Title: | Director |
[Signature Page to Credit and Guarantee Agreement]
| | | | | | | | | | | |
| MUFG Bank, Ltd., as a Lender |
| | | |
| | | |
| By: | /s/ Matthew Antioco |
| | Name: | Matthew Antioco |
| | Title: | Director |
[Signature Page to Credit and Guarantee Agreement]
Exhibit 10.6
Execution Version
AMENDMENT NO. 1 TO CREDIT AND GUARANTEE AGREEMENT
THIS AMENDMENT NO. 1 (this “Agreement”), dated as of May 23, 2023, is entered into among REDDIT, INC., a Delaware corporation (the “Borrower”) and JPMORGAN CHASE BANK, N.A., as administrative agent (in such capacity, the “Administrative Agent”) and as collateral agent.
RECITALS
WHEREAS, reference is hereby made to the Credit and Guarantee Agreement, dated as of October 8, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to giving effect to this Agreement, the “Existing Credit Agreement”), by and among the Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent and the Lenders and Issuing Banks party thereto from time to time;
WHEREAS, certain loans, commitments and/or other extensions of credit (the “Loans”) under the Credit Agreement denominated in Dollars (the “Affected Currency”) incur or are permitted to incur interest, fees or other amounts based on the London Interbank Offered Rate as administered by the ICE Benchmark Administration (“LIBOR”) in accordance with the terms of the Credit Agreement;
WHEREAS, the Administrative Agent and the Borrower have elected to trigger an Early Opt-In Election with respect to the Affected Currency and pursuant to Section 3.08(a) of the Credit Agreement, the Administrative Agent and the Borrower have determined in accordance with the Credit Agreement that LIBOR for the Affected Currency should be replaced with the applicable Benchmark Replacement for all purposes under the Credit Agreement and any Loan Document and such changes shall become effective on the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, so long as the Administrative Agent has not received, by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders (such time, the “Objection Deadline”), written notice of objection to such Early Opt-in Election from Lenders comprising the Required Lenders; and
WHEREAS, pursuant to Section 3.08(c) of the Credit Agreement, in connection with the foregoing, the Administrative Agent has determined that certain Benchmark Replacement Conforming Changes are necessary or advisable and such changes hall become effective without any further consent of any other party to the Credit Agreement or any other Loan Document.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms used herein but not otherwise defined herein shall have the meanings provided to such terms in the Amended Credit Agreement (as defined below). The rules of construction specified in Section 1.02 of the Amended Credit Agreement also apply to this Agreement, mutatis mutandis, as if fully set forth herein.
2. Agreement.
(a) The Existing Credit Agreement is hereby amended to delete the stricken text (indicated textually in the same manner as the following example: stricken text) and to add the double-underlined text (indicated textually in the same manner as the following example: double-underlined text) as set forth in the pages attached as Exhibit A hereto (the Existing Credit Agreement as amended hereby, the “Amended Credit Agreement”).
(b) Exhibit A (Form of Committed Loan Notice) to the Existing Credit Agreement shall be amended and restated in the form of Exhibit B attached hereto.
3. Payment of Expenses. The Borrower agrees to reimburse the Administrative Agent for all reasonable and documented fees, charges and disbursements of the Administrative Agent in connection with the preparation, execution and delivery of this Agreement, including all reasonable and documented fees, charges and disbursements of counsel to the Administrative Agent.
4. Conditions Precedent. This Agreement shall become effective on the first Business Day following the date that the following conditions shall have been satisfied (such Business Day, the “Amendment Effective Date”):
(a) the Administrative Agent (or its counsel) shall have received from the Borrower, either (x) a counterpart of this Agreement signed on behalf of such party or (y) written evidence reasonably satisfactory to the Administrative Agent (which may include delivery of a signed signature page of this Agreement by facsimile or other means of electronic transmission (e.g., “pdf”)) that such party has signed a counterpart of this Agreement;
(b) the Administrative Agent has not received, by the Objection Deadline, written notice of objection to such applicable Benchmark Replacement or the amendments to the Credit Agreement as provided herein from Lenders comprising the Required Lenders;
(c) all of the representations and warranties of the Borrower set forth in the Loan Documents that are qualified by materiality shall be true and correct, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date (provided that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof), and except that the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Amended Credit Agreement shall be deemed to refer to the most recent financial statements delivered pursuant to clauses (a) and (b) respectively, of Section 6.01 of the Amended Credit Agreement; and
(d) at the time of and immediately after effectiveness of this Agreement, no Default or Event of Default shall have occurred and be continuing.
5. Representations and Warranties. The Borrower represents and warrants to the Administrative Agent that, as of the date hereof:
(a) this Agreement has been duly authorized, executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, arrangement, moratorium and other similar laws affecting creditors’ rights generally and to the application of general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing;
(b) the execution, delivery and performance by the Borrower of this Agreement, have been duly authorized by all necessary corporate action, and do not and will not contravene (a) the terms of any of the Borrower’s Organization Documents or (b) any Law or any contractual restriction binding on or affecting it, except, in each case referred to in this clause (b), to the extent such contravention could not, in the aggregate, reasonably be expected to have a Material Adverse Effect;
(c) all of the representations and warranties of the Borrower set forth in the Loan Documents that are qualified by materiality are true and correct, and such representations and warranties that are not qualified by materiality are true and correct in all material respects, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date (provided that such materiality qualifier is not applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof), and except that the representations and warranties contained in subsections (a) and (b) of Section 5.05 of the Amended Credit Agreement are deemed to refer to the most recent financial statements delivered pursuant to clauses (a) and (b) respectively, of Section 6.01 of the Amended Credit Agreement; and
(d) at the time of and immediately after effectiveness of this Agreement, no Default or Event of Default shall have occurred and be continuing.
6. Reaffirmation; Reference to and Effect on the Loan Documents.
(a) From and after the Amendment Effective Date, each reference in the Amended Credit Agreement to “hereunder,” “hereof,” “this Agreement” or words of like import and each reference in the other Loan Documents to “Credit Agreement,” “thereunder,” “thereof” or words of like import shall, unless the context otherwise requires, mean and be a reference to the Amended Credit Agreement. This Agreement is a Loan Document.
(b) The Loan Documents, and the obligations of the Borrower under the Loan Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms.
(c) The Borrower (i) acknowledges and consents to all of the terms and conditions of this Agreement, (ii) affirms all of its obligations under the Loan Documents, (iii) agrees that this Agreement and all documents executed in connection herewith do not operate to reduce or discharge its obligations under the Loan Documents, (iv) agrees that the Collateral Documents continue to be in full force and effect and are not impaired or adversely affected in any manner whatsoever, (v) confirms its grant of security interests pursuant to the Collateral Documents to which it is a party as Collateral for the Obligations, and (vi) acknowledges that all Liens granted (or purported to be granted) pursuant to the Collateral Documents remain and continue in full force and effect in respect of, and to secure, the Obligations. The Borrower hereby reaffirms its obligations under Article X of the Amended Credit Agreement and agrees that its obligation to guarantee the Obligations is in full force and effect as of the date hereof.
(d) The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.
(e) In the event of any conflict between the terms of this Agreement and the terms of the Amended Credit Agreement or the other Loan Documents, the terms hereof shall control.
7. Governing Law; Jurisdiction; Consent to Service of Process; Waiver of Jury Trial, Etc.
(a) This Agreement shall be construed in accordance with and governed by the law of the State of New York, without regard to conflict of laws principles thereof to the extent such principles would cause the application of the law of another state.
(b) EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTIONS 11.14 (GOVERNING LAW; JURISDICTION; ETC.) and 11.15 (WAIVER OF JURY TRIAL) OF THE AMENDED CREDIT AGREEMENT AS IF SUCH SECTIONS WERE SET FORTH IN FULL HEREIN.
8. Amendments; Headings; Severability. This Agreement may not be amended nor may any provision hereof be waived except pursuant to a writing signed by the Borrower and the Administrative Agent. The Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting this Agreement. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
9. Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that nothing herein shall require the Administrative Agent to accept electronic signatures in any form or format without its prior written consent.
10. Notices. All notices hereunder shall be given in accordance with the provisions of Section 11.02 of the Amended Credit Agreement.
[remainder of page intentionally left blank]
Each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.
| | | | | | | | | | | |
| BORROWER | REDDIT, INC. | |
| | | |
| | | |
| By: | /s/ Andrew Vollero | |
| Name: Andrew Vollero | |
| Title: Chief Financial Officer | |
[Signature Page to Amendment No. 1]
| | | | | | | | | | | |
ADMINISTRATIVE AGENT: | JPMORGAN CHASE BANK, N.A., | |
| as Administrative Agent | |
| | | |
| | | |
| | | |
| by | /s/ Bruce S. Borden | |
| | | |
| | Bruce S. Borden | |
| | Executive Director | |
[Signature Page to Amendment No. 1]
Exhibit A
Amended Credit Agreement
(Attached hereto)
| | |
Execution VersionExhibit A |
Conformed Copy through First Amendment, dated as of May 23, 2023 |
$750,000,000
CREDIT AND GUARANTEE AGREEMENT
Dated as of October 8, 2021
among
REDDIT, INC.,
as the Borrower,
The Guarantors Party Hereto,
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent and an Issuing Bank,
The Other Lenders and Issuing Banks Party Hereto,
JPMORGAN CHASE BANK, N.A., BOFA SECURITIES, INC., GOLDMAN SACHS BANK USA
and MORGAN STANLEY SENIOR FUNDING, INC.,
as Joint Lead Arrangers and Joint Bookrunners
CITIBANK, N.A.
as Documentation Agent
| | | | | | | | | | | | | | |
| Page |
|
| ARTICLE I |
| DEFINITIONS AND ACCOUNTING TERMS |
|
| 1.01 | Defined Terms | 1 |
| 1.02 | Other Interpretive Provisions | 4745 |
| 1.03 | Accounting Terms | 4746 |
| 1.04 | Rounding | 4847 |
| 1.05 | Times of Day | 4847 |
| 1.06 | Letter of Credit Amounts | 4847 |
| 1.07 | Interest Rates | 4847 |
| 1.08 | Exchange Rates; Currency Equivalents | 5048 |
| 1.09 | Additional Foreign Currencies | 5048 |
| 1.10 | Change of Currency | 5149 |
| 1.11 | Basket Amounts and Application of Multiple Relevant Provisions | 5149 |
|
| ARTICLE II |
| THE COMMITMENTS AND CREDIT EXTENSIONS |
|
| 2.01 | Committed Loans | 5150 |
| 2.02 | Borrowings, Conversions and Continuations of Committed Loans | 5250 |
| 2.03 | Prepayments | 5452 |
| 2.04 | Termination or Reduction of Commitments | 5453 |
| 2.05 | Repayment of Loans | 5553 |
| 2.06 | Interest | 5553 |
| 2.07 | Fees | 5554 |
| 2.08 | Computation of Interest and Fees | 5655 |
| 2.09 | Evidence of Debt | 5755 |
| 2.10 | Payments Generally; Administrative Agent’s Clawback | 5756 |
| 2.11 | Sharing of Payments by Lenders | 5958 |
| 2.12 | Extension of Maturity Date | 6058 |
| 2.13 | Increase in Commitments | 6160 |
| 2.14 | Letters of Credit | 6361 |
| 2.15 | Defaulting Lenders | 6766 |
| 2.16 | Determination of Dollar Equivalents | 6968 |
| 2.17 | Judgment Currency | 7068 |
|
| ARTICLE III |
| TAXES, YIELD PROTECTION AND ILLEGALITY |
|
| 3.01 | Taxes | 7068 |
| 3.02 | Illegality | 7371 |
| 3.03 | Inability to Determine Rates | 7472 |
| 3.04 | Increased Costs; Reserves on Term Benchmark Loans | 7573 |
| 3.05 | Compensation for Losses | 7674 |
| 3.06 | Mitigation Obligations; Replacement of Lenders | 7775 |
| 3.07 | Survival | 7775 |
| 3.08 | LIBOR Successor | 7775 |
| | | | | | | | | | | | | | |
| Page |
|
| 3.09 | Issuing Banks | 8077 |
|
| ARTICLE IV |
| CONDITIONS PRECEDENT |
|
| 4.01 | Conditions of Closing | 8078 |
| 4.02 | Conditions to all Borrowings | 8179 |
|
| ARTICLE V |
| REPRESENTATIONS AND WARRANTIES |
|
| 5.01 | Existence, Qualification and Power | 8280 |
| 5.02 | Authorization; No Contravention | 8280 |
| 5.03 | Governmental Authorization; Other Consents | 8380 |
| 5.04 | Binding Effect | 8380 |
| 5.05 | Financial Statements; No Material Adverse Effect | 8381 |
| 5.06 | Ownership of Property | 8381 |
| 5.07 | Taxes | 8381 |
| 5.08 | ERISA Compliance; Foreign Plans | 8481 |
| 5.09 | Margin Regulations; Investment Company Act | 8481 |
| 5.10 | Disclosure | 8482 |
| 5.11 | Intellectual Property; Licenses, Etc. | 8482 |
| 5.12 | Anti-Corruption Laws and Sanctions | 8582 |
| 5.13 | Solvency | 8582 |
| 5.14 | Equity Interests and Ownership | 8582 |
| 5.15 | Real Estate Assets | 8583 |
| 5.16 | Collateral | 8583 |
| 5.17 | Litigation and Environmental Matters. | 8583 |
| 5.18 | Compliance with Laws and Agreements. | 8683 |
| 5.19 | Affected Financial Institutions. | 8683 |
|
| ARTICLE VI |
| AFFIRMATIVE COVENANTS |
|
| 6.01 | Financial Statements | 8684 |
| 6.02 | Certificates; Other Information | 8784 |
| 6.03 | Notices | 8885 |
| 6.04 | Payment of Taxes | 8986 |
| 6.05 | Preservation of Existence, Etc. | 8986 |
| 6.06 | Maintenance of Properties | 8986 |
| 6.07 | Maintenance of Insurance | 8986 |
| 6.08 | Compliance with Laws | 9087 |
| 6.09 | Books and Records | 9087 |
| 6.10 | Use of Proceeds | 9087 |
| 6.11 | [Reserved] | 9087 |
| 6.12 | Additional Guarantors | 9188 |
| 6.13 | Designation of Subsidiaries | 9188 |
| 6.14 | Material Real Estate | 9289 |
| 6.15 | Further Assurances | 9390 |
| 6.16 | Certain Post-Closing Obligations | 9390 |
| 6.17 | ERISA | 9390 |
| | | | | | | | | | | | | | |
| | Page |
| | | | |
| ARTICLE VII |
| NEGATIVE COVENANTS |
| | | | |
| 7.01 | Liens | 9491 |
| 7.02 | Fundamental Changes | 9894 |
| 7.03 | Use of Proceeds | 9895 |
| 7.04 | Restricted Payments | 9995 |
| 7.05 | Indebtedness | 10097 |
| 7.06 | Affiliate Transactions | 103100 |
| 7.07 | Burdensome Agreements | 104100 |
| 7.08 | Financial Covenant | 104101 |
| 7.09 | Investments | 104101 |
| 7.10 | Change Line of Business | 106102 |
| 7.11 | Change in Fiscal Year | 106102 |
| | | | |
| ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES | | | |
| | | | |
| 8.01 | Events of Default | 106103 |
| 8.02 | Remedies Upon Event of Default | 108105 |
| 8.03 | Application of Funds | 109105 |
| | | | |
| ARTICLE IX | | | |
| ADMINISTRATIVE AGENT | | | |
| | | | |
| 9.01 | Appointment and Authority | 110106 |
| 9.02 | Rights as a Lender | 111107 |
| 9.03 | Exculpatory Provisions | 111107 |
| 9.04 | Reliance by Administrative Agent | 112109 |
| 9.05 | Delegation of Duties | 112109 |
| 9.06 | Resignation of Administrative Agent | 113109 |
| 9.07 | Non-Reliance on Administrative Agent and Other Lenders | 114110 |
| 9.08 | No Other Duties, Etc. | 115112 |
| 9.09 | Withholding Tax | 116112 |
| 9.10 | Administrative Agent May File Proofs of Claim | 116112 |
| 9.11 | Agent Discretion | 116113 |
| | | | |
| ARTICLE X | | | |
| GUARANTY | | | |
| | | | |
| 10.01 | Guarantee | 118114 |
| 10.02 | No Subrogation | 119115 |
| 10.03 | Amendments, etc. with respect to the Obligations | 119115 |
| 10.04 | Guarantee Absolute and Unconditional | 119116 |
| 10.05 | Reinstatement | 120116 |
| 10.06 | Payments | 120116 |
| 10.07 | Independent Obligations | 120116 |
| 10.08 | Customer Obligations | 120117 |
| ARTICLE XI |
| | | | | | | | | | | | | | |
| | Page |
| | | | |
| MISCELLANEOUS |
| | | | |
| 11.01 | Amendments, Etc. | 120117 |
| 11.02 | Notices; Effectiveness; Electronic Communication | 122119 |
| 11.03 | No Waiver; Cumulative Remedies | 123120 |
| 11.04 | Expenses; Indemnity; Limitation of Liability | 123120 |
| 11.05 | Payments Set Aside | 125122 |
| 11.06 | Successors and Assigns | 126122 |
| 11.07 | Treatment of Certain Information; Confidentiality | 130126 |
| 11.08 | Right of Setoff | 131128 |
| 11.09 | Interest Rate Limitation | 132128 |
| 11.10 | Counterparts; Integration; Effectiveness; Electronic Execution | 132128 |
| 11.11 | Survival | 133129 |
| 11.12 | Severability | 133130 |
| 11.13 | Replacement of Lenders | 134130 |
| 11.14 | Governing Law; Jurisdiction; Etc. | 134131 |
| 11.15 | Waiver of Jury Trial | 135131 |
| 11.16 | No Advisory or Fiduciary Responsibility | 135132 |
| 11.17 | USA PATRIOT Act Notice | 136132 |
| 11.18 | Release of Liens and Guarantees | 136132 |
| 11.19 | Acknowledgement and Consent to Bail-In of Affected Financial Institutions | 137133 |
| 11.20 | Acknowledgement Regarding Any Supported QFCs | 138134 |
| 11.21 | Certain ERISA Matters | 138135 |
SCHEDULES
2.01 Commitments and Applicable Percentages
6.12 Guarantors
6.16 Certain Post-Closing Obligations
11.02 Administrative Agent’s Office; Certain Address for Notices
EXHIBITS
Form of
A Committed Loan Notice
B Note
C Compliance Certificate
D Assignment and Assumption
E U.S. Tax Compliance Certificate
F Form of Collateral Agreement
G [Reserved]
H Form of Counterpart Agreement
CREDIT AND GUARANTEE AGREEMENT
This CREDIT AND GUARANTEE AGREEMENT (this “Agreement”) is entered into as of October 8, 2021, among REDDIT, INC., a Delaware corporation (the “Borrower”), the Guarantors from time to time party hereto, each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and JPMORGAN CHASE BANK, N.A., as Administrative Agent.
The Borrower has requested that the Lenders provide a revolving credit facility, and the Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
“ABR” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the NYFRB Rate in effect on such day plus ½ of 1.00% and (c) the Adjusted LIBOTerm SOFR Rate for a one month Interest Period onas published two U.S. Government Securities Business Days prior to such day (or if such day is not a U.S. Government Securities Business Day, the immediately preceding U.S. Government Securities Business Day) plus 1.00%; provided that for the purpose of this definition, the Adjusted LIBOTerm SOFR Rate for any day shall be based on the LIBO Screen Rate (or if the LIBO Screen Rate is not available for such one month Interest Period, the LIBO Interpolated Rate)Term SOFR Reference Rate at approximately 11:00 a.m. London5:00 a.m. Chicago time on such day (or any amended publication time for the Term SOFR Reference Rate, as specified by the CME Term SOFR Administrator in the Term SOFR Reference Rate methodology). Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted LIBOTerm SOFR Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBOTerm SOFR Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 3.03 (for the avoidance of doubt, only until the Benchmark Replacement has been determined pursuant to Section 3.08), then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the ABR as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00% for the purposes of this Agreement.
“ABR Loan” means a Loan that bears interest based on the ABR.
“Acquired EBITDA” means, with respect to any Acquired Entity or Business or any Converted Restricted Subsidiary for any period, the amount for such period of Consolidated EBITDA of such Acquired Entity or Business or Converted Restricted Subsidiary (determined as if references to the Borrower and the Restricted Subsidiaries in the definition of Consolidated EBITDA were references to such Acquired Entity or Business and its Subsidiaries or to such Converted Restricted Subsidiary and its Subsidiaries), as applicable, all as determined on a consolidated basis for such Acquired Entity or Business or Converted Restricted Subsidiary, as applicable.
“Acquired Entity or Business” has the meaning specified in the definition of “Consolidated EBITDA”.
“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary of the Borrower).
“Actual Knowledge” means, with respect to any information or event, that a Responsible Officer of the Borrower has actual knowledge of such information or event.
“Additional Commitment Lender” has the meaning specified in Section 2.12(d).
“Adjusted AUD Rate” means, with respect to any Term Benchmark Borrowing denominated in Australian Dollars for any Interest Period, an interest rate per annum equal to (a) the AUD Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Adjusted CDOR Rate” means, with respect to any Term Benchmark Borrowing denominated in Canadian Dollars for any Interest Period, an interest rate per annum equal to (a) the CDOR Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Adjusted Daily Simple SONIA” means, (i) with respect to any SONIA Borrowing denominated in Sterling, an interest rate per annum equal to (a) the Daily Simple SONIA for Sterling, plus (b) 0.0326%.
“Adjusted EURIBOR Rate” means, with respect to any Term Benchmark Borrowing denominated in Euros for any Interest Period, an interest rate per annum equal to (a) the EURIBOR Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Adjusted LIBOTerm SOFR Rate” means, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars for any Interest Period, an interest rate per annum equal to (a) the LIBOTerm SOFR Rate for such Interest Period multiplied by, plus (b) the Statutory Reserve RateTerm SOFR Adjustment; provided that if the Adjusted LIBOTerm SOFR Rate for any Interest Period shall notas so determined would be less than 0.00% per annumthe Floor, such rate shall be deemed to be equal to the Floor for the purposes of this Agreement.
“Administrative Agent” means JPMorgan, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent. It is understood that, without limiting the other provisions of this Agreement, the Administrative Agent may utilize the services of its Affiliates in connection with administrative matters related to Agreed Currencies.
“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 11.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” shall mean (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Affiliated Lender” has the meaning specified in Section 11.06(b)(v).
“Agent Parties” has the meaning specified in Section 9.12(b).
“Aggregate Commitments” means the Commitments of all the Lenders.
“Agreed Currencies” means (a) U.S. Dollars, (b) Euros, (c) Pounds Sterling, (d) Australian Dollars and (e) Canadian Dollars.
“Agreement” means this Credit Agreement.
“Alternative Currency Sublimit” means the Dollar Equivalent of $100,000,000.
“Alternative Currencies” means (a) Euros, (b) Pounds Sterling, (c) Australian Dollars and (d) Canadian Dollars.
“Alternative Currency Sublimit” means the Dollar Equivalent of $100,000,000.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or any of its Subsidiaries from time to time concerning or relating to bribery or corruption.
“Anti-Terrorism Laws” means any of the Laws relating to terrorism or money laundering, including Executive Order No. 13224, the PATRIOT Act, the Bank Secrecy Act, the Money Laundering Control Act of 1986 (i.e., 18 USC. §§ 1956 and 1957), the Laws administered by OFAC, and all Laws comprising or implementing these Laws.
“Applicable Jurisdiction” has the meaning specified in Section 11.04(a).
“Applicable Percentage” means with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender’s Commitment at such time; provided that in the case of Section 2.15 when a Defaulting Lender shall exist, “Applicable Percentage” shall mean the percentage of the total Commitments (disregarding any Defaulting Lender’s Commitment) represented by such Lender’s Commitment. If the commitment of each Lender to make Loans has been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments and to any Lender’s status as a Defaulting Lender at the time of determination. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
“Applicable Rate” means, with respect to (i) any Committed Loan, the applicable rate per annum set forth below under the caption “ABR Spread or Canadian Prime Rate Spread”, “Term Benchmark Spread”, or “SONIA Loan Spread” as the case may be and (ii) with respect to the Commitment Fees payable hereunder, the rate per annum set forth below under the caption “Commitment Fee”:
| | | | | | | | | | | | | | | | | |
| ABR Spread or Canadian Prime Spread | Term Benchmark Spread | SONIA Loan Spread | Commitment Fee | |
| 0.25% | 1.25% | 1.25% | 0.15% | |
“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Arrangers” means JPMorgan Chase Bank, N.A., BofA Securities, Inc., Goldman Sachs Bank USA and Morgan Stanley Senior Funding, Inc.
“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 11.06(b)), and accepted by the Administrative Agent (and the Borrower, in the case that the Borrower’s consent is required hereunder), in substantially the form of Exhibit D or any other form (including electronic documentation generated by use of an electronic platform) approved by the Administrative Agent and the Borrower.
“Audited Financial Statements” means the audited consolidated balance sheet of the Borrower and its Subsidiaries for each of the fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018, and the related audited consolidated statements of income (loss), stockholders’ equity (deficit) and cash flows for such fiscal year of the Borrower and its Subsidiaries, including the notes thereto.
“AUD Interpolated Rate” means, at any time, the rate per annum determined by the Administrative Agent to be equal to the rate that results from interpolating on a linear basis between: (a) the AUD Screen Rate for the longest period for which that AUD Screen Rate is available that is shorter than the Impacted AUD Interest Period and (b) the AUD Screen Rate for the shortest period for which that AUD Screen Rate is available that exceeds the Impacted AUD Interest Period, in each case, at such time. If at any time the AUD Interpolated Rate is less than zero, the AUD Interpolated Rate shall be deemed to be zero for purposes of this Agreement.
“AUD Rate” means, with respect to any Term Benchmark Borrowing denominated in Australian Dollars and for any Interest Period, the AUD Screen Rate at approximately 11:00 A.M., Sydney, Australia time, two Business Days prior to the beginning of such Interest Period; provided, that, if the AUD Screen Rate shall not be available at such time for such Interest Period (an “Impacted AUD Interest Period”), then the AUD Rate shall be the AUD Interpolated Rate.
“AUD Screen Rate” means with respect to any Interest Period, the average bid reference rate administered by ASX Benchmarks Pty Limited (ACN 616 075 417) (or any other Person that takes over the administration of such rate) for Australian Dollar bills of exchange with a tenor equal in length to such Interest Period as displayed on page BBSY of the Reuters screen (or, in the event such rate does not appear on such Reuters page, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate as shall be selected
by the Administrative Agent from time to time in its reasonable discretion) at or about 11:00 a.m. (Sydney, Australia time) on the first day of such Interest Period. If the AUD Screen Rate shall be less than zero, the AUD Screen Rate shall be deemed to be zero for purposes of this Agreement.
“Australian Dollars” means lawful money of the Commonwealth of Australia.
“Availability Period” means the period from and including the Closing Date to, but not including, the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.04, and (c) the date of termination of the commitment of each Lender to make Loans pursuant to Section 8.02.
“Available Increase Amount” has the meaning specified in Section 2.13(a).
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, for any Agreed Currency, as applicable, any tenor for such Benchmark (or component thereof) or any payment period for interest calculated with reference to such Benchmark (or component thereof), as applicable, that is or may be used for determining the length of an Interest Period for any term rate or otherwise, for determining any frequency of making payments of interest calculated pursuant to this Agreement as of such date and, for the avoidance of doubt, not including any tenor for such Benchmark that is then removedthen-removed from the definition of “Interest Period” pursuant to clause (e) of Section 3.08.
“Availability Period” means the period from and including the Closing Date to, but not including, the earliest of (a) the Maturity Date, (b) the date of termination of the Aggregate Commitments pursuant to Section 2.04, and (c) the date of termination of the commitment of each Lender to make Loans pursuant to Section 8.02.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bank Secrecy Act” means The Currency and Foreign Transactions Reporting Act, 31 U.S.C. §§ 5311-5330.
“Bankruptcy Code” means Title 11 of the United States Code, as amended.
“Bankruptcy Plan” has the meaning specified in Section 11.06(h)(iii).
“Basel III” means, collectively, those certain agreements on capital and liquidity standards contained in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems,” “Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring,” and “Guidance for National Authorities Operating the Countercyclical Capital Buffer,” each as published by the Basel Committee on Banking Supervision in December 2010 (as revised from
time to time), and “Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools,” as published by the Basel Committee on Banking Supervision in January 2013 (as revised from time to time), and, in each case, as implemented by a Lender’s primary U.S. bank regulatory authority.
“Benchmark” means, initially, with respect to any (i) SONIA Loan, the applicable Relevant Rate for Sterling or (ii) Term Benchmark Loan, the Relevant Rate for U.S. Dollars or such applicable Alternative Currency; provided that if a Benchmark Transition Event, a Term SOFR Transition Event, an Early Opt-in Election or an Other Benchmark Rate Election, as applicable, and its related Benchmark Replacement Date have occurred with respect to the applicable Relevant Rate or the then-current Benchmark for U.S. Dollars or such Alternative Currency, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 3.03.
“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent, in consultation with the Borrower, for the applicable Benchmark Replacement Date; provided that, in the case of any Committed Loan denominated in an Alternative Currency or in the case of an Other Benchmark Rate Election, “Benchmark Replacement” shall mean the alternative set forth in (32) below:
(1) in the case of any Committed Loan denominated in U.S. Dollars, the sum of: (a) TermDaily Simple SOFR and (b) the related Benchmark Replacement Adjustment;
(2) in the case of any Committed Loan denominated in U.S. Dollars, the sum of: (a) Daily Simple SOFR and (b) the related Benchmark Replacement Adjustment;
(32) the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for syndicated credit facilities denominated in the applicable currency at such time in the United States and (b) the relevanted Benchmark Replacement Adjustment;
provided that, in the case of clause (1), such Unadjusted Benchmark Replacement is displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion; provided further that, in the case of clause (3), when such clause is used to determine the Benchmark Replacement in connection with the occurrence of an Other Benchmark Rate Election, the alternate benchmark rate selected by the Administrative Agent and the Borrower shall be the term benchmark rate that is used in lieu of a LIBOR-based rate in the relevant other U.S. Dollar-denominated syndicated credit facilities; provided further that, notwithstanding anything to the contrary in this Agreement or in any other Loan Document, upon the occurrence of a Term SOFR Transition Event, and the delivery of a Term SOFR Notice, on the applicable Benchmark Replacement Date the “Benchmark Replacement” shall revert to and shall be deemed to be the sum of (a) Term SOFR and (b) the related Benchmark Replacement Adjustment, as set forth in clause (1) of this definition (subject to the first proviso above).
If the Benchmark Replacement as determined pursuant to clause (1), or (2) or (3) of this definition would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement:
(1) for purposes of clauses (1) and (2) of the definition of “Benchmark Replacement,” the first alternative set forth in the order below that can be determined by the Administrative Agent:
(a) the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that has been selected or recommended by the Relevant Governmental Body for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for the applicable Corresponding Tenor;
(b) the spread adjustment (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that would apply to the fallback rate for a derivative transaction referencing the ISDA Definitions to be effective upon an index cessation event with respect to such Benchmark for the applicable Corresponding Tenor; and
(2) for purposes of clause (32) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date and/or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for syndicated credit facilities denominated in the applicable Agreed Currency at such time;
provided that, in the case of clause (1) above, such adjustment is displayed on a screen or other information service that publishes such Benchmark Replacement Adjustment from time to time as selected by the Administrative Agent in its reasonable discretion.
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement and/or any Term Benchmark Loan denominated in U.S. Dollars, any technical, administrative or operational changes (including changes to the definition of “ABR,” the definition of “Business Day,” the definition of “SONIA Business Day”, the definition of “U.S. Government Securities Business Day”, the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides, in consultation with the Borrower, may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit
the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides, in consultation with the Borrower, that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means, with respect to any Benchmark, the earliest to occur of the following events with respect to such then-current Benchmark:
(1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
(2) in the case of clause (3) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be no longer representative; provided, that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (3) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date;.
(3) in the case of a Term SOFR Transition Event, the date that is thirty (30) days after the date a Term SOFR Notice is provided to the Lenders and the Borrower pursuant to Section 3.08(b); or
(4) in the case of an Early Opt-in Election or an Other Benchmark Rate Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election or Other Benchmark Rate Election, as applicable, is provided to the Lenders, so long as the Administrative Agent has not received, by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election or Other Benchmark Rate Election, as applicable, is provided to the Lenders, written notice of objection to such Early Opt-in Election or Other Benchmark Rate Election, as applicable, from Lenders comprising the Required Lenders.
For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means, with respect to any Benchmark, the occurrence of one or more of the following events with respect to such then-current Benchmark:
(1) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available
Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(2) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the NYFRB, the CME Term SOFR Administrator, the central bank for the currency applicable to such Benchmark, , an insolvency official with jurisdiction over the administrator for such Benchmark (or such component thereof), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component thereof) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component thereof), in each case, which states that the administrator of such Benchmark (or such component thereof) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely,; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(3) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer, or as of a specified future date will no longer be, representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means, with respect to any Benchmark, the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Sections 3.03 and 3.08 and (y) ending at the time that a Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.03 and 3.08.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan.”
“BHC Act Affiliate” has the meaning specified in Section 11.20(b).
“Board of Governors” means the Board of Governors of the United States Federal Reserve System.
“Borrower” has the meaning specified in the introductory paragraph hereto.
“Borrower Materials” means materials and/or information made available to the Lenders by the Administrative Agent or provided by or on behalf of the Borrower under this Agreement.
“Borrowing” means a borrowing consisting of simultaneous Committed Loans of the same Type and, in the case of Term Benchmark Loans, having the same Interest Period, made by each of the Lenders pursuant to Section 2.01.
“Business Day” means, any day (other than a Saturday or a Sunday) on which banks are open for business in New York City, or; provided that, in addition to the foregoing, a Business Day shall be (a) in relation to the calculation or computation of LIBOR, any day (other than a Saturday or a Sunday) on which banks are open forCommitted Loans referencing the Adjusted Term SOFR Rate and any interest rate settings, fundings, disbursements, settlements or payments of any such Loans referencing the Adjusted Term SOFR Rate or any other dealings of such Loans referencing the Adjusted Term SOFR Rate, any such day that is a U.S. Government Securities bBusiness in LondonDay, (b) in relation to Committed Loans denominated in Euros and in relation to the calculation or computation of EURIBOR, any day which is a TARGET Day, (c) in relation to Committed Loans denominated in Australian Dollars and in relation to the calculation or computation of BBSY, any day (other than a Saturday or a Sunday) on which banks are open for business in Australia, (d) in relation to Committed Loans denominated in Canadian Dollars and in relation to the calculation or computation of CDOR, any day (other than a Saturday or a Sunday) on which banks are open for business in Canada and (e) in relation to SONIA Loans and any interest rate settings, fundings, disbursements, settlements or payments of any such SONIA Loan, or any other dealings in Sterling, any such day that is only a SONIA Business Day.
“Canadian Dollar” mean lawful money of Canada.
“Canadian Prime Rate” means, on any day, the rate determined by the Administrative Agent to be the higher of (i) the rate equal to the PRIMCAN Index rate that appears on the Bloomberg screen at 10:15 a.m. Toronto time on such day (or, in the event that the PRIMCAN Index is not published by Bloomberg, any other information services that publishes such index from time to time, as selected by the Administrative Agent in its reasonable discretion) and (ii) the average rate for thirty (30) day Canadian Dollar bankers’ acceptances that appears on the Reuters Screen CDOR Page (or, in the event such rate does not appear on such page or screen, on any successor or substitute page or screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time, as selected by the Administrative Agent in its reasonable discretion) at 10:15 a.m. Toronto time on such day, plus 1% per annum; provided, that if any of the above rates shall be less than 1%, such rate shall be deemed to be 1% for purposes of this Agreement. Any change in the Canadian Prime Rate due to a change in the PRIMCAN Index or the CDOR shall be effective from and including the effective date of such change in the PRIMCAN Index or CDOR, respectively.
“Canadian Prime Rate Loan” or “Canadian Prime Rate Borrowing” means a Loan or Borrowing, respectively, denominated in Canadian Dollars the rate of interest applicable to which is based upon the Canadian Prime Rate.
“Cash Management Services” has the meaning assigned to such term in the definition of the term “Secured Cash Management Obligations.”
“CDOR Interpolated Rate” means, at any time, the rate per annum determined by the Administrative Agent to be equal to the rate that results from interpolating on a linear basis between: (a) the CDOR Screen Rate for the longest period for which the CDOR Screen Rate is available that is shorter than the Impacted CDOR Interest Period and (b) the CDOR Screen Rate for the shortest period for which the CDOR Screen Rate is available that exceeds the Impacted CDOR Interest Period, in each case, at such time. If at any time the CDOR Interpolated Rate is less than zero, the CDOR Interpolated Rate shall be deemed to be zero for purposes of this Agreement.
“CDOR Rate” means, with respect to any Term Benchmark Borrowing denominated in Canadian Dollars and for any Interest Period, the CDOR Screen Rate at approximately 11:00 A.M., Toronto, Ontario time, two Business Days prior to the beginning of such Interest Period; provided, that, if the CDOR Screen Rate shall not be available at such time for such Interest Period (a “Impacted CDOR Interest Period”) with respect to Canadian Dollars, then the CDOR Rate for Canadian Dollars shall be the CDOR Interpolated Rate at such time.
“CDOR Screen Rate” means on any day for the relevant Interest Period, the annual rate of interest equal to the average rate applicable to Canadian Dollar Canadian bankers’ acceptances for the applicable period that appears on the “Reuters Screen CDOR Page” as defined in the International Swap Dealer Association, Inc. definitions, as modified and amended from time to time (or, in the event such rate does not appear on such page or screen, on any successor or substitute page or screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time, as selected by the Administrative Agent in its reasonable discretion), rounded to the nearest 1/100th of 1% (with .005% being rounded up), as of 10:15 a.m. Toronto local time on the first day of such Interest Period and, if such day is not a business day, then on the immediately preceding business day (as adjusted by Administrative Agent after 10:15 a.m. Toronto local time to reflect any error in the posted rate of interest or in the posted average annual rate of interest). If the CDOR Screen Rate shall be less than zero, the CDOR Screen Rate shall be deemed to be zero for purposes of this Agreement.
“Central Bank Rate” means (A) the greater of (i) for any Committed Loan denominated in (a) Sterling, the Bank of England (or any successor thereto)’s “Bank Rate” as published by the Bank of England (or any successor thereto) from time to time, and (b) Euro, one of the following three rates as may be selected by the Administrative Agent in its reasonable discretion: (1) the fixed rate for the main refinancing operations of the European Central Bank (or any successor thereto), or, if that rate is not published, the minimum bid rate for the main refinancing operations of the European Central Bank (or any successor thereto), each as published by the European Central Bank (or any successor thereto) from time to time, (2) the rate for the marginal lending facility of the European Central Bank (or any successor thereto), as published by the European Central Bank (or any successor thereto) from time to time or (3) the rate for the deposit facility of the central banking system of the Participating Member States, as published by the European Central Bank (or any successor thereto) from time to time, and (c) any other Alternative Currency determined after the Closing Date, a central bank rate as determined by the Administrative Agent in its reasonable discretion and (ii) 0%; plus (B) the applicable Central Bank Rate Adjustment.
“Central Bank Rate Adjustment” means, for any day, for any Committed Loan denominated in (a) Sterling, a rate equal to the difference (which may be a positive or negative value or zero) of (i) the average of Adjusted Daily Simple SONIA for the five most recent SONIA Business Days preceding such day for which Adjusted Daily Simple SONIA was available (excluding, from such averaging, the highest and the lowest Adjusted Daily Simple SONIA applicable during such period of five SONIA Business Days) minus (ii) the Central Bank Rate in respect of Sterling in effect on the last SONIA Business Day in such period, (b) Euro, a rate equal to the difference (which may be a positive or negative value or zero) of (i) the average of the EURIBOR Rate for the five most recent Business Days preceding such day for
which the EURIBOR Screen Rate was available (excluding, from such averaging, the highest and the lowest EURIBOR Rate applicable during such period of five Business Days) minus (ii) the Central Bank Rate in respect of Euro in effect on the last Business Day in such period and (c) any other Alternative Currency, a Central Bank Rate Adjustment as determined by the Administrative Agent in its reasonable discretion. For purposes of this definition, (x) the term Central Bank Rate shall be determined disregarding clause (B) of the definition of such term and (y) each of the EURIBOR Rate and the TIBOR Rate on any day shall be based on the EURIBOR Screen Rate or the TIBOR Screen Rate, as applicable, on such day at approximately the time referred to in the definition of such term for deposits in the applicable Agreed Currency for a maturity of one month; provided that if such rate shall be less than 0.00%, such rate shall be deemed to be 0.00%.
“Change in Law” means the occurrence, after the date of this Agreement or, with respect to any Issuing Bank or Lender, such later date on which such Issuing Bank or Lender becomes a party to this Agreement), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and all rules, guidelines or directives thereunder or issued in connection therewith and (y) all rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, in each case shall be deemed to be a “Change in Law,” to the extent enacted, adopted, promulgated or issued after the date of this Agreement, but only to the extent such rules, regulations, or published interpretations or directives are applied to the Borrower and its Subsidiaries by the Administrative Agent or any Lender in substantially the same manner as applied to other similarly situated borrowers under comparable syndicated credit facilities, including, without limitation, for purposes of Section 3.04.
“Change of Control” means any of the following:
(i) at any time prior to the consummation of an IPO, the failure by the Permitted Holders to beneficially own at least 50.1% of the aggregate voting interests in the Equity Interests of the Borrower on a fully diluted basis; or
(ii) at any time after the consummation of an IPO, any Person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, or any successor provision) other than the Permitted Holders (a) shall have acquired beneficial ownership of 35% or more on a fully diluted basis of the voting interests in the Equity Interests of the Relevant Public Company or (b) shall have obtained the power (whether or not exercised) to elect a majority of the members of the Board of Directors of the Relevant Public Company.
For purposes of this definition, (i) “beneficial ownership” shall be as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act, (ii) the phrase Person or “group” is within the meaning of Section 13(d) or 14(d) of the Exchange Act, but excluding any employee benefit plan of such Person or “group” and its subsidiaries and any Person acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan, and (iii) if any Person or “group” includes one or more Permitted Holders, the issued and outstanding Equity Interests of the Borrower, directly or indirectly, owned by the Permitted Holders that are part of such Person or “group” shall not be treated as being owned by such
Person or “group” (other than Permitted Holders specified in clause (1) of the definition thereof) for purposes of determining whether this definition is triggered.
“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 11.01.
“CME Term SOFR Administrator” means CME Group Benchmark Administration Limited as administrator of the forward-looking term Secured Overnight Financing Rate (SOFR) (or a successor administrator).
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Collateral” means, collectively, all of the real, personal and mixed property (including Equity Interests) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Secured Obligations, but excluding any Excluded Assets.
“Collateral Agreement” means the Collateral Agreement among the Borrower, each other Loan Party and the Administrative Agent, substantially in the form of Exhibit F.
“Collateral Documents” means the Collateral Agreement, the Mortgages, if any, the Intellectual Property Security Agreements, if any, and all other instruments, documents and agreements delivered by or on behalf or at the request of any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to, or perfect in favor of, the Administrative Agent, for the benefit of the Secured Parties, a Lien on any real, personal or mixed property of that Loan Party as security for the Secured Obligations.
“Collateral Period” means the period commencing on the Closing Date and ending on the date on which the Collateral Release Event occurs.
“Collateral Release Event” means the first date, if any, that occurs after Closing Date, on which the following conditions are satisfied: (a) no Default or Event of Default shall exist and be continuing, (b) the Ratings Condition shall have been satisfied and (c) the Administrative Agent shall have received a certificate executed by a Responsible Officer of the Borrower confirming the satisfaction of the foregoing conditions and requesting that the Administrative Agent release all Liens.
“Commitment” means, as to any Lender, the obligation of such Lender, if any, to make Loans and Letters of Credit in an aggregate principal amount and/or face amount not to exceed the amount set forth under the heading “Commitment” opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms and conditions hereof. The aggregate amount of the Commitments on the Closing Date is $750,000,000.
“Commitment Fee” has the meaning specified in Section 2.07(a).
“Committed Loan” has the meaning specified in Section 2.01.
“Committed Loan Notice” means a notice of (a) a Borrowing, (b) a conversion of Committed Loans from one Type to the other, or (c) a continuation of Term Benchmark Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A, or such other form as may be approved by the Administrative Agent (including any form on an electronic platform or electronic
transmission system as shall be approved by the Administrative Agent), appropriately completed and signed by a Responsible Officer of the Borrower.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“Compliance Certificate” means a certificate substantially in the form of Exhibit C.
“Computation Date” means (a) with respect to any Loan denominated in any Alternative Currency, each of the following: (i) the date of the Borrowing of such Loan and (ii) with respect to any Term Benchmark Loan, each date of a conversion into or continuation of such Loan pursuant to the terms of this Agreement; (b) with respect to any Letter of Credit denominated in an Alternative Currency, each of the following: (i) the date on which such Letter of Credit is issued, (ii) the first Business Day of each calendar month and (iii) the date of any amendment of such Letter of Credit that has the effect of increasing the face amount thereof; and (c) any additional date as the Administrative Agent may determine at any time when an Event of Default exists.
“Consolidated EBITDA” means, for any period, for the Borrower and its Restricted Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income for such period plus the following to the extent deducted in calculating such Consolidated Net Income:
(a) provision for income taxes,
(b) interest expense and other income (expense),
(c) depreciation and amortization expense (including amortization or impairment of Intangible Assets for Acquisitions or Dispositions) for such period,
(d) stock-based compensation expense,
(e) restructuring charges,
(f) payroll taxes on exercise of stock options or vesting of restricted stock units or other equity awards in such period,
(g) impairment of goodwill or other assets in such period,
(h) unusual or non-recurring charges or losses,
(i) any GAAP transaction expenses related to Acquisitions and other investments, Dispositions, the incurrence of any Indebtedness permitted pursuant to clause 7.05 and the transfer of Intellectual Property to any Restricted Subsidiary, in each case, whether or not consummated,
(j) (x) unrealized net losses on obligations under any Swap Contract or other derivative instruments and from the revaluation of foreign currency denominated assets or liabilities, (y) bank and letter of credit fees and other financing fees and (z) costs of equity or debt offerings, including surety bonds, in connection with financing activities,
(k) any other non-cash expenses, non-cash losses and non-cash charges, including any write-offs or write-downs reducing Consolidated Net Income for such period (provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future
period, (A) the Borrower may elect not to add back such non-cash charge in the current period and (B) to the extent the Borrower elects to add back such non-cash charge, the cash payment in respect thereof in such future period shall be subtracted from Consolidated EBITDA to such extent), but excluding amortization of a prepaid cash item that was paid in a prior period,
(l) “run rate” cost savings, operating expense reductions and synergies related to mergers and other business combinations, Acquisitions, divestitures, restructurings, cost savings initiatives and other similar initiatives consummated after the Closing Date that are reasonably identifiable and factually supportable and projected by the Borrower, in good faith to result from actions that have been taken or with respect to which substantial steps have been taken or are expected to be taken (in the reasonable and good faith determination of the Borrower and as certified to by the chief executive officer, chief financial officer, treasurer, chief accounting officer or controller of the Borrower in a certificate delivered to the Administrative Agent), within 24 months after a merger or other business combination, Acquisition, divestiture, restructuring, cost savings initiative or other initiative is consummated, net of the amount of actual benefits realized during such period from such actions, in each case calculated on a pro forma basis as though such cost savings, operating expense reductions and synergies had been realized on the first day of such period for which Consolidated EBITDA is being determined and as if such cost savings, operating expense reductions and synergies were realized during the entirety of such period; provided that the aggregate amount added pursuant to this clause (l) together with any cost savings included pursuant to the definition of Pro Forma Adjustment for such period, collectively, shall not exceed 15.0% of Consolidated EBITDA for such period (calculated prior to giving effect to the addition of all such amounts),
(m) any net loss for such period from disposed, abandoned or discontinued operations,
(n) net changes to the reserves for goods and services tax, value add taxes, lodging taxes or similar taxes for which management believes it is probable that the Borrower may be held jointly liable with hosts for collecting and remitting such taxes, and other similar taxes and
(o) any GAAP expenses incurred associated with an initial public offering or other offering of Equity Interests, including related payroll taxes (regardless of whether or not a registration statement is declared effective)
and minus the following to the extent included in calculating such Consolidated Net Income: (w) extraordinary gains, (x) interest income, (y) any reversals of non-cash exit and disposal costs during such period and any non-cash gains increasing Consolidated Net Income of the Borrower for such period, excluding any non-cash gains to the extent they represent the reversal of an accrual or reserve for a potential cash item that reduced Consolidated EBITDA in any prior period and any non-cash gains with respect to cash actually received in a prior period so long as such cash did not increase Consolidated EBITDA in such prior period and (z) any net income for such period from disposed, abandoned or discontinued operations.
There shall be included in determining Consolidated EBITDA for any period, without duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by the Borrower or any Restricted Subsidiary during such period (but not the Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired), to the extent not subsequently sold, transferred or otherwise disposed by the Borrower or such Restricted Subsidiary during such period (each such Person, property, business or asset acquired and not subsequently so disposed of, an “Acquired Entity or Business”) and the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during such period (each, a “Converted Restricted Subsidiary”), based on the
actual Acquired EBITDA of such Acquired Entity or Business or Converted Restricted Subsidiary for such period (including the portion thereof occurring prior to such Acquisition or conversion) and (B) for the purposes of calculating the Senior Leverage Ratio, an adjustment in respect of each Acquired Entity or Business equal to the amount of the Pro Forma Adjustment with respect to such Acquired Entity or Business for such period (including the portion thereof occurring prior to such Acquisition) as specified in a certificate executed by the chief executive officer, chief financial officer, treasurer, chief accounting officer or controller of the Borrower and delivered to the Lenders and the Administrative Agent. There shall be excluded in determining Consolidated EBITDA for any period the Disposed EBITDA of any Person, property, business or asset (other than an Unrestricted Subsidiary) sold, transferred or otherwise disposed of or, closed or classified as discontinued operations (but if such operations are classified as discontinued due to the fact that they are subject to an agreement to dispose of such operations, only when and to the extent such operations are actually disposed of) by the Borrower or any Restricted Subsidiary during such period (each such Person, property, business or asset so sold or disposed of, a “Sold Entity or Business”) and the Disposed EBITDA of any Restricted Subsidiary that is converted into an Unrestricted Subsidiary during such period (each, a “Converted Unrestricted Subsidiary”), based on the actual Disposed EBITDA of such Sold Entity or Business or Converted Unrestricted Subsidiary for such period (including the portion thereof occurring prior to Disposition).
“Consolidated Net Income” means, for any period, for the Borrower and its Restricted Subsidiaries on a consolidated basis, the net income of the Borrower and its Restricted Subsidiaries (excluding extraordinary gains and extraordinary losses) for that period and computed in accordance with GAAP.
“Consolidated Total Assets” means, as of any date of determination, all assets that would, in conformity with GAAP, be set forth under the caption “total assets” (or any like caption) on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries at such date.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Controlled Foreign Corporation” means a “controlled foreign corporation” within the meaning of Section 957(a) of the Code.
“Converted Restricted Subsidiary” has the meaning specified in the definition of “Consolidated EBITDA”.
“Converted Unrestricted Subsidiary” has the meaning specified in the definition of “Consolidated EBITDA”.
“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.
“Convertible Notes” mean Indebtedness (including debt securities) of the Borrower, (a) the terms of which provide for conversion and/or exchange into shares of common stock of the Borrower, cash by reference to the price of the Borrower’s common stock or a combination thereof, (b) that matures after, and does not provide for scheduled cash payments of principal or mandatory redemption in cash (other than cash payments for fractional shares and as a result of a fundamental change) prior to the 91st day following the Maturity Date and (c) has no obligors other than the Borrower.
“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.
“Counterpart Agreement” means a joinder to this Agreement substantially in the form of Exhibit H.
“Covered Entity” has the meaning specified in Section 11.20(b).
“Covered Party” has the meaning specified in Section 11.20(a).
“Credit Extension” means each of the following: (a) a Borrowing and (b) an LC Credit Extension.
“Credit Party” means the Administrative Agent or any Issuing Bank (and, for purposes of Section 2.17, each Lender).
“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which may include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for business loans; provided that, if the Administrative Agent decides that any such convention is not administratively feasible for the Administrative Agent, then the Administrative Agent may establish another convention in its reasonable discretion.
“Daily Simple SONIA” means, for any day (ana “SONIA Interest Day”), an interest rate per annum equal to the greater of (a) SONIA for the day that is five Business Days prior to (A) if such SONIA Interest Day is a Business Day, such SONIA Interest Day or (B) if such SONIA Interest Day is not a Business Day, the Business Day immediately preceding such SONIA Interest Day and (b) 0%. Any change in Daily Simple SONIA due to a change in SONIA shall be effective from and including the effective date of such change in SONIA without notice to the Borrower.
“Debtor Relief Laws” means the Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
“Default Rate” means, with respect to the Obligations, an interest rate equal to (i) the ABR plus (ii) the Applicable Rate, if any, applicable to ABR Loans plus (iii) 2% per annum; provided, however, that with respect to a Term Benchmark, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum.
“Default Right” has the meaning specified in Section 11.20(b).
“Defaulting Lender” means any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been
satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied), (c) has failed, within three Business Days after written request by a Credit Party, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations to fund prospective Loans and participations in then outstanding Letters of Credit under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance reasonably satisfactory to such Credit Party and the Administrative Agent or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.
“Disclosure Letter” means the disclosure letter and schedules attached thereto, dated as of the Closing Date, as amended or supplemented from time to time to the extent expressly required by the terms of this Agreement, delivered by the Borrower to the Administrative Agent for the benefit of the Lenders.
“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property, right or asset by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
“Disposed EBITDA” means, with respect to any Sold Entity or Business or any Converted Unrestricted Subsidiary for any period, the amount for such period of Consolidated EBITDA of such Sold Entity or Business (determined as if references to the Borrower and the Restricted Subsidiaries in the definition of “Consolidated EBITDA” (and in the component definitions used therein) were references to such Sold Entity or Business and its Subsidiaries or such Converted Unrestricted Subsidiary and its Subsidiaries) or such Converted Unrestricted Subsidiary, all as determined on a consolidated basis for such Sold Entity or Business or such Converted Unrestricted Subsidiary.
“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property, right or asset by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
“Disqualified Equity Interests” means any Equity Interests that, by their terms (or by the terms of any security or other Equity Interest into which they are convertible or for which they are exchangeable) or upon the happening of any event or condition, (a) mature or are mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence
of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), (b) are redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests) (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), in whole or in part, (c) provide for the scheduled payment of dividends in cash or (d) are or become convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is 91 days after the Maturity Date; provided that if such Equity Interests are issued pursuant to a plan for the benefit of the Borrower or its Subsidiaries or by any such plan to such officers or employees, such Equity Interests shall not constitute Disqualified Equity Interests solely because they may be required to be repurchased by the Borrower or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations.
“Disqualified Lenders” means (a) those Persons identified by the Borrower to the Arrangers in writing prior to the Closing Date, (b) those Persons who are competitors of the Borrower and its Subsidiaries identified by the Borrower to the Administrative Agent (or, if prior to the Closing Date, to the Arrangers) from time to time in writing (including by email) and (c) in the case of each Persons identified pursuant to clauses (a) and (b) above, any of their Affiliates that are either (i) identified in writing by the Borrower to ### from time to time (which designation shall become effective two (2) days after delivery of each such written designation to ###, but which shall not apply retroactively to disqualify any persons that have previously acquired an assignment or participation interest in any Loan) or (ii) reasonably identifiable as Affiliates on the basis of such Affiliate’s name (other than Affiliates that are bona fide diversified debt investment funds or banks or financial institutions or other entities which are regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets in the loan market); provided that no updates to the Disqualified Lender list shall be deemed to retroactively disqualify any parties that have previously acquired an assignment or participation in respect of the Loans or Commitments from continuing to hold or vote such previously acquired assignments and participations on the terms set forth herein for Lenders that are not Disqualified Lenders. Any supplement to the list of Disqualified Lenders pursuant to clause (b) or (c) above shall be sent by the Borrower to ### Agent in writing (including by email) and such supplement shall take effect two (2) days after such notice is received by the Administrative Agent (it being understood that no such supplement to the list of Disqualified Lenders shall operate to disqualify any Person that is already a Lender).
“Dollar Equivalent” means, for any amount, at the time of determination thereof, (a) if such amount is expressed in U.S. Dollars, such amount, (b) if such amount is expressed in an Alternative Currency, the equivalent of such amount in dollars determined by using the rate of exchange for the purchase of dollars with the Alternative Currency last provided (either by publication or otherwise provided to the Administrative Agent) by Reuters on the Business Day (New York City time) immediately preceding the date of determination or if such service ceases to be available or ceases to provide a rate of exchange for the purchase of dollars with the Alternative Currency, as provided by such other publicly available information service which provides that rate of exchange at such time in place of Reuters chosen by the Administrative Agent in its sole discretion (or if such service ceases to be available or ceases to provide such rate of exchange, the equivalent of such amount in dollars as determined by the Administrative Agent using any method of determination it deems appropriate in its sole discretion) and (c) if such amount is denominated in any other currency, the equivalent of such amount in dollars as determined by the Administrative Agent using any method of determination it deems appropriate in its sole discretion.
“Domestic Subsidiary” means any Subsidiary that is organized under the laws of the United States, any state thereof or the District of Columbia.
“DQ List” has the meaning specified in Section 11.06(h)(iv).
“Early Opt-in Election” means, if the then current Benchmark with respect to U.S. Dollar is the LIBO Rate, the occurrence of:
(1) a notification by the Administrative Agent to (or the request by the Borrower to the Administrative Agent to notify) each of the other parties hereto that at least five currently outstanding U.S. Dollar denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed) a SOFR-based rate (including SOFR, a term SOFR or any other rate based upon SOFR) as a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review), and
(2) the joint election by the Administrative Agent and the Borrower to trigger a fallback from the LIBO Rate and the provision, as applicable, by the Administrative Agent of written notice of such election to the Borrower and the Lenders.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country that is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country that is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 11.06(b) (subject to such consents, if any, as may be required under Section 11.06(b)(iii)).
“Engagement Letter” means the Engagement Letter, dated as of September 22, 2021, between the Borrower and JPMorgan.
“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to (i) the environment, (ii) preservation or reclamation of natural resources, (iii) the management, release or threatened release of any Hazardous Material or (iv) health and safety matters.
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests, (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and (f) any and all warrants, rights, restricted stock units, options or other instruments to purchase any of the foregoing; provided that Equity Interests shall not include any Convertible Notes.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with any Loan Party is (i) treated as a “single employer” within the meaning of Sections 414(b) or (c) of the Code (or Sections 414(m) or (o) of the Code for purposes of provisions relating to Sections 412 and 430 of the Code) or (ii) under common control, within the meaning of Section 4001(a)(14) of ERISA.
“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan; (d) the failure of any Loan Party or any ERISA Affiliate to make by its due date a required installment under Section 430(j) of the Code with respect to any Pension Plan or any failure by any Pension Plan to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Pension Plan, whether or not waived in accordance with Section 412(c) of the Code or Section 302(c) of ERISA; (e) the filing pursuant to Section 412 of the Code or Section 302 of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (f) the failure by any Loan Party or any of its ERISA Affiliates to pay when due (after expiration of any applicable grace period) any installment payment with respect to Withdrawal Liability under Section 4201 of ERISA; (g) the filing of a notice of intent to terminate a Pension Plan or Multiemployer Plan, the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA, the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan, or the appointment of a trustee to administer any Pension Plan or Multiemployer Plan pursuant to Section 4042 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any ERISA Affiliate.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“EURIBOR Interpolated Rate” means, at any time, with respect to any Term Benchmark Borrowing denominated in Euros and for any Interest Period, the rate per annum (rounded to the same number of decimal places as the EURIBOR Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the EURIBOR Screen Rate for the longest period for which the EURIBOR Screen Rate is available that is shorter than the Impacted EURIBOR Rate Interest
Period; and (b) the EURIBOR Screen Rate for the shortest period for which the EURIBOR Screen Rate is available that exceeds the Impacted EURIBOR Rate Interest Period, in each case, at such time; provided that, if any EURIBOR Interpolated Rate shall be less than 0%, such rate shall be deemed to be 0% for the purposes of this Agreement.
“EURIBOR Rate” means, with respect to any Term Benchmark Borrowing denominated in Euros and for any Interest Period, the EURIBOR Screen Rate at approximately 11:00 a.m., Brussels time, two TARGET Days prior to the commencement of such Interest Period; provided that, if the EURIBOR Screen Rate shall not be available at such time for such Interest Period (an “Impacted EURIBOR Rate Interest Period”) with respect to Euros then the EURIBOR Rate shall be the EURIBOR Interpolated Rate.
“EURIBOR Screen Rate” means the euro interbank offered rate administered by the European Money Markets Institute (or any other person which takes over the administration of that rate) for the relevant period displayed (before any correction, recalculation or republication by the administrator) on page EURIBOR01 of the Thomson Reuters screen (or any replacement Thomson Reuters page which displays that rate) or on the appropriate page of such other information service which publishes that rate from time to time in place of Thomson Reuters as of 11:00 a.m. Brussels time two TARGET Days prior to the commencement of such Interest Period. If such page or service ceases to be available, the Administrative Agent may specify another page or service displaying the relevant rate after consultation with the Borrower. If the EURIBOR Screen Rate shall be less than 0%, the EURIBOR Screen Rate shall be deemed to be 0% for purposes of this Agreement.
“Euro” means the single currency of the participating member states of the European Union.
“Event of Default” has the meaning specified in Section 8.01.
“Exchange Act” means the Securities Exchange Act of 1934.
“Excluded Assets” means:
(i) any Real Estate Asset that (a) is a leasehold interest (with no requirement to obtain leasehold mortgages, landlord waivers, bailee waivers, estoppels or collateral access letters), or (b) is not a Material Real Estate;
(ii) except to the extent a security interest therein can be perfected by filing of a UCC financing statement, assets located outside the United States or assets that require action under the law of any non-U.S. jurisdiction to create or perfect a security interest in such assets under such non-U.S. jurisdiction (it being understood that no security agreements or pledge agreements governed under the laws of any non-U.S. jurisdiction shall be required);
(iii) property and assets to the extent that the Administrative Agent may not validly possess a security interest therein under, or such security interest is restricted by, applicable Laws or the pledge or creation of a security interest in which would require governmental consent, approval, license or authorization, other than to the extent such prohibition or limitation is rendered ineffective under the UCC or other applicable Law notwithstanding such prohibition;
(iv) assets of and Equity Interests in any Person (other than a wholly owned Subsidiary) that is not a Loan Party to the extent a security interest is not permitted to be
granted by the terms of such Person’s Organization Documents, joint venture documents, partnership documents or other equity documents;
(v) leases, licenses, permits or agreements (including with respect to any Purchase Money Indebtedness) to the extent that, and so long as, a grant of a security interest therein, or in the property or assets that secure the underlying obligations with respect thereto (a) is prohibited by applicable Law other than to the extent such prohibition is rendered ineffective under the UCC or other applicable Law notwithstanding such prohibition or (b) would violate or invalidate such lease, license, permit or agreement, or create a right of termination in favor of, or require the consent of, any other party thereto (other than the Borrower and its Subsidiaries) (in each case, after giving effect to the relevant provisions of the UCC or other applicable Laws), in each case, other than the proceeds thereof;
(vi) governmental licenses, state or local franchises, charters and authorizations and any other property and assets to the extent that the Administrative Agent may not validly possess a security interest therein under, or such security interest is restricted by, applicable Laws (including, without limitation, rules and regulations of any Governmental Authority or agency) or the pledge or creation of a security interest in which would require governmental consent, approval, license or authorization, other than to the extent such prohibition or limitation is rendered ineffective under the UCC or other applicable Law notwithstanding such prohibition (but excluding proceeds of any such governmental license), or otherwise require governmental consent thereunder (after giving effect to the applicable anti-assignment provisions of the UCC or other applicable law);
(vii) Margin Stock;
(viii) Equity Interests of all Controlled Foreign Corporations of a Grantor in excess of 65% of the voting Equity Interests of such Controlled Foreign Corporations;
(ix) Equity Interests of any Foreign Subsidiary Holding Company in excess of 65% of the voting Equity Interests of such Foreign Subsidiary Holding Company;
(x) any intent-to-use trademark application prior to the filing of a “Statement of Use” or “Amendment to Allege Use” with respect thereto and acceptance of such filing by the United States Patent and Trademark Office, solely to the extent that, and during the period, if any, in which, the grant of a security interest therein would impair the validity or enforceability of any registration that issues from such intent-to-use application under applicable federal law (it being understood that after such period such intent-to-use application shall be automatically subject to the security interest granted herein and deemed to be included in the Collateral);
(xi) motor vehicles, airplanes, vessels and other assets subject to certificate of title;
(xii) payroll accounts, employee benefit accounts, withholding tax and other fiduciary accounts, escrow accounts, in each case of the foregoing, in respect of arrangements with non-affiliated third parties, worker’s compensation, customs accounts, customer cash accounts, trust and tax withholding which are funded by the Loan Parties in the ordinary course of business or as is required by Law and, cash collateral accounts
subject to Liens permitted under the Credit Agreement; in each case of this clause (xii), other than proceeds that are held in such accounts that would otherwise constitute Collateral;
(xiii) particular assets if, and for so long as, in each case, reasonably agreed by the Administrative Agent and the Borrower, the cost of creating or perfecting such pledges or security interests in such assets exceed the practical benefits to be obtained by the Lenders therefrom;
(xiv) assets for which the grant of a security interest therein would result in material adverse tax or regulatory costs or consequences as reasonably determined by the Borrower and the Administrative Agent;
(xv) commercial tort claims where the amount of damages claimed is not in excess of $25,000,000;
(xvi) letter of credit rights, except to the extent constituting supporting obligations;
(xvii) any asset of any Foreign Subsidiary that is a Controlled Foreign Corporation or any Foreign Subsidiary Holding Company;
(xviii) cash held on behalf of customers by the Borrower or any Subsidiary of the Borrower and cash constituting minimum regulatory cash or capital requirements; and
(xix) Equity Interests of any Excluded Subsidiary (other than Subsidiaries described in clauses (i), (iii) or (vi) of the definition thereof that are wholly-owned and are not otherwise Subsidiaries described in clause (ii), (iv), (v), (viii) or (xiii) of the definition of “Excluded Subsidiary”, but subject to the other limitations in this definition, including, without limitation, in clauses (viii) and (ix) of this definition).
Notwithstanding the foregoing, (i) “Excluded Assets” shall not include proceeds, substitutions or replacements of any Excluded Asset unless such proceeds, substitutions or replacements would independently constitute Excluded Assets and (ii) no assets shall constitute Excluded Assets if such assets constitute collateral for any Material Indebtedness.
“Excluded Earnout” means any contingent obligations of the Borrower or any Subsidiary to pay additional consideration in connection with any Acquisition, if (a) such additional consideration is payable (i) in capital stock or other Equity Interests, (ii) in cash or (iii) any combination of the foregoing and (b) such obligation is contingent upon, or varies in amount based upon, the performance of the Person or of the assets so acquired, continued employment of any individual(s) or one or more financial, business, performance or other customary criteria.
“Excluded Subsidiary” means (i) any Subsidiary that is not a wholly-owned Domestic Subsidiary of the Borrower or a Guarantor, (ii) any Subsidiary that is prohibited or restricted by applicable Law or by contractual obligations existing on the Closing Date (or, in the case of any newly acquired Subsidiary, in existence at the time of Acquisition but not entered into in contemplation thereof) from guaranteeing the Obligations or if guaranteeing the Obligations would (1) require governmental (including regulatory) consent, approval, license or authorization or (2) that could result in material adverse tax consequences to the Borrower and its Subsidiaries as reasonably determined by the Borrower and the Administrative
Agent, (iii) any Foreign Subsidiary Holding Company, (iv) any captive insurance company, license insurance company, insurance agency(ies), risk purchase group or any insurance company that is a Subsidiary of the Borrower, (v) any Immaterial Subsidiary, (vi) any direct or indirect Foreign Subsidiary of the Borrower that is a Controlled Foreign Corporation, (vii) any direct or indirect Domestic Subsidiary that is a direct or indirect Subsidiary of a Foreign Subsidiary that is a Controlled Foreign Corporation, (viii) any not-for-profit Subsidiaries, (ix) any special purpose entity or special purpose securitization vehicle (or similar entity), (x) any joint venture or (xi) any Subsidiary with respect to which, in the reasonable judgment of the Borrower and the Administrative Agent, the burden or cost of providing a Guarantee shall be excessive in view of the benefits to be obtained by the Lenders therefrom. Notwithstanding anything set forth herein, no Subsidiary providing any guarantee or that is a borrower in respect of any Material Indebtedness shall constitute an Excluded Subsidiary.
“Excluded Swap Obligation” means, with respect to any Guarantor, (a) any Swap Contract if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, as applicable, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the U.S. Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act (determined after giving effect to any applicable keep well, support, or other agreement for the benefit of such Guarantor and any and all Guarantees of such Guarantor’s Swap Obligations by other Loan Parties) at the time the Guarantee of such Guarantor, or a grant by such Guarantor of a security interest, becomes effective with respect to such Swap Obligation or (b) any other Swap Obligation designated as an “Excluded Swap Obligation” of such Guarantor as specified in any agreement between the relevant Loan Parties and counterparty applicable to such Swap Obligations. If a Swap Obligation arises under a Master Agreement governing more than one Swap Contract, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to Swap Contracts for which such Guarantee or security interest is or becomes excluded in accordance with the first sentence of this definition.
“Excluded Taxes” means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Loan Party under any Loan Document: (a) Taxes imposed on or measured by net income (however denominated), and franchise Taxes imposed on it (in lieu of net income taxes), by any jurisdiction as a result of (i) such recipient being organized under the laws of or having its principal office located in or, in the case of any Lender, having its applicable Lending Office located in such jurisdiction (or any political subdivision thereof), or (ii) any other present or former connection between such recipient and such jurisdiction (other than a connection arising solely from such recipient having executed, delivered, enforced, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document); (b) any branch profits Taxes under Section 884(a) of the Code, or any similar tax, imposed on such recipient by any jurisdiction described in clause (a) above; (c) in the case of a Lender, any U.S. federal withholding Tax that is imposed on amounts payable to or for the account of such Lender pursuant to a Law in effect at the time such Lender becomes a party hereto (other than pursuant to an assignment request by any Loan Party under Section 11.13) or designates a new Lending Office, except to the extent that such Lender’s assignor was entitled, immediately prior to the assignment, or such Lender was entitled, immediately prior to the designation of a new Lending Office, to receive additional amounts from any Loan Party with respect to such withholding Tax pursuant to Section 3.01(a); (d) any Taxes attributable to such recipient'’s failure to comply with Section 3.01(f); and (e) any withholding Taxes imposed pursuant to FATCA.
“Existing Letters of Credit” means each of the letters of credit listed on Schedule 1.01 to the Disclosure Letter.
“Existing Maturity Date” has the meaning specified in Section 2.12(a).
“Extending Lender” has the meaning specified in Section 2.12(b).
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations thereunder or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“Federal Funds Effective Rate” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions, as determined in such manner as shall be set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as the effective federal funds rate; provided that if the Federal Funds Effective Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“Federal Reserve Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“FEMA” means the Federal Emergency Management Agency, a component of the U.S. Department of Homeland Security that administers the NFIP.
“Finance Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a finance lease on the balance sheet of that Person; provided, that “Finance Lease” shall not include obligations or liabilities of any Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations would be required to be classified and accounted for as an operating lease under GAAP as in effect on December 31, 2015.
“FIRREA” means the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
“First Amendment” means that certain First Amendment, dated as of May 23, 2023, among the Borrower and the Administrative Agent.
“First Amendment Effective Date” has the meaning assigned thereto in the First Amendment.
“Fitch” means Fitch Ratings, Inc. and any affiliate thereof and any successor thereto that is a nationally-recognized rating agency.
“Flood Notice” has the meaning assigned thereto in Section 6.14(a)(v).
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the LIBOAdjusted Term SOFR, Term SOFR Rate, Adjusted EURIBOR Rate, EURIBOR Rate, Adjusted CDOR Rate, CDOR Rate, Adjusted AUD Rate, AUD Rate or Adjusted Daily Simple SONIA, as applicable. For the avoidance of doubt the initial Floor for each of LIBOAdjusted Term
SOFR, Term SOFR Rate, Adjusted EURIBOR Rate, EURIBOR Rate, Adjusted CDOR Rate, CDOR Rate, Adjusted AUD Rate, AUD Rate or Adjusted Daily Simple SONIA shall be zero.
“Foreign Benefit Arrangement” means any employee benefit arrangement mandated by non-US law that is maintained or contributed to by the Borrower or any Subsidiary.
“Foreign Currencies” means Agreed Currencies other than U.S. Dollars and any other currency requested by the Borrower and approved in accordance with Section 1.09.
“Foreign Currency Payment Office” of the Administrative Agent means, for each Foreign Currency, the office, branch, affiliate or correspondent bank of the Administrative Agent for such currency as specified from time to time by it, in the case of the Administrative Agent by notice to the Borrower and each Lender.
“Foreign Lender” means any Lender that is not a “United States person” as defined in Section 7701(a)(30) of the Code.
“Foreign Plan” means each employee benefit plan (within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA) that is not subject to US law and is maintained or contributed to by the Borrower or any Subsidiary.
“Foreign Plan Event” means, with respect to any Foreign Benefit Arrangement or Foreign Plan, (a) the failure to make or, if applicable, accrue in accordance with normal accounting practices, any employer or employee contributions required by applicable law or by the terms of such Foreign Benefit Arrangement or Foreign Plan; (b) the failure to register or loss of good standing with applicable regulatory authorities of any such Foreign Benefit Arrangement or Foreign Plan required to be registered; or (c) the failure of any Foreign Benefit Arrangement or Foreign Plan to comply with any provisions of applicable law and regulations or with the terms of such Foreign Benefit Arrangement or Foreign Plan.
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
“Foreign Subsidiary Holding Company” means any Domestic Subsidiary of the Borrower substantially all of the assets of which consist of the Equity Interests (or Equity Interests and other Securities) of one or more Controlled Foreign Corporations.
“Fronting Exposure” means, at any time there is a Defaulting Lender, with respect to any Issuing Bank, such Defaulting Lender’s Applicable Percentage of the total LC Exposure at such time other than LC Exposure as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or cash collateralized in accordance with the terms hereof.
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state, local, provincial or otherwise and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Grantor” as defined in the Collateral Agreement.
“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any Acquisition or Disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined in good faith by a Responsible Officer. The term “Guarantee” as a verb has a corresponding meaning.
“Guarantors” means, collectively, (a) each Subsidiary of the Borrower that is a signatory hereto and each other Subsidiary of the Borrower that executes a Counterpart Agreement until such Subsidiary is released in accordance with Section 11.18(a) and (b) the Borrower, solely with respect to Secured Swap Obligations (other than with respect to Secured Swap Obligations where the Borrower is the direct obligor). Each Guarantor as of the Closing Date (other than the Borrower) is listed on Schedule 6.12.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“IFRS” means international financial reporting standards and interpretations issued by the International Accounting Standards Board or any successor thereto (or the Financial Accounting Standards Board, the Accounting Principles Board of the American Institute of Certified Public Accountants or any successor to either such Board, or the SEC, as the case may be), as in effect from time to time.
“Immaterial Subsidiary” means, as of any date of determination, any Subsidiary of the Borrower that has been designated by the Borrower by written notice to the Administrative Agent as an “Immaterial Subsidiary” from time to time and (a) whose total assets as of the most recent available quarterly or year-end financial statements do not exceed 5.00% of Consolidated Total Assets (excluding intercompany amounts and balances) of the Borrower and its Subsidiaries at such date or (b) whose revenues for the most recently ended four quarter period for which financial statements are available do not exceed 5.00% of the consolidated revenues (excluding intercompany amounts and balances) of the Borrower and its Subsidiaries for such period, in each case determined in accordance with GAAP; provided that (i) the total assets of all such Subsidiaries as of the most recent available quarterly or year-end financial statements shall not exceed 15.00% of Consolidated Total Assets (excluding
intercompany amounts and balances) of the Borrower and its Subsidiaries at such date and (ii) the revenues of all such Subsidiaries for the most recently ended four-quarter period for which financial statements are available shall not exceed 15.00% of the consolidated revenues (excluding intercompany amounts and balances) of the Borrower and its Subsidiaries for such period, in each case determined in accordance with GAAP. For any determination made as of or prior to the time any Person becomes an indirect or direct Subsidiary of the Borrower, such determination and designation shall be made based on financial statements provided by or on behalf of such Person in connection with the Acquisition of such Person or such Person’s assets. The Borrower may change the designation of any Subsidiary as an Immaterial Subsidiary by providing written notice to the Administrative Agent; provided that any Subsidiary of the Borrower formed or acquired after the Closing Date, as applicable, that meets the requirements of an “Immaterial Subsidiary” set forth herein shall be deemed designated as an “Immaterial Subsidiary” unless the Borrower otherwise notifies the Administrative Agent in writing.
“Impacted AUD Interest Period” has the meaning assigned to such term in the definition of “AUD Rate.”
“Impacted CDOR Interest Period” has the meaning assigned to such term in the definition of “CDOR Rate.”
“Impacted EURIBOR Rate Interest Period” has the meaning assigned to such term in the definition of “EURIBOR Rate.”
“Impacted LIBO Rate Interest Period” has the meaning assigned to such term in the definition of “LIBO Rate.”
“Increase” has the meaning specified in Section 2.13(a).
“Increase Effective Date” has the meaning specified in Section 2.13(d).
“Incremental Amount” means, as of any date of determination, the sum of the aggregate principal amount of (a) any Increases incurred at or prior to such date and (b) Incremental Equivalent Debt incurred at or prior to such date.
“Incremental Equivalent Debt” means Indebtedness issued, incurred or otherwise obtained by the Borrower in the form of one or more series of subordinated loans or notes or senior secured or junior lien or unsecured loans or notes (in each case in respect of the issuance of notes, issued in a public offering, Rule 144A or other private placement or bridge financing in lieu of the foregoing (and any registered equivalent notes issued in exchange therefor)), or secured or unsecured mezzanine Indebtedness; provided that any Incremental Equivalent Debt shall (a) if subordinated, be expressly subordinated in right of payment to the Obligations pursuant to a written agreement, (b) subject to the Inside Maturity Basket, have a final maturity date no earlier than the date that is ninety-one (91) days following the Maturity Date, (c) subject to the Inside Maturity Basket, not have a weighted average life to maturity shorter than the Maturity Date, (d) not be guaranteed by any Person that is not a Loan Party, (d) if secured, (i) be subject to the relevant Intercreditor Agreement and (ii) not be secured by any property or assets other than Collateral, (e) shall not provide for any mandatory repayment (except scheduled principal amortization payments), redemption or sinking fund payment obligations prior to the Maturity Date, as determined at the time of issuance of incurrence of such Indebtedness (other than, in each case, customary offers or obligations to repurchase, redeem or repay upon a change of control, asset sale, debt incurrence, casualty or condemnation events or similar events) and (f) have terms and conditions consistent with the foregoing clauses (a) through (e), as applicable, and otherwise have terms and conditions (excluding pricing, interest rate margins, rate floors, discounts, fees, premiums and
prepayment or redemption provisions), taken as a whole, that are not materially more favorable to the lenders or investors providing such Indebtedness than those applicable to the Commitments and Committed Loans, taken as a whole, unless applicable solely to periods after the Maturity Date existing at the time of such incurrence or added for the benefit of the Commitments and Committed Loans.
“Indebtedness” means, as to any Person at a particular time, without duplication, (i) indebtedness for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; (ii) that portion of obligations with respect to Finance Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) any obligation owed for all or any part of the deferred purchase price of property or services, including earn-outs earned but past due (excluding trade or similar payables, accrued income taxes, VAT, deferred taxes, sales taxes, equity taxes and accrued liabilities incurred in the ordinary course of such Person’s business and excluding Excluded Earnouts); (iv) the undrawn face amount of any letter of credit, bankers’ acceptances, bank guarantees, surety bonds, performance bonds, and similar instruments issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (v) Disqualified Equity Interests; (vi) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Indebtedness of another; (vii) any obligation of such Person in respect of the Indebtedness described in clauses (i) through (vi) hereof the primary purpose or intent of which is to provide assurance to an obligee that the Indebtedness of the primary obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof; (viii) any liability of such Person for the Indebtedness of another in respect of the Indebtedness described in clauses (i) through (vi) hereof through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (a) or (b) of this clause (viii), the primary purpose or intent thereof is as described in clause (vii) above; (ix) net obligations of such Person under any Swap Contract; and (x) Indebtedness of the type referred to in clauses (i) through (ix) above secured by a Lien on any property or asset owned or held by that Person regardless of whether the Indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; provided, the amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date; provided, further that the following shall not constitute Indebtedness: (i) any right of use liabilities recorded in accordance with Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), (ii) liabilities recorded under GAAP related to lease accounting (ASC 840) (other than in respect of Finance Leases), and (iii) any liabilities resulting from equity awards accounted for as a liability.
“Indemnified Taxes” means (a) all Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” has the meaning specified in Section 11.04(b).
“Information” has the meaning specified in Section 11.07.
“Inside Maturity Basket” has the meaning specified in Section 7.05.
“Intangible Assets” means assets that are considered to be intangible assets under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents,
franchises, licenses, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.
“Intellectual Property” has the meaning assigned to such term in the Collateral Agreement.
“Intellectual Property Security Agreement” has the meaning assigned to that term in the Collateral Agreement.
“Intercreditor Agreement” means (a) to the extent executed in connection with the incurrence of Indebtedness secured by Liens on the Collateral which are intended to rank equal in priority to the Liens on the Collateral securing the Secured Obligations a customary intercreditor agreement in form and substance reasonably acceptable to the Administrative Agent and the Borrower, which agreement shall provide that the Liens on the Collateral securing such Indebtedness shall rank equal in priority to the Liens on the Collateral securing the Secured Obligations and (b) to the extent executed in connection with the incurrence of Indebtedness secured by Liens on the Collateral which are intended to rank junior to the Liens on the Collateral securing the Secured Obligations, a customary intercreditor agreement in form and substance reasonably acceptable to the Administrative Agent and the Borrower, which agreement shall provide that the Liens on the Collateral securing such Indebtedness shall rank junior to the Liens on the Collateral securing the Secured Obligations. With regard to clauses (a) or (b), such agreement, as applicable, shall be posted to the Lenders not less than five (5) Business Days, or such shorter time as is acceptable to the Required Lenders, before execution thereof and, if the Required Lenders shall not have objected to such changes within five (5) Business Days after posting, then the Required Lenders shall be deemed to have agreed that the Administrative Agent’s entry into such intercreditor agreement (including with such changes) is reasonable and to have consented to such intercreditor agreement (including with such changes) and to the Administrative Agent’s execution thereof.
“Interest Payment Date” means (a) as to any ABR Loan, the last Business Day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Term Benchmark Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Term Benchmark Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, (d) as to any SONIA Loan, (1) each date that is on the numerically corresponding day in each calendar month that is one month after the Borrowing of such Loan (or if there is no numerically corresponding day in such month, then the last day of such month) and (2) the Maturity Date, and (e) as to any Loan (other than any Loan that is an ABR Loan), the date of any repayment or prepayment made in respect thereof.
“Interest Period” means as to any Term Benchmark Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Term Benchmark Loan and ending one, (with respect to Canadian Dollar Loans only) two, three or (other than with respect to Canadian Dollars Loans) six or (if available from all Lenders under the relevant Ffacility) twelve months (or such other period acceptable to all such Lenders) thereafter, as selected by the Borrower in its Committed Loan Notice given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Term Benchmark Loan and ending one, (with respect to Canadian Dollar Loans only) two, three or (other than with respect to Canadian Dollar Loans) six or (with the consent of each affected Lender under the relevant Ffacility) twelve months (or such other period acceptable to all such Lenders) thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not later than 1:00 P.M., New York City time, on the date that is three
Business Days prior to the last day of the then current Interest Period with respect thereto; provided that all of the foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is not a Business Day, such iInterest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the scheduled Maturity Date or beyond the date final payment is due on the Loans shall end on the Maturity Date or such due date, as applicable; and
(iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month.; and
(iv) no tenor that has been removed from this definition pursuant to Section 2.14(e) shall be available for specification in such Committed Loan Notice.
“Investment” means any loan, advance (other than advances to employees or other providers of services for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business), extension of credit (by way of Guarantee or otherwise) or capital contributions by the Borrower or any of its Restricted Subsidiaries to any other Person.
“IPO” means (i) the issuance by the Borrower or any parent thereof that holds 100% of the Equity Interests in the Borrower of its Securities in an underwritten primary public offering (other than a public offering pursuant to a registration statement on Form S-8) pursuant to an effective registration statement filed with the Securities and Exchange Commission in accordance with the Securities Act or a direct listing of the Borrower’s Equity Interests in the United States on a national securities exchange or (ii) the merger by the Borrower, or any parent thereof that holds 100% of the Equity Interests in the Borrower, with, or the acquisition of all of the Equity Interests of the Borrower or any parent thereof that holds 100% of the Equity Interests in the Borrower by, any special purpose acquisition company following which, the common stock of the surviving company or acquirer (or any parent thereof that holds 100% of the surviving company or acquirer) is listed in the United States on a national securities exchange.
“IRS” means the United States Internal Revenue Service.
“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.
“ISP” means the International Standby Practices, International Chamber of Commerce Publication No. 590 (or such later version thereof as may be in effect at the applicable time).
“Issuing Bank” means (i) with respect to the Existing Letters of Credit, Silicon Valley Bank and (ii) with respect to other Letters of Credit issued under this Agreement, each of JPMorgan, Bank of America, N.A., Citibank, N.A. and Morgan Stanley Senior Funding, Inc. and any other Lender to be selected with such Lender’s consent from time to time and reasonably satisfactory to the Borrower and
the Administrative Agent, each in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.14(i); provided that Morgan Stanley Senior Funding, Inc. shall be under no obligation issue any Letter of Credit other than standby Letters of Credit. An Issuing Bank may arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank acceptable to the Borrower, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
“JPMorgan” means JPMorgan Chase Bank, N.A.
“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“LC Commitment” means, as to any Issuing Bank, the obligation of such Issuing Bank to issue Letters of Credit in an aggregate amount not to exceed the Dollar Equivalent of the amount set forth under the heading “LC Commitment” opposite such Issuing Bank’s name on Schedule 2.01, as the same may be changed from time to time pursuant to the terms and conditions hereof. The LC Commitment of any Issuing Bank may be modified by written agreement between the Borrower and such Issuing Bank without consent of any other party thereto.
“LC Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
“LC Disbursement” means a payment made by an Issuing Bank pursuant to a Letter of Credit.
“LC Exposure” means, at any time, the sum of the Dollar Equivalent of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.
“LC Sublimit” has the meaning specified in Section 2.14(b)(i).
“Lender” has the meaning specified in the introductory paragraph hereto.
“Lender-Related Person” has the meaning specified in Section 11.04(d).
“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
“Letter of Credit” means any letter of credit issued pursuant to this Agreement, including each Existing Letter of Credit.
“Liability” means any losses, claims (including intraparty claims), demands, damages or liabilities of any kind.
“LIBO Interpolated Rate” means, at any time, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars and for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period (for which the LIBO Screen Rate is available for the applicable Agreed Currency) that is shorter than the Impacted LIBO Rate Interest Period; and (b) the LIBO Screen Rate for the shortest period (for which the LIBO Screen Rate is available for the applicable Agreed Currency) that exceeds the Impacted LIBO Rate Interest Period, in each case, at such time; provided that if any LIBO Interpolated Rate shall be less than 0.00% per annum with respect to any Committed Loans, such rate shall be deemed to be 0.00% for the purposes of this Agreement.
“LIBO Rate” means, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars and for any Interest Period, the LIBO Screen Rate at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period; provided that if the LIBO Screen Rate shall not be available at such time for such Interest Period (an “Impacted LIBO Rate Interest Period”) with respect to such Agreed Currency then the LIBO Rate shall be the LIBO Interpolated Rate.
“LIBO Screen Rate” means, for any day and time, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars and for any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for such Agreed Currency for a period equal in length to such Interest Period as displayed on such day and time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the First Lien Administrative Agent in its reasonable discretion); provided that if the LIBO Screen Rate as so determined would be less 0.00% per annum with respect to any Committed Loans, such rate shall be deemed to be 0.00% for the purposes of this Agreement.
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
“Limited Conditionality Acquisition” means any Acquisition not prohibited by this Agreement whose consummation is not conditioned on the availability of, or on obtaining, third party financing.
“Liquidity” means the amount of unrestricted cash and cash equivalents of the Borrower and its Restricted Subsidiaries (excluding funds receivable and amounts held on behalf of customers), plus the unused Commitments then in effect, minus, for the avoidance of doubt, the LC Exposure.
“Liquidity Covenant” has the meaning assigned to such term in Section 7.08.
“Loan” means an extension of credit by a Lender to the Borrower under Article II of this Agreement. For the avoidance of doubt, the Loans shall include the Committed Loans.
“Loan Documents” means this Agreement, the Disclosure Letter, any Counterpart Agreements, the Collateral Agreement, the other Collateral Documents, any Notes and each other document jointly identified by the Borrower and the Administrative Agent from time to time.
“Loan Parties” means the Borrower and each Guarantor.
“Local Time” means New York City time.
“London Banking Day” means any day on which dealings in dollar deposits are conducted by and between banks in the London interbank market.
“Margin Stock” has the meaning assigned thereto in Regulation U of the Board of Governors.
“Master Agreement” has the meaning assigned to such term in the definition of “Swap Contract.”
“Material Adverse Effect” means any event, change or condition that, individually or in the aggregate, has had, or could reasonably be expected to have (i) a material adverse effect on the business, assets, results of operations or financial condition of the Borrower and its Subsidiaries, taken as a whole or (ii) a material adverse effect on the rights and remedies of the Administrative Agent and any other Secured Party under the Loan Documents, taken as a whole, including the legality, validity, binding effect or enforceability of the Loan Documents.
“Material Indebtedness” means (i) Indebtedness (other than the Obligations) of any one or more of the Borrower and its Subsidiaries in an aggregate outstanding principal amount of at least $100,000,000.
“Material Intellectual Property” means any Intellectual Property (other than Reddit Intellectual Property) that is material to the business of the Borrower and its Subsidiaries taken as a whole other than such Intellectual Property acquired after the Closing Date in connection with an Acquisition permitted hereunder and that is no longer used or useful in the business of the Borrower and its Restricted Subsidiaries.
“Material Real Estate” means any wholly-owned, fee-owned Real Estate Asset having a fair market value in excess of $25,000,000.
“Maturity Date” means the later of (a) October 8, 2026 and (b) if maturity is extended pursuant to Section 2.12, such extended maturity date as determined pursuant to such Section; provided, however, that, in each case, if such date is not a Business Day, the Maturity Date shall be the immediately preceding Business Day.
“Maximum Rate” has the meaning specified in Section 11.09.
“Moody’s” means Moody’s Investors Service, Inc. and any affiliate thereof and any successor thereto that is a nationally-recognized rating agency.
“Mortgage” means a mortgage in form and substance reasonably agreed to by the Borrower and the Administrative Agent.
“Mortgaged Property” means each Material Real Estate for which a Mortgage is required pursuant to Section 6.14.
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
“NFIP” means the National Flood Insurance Program created by the U.S. Congress pursuant to the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as revised by the National Flood Insurance Reform Act of 1994 and the Flood Insurance Reform Act of 2004, that mandates the purchase of flood insurance to cover real property improvements located in Special Flood Hazard Areas in participating communities and provides protection to property owners through a federal insurance program.
“Non-Extending Lender” has the meaning specified in Section 2.12(b).
“Note” means a promissory note made by the Borrower in favor of a Lender requesting such a promissory note evidencing Loans made by such Lender, substantially in the form of Exhibit B.
“Notice Date” has the meaning specified in Section 2.12(b).
“NYFRB” means the Federal Reserve Bank of New York.
“NYFRB’s Website” means the website of the NYFRB at http://www.newyorkfed.org, or any successor source.
“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m. on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided, further, that if any of the aforesaid rates as so determined be less than 0.00%, such rate shall be deemed to be 0.00% for purposes of this Agreement.
“NYFRB’s Website” means the website of the NYFRB at http://www.newyorkfed.org, or any successor source.
“Obligations” means (a) the due and punctual payment by the Borrower of (i) the principal of and interest at the applicable rate or rates provided in this Agreement (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar case or proceeding, regardless of whether allowed or allowable in such case or proceeding) on the Loans including all obligations in respect of the LC Exposure, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise and (ii) all other monetary obligations of the Borrower under or pursuant to this Agreement and each of the other Loan Documents, including obligations to reimburse LC Disbursements and pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar case or proceeding, regardless of whether allowed or allowable in such case or proceeding), (b) the due and punctual payment and performance of all other obligations of the Borrower under or pursuant to each of the Loan Documents and (c) the due and punctual payment and performance of all the obligations of each other Loan Party under or pursuant to this Agreement and each of the other Loan Documents (including
interest and monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar case or proceeding, regardless of whether allowed or allowable in such case or proceeding).
“OFAC” means the US Department of Treasury Office of Foreign Assets Control, or any successor thereto.
“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement (or equivalent comparable constitutive documents with respect to any non-U.S. jurisdiction); and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
“Other Benchmark Rate Election” means, with respect to any Loan denominated in Dollars, if the then-current Benchmark is the LIBO Rate, the occurrence of:
(a) a request by the Borrower to the Administrative Agent to notify each of the other parties hereto that, at the determination of the Borrower, U.S. Dollar-denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed), in lieu of a LIBOR-based rate, a term benchmark rate as a benchmark rate, and
(b) the Administrative Agent, in its sole discretion, and the Borrower jointly elect to trigger a fallback from the LIBO Rate and the provision, as applicable, by the Administrative Agent of written notice of such election to the Borrower and the Lenders.
“Other Taxes” means all present or future stamp, recording, filing or documentary Taxes or any other excise or property Taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery, performance, enforcement or registration of, or from the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement or any other Loan Document, except any such Taxes imposed with respect to an assignment (other than an assignment pursuant to a request by any Loan Party under Section 11.13) (“Assignment Taxes”), but only if such Assignment Taxes are imposed as a result of a present or former connection between a recipient and the jurisdiction imposing such Tax (other than connections arising from such recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Outstanding Amount” means, with respect to any Lender at any time, the sum of (a) the aggregate outstanding principal amount of Committed Loans at such time after giving effect to any borrowings and prepayments or repayments of Committed Loans plus (b) its LC Exposure at such time.
“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnight eurodollar transactions denominated in Dollars by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on the
NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate.
“Parent Entity” means any Person that is a direct or indirect parent of the Borrower.
“Participant” has the meaning specified in Section 11.06(d).
“Participant Register” has the meaning specified in Section 11.06(d).
“Patriot Act” has the meaning specified in Section 11.17.
“Payment” has the meaning specified in Section 9.07(b).
“Payment Notice” has the meaning specified in Section 9.07(b).
“PBGC” means the Pension Benefit Guaranty Corporation.
“PCAOB” means the Public Company Accounting Oversight Board.
“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and (i) is sponsored or maintained by any Loan Party or any ERISA Affiliate or to which any Loan Party or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years or (ii) with respect to which any Loan Party or any ERISA Affiliate has any actual or contingent liability.
“Perfection Certificate” has the meaning assigned to such term in the Collateral Agreement.
“Permitted Call Spread Option” means any option (for the avoidance of doubt, whether purchased or sold by the Borrower) that is settled (after payment of any premium or any prepayment thereunder) through the delivery of cash and/or of Equity Interests of the Borrower and is entered into concurrently or in connection with the offering of any Convertible Notes, the purpose of which is to mitigate dilution upon conversion of such Convertible Notes or to offset the cost of any option with such purpose (including, but not limited to, any bond hedge transaction, warrant transaction, or capped call transaction), as the same may be amended, restated, supplemented or otherwise modified from time to time.
“Permitted Holders” means (i) the founders of the Borrower (and their respective estate planning vehicles), (ii) holders of preferred equity interests of the Borrower as of the Closing Date and (iii) any Person which is an Affiliate of any of the foregoing.]
“Permitted Investments” means Investments permitted pursuant to the Borrower’s investment policy as approved by the board of directors (or a committee thereof) from time to time.
“Permitted Refinancing” means, with respect to any Person, any refinancing, refunding, renewal or extension of any Indebtedness of such Person; provided that (a) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so modified, refinanced, refunded, renewed or extended except by an amount equal to unpaid accrued interest and premium thereon plus other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing, refunding, renewal or extension and by an amount equal to any existing commitments unutilized thereunder; provided, that any such amount equal
to any unutilized existing commitments is both permitted to be incurred pursuant to Sections 7.01 and 7.05 and is so incurred under Sections 7.01 and 7.05 and (b) if such Indebtedness being modified, refinanced, refunded, renewed or extended is subordinated in right of payment to the Obligations, such Indebtedness after modification, refinancing, refunding, renewal or extension continues to be subordinated in right of payment to the Obligations on terms at least as favorable to the Lenders as those contained in the documentation governing the Indebtedness being so modified, refinanced, refunded, renewed or extended.
“Permitted Repricing Transaction” has the meaning specified in Section 11.01.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established or maintained by any Loan Party or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate, other than a Foreign Plan or Foreign Benefit Arrangement.
“Platform” means SyndTrak or another similar electronic system.
“Pledged Equity Interests” has the meaning specified in the Collateral Agreement.
“Prime Rate” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being effective.
“Pro Forma Adjustment” means, for the latest four consecutive fiscal quarters of the Borrower for which financial statements have been delivered to the Administrative Agent on or prior to the Closing Date and/or for which financial statements are required to be delivered pursuant to Section 6.01, as applicable, that includes all or any part of a fiscal quarter included in any Pro Forma Period, with respect to the Acquired EBITDA of the applicable Acquired Entity or Business or Converted Restricted Subsidiary or the Consolidated EBITDA of the Borrower, the pro forma increase or decrease in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, projected by the Borrower reasonably and in good faith as a result of (a) actions described under clause (l) of the definition of “Consolidated EBITDA” or (b) any additional costs incurred during such Pro Forma Period, in each case in connection with the combination of the operations of such Acquired Entity or Business or Converted Restricted Subsidiary with the operations of the Borrower and the Restricted Subsidiaries; provided that (i) such Pro Forma Adjustment shall be required to be determined for any Acquired Entity or Business or Converted Restricted Subsidiary if either (x) the aggregate consideration paid in connection with such Acquisition (or deemed consideration, in the case of a conversion) was $100,000,000 or more or (y) the pro forma increase or decrease in the Borrower’s Consolidated EBITDA is greater than 5.00% of such Consolidated EBITDA (whether positive or negative) (and, if neither such test is satisfied, such determination may be made at the election of the Borrower) and (ii) so long as such actions are taken during such Pro Forma Period or such costs are incurred during such Pro Forma Period, as applicable, for purposes of projecting such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, it may be assumed that such cost savings will be realizable during the entirety of such four consecutive fiscal quarter period, or such additional costs, as applicable,
will be incurred during the entirety of such period; provided, further, that any such pro forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, shall be without duplication for cost savings or additional costs already included in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, for such period.
“Pro Forma Period” means, with respect to any Acquisition, Disposition or the conversion of any Unrestricted Subsidiary into a Restricted Subsidiary, the period beginning on the date such Acquisition, Disposition or conversion is consummated and ending on the first anniversary of the date on which such Acquisition, Disposition or conversion is consummated.
“Pounds Sterling” means the lawful currency of the United Kingdom.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Public Company” means, after the IPO, the Person that shall have issued Equity Interests pursuant to such IPO (such person being either the Borrower or any Parent Entity).
“Purchase Money Indebtedness” means Indebtedness of a Person incurred for the purpose of financing all or any part of the purchase price or cost of acquisition, repair, construction or improvement of property or assets used or useful in the business of such Person or any of its Subsidiaries.
“QFC” has the meaning specified in Section 11.20(b).
“QFC Credit Support” has the meaning specified in Section 11.20.
“Qualified Equity Interests” means any Equity Interests that are not Disqualified Equity Interests.
“Rate Determination Date” means two Business Days prior to the commencement of an Interest Period (or such other day as is generally treated as the rate fixing day by market practice in such interbank market, as determined by the Administrative Agent; provided that to the extent such market practice is not administratively feasible for the Administrative Agent, such other day as otherwise reasonably determined by the Administrative Agent).
“Ratings Condition” means the attainment by the Borrower of two of the following: (i) BBB- or better, in the case of S&P (or its equivalent under any successor rating categories of S&P), (ii) Baa3 (stable) or better, in the case of Moody’s (or its equivalent under any successor rating categories of Moody’s) and (iii) BBB- or better, in the case of Fitch (or its equivalent under any successor rating categories of Fitch).
“Real Estate Asset” means an interest in any real property.
“Reddit Intellectual Property” means any Intellectual Property containing or comprised of “REDDIT”, the disposition of which would materially adversely affect the business and operations of the Borrower and its Subsidiaries taken as a whole.
“Reference Time” with respect to any setting of the then-current Benchmark means (1) if such Benchmark is LIBOTerm SOFR Rate, 11:00 a.m. (London5:00 a.m. (Chicago time) on the day that is two London bankingU.S. Government Securities Business dDays preceding the date of such setting, (2) if such Benchmark is EURIBOR Rate, 11:00 a.m. Brussels time two TARGET Days preceding the date of such setting, (3) if such Benchmark is AUD Rate, 11:00 a.m. Sydney, Australia time two Business Days preceding the date of such setting, (4) if such Benchmark is CDOR Rate, 11:00 a.m. Toronto, Ontario time two Business Days preceding the date of such setting, (5) if such Benchmark is SONIA, then 4
Business Days prior to such setting or (76) if such Benchmark is none of the LIBOTerm SOFR Rate, the EURIBOR Rate, CDOR Rate, AUD Rate or SONIA, the time determined by the Administrative Agent in its reasonable discretion.
“Register” has the meaning specified in Section 11.06(c).
“Related Parties” means, with respect to any Person, such Person’s Affiliates, permitted successors and permitted assigns and the partners, members, directors, officers, employees, agents, and advisors, controlling persons and equity holders of such Person and of such Person’s Affiliates.
“Relevant Anniversary Date” has the meaning specified in Section 2.12(a).
“Relevant Governmental Body” means (i) with respect to a Benchmark Replacement in respect of Committed Loans denominated in U.S. Dollars, the Federal Reserve Board and/or the NYFRB, or a committee officially endorsed or convened by the Federal Reserve Board and/or the NYFRB or, in each case, any successor thereto, (ii) with respect to a Benchmark Replacement in respect of Committed Loans denominated in Sterling, the Bank of England, or a committee officially endorsed or convened by the Bank of England or, in each case, any successor thereto, (iii) with respect to a Benchmark Replacement in respect of Committed Loans denominated in Euros, the European Central Bank, or a committee officially endorsed or convened by the European Central Bank or, in each case, any successor thereto, and (iv) with respect to a Benchmark Replacement in respect of Committed Loans denominated in any other currency, (a) the central bank for the currency in which such Benchmark Replacement is denominated or any central bank or other supervisor which is responsible for supervising either (1) such Benchmark Replacement or (2) the administrator of such Benchmark Replacement or (b) any working group or committee officially endorsed or convened by (1) the central bank for the currency in which such Benchmark Replacement is denominated, (2) any central bank or other supervisor that is responsible for supervising either (A) such Benchmark Replacement or (B) the administrator of such Benchmark Replacement, (3) a group of those central banks or other supervisors or (4) the Financial Stability Board or any part thereof.
“Relevant Public Company” means the Borrower or any Parent Entity that is (or is to be) the registrant with respect to an IPO.
“Relevant Rate” means (i) with respect to any Term Benchmark Borrowing denominated in U.S. Dollars, the LIBOAdjusted Term SOFR Rate, (ii) with respect to any Term Benchmark Borrowing denominated in Euros, the EURIBOR Rate, (iii) with respect to any Term Benchmark Borrowing denominated in Canadian Dollars, the CDOR Rate, (iv) with respect to any Term Benchmark Borrowing denominated in Australian Dollars, the AUD Rate, or (v) with respect to any Borrowing denominated in Sterling, Daily Simple SONIA.
“Relevant Screen Rate” means (i) with respect to any Term Benchmark Borrowing denominated in U.S. Dollars, the LIBO ScreenTerm SOFR Reference Rate, (ii) with respect to any Term Benchmark Borrowing denominated in Euros, the EURIBOR Screen Rate, (iii) with respect to any Term Benchmark Borrowing denominated in Canadian Dollars, the CDOR Screen Rate and (iv) with respect to any Term Benchmark Borrowing denominated in Australian Dollars, the AUD Screen Rate, as applicable.
“Removal Effective Date” has the meaning specified in Section 9.06(b).
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30-day notice period has been waived.
“Required Lenders” means, as of any date of determination, Lenders having more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans has been terminated pursuant to Section 8.02, Lenders holding in the aggregate more than 50% of the Total Outstandings; provided that the Commitment of, and the portion of the Total Outstandings held or deemed to be held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
“Resignation Effective Date” has the meaning specified in Section 9.06(a).
“Resolution Authority” shall mean an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer, chief accounting officer or controller of any Loan Party and the secretary or assistant secretary of any Loan Party and, solely for purposes of notices and certifications, any other officer or employee of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent or any other officer or employee of the applicable Loan Party designated in or pursuant to an agreement between the applicable Loan Party and the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. To the extent requested by the Administrative Agent prior to the time of execution of any document required to be executed pursuant to the terms hereof, each Responsible Officer that has not previously provided an incumbency certificate will provide an incumbency certificate, in form and substance satisfactory to the Administrative Agent.
“Restricted Payment” means any (i) dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Restricted Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower and (ii) payments of cash upon (A) settlement of conversions of any Convertible Notes or (B) redemption by the issuer of any Convertible Notes, in each case, other than to the extent such settlement or redemption is financed with proceeds of any offering of Equity Interests (other than Disqualified Equity Interests) of the Borrower or any Parent Entity or other Convertible Notes. For the avoidance of doubt (i) the receipt or acceptance by the Borrower or any Restricted Subsidiary of the return of Equity Interests issued by the Borrower or any Restricted Subsidiary to the seller of a Person, business or division as consideration for the purchase of such Person, business or division, which return is in settlement of indemnification claims owed by such seller in connection with such acquisition and (ii) any payment (including payment of any premium) or delivery with respect to, or early unwind or settlement of, any Permitted Call Spread Option shall not be deemed to be a Restricted Payment.
“Restricted Subsidiary” means any Subsidiary of the Borrower that is not an Unrestricted Subsidiary.
“S&P” means Standard & Poor’s Financial Services LLC and any affiliate thereof and any successor thereto that is a nationally-recognized rating agency.
“Sanctioned Country” means, at any time, a country, region or territory which is itself the subject or target of any comprehensive Sanctions (at the time of this Agreement, limited to Crimea, Cuba, Iran, North Korea and Syria).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, U.S. Department of Commerce or by the United Nations Security Council, the European Union or any European Union member state, (b) any Person operating, organized or resident in a Sanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b) or (d) any Person otherwise the subject of any Sanctions.
“Sanctions” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union, any European Union member state in which the Borrower does business or Her Majesty’s Treasury of the United Kingdom.
“Sarbanes-Oxley” means the Sarbanes-Oxley Act of 2002.
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
“Secured Cash Management Obligations” means the due and punctual payment and performance of all obligations of the Loan Parties in respect of any overdraft, reimbursement and related liabilities arising from treasury, depository, cash pooling arrangements and cash management services, corporate credit and purchasing cards and related programs or any automated clearing house transfers of funds (collectively, “Cash Management Services”) provided to any Loan Party (whether absolute or contingent and howsoever and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor)) that are (a) owed to the Administrative Agent or any of its Affiliates, (b) owed on the Closing Date to a Person that is a Lender or an Affiliate of a Lender as of the Closing Date or (c) owed to a Person that is the Administrative Agent, a Lender or an Affiliate of the Administrative Agent or Lender at the time such obligations are incurred, to the extent, in each case, that such obligations have been designated in writing by the Borrower and the provider of such Cash Management Services to the Administrative Agent as Secured Cash Management Obligations; it being understood that each such provider of such Cash Management Services to the Borrower or any Guarantor shall be deemed (i) to appoint the Administrative Agent as its agent under the applicable Loan Documents and (ii) to agree to be bound by the provisions of Article IX, Section 11.04, Section 11.14 and any applicable Intercreditor Agreement as if it were a Lender.
“Secured Obligations” means (a) the Obligations, (b) the Secured Cash Management Obligations and (c) the Secured Swap Obligations (excluding with respect to any Loan Party, Excluded Swap Obligations of such Loan Party).
“Secured Parties” means (a) each Lender and Issuing Bank, (b) the Administrative Agent, (c) each Person to whom any Secured Cash Management Obligations are owed, (d) each counterparty to any Swap Contract the obligations under which constitute Secured Swap Obligations and (e) the permitted successors and assigns of each of the foregoing.
“Secured Swap Obligations” means all obligations of the Borrower and the Guarantors under each Swap Contract that (a) is in effect on the Closing Date with a counterparty that is a Lender, the Administrative Agent or an Affiliate of a Lender or the Administrative Agent as of the Closing Date, or
(b) is entered into after the Closing Date with any counterparty that is a Lender, the Administrative Agent or an Affiliate of a Lender or the Administrative Agent at the time such Swap Contract is entered into, in each case, to the extent, in each case, that such obligations have been designated in writing by the Borrower and the counterparty to such Swap Contract to the Administrative Agent as Secured Swap Obligations (for the avoidance of doubt, one notice with respect to a specified Master Agreement may designate all Swap Contracts thereunder as being “Secured Swap Obligations”, without the need for separate notices for each individual Swap Contract thereunder); it being understood that such counterparty shall be deemed (i) to appoint the Administrative Agent as its agent under the applicable Loan Documents and (ii) to agree to be bound by the provisions of Article IX, Section 11.04, Section 11.14 and any applicable Intercreditor Agreement as if it were a Lender.
“Securities” means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
“Securities Act” means the Securities Act of 1933.
“Securities Laws” means the Securities Act, the Exchange Act, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB.
“Securitization” means the securitization by the Borrower or any Subsidiary of accounts receivable or other assets.
“Senior Indebtedness” means (a) the aggregate principal amount of Indebtedness of the Borrower and its Restricted Subsidiaries (other than Indebtedness of the type described in clause (iv) of the definition thereof) minus (b) up to $400,000,000 of unrestricted cash and cash equivalents of the Borrower and its Restricted Subsidiaries as of such date.
“Senior Leverage Ratio” means, as of any date of determination, the ratio of (a) Senior Indebtedness as of such date to (b) Consolidated EBITDA for the most recently ended period of four fiscal quarters ended on such date.
“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day publishedas administered by the SOFR Administrator on the SOFR Administrator’s Website on the immediately succeeding Business Day.
“SOFR Administrator” means the NYFRB (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the NYFRB website, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“Sold Entity or Business” has the meaning specified in the definition of “Consolidated EBITDA”.
“Solvent” means, with respect to the Borrower and the Restricted Subsidiaries on a particular date, that on such date (a) the fair value of the present assets of the Borrower and the Restricted Subsidiaries, taken as a whole, is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of the Borrower and the Restricted Subsidiaries, taken as a whole, (b) the present fair saleable value of the assets of the Borrower and the Restricted Subsidiaries, taken as a whole, is not less than the amount that will be required to pay the probable liability of the Borrower and the Restricted Subsidiaries, taken as a whole, on their debts as they become absolute and matured, (c) the Borrower and the Restricted Subsidiaries, taken as a whole, do not intend to, and do not believe that they will, incur debts or liabilities (including current obligations and contingent liabilities) beyond their ability to pay such debts and liabilities as they mature in the ordinary course of business and (d) the Borrower and the Restricted Subsidiaries, taken as a whole, are not engaged in business or a transaction, and are not about to engage in business or a transaction, in relation to which their property would constitute unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Accounting Standards Codification 450, Contingencies).
“SONIA” means, with respect to any Business Day, a rate per annum equal to the Sterling Overnight Index Average for such Business Day published by the SONIA Administrator on the SONIA Administrator’s Website on the immediately succeeding Business Day.
“SONIA Administrator” means the Bank of England (or any successor administrator of the Sterling Overnight Index Average).
“SONIA Administrator’s Website” means the Bank of England’s website, currently at http://www.bankofengland.co.uk, or any successor source for the Sterling Overnight Index Average identified as such by the SONIA Administrator from time to time.
“SONIA Borrowing” means, as to any Borrowing, the SONIA Loans comprising such Borrowing.
“SONIA Business Day” means, for any SONIA Loan, any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which banks are closed for general business in London.
“SONIA Interest Day” has the meaning specified in the definition of “Daily Simple SONIA”.
“SONIA Loan” means a Committed Loan that bears interest at a rate based on Adjusted Daily Simple SONIA.
“Special Flood Hazard Area” means an area that FEMA’s current flood maps indicate has at least a one percent (1%) chance of a flood equal to or exceeding the base flood elevation (a 100-year flood) in any given year.
“Specified Event of Default” means an Event of Default of the type described in Section 8.01(a) or (f).
“Specified Indebtedness” has the meaning specified in Section 8.01(e).
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a
decimal established by the Federal Reserve Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate or Adjusted AUD Rate, as applicable, for eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D) or any other reserve ratio or analogous requirement of any central banking or financial regulatory authority imposed in respect of the maintenance of the Commitments or the funding of the Loans. Such reserve percentage shall include those imposed pursuant to Regulation D. Term Benchmark Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“Sterling” means the lawful currency of the United Kingdom.
“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity deemed to constitute a subsidiary of such Person under GAAP. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a direct or indirect Subsidiary or direct or indirect Subsidiaries of the Borrower, unless the context otherwise requires.
“Supported QFC” has the meaning specified in Section 11.20.
“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any similar master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement. For the avoidance of doubt, a Permitted Call Spread Option shall not constitute a Swap Contract.
“Swap Obligation” means, with respect to any Person, any obligation to pay or perform under any Swap Contract.
“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease or (b) an agreement for the use or possession of real property creating obligations that do not appear on the balance sheet of such Person but which, upon the
insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
“TARGET2” means the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilizes a single shared platform and which was launched on November 19, 2007 (or, if such payment system ceases to be operative, such other payment system (if any) reasonably determined by the Administrative Agent to be a suitable replacement) for the settlement of payments in Euro.
“TARGET Day” means any day on which TARGET2 (or, if such payment system ceases to be operative, such other payment system, if any, determined by the Administrative Agent to be a suitable replacement) is open for the settlement of payments in Euro.
“Tax Compliance Certificate” has the meaning specified in Section 3.01(f)(ii)(B)(3).
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, (including backup withholding) assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Benchmark” when used in reference to any Committed Loan or Borrowing, refers to whether such Committed Loan, or the Committed Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBOTerm SOFR Rate, the Adjusted EURIBOR Rate, the Adjusted AUD Rate or the Adjusted CDOR Rate.
“Term SOFR” means, for the applicable Corresponding Tenor as of the applicable Reference Time, the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body. Adjustment” shall mean (x) 0.11448% per annum for an Interest Period of one month; (y) 0.26161% per annum for an Interest Period of three months; and (z) 0.42826% per annum for an Interest period of six months.
“Term SOFR Notice” means a notification by the Administrative Agent to the Lenders and the Borrower of the occurrence of a Term SOFR Transition Event.Determination Day” has the meaning assigned to such term in the definition of Term SOFR Reference Rate.
“Term SOFR Transition Event” means the determination by the Administrative Agent that (a) Term SOFR has been recommended for use by the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for the Administrative Agent and (c) a Benchmark Transition Event or an Early Opt-in Election, as applicable (and for the avoidance of doubt, not in the case of an Other Benchmark Rate Election), has previously occurred resulting in a Benchmark Replacement in accordance with Section 3.08 that is not Term SOFR.Rate” means, with respect to any Term Benchmark Borrowing denominated in U.S. Dollars and for any tenor comparable to the applicable Interest Period, the Term SOFR Reference Rate at approximately 5:00 a.m., Chicago time, two U.S. Government Securities Business Days prior to the commencement of such tenor comparable to the applicable Interest Period, as such rate is published by the CME Term SOFR Administrator.
“Term SOFR Reference Rate” means, for any day and time (such day, the “Term SOFR Determination Day”), with respect to any Term Benchmark Borrowing denominated in U.S. Dollars and for any tenor comparable to the applicable Interest Period, the rate per annum published by the CME Term SOFR Administrator and identified by the Administrative Agent as the forward-looking term rate based on SOFR. If by 5:00 pm (New York City time) on such Term SOFR Determination Day, the “Term SOFR Reference Rate” for the applicable tenor has not been
published by the CME Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Rate has not occurred, then, so long as such day is otherwise a U.S. Government Securities Business Day, the Term SOFR Reference Rate for such Term SOFR Determination Day will be the Term SOFR Reference Rate as published in respect of the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate was published by the CME Term SOFR Administrator, so long as such first preceding U.S. Government Securities Business Day is not more than five (5) U.S. Government Securities Business Days prior to such Term SOFR Determination Day.
“Termination Date” means the date on which (a) all Commitments shall have been terminated, (b) all Obligations (other than in respect of contingent indemnification and contingent expense reimbursement claims not then due) have been paid in full and (c) all Letters of Credit (other than those that have been 103% cash collateralized) have been cancelled or have expired (without any drawing having been made thereunder that has not been rejected or honored) and all amounts drawn or paid thereunder have been reimbursed in full.
“Threshold Amount” means the Dollar Equivalent of $100,000,000.
“Title Policy” means, with respect to any Mortgaged Property, an A.L.T.A. mortgagee title insurance policy or unconditional commitment therefor issued by one or more title companies reasonably satisfactory to the Administrative Agent with respect to such Mortgaged Property, in an amount not less than the fair market value of such Mortgaged Property, in form and substance reasonably satisfactory to the Administrative Agent.
“Total Outstandings” means the aggregate Outstanding Amount of each Lender.
“Type” when used in reference to any Committed Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Committed Loans comprising such Borrowing, is determined by reference to the Adjusted LIBOTerm SOFR Rate, the Adjusted EURIBOR Rate, the Adjusted CDOR Rate, the Adjusted AUD Rate, the Alternate Base Rate or Adjusted Daily Simple SONIA.
“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that, at any time, if by reason of mandatory provisions of law, any or all of the perfection or priority of the Administrative Agent’s security interest in any item or portion of the Collateral is governed by the Uniform Commercial Code as in effect in a U.S. jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect, at such time, in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority and for purposes of definitions relating to such provisions.
“UCP” means the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 600 (or such later version thereof as may be in effect at the applicable time).
“UK Financial Institution” shall mean any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain
credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” shall mean the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment with respect thereto.
“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
“United States” and “U.S.” mean the United States of America.
“Unrestricted Subsidiary” means any Subsidiary of the Borrower that is designated by the Borrower as an Unrestricted Subsidiary hereunder in accordance with the provisions of Section 6.13.
“U.S. Dollar” and “$” mean lawful money of the United States.
“U.S. Government Securities Business Day” means any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“U.S. Special Resolution Regimes” has the meaning specified in Section 11.20.
“Withdrawal Liability” means any liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are used in sections 4203 and 4205, respectively, of ERISA.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” The word “or” shall
not be exclusive. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, and the definitions of “Affiliate” and “Subsidiary” shall include Persons who shall meet the terms of such definitions, at any time, on and after the date hereof, (iii) the words “herein,” “hereof’” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including.”
(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
(d) Any reference herein to a merger, transfer, consolidation, amalgamation, consolidation, assignment, sale, disposition or transfer, or similar term, shall be deemed to apply to a division of or by a limited liability company, or an allocation of assets to a series of a limited liability company (or the unwinding of such a division or allocation), as if it were a merger, transfer, consolidation, amalgamation, consolidation, assignment, sale, disposition or transfer, or similar term, as applicable, to, of or with a separate Person. Any division of a limited liability company shall constitute a separate Person hereunder (and each division of any limited liability company that is a Subsidiary, joint venture or any other like term shall also constitute such a Person or entity).
1.03 Accounting Terms.
(a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein (provided that all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made without giving effect to any election under Accounting Standards Codification 825-10-25 (previously referred to as Statement of Financial Accounting Standards 159) (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower
or any Subsidiary at “fair value,” as defined therein) and without including the effect of any changes to lease accounting in respect of finance leases.
(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Local Time.
1.06 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Dollar Equivalent of the undrawn face amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Loan Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the Dollar Equivalent of the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
1.07 Interest Rates; LIBORBenchmark Notification. The interest rate on a Committed Loan denominated in U.S. Dollars or an Alternative Currency may be derived from an interest rate benchmark that is, or may in the future become, the subject of regulatory reform. Regulators have signaled the need to use alternative benchmark reference rates for some of these interest rate benchmarks and, as a result, such interest rate benchmarks may cease to comply with applicable laws and regulations, may be permanently discontinued, and/or the basis on which they are calculated may change. The London interbank offered rate (“LIBOR”) is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London interbank market. On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) publicly announced that: (a) immediately after December 31, 2021, publication of all seven euro LIBOR settings, the overnight, 1-week, 2-month and 12-month British Pound Sterling LIBOR settings, and the 1-week and 2-month U.S. Dollar LIBOR settings will permanently cease; immediately after June 30, 2023, publication of the overnight and 12-month U.S. Dollar LIBOR settings will permanently cease; immediately after December 31, 2021, the 1-month, 3-month and 6-month British Pound Sterling LIBOR settings will cease to be provided or, subject to consultation by the FCA, be provided on a changed methodology (or “synthetic”) basis and no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored; and immediately after June 30, 2023, the 1-month, 3-month and 6-month U.S. Dollar LIBOR settings will cease to be provided or, subject to the FCA’s consideration of the case, be provided on a synthetic basis and no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored. There is
no assurance that dates announced by the FCA will not change or that the administrator of LIBOR and/or regulators will not take further action that could impact the availability, composition, or characteristics of LIBOR or the currencies and/or tenors for which LIBOR is published. Each party to this agreement should consult its own advisors to stay informed of any such developments. Public and private sector industry initiatives are currently underway to identify new or alternative reference rates to be used in place of LIBOR. Upon the occurrence of a Benchmark Transition Event, a Term SOFR Transition Event, an Early Opt-in Election or an Other Benchmark Rate Election, Section 3.08(a) and (b) provides a mechanism for determining an alternative rate of interest. The Administrative Agent will promptly notify the Borrower, pursuant to Section 3.08(d), of any change to the reference rate upon which the interest rate on Term Benchmark Loans is based. However, the Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to Daily Simple SONIA, LIBORTerm SOFR Rate, Adjusted Term SOFR Rate or other rates in the definition of “LIBOTerm SOFR Reference Rate” (or “EURIBOR Rate”, “CDOR Rate” or “AUD Rate” as applicable) or with respect to any alternative or successor rate thereto, or replacement rate thereof (including, without limitation, (i) any such alternative, successor or replacement rate implemented pursuant to Section 3.08(a) or (b), whether upon the occurrence of a Benchmark Transition Event, a Term SOFR Transition Event, an Early Opt-in Election or an Other Benchmark Rate Election, and (ii) the implementation of any Benchmark Replacement Conforming Changes pursuant to Section 3.08(c)), including without limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, Daily Simple SONIA, the LIBOTerm SOFR Rate, the Adjusted Term SOFR Rate (or the EURIBOR Rate, the CDOR Rate or AUD Rate as applicable) or have the same volume or liquidity as did the London interbank offered rate (or the euro interbank offered rate)any such existing interest rate prior to its discontinuance or unavailability. The Administrative Agent and its affiliates and/or other related entities may engage in transactions that affect the calculation of any Daily Simple SONIA, Term SOFR Rate, Adjusted Term SOFR Rate or any alternative, successor or alternative rate (including any Benchmark Replacement) and/or any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain any SONIA, Daily Simple SONIA or any Term Benchmark Rate, any component thereof, or rates referenced in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
1.08 Exchange Rates; Currency Equivalents.
(a) The Administrative Agent or the applicable Issuing Banks, as applicable, shall determine the Dollar Equivalent amounts of Term Benchmark Borrowings, SONIA Borrowings or Letters Credit Extensions denominated in Alternative Currencies. Such Dollar Equivalent shall become effective as of such Computation Date and shall be the Dollar Equivalent of such amounts until the next Computation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any Agreed Currency (other than U.S. Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or the applicable Issuing Bank, as applicable.
(b) Wherever in this Agreement in connection with a Committed Loan, conversion, continuation or prepayment of a Term Benchmark Loan, SONIA Loan or the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Committed Loan Borrowing, Term Benchmark Loan or Letter of Credit is
denominated in a Foreign Currency, such amount shall be the Dollar Equivalent of such Dollar amount (rounded to the nearest unit of such Foreign Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the applicable Issuing Bank, as the case may be.
1.09 Additional Foreign Currencies.
(a) The Borrower may from time to time request that Term Benchmark Loans be made and/or Letters of Credit be issued in a currency other than those specifically listed in the definition of “Foreign Currencies”; provided that such requested currency is a lawful currency (other than U.S. Dollars) that is readily available and freely transferable and convertible into U.S. Dollars. In the case of any such request with respect to the making of Term Benchmark Loans, such request shall be subject to the approval of the Administrative Agent and the Lenders; and in the case of any such request with respect to the issuance of Letters of Credit, such request shall be subject to the approval of the Administrative Agent and the applicable Issuing Bank.
(b) Any such request shall be made to the Administrative Agent not later than 2:00 p.m. Local Time, 20 Business Days prior to the date of the desired Credit Extension (or such other time or date as may be agreed by the Administrative Agent and, in the case of any such request pertaining to Letters of Credit, the applicable Issuing Bank, in its or their sole discretion). In the case of any such request pertaining to Term Benchmark, the Administrative Agent shall promptly notify each Lender thereof; and in the case of any such request pertaining to Letters of Credit, the Administrative Agent shall promptly notify the applicable Issuing Bank thereof. Each Lender (in the case of any such request pertaining to Term Benchmark Loans) or the applicable Issuing Bank (in the case of a request pertaining to Letters of Credit) shall notify the Administrative Agent, not later than 11:00 a.m. Local Time, ten Business Days after receipt of such request whether it consents, in its sole discretion, to the making of Term Benchmark Loans or the issuance of Letters of Credit, as the case may be, in such requested currency.
(c) Any failure by a Lender or an Issuing Bank, as the case may be, to respond to such request within the time period specified in the preceding sentence shall be deemed to be a refusal by such Lender or Issuing Bank, as the case may be, to permit Term Benchmark Loans to be made or Letters of Credit to be issued in such requested currency. If the Administrative Agent and all the Lenders consent to making Term Benchmark Loans in such requested currency, the Administrative Agent shall so notify the Borrower and such currency shall thereupon be deemed for all purposes to be a Foreign Currency hereunder for purposes of any Borrowings of Term Benchmark Loans; and if the Administrative Agent and the applicable Issuing Bank consent to the issuance of Letters of Credit in such requested currency, the Administrative Agent shall so notify the Borrower and such currency shall thereupon be deemed for all purposes to be a Foreign Currency hereunder for purposes of any Letter of Credit issuances. If the Administrative Agent shall fail to obtain consent to any request for an additional currency under this Section 1.09, the Administrative Agent shall promptly so notify the Borrower.
1.10 Change of Currency.
(a) Each obligation of the Borrower to make a payment denominated in the national currency unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall be redenominated into Euro at the time of such adoption. If, in relation to the currency of any such member state, the basis of accrual of interest expressed in this Agreement in respect of that currency shall be inconsistent with any convention or practice in the London interbank market for the basis of accrual of interest in respect of the Euro, such expressed basis shall be replaced by such convention or practice with effect from the date on which such member state adopts the Euro as its lawful currency; provided that if any Borrowing in the currency of such member state is outstanding
immediately prior to such date, such replacement shall take effect, with respect to such Borrowing, at the end of the then current Interest Period.
(b) Each provision of this Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect the adoption of the Euro by any member state of the European Union and any relevant market conventions or practices relating to the Euro.
1.11 Basket Amounts and Application of Multiple Relevant Provisions. Notwithstanding anything to the contrary, (a) unless specifically stated otherwise herein, any dollar, number, percentage or other amount available under any carve-out, basket, exclusion or exception to any affirmative, negative or other covenant in this Agreement or the other Loan Documents may be accumulated, added, combined, aggregated or used together by any Loan Party and its Subsidiaries without limitation for any purpose not prohibited hereby, and (b) any action or event permitted by this Agreement or the other Loan Documents need not be permitted solely by reference to one provision permitting such action or event but may be permitted in part by one such provision and in part by one or more other provisions of this Agreement and the other Loan Documents. For purposes of determining compliance with Sections 7.01, 7.04 and 7.05 in the event that an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Indebtedness (or any portion thereof) described in Section 7.05 or any Restricted Payment meets the criteria of one or more of the categories of permitted Restricted Payments described in Section 7.04 or any Lien meets the criteria of one or more of the categories of permitted Liens described in Section 7.01, the Borrower may, in its sole discretion, classify or reclassify, or later divide, classify or reclassify (as if incurred at such later time to the extent such Indebtedness, Lien or Restricted Payment would have been permitted pursuant to such provision at the time originally made or incurred), such item of Indebtedness (or any portion thereof) and/or Restricted Payment and/or Liens in any manner that complies with Sections 7.01, 7.04 and 7.05, as applicable.
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01 Committed Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make loans (each such loan, a “Committed Loan”) in Agreed Currencies and other Foreign Currencies to the Borrower from time to time, on any Business Day during the Availability Period, in an aggregate U.S. Dollar amount not to exceed at any time outstanding the amount of such Lender’s Commitment; provided, however, that after giving effect to any Borrowing, (x) the Dollar Equivalent of the Total Outstandings of the Lenders shall not exceed the Aggregate Commitments, (y) the Dollar Equivalent of the Outstanding Amount of any Lender shall not exceed such Lender’s Commitment and (z) the Dollar Equivalent of the Total Outstandings of the Lenders borrowed in Alternative Currencies shall not exceed the Alternative Currency Sublimit. Within the limits of each Lender’s Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01, prepay under Section 2.03, and reborrow under this Section 2.01. Committed Loans may be ABR Loans, Term Benchmark Loans or SONIA Loans, as further provided herein; provided that ABR Loans shall only be made in U.S. Dollars. Each Lender may, at its option, make any Committed Loan available to the Borrower by causing any foreign or domestic branch or Affiliate of such Lender to make such Committed Loan; provided that, any exercise of such option shall not affect the obligation of the Borrower to repay such Committed Loan in accordance with the terms and subject to the conditions of this Agreement, and such Affiliate shall be treated as a Lender for purposes of this Agreement.
2.02 Borrowings, Conversions and Continuations of Committed Loans.
(a) Each Borrowing, each conversion of Committed Loans from one Type to the other, and each continuation of Term Benchmark Loans shall be made upon the Borrower’s delivery of an irrevocable Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower, to the Administrative Agent. Each such notice must be received by the Administrative Agent not later than:
(i) in the case of Term Benchmark Loans denominated in U.S. Dollars, prior to 11:00 a.m., New York City time, three U.S. Government Securities Business Days prior to the requested Borrowing Date,
(ii) in the case of a Term Benchmark Borrowing denominated in Euros, not later than 12:00 p.m., New York City time, three Business Days before the date of the proposed Borrowing,
(iii) in the case of ABR Loans, prior to 10:00 a.m., New York City time, on the proposed Borrowing Date,
(iv) in the case of Term Benchmark Loans denominated in an Alternative Currency (other than Euros), prior to 12:00 Noon, New York City time, four Business Days prior to the requested Borrowing Date and
(ivv) in the case of SONIA Loans denominated in Sterling, not later than 12:00 Noon, New York City time, five Business Days before the date of the requested Borrowing Date).
Each Borrowing of, conversion to or continuation of Term Benchmark Loans shall be in a principal amount of the Dollar Equivalent of $5,000,000 or a whole multiple of the Dollar Equivalent of $1,000,000 in excess thereof, or if the remaining amount available under the Commitments is less than the Dollar Equivalent of $5,000,000, in multiples of the Dollar Equivalent of $1,000,000. Each Borrowing of SONIA Loans shall be in the Dollar Equivalent of $5,000,000 or a whole multiple of the Dollar Equivalent of $1,000,000 in excess thereof, or if the remaining amount available under the Commitments is less than the Dollar Equivalent of $5,000,000, in multiples of the Dollar Equivalent of $1,000,000. Each Borrowing of or conversion to ABR Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof, or if the remaining amount available under the Commitments is less than $5,000,000, in multiples of $1,000,000. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Committed Loans from one Type to the other, or a continuation of Term Benchmark Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Committed Loans to be borrowed, converted or continued, (iv) the Type of Committed Loans to be borrowed or to which existing Committed Loans are to be converted, and (v) if applicable, the duration of the Interest Period and the currency with respect thereto. If the Borrower fails to specify a Type of Committed Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then (i) in the case of a Borrowing denominated in U.S. Dollars, the applicable Committed Loans shall be made as, or converted to, ABR Loans and (ii) in the case of a Borrowing denominated in a Foreign Currency, such Borrowing shall be made as a Term Benchmark Loan in the same Foreign Currency with an Interest Period of one month. Any such automatic conversion to ABR Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Term Benchmark Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Term Benchmark Loans in any such Committed Loan
Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month.
(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Committed Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to ABR Loans described in the preceding subsection. In the case of a Borrowing, each Lender shall make the amount of its Committed Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 11:00 a.m. (or, in the case of ABR Loans, 1:00 p.m.) Local Time on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Borrowing, Section 4.01), the Administrative Agent shall make all funds so received available to the Borrower, as applicable, in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower, as applicable, on the books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.14(e) shall be remitted by the Administrative Agent to the applicable Issuing Bank.
(c) Except as otherwise provided herein, a Term Benchmark Loan may be continued or converted only on the last day of an Interest Period for such Term Benchmark. During the existence of an Event of Default, no Term Benchmark Loans denominated may be requested as, converted to or continued as Term Benchmark Loans without the consent of the Required Lenders and unless repaid, (i) each Term Benchmark Revolving Borrowing denominated in U.S. Dollars shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto, (ii) each Term Benchmark Revolving Borrowing denominated in Canadian Dollars shall be converted to a Canadian Prime Borrowing at the end of the Interest Period applicable thereto, and (iii) each Term Benchmark Borrowing denominated in an Alternative Currency (other than Canadian Dollars) shall bear interest at the Central Bank Rate for the applicable Agreed Currency plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for the applicable Agreed Currency cannot be determined, any outstanding affected Term Benchmark Loans denominated in any Agreed Currency other than Dollars or Canadian Dollars shall either be (A) converted to an ABR Borrowing denominated in Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) at the end of the Interest Period, as applicable, therefor or (B) prepaid at the end of the applicable Interest Period, as applicable, in full; provided that if no election is made by the Borrower by the earlier of (x) the date that is three Business Days after receipt by the Borrower of such notice and (y) the last day of the current Interest Period for the applicable Term Benchmark Loan, the Borrower shall be deemed to have elected clause (A) above; provided further that notwithstanding the foregoing, the Required Lenders may demand that any or all of the then outstanding Term Benchmark Loans denominated in an Alternative Currency be redenominated into U.S. Dollars in the amount of the Dollar Equivalent thereof, on the last day of the then current Interest Period with respect thereto.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Term Benchmark Loans upon determination of such interest rate. At any time that ABR Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in the prime rate used in determining the ABR promptly following the public announcement of such change.
(e) After giving effect to all Borrowings, all conversions of Committed Loans from one Type to the other, and all continuations of Committed Loans as the same Type, there shall not be more than ten Interest Periods in effect with respect to Committed Loans.
(f) If an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a SONIA Borrowing and (ii) unless repaid, (x) each SONIA Borrowing shall bear interest at the Central Bank Rate for Sterling plus the Applicable Rate for SONIA Loans; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for Sterling cannot be determined, any outstanding SONIA Loans shall either be (A) converted to an ABR Borrowing denominated in U.S. Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) at the end of the Interest Period or on the Interest Payment Date, as applicable, therefor or (B) prepaid at the end of the applicable Interest Period or on the Interest Payment Date, as applicable, in full; provided that if no election is made by the Borrower by the earlier of (x) the date that is five Business Days after receipt by the Borrower of such notice and (y) the last day of the current Interest Period, the Borrower shall be deemed to have elected clause (A) above.
2.03 Prepayments.
(a) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Committed Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 2:00 p.m. Local Time (A) three Business Days prior to any date of prepayment of Term Benchmark Loans, (C) five Business Days prior to any date of prepayment of SONIA Loans and (B) on the date of prepayment of ABR Loans; (ii) any prepayment of Term Benchmark Loans shall be in a principal amount of the Dollar Equivalent of $5,000,000 or a whole multiple of the Dollar Equivalent of $1,000,000 in excess thereof; (iii) any prepayment of SONIA Loans shall be in a principal amount of the Dollar Equivalent of $5,000,000 or a whole multiple of the Dollar Equivalent of $1,000,000 in excess thereof and (iv) any prepayment of ABR Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Committed Loans to be prepaid and, if Term Benchmark Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein; provided, such notice may state that such notice is conditional upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other Indebtedness or the occurrence of some other identifiable event or condition, in which case such notice of prepayment may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified date of prepayment) if such condition is not satisfied. Any prepayment of a Term Benchmark Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Committed Loans of the Lenders in accordance with their respective Applicable Percentages.
(b) If at any time, (i) other than as a result of fluctuations in currency exchange rates, the sum of the aggregate principal Dollar Equivalent of the Total Outstandings (calculated, with respect to Loans and LC Exposure denominated in Foreign Currencies, as of the most recent Computation Date with respect to each such Loans and LC Exposure) exceeds the Aggregate Commitments, or (ii) solely as a result of fluctuations in currency exchange rates, the aggregate principal Dollar Equivalent of the Total Outstandings (so calculated), as of the most recent Computation Date, exceeds one hundred five percent
(105%) of the Aggregate Commitments, the Borrower shall promptly repay Borrowings or cash collateralize LC Exposure in accordance with the procedures set forth in Section 2.14(j) in an aggregate principal amount sufficient to cause (x) the Dollar Equivalent of the Total Outstandings (so calculated) to be less than or equal to the Aggregate Commitments or (y) the Dollar Equivalent of the aggregate Outstanding Amounts of the Lenders in respect of the Commitments (so calculated) to be less than or equal to the total Commitments.
2.04 Termination or Reduction of Commitments. The Borrower may, upon notice to the Administrative Agent, terminate the Aggregate Commitments, or from time to time permanently reduce the Aggregate Commitments; provided that (i) any such notice shall be received by the Administrative Agent not later than 2:00 p.m. Local Time three Business Days prior to the date of termination or reduction and may be conditional upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other Indebtedness or the occurrence of some other identifiable event or condition, in which case such notice of termination or reduction may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified date of prepayment) if such condition is not satisfied, (ii) any such partial reduction shall be in an aggregate amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof, and (iii) the Borrower shall not terminate or reduce the Aggregate Commitments if, after giving effect thereto and to any concurrent prepayments hereunder, the Dollar Equivalent of the Total Outstandings would exceed the Aggregate Commitments. The Administrative Agent will promptly notify the Lenders of any such notice of termination or reduction of the Aggregate Commitments. Any reduction of the Aggregate Commitments shall be applied to the Commitment of each Lender according to its Applicable Percentage. All interest and fees accrued until the effective date of any termination of the Aggregate Commitments shall be paid on the effective date of such termination. Each reduction of the Aggregate Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.
2.05 Repayment of Loans. The Borrower shall repay to the Lenders on the Maturity Date the aggregate principal amount of Committed Loans outstanding to it on such date.
2.06 Interest.
(a) Subject to the provisions of subsection (b) below, (i) each Term Benchmark Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Adjusted LIBORTerm SOFR Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate or Adjusted AUD Rate, as applicable, for such Interest Period plus the Applicable Rate; (ii) each SONIA Loan shall bear interest on the outstanding principal amount thereof at a rate per annum equal to Adjusted Daily Simple SONIA plus the Applicable Rate and (iii) each ABR Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the ABR plus the Applicable Rate.
(b) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(i) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (after giving effect to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) Accrued and unpaid interest on past due amounts after giving effect to any applicable grace periods referenced in clause (i) above (including interest on past due interest) shall be due and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any case or proceeding under any Debtor Relief Law.
2.07 Fees.
(a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee (the “Commitment Fee”) equal to the Applicable Rate times the actual daily amount by which the Aggregate Commitments exceed the Total Outstandings. The Commitment Fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and ending on the last day of the Availability Period. The Commitment Fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.
(b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender, a participation fee with respect to such Lender’s participations in Letters of Credit, which shall accrue at the same Applicable Rate used to determine the interest rate applicable to Term Benchmark Loans on the average daily Dollar Equivalent of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Closing Date to but excluding the later of the date on which (x) such Lender’s Commitment terminates and (y) the date on which such Lender ceases to have any LC Exposure, and (ii) to each Issuing Bank, a fronting fee, which shall accrue at the rate of 0.125% per annum (or such other rate separately agreed upon between the Borrower and such Issuing Bank) on the Dollar Equivalent of the stated amount of such Letter of Credit (including any increase in such stated amount pursuant to such Letter of Credit) during the period from and including the Closing Date to but excluding the later of (A) the date of termination of the Commitments and (B) the date on which there ceases to be any LC Exposure in respect of such Issuing Bank, as well as such Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on such day, commencing on the first such date to occur after the Closing Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to an Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The Administrative Agent shall use commercially reasonable efforts to provide to each Issuing Bank, on the date such fees are payable by the Borrower, an invoice from the Administrative Agent to the Borrower reflecting the calculation of such fees. To the extent of any difference in fee calculations between the Administrative Agent and any Issuing Bank, the fee calculation applicable to the immediately succeeding payment period may be adjusted as mutually agreed between the Administrative Agent and the Issuing Bank to account for any such difference.
(c) [Reserved]
(d) Other Fees. The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates as set forth in any fee agreements with the Administrative Agent and to perform any other obligations contained therein. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
(e) Fees Generally. All fees payable hereunder shall be paid on the dates due, in U.S. Dollars, in immediately available funds, to the Administrative Agent (or to an Issuing Bank, in the case of fees payable to it) for distribution, in the case of Commitment Fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.
2.08 Computation of Interest and Fees(a) . Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that interest on ABR Loans (other than when ABR is determined by reference to the Prime Rate) and SONIA Loans shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed, or, in the case of interest in respect of Loans denominated in Alternative Currencies as to which market practice differs from the foregoing, in accordance with such market practice. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a LIBOAdjusted Term SOFR Rate, Term SOFR Rate, EURIBOR Rate, CDOR Rate, AUD Rate and/or SONIA, as applicable. Any change in the interest rate on a Loan resulting from a change in the ABR or the Statutory Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate. Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is repaid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.10(a), bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. Any change in the interest rate on a Loan resulting from a change in the ABR shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall promptly notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate.
2.09 Evidence of Debt.
(a) The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The Administrative Agent shall maintain the Register in accordance with Section 11.06(c). The accounts or records maintained by each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of any of the Borrower hereunder to pay any amount owing by it with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the Register, the Register shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and end of the Interest Period of its Loans and payments with respect thereto.
(b) In addition to the accounts and records referred to in Section 2.09(a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records
evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
2.10 Payments Generally; Administrative Agent’s Clawback.
(a) General. All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, (x) in the case of payments denominated in U.S. Dollars, at the Administrative Agent’s Office and in immediately available funds not later than 2:00 p.m. Local Time on the date specified herein and (y) in the case of payments denominated in a Foreign Currency, its Foreign Currency Payment Office for such Foreign Currency; provided that any payments to be made directly to each Issuing Bank as expressly provided herein shall be made directly to the Persons entitled thereto. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein, including, in the case of prepayments of and interest on commitments, if the outstanding Committed Loans are not ratable in proportion to the Applicable Percentages, to each Lender ratable based on the amount owed to it) with respect to payments received in respect of the Commitments. All payments received by the Administrative Agent after 2:00 p.m. Local Time shall be deemed received on the next Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be. All payments hereunder of principal or interest in respect of any Loan or LC Disbursement shall, except as otherwise expressly provided herein, be made in the currency of such Loan or LC Disbursement, and all other payments hereunder and under each other Loan Document shall be made in U.S. Dollars. Notwithstanding the foregoing provisions of this Section 2.10, if, after the making of any Borrowing in any Foreign Currency, currency control or exchange regulations are imposed in the country which issues such Foreign Currency with the result that such Foreign Currency no longer exists or the Borrower is not able to make payment to the Administrative Agent for the account of the Lenders in such Foreign Currency, then all payments to be made by the Borrower hereunder in such Foreign Currency shall instead be made when due in a currency that replaced such Foreign Currency or, if no such replacement currency exists, in U.S. Dollars in an amount equal to the Dollar Equivalent (as of the date of repayment) of such payment due, it being the intention of the parties hereto that the Borrower takes all risks of the imposition of any such currency control or exchange regulations.
(b) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of Term Benchmark Loans (or, in the case of any Borrowing of ABR Loans, prior to 11:00 a.m., Local Time on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Borrowing of ABR Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the rate determined by the Administrative Agent
in accordance with banking industry rules and conventions on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to the applicable Loan or, if such payment is in U.S. Dollars, ABR Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by it for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Committed Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(c) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules and conventions on interbank compensation. Any payment by any Lender pursuant to this subsection (c) shall be without prejudice to any claim such Lender or the Administrative Agent may have against the Borrower, as applicable, for having failed to make such payment to the Administrative Agent.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (c) shall be conclusive, absent manifest error.
(d) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Borrowings set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender within one Business Day, without interest.
(e) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Committed Loans and to make payments pursuant to Section 11.04(c) are several and not joint. The failure of any Lender to make any Committed Loan or to make any payment under Section 11.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Committed Loan, to purchase its participation or to make its payment under Section 11.04(c).
(f) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
2.11 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Committed Loans made by it or participations in LC Disbursements resulting in such Lender receiving payment of a proportion of the aggregate amount of such Committed Loans and participations in LC
Disbursements and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Committed Loans and participations in LC Disbursements, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Committed Loans and participations in LC Disbursements and other amounts owing them, provided that: (i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and (ii) the provisions of this Section 2.11 shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Committed Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section 2.11 shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
2.12 Extension of Maturity Date.
(a) Requests for Extension. The Borrower may, by written notice to the Administrative Agent (who shall promptly notify the Lenders) not earlier than 60 Business Days and not later than 35 Business Days prior to any anniversary of the Closing Date (each, a “Relevant Anniversary Date”), request that each Lender extend such Lender’s Maturity Date for an additional year from the Maturity Date then in effect hereunder (the “Existing Maturity Date”); provided that the Borrower may not request such extension on more than two Relevant Anniversary Dates.
(b) Lender Elections to Extend. Each Lender, acting in its sole and individual discretion, shall, by written notice to the Administrative Agent given not earlier than 30 Business Days prior to the Relevant Anniversary Date and not later than the date (the “Notice Date”) that is 20 Business Days prior to the Relevant Anniversary Date, advise the Administrative Agent whether or not such Lender agrees to such extension (each Lender that agrees to extend the Maturity Date applicable to the Commitments held by such Lender, an “Extending Lender” and each Lender that determines not to extend the Maturity Date applicable to the Commitments held by such Lender (or does not provide any response prior to the relevant Notice Date), a “Non-Extending Lender”). The election of any Lender to agree to such extension shall not obligate any other Lender to so agree. Following any extension, the LC Exposure shall continue to be held ratably among the Lenders, but on the Maturity Date applicable to the Commitments of any Non-Extending Lender, the LC Exposure of such Non-Extending Lender shall be ratably reallocated, to the extent of the unused Commitments of the Extending Lenders, to such Extending Lenders (without regard to whether the conditions set forth in Section 4.02 can then be satisfied) and the Borrower shall cash collateralize the balance of such LC Exposure in accordance with Section 2.14(j).
(c) Notification by Administrative Agent. The Administrative Agent shall notify the Borrower in writing of each Lender’s determination (or deemed determination not to extend in the case of a Lender that does not provide any response prior to the relevant Notice Date) under this Section 2.12 no later than the date 15 Business Days prior to the Relevant Anniversary Date (or, if such date is not a Business Day, on the immediately preceding Business Day).
(d) Additional Commitment Lenders. The Borrower shall have the right on or before the sixtieth day after the Relevant Anniversary Date to replace each Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) as provided in Section 11.13, each of which Additional Commitment Lenders shall have entered into an Assignment and Assumption pursuant to which such Additional Commitment Lender shall, effective as of the later of the date thereof (the “Assignment Date”) and the Relevant Anniversary Date, undertake a Commitment of such Non-Extending Lender (and, if any such Additional Commitment Lender is already a Lender, its Commitment of such Non-Extending Lender shall be in addition to such Lender’s Commitment hereunder on such date), and shall have agreed to the relevant extension.
(e) Effect of Extension Requirement. Effective as of the Relevant Anniversary Date, the Maturity Date of each Extending Lender and, as of the later of the Assignment Date and the Relevant Anniversary Date, of each Additional Commitment Lender shall be extended to the date falling 364 days after the Existing Maturity Date (except that, if such date is not a Business Day, such Maturity Date as so extended shall be the immediately preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement.
(f) Conditions to Effectiveness of Extensions. Notwithstanding the foregoing, the extension of the Maturity Date pursuant to this Section 2.12 shall not be effective with respect to any Lender unless: (i) no Default shall have occurred and be continuing on the date of such extension and after giving effect thereto and (ii) the representations and warranties contained in this Agreement that are qualified by materiality shall be true and correct on and as of the date of such extension and after giving effect thereto, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the date of such extension and after giving effect thereto, in each case as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, true and correct in all material respects as of such specific date (provided that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) and, for purposes of this Section 2.12, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent financial statements delivered pursuant to clauses (a) and (b) respectively, of Section 6.01). Notwithstanding any provision of this Agreement to the contrary, no such extension shall be conditioned on Lenders and/or Additional Commitment Lenders representing more than 50% of the aggregate amount of the Commitments in effect immediately prior to the Relevant Anniversary Date having agreed to extend the Maturity Date of their Commitments.
(g) Issuing Banks. Each Issuing Bank shall be deemed to be a Lender for purposes of this Section 2.12 with respect to the extension of its LC Commitment.
(h) Conflicting Provisions. This Section 2.12 shall supersede any provisions in Section 2.11 or 11.01 to the contrary.
2.13 Increase in Commitments.
(a) Request for Increase. So long as no Default or Event of Default exists or would result therefrom (or, in the case of any Increase the proceeds of which are to be used primarily to finance a Limited Conditionality Acquisition, no Specified Event of Default exists or would result therefrom, which condition shall, at the option of the Borrower, be tested on the date the acquisition agreement with respect to such Limited Conditionality Acquisition is signed), upon notice to the Administrative Agent (which shall promptly notify the Lenders), the Borrower may from time to time, request an increase in the Commitments (an “Increase” and such additional Commitments, “New Commitments”) by an
aggregate amount (for all such requests) not exceeding at any time outstanding the Dollar Equivalent of $250,000,000 (such amount, the “Available Increase Amount”) less the aggregate principal amount of any then outstanding Incremental Equivalent Debt; provided that (i) any such request for an increase shall be in a minimum amount of $50,000,000, and (ii) the Borrower may make a maximum of five such requests. The Borrower may approach any Lender or any Person (other than a natural Person) to provide all or a portion of the New Commitments, subject, if applicable, to the approval thereof by the Administrative Agent and the Issuing Banks in the case of a Person that is not a Lender, to the extent such approval is required in the case of an assignment to such Person pursuant to Section 11.06(b); provided that (i) no Lender shall have the right to provide any portion of the New Commitments and (ii) any Lender approached to provide all or a portion of the New Commitments may elect or decline, in its sole discretion, to provide such New Commitments. At the time of sending such notice, to the extent applicable, the Borrower (in consultation with the Administrative Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than ten Business Days from the date of delivery of such notice to the Lenders). Each Lender shall notify the Administrative Agent within such time period whether or not it agrees to increase its Commitment and, if so, whether by an amount equal to, greater than, or less than its Applicable Percentage of such requested increase. Any Lender not responding within such time period shall be deemed to have declined to increase its Commitment.
(b) [Reserved].
(c) Notification by Administrative Agent: Additional Lenders. The Administrative Agent shall notify the Borrower and each Lender of the Lenders’ responses to each request made hereunder. To achieve the full amount of a requested increase and subject to the approval of the Administrative Agent (which approval shall not be unreasonably withheld), the Borrower may also invite additional Eligible Assignees to become Lenders pursuant to a joinder agreement in form and substance satisfactory to the Administrative Agent and its counsel.
(d) Increase Effective Date and Allocations. If the Commitments are increased in accordance with this Section 2.13, the Administrative Agent and the Borrower shall determine the effective date (the “Increase Effective Date”) and the final allocation of such increase among the Lenders. The Administrative Agent shall promptly notify the Borrower and the Lenders of the final allocation of such increase and the Increase Effective Date.
(e) Conditions to Effectiveness of Increase. As conditions precedent to such increase, the Borrower shall deliver to the Administrative Agent (x) a certificate dated as of the Increase Effective Date (in sufficient copies for each Lender) signed by a Responsible Officer (i) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such increase and (ii) certifying that, before and after giving effect to such increase, (A) the representations and warranties contained in Article V and the other Loan Documents that are qualified by materiality shall be true and correct on and as of the Increase Effective Date, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date (provided that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof), and except that for purposes of this Section 2.13, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent financial statements delivered pursuant to clauses (a) and (b), respectively, of Section 6.01 (provided that if the proceeds of the Loans under such New Commitments are to be used to consummate a Limited Conditionality Acquisition, the requirements of this clause (A) shall be subject to, if agreed to by the Lenders providing such New Commitments, customary “SunGard” or other customary
applicable “certain funds” conditionality provisions) and (B) no Default or Event of Default (or, in the case of a Limited Conditionality Acquisition, no Specified Event of Default) shall have occurred and be continuing on the date of such Increase Effective Date and after giving effect thereto and (y) (i) upon the reasonable request of any Lender made at least ten days prior to the Increase Effective Date, the Borrower shall have provided to such Lender, and such Lender shall be reasonably satisfied with, the documentation and other information so reasonably requested in connection with applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the PATRIOT Act, in each case at least five days prior to the Increase Effective Date and (ii) upon the reasonable request of any Lender made at least ten days prior to the Increase Effective Date, at least three days prior to the Increase Effective Date, any Loan Party that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation shall have delivered, to each Lender that so requests, a Beneficial Ownership Certification in relation to such Loan Party. The Borrower shall prepay any Committed Loans outstanding on the Increase Effective Date (and pay any additional amounts required pursuant to Section 3.05) to the extent necessary to keep the outstanding Committed Loans ratable with any revised Applicable Percentages arising from any nonratable increase in the Commitments under this Section 2.13. Notwithstanding any provision of this Agreement to the contrary, no such increase shall be conditioned on any Lenders representing more than 50% of the aggregate amount of the Commitments in effect immediately prior to any Increase Effective Date having agreed to any such increase.
(f) Conflicting Provisions. This Section 2.13 shall supersede any provisions in Section 2.11 or 11.01 to the contrary.
2.14 Letters of Credit.
(a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit denominated in Agreed Currencies or other Foreign Currencies as the applicant thereof for the support of its or its Subsidiaries’ obligations, in a form reasonably acceptable to the Administrative Agent and the applicable Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the applicable Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. Notwithstanding Section 1.05, unless otherwise specified in such Letter of Credit, all references in any Letter of Credit to times of day shall be references to Local Time. No Issuing Bank shall be under any obligation to issue any Letter of Credit if: any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank from issuing the Letter of Credit, or any Law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon such Issuing Bank with respect to the Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such Issuing Bank any loss, cost or expense which was not applicable on the Closing Date (for which such Issuing Bank is not otherwise compensated hereunder) and which such Issuing Bank in good faith deems material to it.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions; Reporting.
(i) To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank) to such Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension, but in any event no less than three Business Days) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section 2.14), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the applicable Issuing Bank, the Borrower shall also submit a letter of credit application on such Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, subject to Sections 2.03(b) and 2.16, (i) the LC Exposure shall not exceed $100,000,000 (such amount, the “LC Sublimit”), (ii) the LC Exposure of any Issuing Bank shall not exceed the aggregate amount of its LC Commitment and (iii) the Dollar Equivalent of the Total Outstandings shall not exceed the Aggregate Commitments.
(ii) Other than to the extent provided to the Administrative Agent by the Borrower pursuant to clause (i) above, within one Business Day of the date of any issuance, amendment, renewal, extension or termination of any Letter of Credit, the applicable Issuing Bank shall provide to the Administrative Agent the information required by clause (i) above with respect to such issuance, amendment, renewal, extension or termination, along with a true and complete copy of such Letter of Credit, amendment, renewal, extension or termination, if applicable.
(iii) No later than 9:00 a.m., Local Time, on the second Business Day prior to the last day of each calendar quarter (the “Reporting Time”), each Issuing Bank shall provide the Administrative Agent with a summary of all (A) outstanding issuances at such time and (B) Letter of Credit activity during such calendar quarter. It is understood and agreed that, for purposes of the calculation of fees payable pursuant to Section 2.07(b), any Letter of Credit activity occurring after the Reporting Time shall be deemed to have occurred in the immediately succeeding calendar quarter.
(c) Expiration Date. Each Letter of Credit shall expire (or be subject to termination by notice from the applicable Issuing Bank to the beneficiary thereof) at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) or such longer period consented to by the applicable Issuing Bank and (ii) the date that is five Business Days prior to the Maturity Date of the Committed Loans of such Issuing Bank; provided, however, that any Letter of Credit with a term of one year may provide for its automatic renewal for additional periods not exceeding one year so long as neither the applicable Issuing Bank nor the Borrower shall permit any such renewal to extend such expiration date beyond the date set forth in clause (ii) above (unless such Letter of Credit is cash collateralized by delivery to the Administrative Agent of an amount of cash equal to 103% of the amount of Letter of Credit Obligations to be held for the benefit of the Issuing Bank, the Administrative Agent and the Lenders entitled thereto as additional collateral security for Obligations in respect of such Letter of Credit at least five (5) Business Days prior to the Maturity Date).
(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the applicable Issuing Bank or the Lenders, such Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the applicable Issuing Bank, the Dollar Equivalent of such Lender’s Applicable Percentage of each LC Disbursement made by such Issuing Bank and not
reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section 2.14, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 2:00 p.m., Local Time, on the Business Day immediately following the day that the Borrower receives such notice; provided that, unless the Borrower notifies the Administrative Agent and the applicable Issuing Bank otherwise prior to such time, the Borrower shall be deemed, subject to the conditions to borrowing set forth herein, to have requested in accordance with Section 2.02(b) that such payment be financed with a Borrowing of ABR Loans in the Dollar Equivalent of such LC Disbursement and the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting Borrowing of ABR Loans. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.02(b) with respect to Loans made by such Lender (and Section 2.10 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the applicable Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the applicable Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank, as applicable. Any payment made by a Lender pursuant to this paragraph to reimburse an Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower’s obligations to reimburse LC Disbursements as provided in paragraph (e) of this Section 2.14 shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by an Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.14, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders nor any Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of such Issuing Bank; provided that the foregoing shall not be construed to excuse an Issuing Bank from liability to the Borrower, to the extent of any direct damages (as opposed to
special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of an Issuing Bank (as determined by a court of competent jurisdiction in a final, non-appealable judgment), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, (i) an Issuing Bank may replace a purportedly lost, stolen, or destroyed original Letter of Credit or missing amendment thereto with a certified true copy marked as such or waive a requirement for its presentation and (ii) with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, an Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. Without limiting the foregoing, none of the Administrative Agent, the Lenders, any Issuing Bank, or any of their Related Parties shall have any liability or responsibility by reason of (i) any presentation that includes forged or fraudulent documents or that is otherwise affected by the fraudulent, bad faith, or illegal conduct of the beneficiary or other Person, (ii) an Issuing Bank declining to take-up documents and make payment (A) against documents that are fraudulent, forged, or for other reasons by which that it is entitled not to honor or (B) following a Borrower’s waiver of discrepancies with respect to such documents or request for honor of such documents or (iii) an Issuing Bank retaining proceeds of a Letter of Credit based on an apparently applicable attachment order, blocking regulation, or third-party claim notified to such Issuing Bank.
(g) Disbursement Procedures. An Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall promptly notify the Administrative Agent, the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If an Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans; provided that if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section 2.14, then Section 2.06(b) shall apply. Interest accrued pursuant to this paragraph shall be for the account of such Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section 2.14 to reimburse such Issuing Bank shall be for the account of such Lender to the extent of such payment.
(i) Replacement and Resignation of an Issuing Bank. An Issuing Bank may resign at any time by giving 30 days’ prior notice to the Administrative Agent, the Lenders and the Borrower, or may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank or in accordance with Section 11.13. The Administrative Agent shall notify the Lenders of any such replacement or resignation of an Issuing Bank. At the time any such replacement or resignation shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced or resigned Issuing Bank pursuant to Section 2.07(b). From and after the effective date of any such replacement or resignation, (i) the successor Issuing Bank shall
have all the rights and obligations of the replaced or resigned Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement or resignation of an Issuing Bank hereunder, the replaced or resigned Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement or resignation, but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash or provide a “back-to-back” letter of credit or alternative collateral as the Administrative Agent may approve in its sole discretion in good faith, equal to the LC Exposure owing by it as of such date plus any accrued and unpaid interest thereon; provided that the obligation of the Borrower to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in Section 8.01(f). Such deposit shall be held by the Administrative Agent as collateral so long as any LC Exposure exists hereunder for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the applicable Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Borrower under this Agreement; provided, however, that if prior to the acceleration of the maturity of the Loans the LC Exposure shall cease to exist, moneys in such account shall be returned to the Borrower as provided below. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after the earlier of (a) all Events of Default having been cured or waived or (b) the LC Exposure ceasing to exist.
(k) Existing Letters of Credit. The Existing Letters of Credit will, as of the Closing Date, be deemed to be Letters of Credit issued under this Agreement and subject to and governed by the terms of this Agreement.
(l) Applicability of ISP and UCP. Unless otherwise expressly agreed by the applicable Issuing Bank and the Borrower when a Letter of Credit is issued by it, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the UCP shall apply to each commercial Letter of Credit. Notwithstanding the foregoing, no Issuing Bank shall be responsible to the Borrower for, and no Issuing Bank’s rights and remedies against the Borrower shall be impaired by, any action or inaction of any Issuing Bank required or permitted under any law, order, or practice that is required or permitted to be applied to any Letter of Credit or this Agreement, including the law or any order of a jurisdiction where any Issuing Bank or the beneficiary is
located, the practice stated in the ISP or UCP, as applicable, or in the decisions, opinions, practice statements, or official commentary of the ICC Banking Commission, the Bankers Association for Finance and Trade – International Financial Services Association (BAFT-IFSA), or the Institute of International Banking Law & Practice, whether or not any Letter of Credit chooses such law or practice.
2.15 Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 2.07(a);
(b) the Commitment and Outstanding Amount of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, waiver or other modification pursuant to Section 11.01); provided, that this clause (b) shall not apply to the vote of a Defaulting Lender in the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender affected thereby;
(c) with respect to any Lender becoming a Defaulting Lender, if any LC Exposure exists at the time such Lender becomes a Defaulting Lender then:
(i) all or any part of the LC Exposure of such Defaulting Lender shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent that (x) after giving effect to such reallocation, the sum of all non-Defaulting Lenders’ Outstanding Amounts under such Commitments plus such Defaulting Lender’s LC Exposure does not exceed the total of all non-Defaulting Lenders’ Commitments, (y) after giving effect to such reallocation, the sum of each non-Defaulting Lender’s Outstanding Amount plus such non-Defaulting Lender’s LC Exposure does not exceed such non-Defaulting Lender’s individual Commitments and (z) the conditions set forth in Section 4.02 are satisfied at such time;
(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shall within one Business Day following notice by the Administrative Agent, cash collateralize for the benefit of the Issuing Banks only the obligations corresponding to such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.14(j) for so long as such LC Exposure is outstanding;
(iii) if the Borrower cash collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to clause (ii) above, the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.07(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is cash collateralized;
(iv) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Lenders pursuant to Section 2.07(a) and Section 2.07(b) shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; and
(v) if all or any portion of such Defaulting Lender’s LC Exposure is neither reallocated nor cash collateralized pursuant to clause (i) or (ii) above, then, without prejudice to any rights or remedies of any Issuing Bank or any other Lender hereunder, all letter of credit fees payable under Section 2.07(b) with respect to such Defaulting Lender’s LC Exposure shall be payable to the applicable Issuing Bank until and to the extent that such LC Exposure is reallocated and/or cash collateralized; and
(d) any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to any Issuing Bank hereunder; third, to cash collateralize the Issuing Banks’ Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.14(j); fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) cash collateralize the Issuing Banks’ future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.14(j); sixth, to the payment of any amounts owing to the Lenders, the Issuing Banks as a result of any judgment of a court of competent jurisdiction obtained by any Lender, any Issuing Bank against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or LC Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and LC Exposure owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or LC Exposure owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in then outstanding Letters of Credit are held by the Lenders pro rata in accordance with the Commitments hereunder without giving effect to Section 2.15(c)(i). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post cash collateral pursuant to this Section 2.15(d) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto;
(e) so long as such Lender is a Defaulting Lender, the Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure and the Defaulting Lender’s then outstanding LC Exposure will be 100% covered by the Commitments of the non-Defaulting Lenders that are Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.15(c), and participating interests in any newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders that
are Lenders in a manner consistent with Section 2.15(c)(i) (and such Defaulting Lender shall not participate therein).
In the event that the Administrative Agent and the Borrower and, with respect to a Lender that is a Defaulting Lender and the Issuing Banks each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the LC Exposure of the relevant Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment (if any) and on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.
2.16 [Reserved]
2.17 Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due from the Borrower hereunder in the currency expressed to be payable herein (the “specified currency”) into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which the Administrative Agent could, in accordance with normal banking procedures applicable to arm’s length transactions, purchase the specified currency with such other currency at the Administrative Agent’s main New York City office on the Business Day immediately preceding that on which final, non-appealable judgment is given. The obligations of the Borrower in respect of any sum due to any Credit Party hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by such Credit Party of any sum adjudged to be so due in such other currency such Credit Party may in accordance with normal, reasonable banking procedures purchase the specified currency with such other currency. If the amount of the specified currency so purchased is less than the sum originally due to such Credit Party in the specified currency, the Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify such Credit Party against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to any Credit Party in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Section 2.11, such Credit Party agrees to remit such excess to the Borrower.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Payments Free of Taxes. All payments by or on account of any obligation of any Loan Party hereunder or under any other Loan Document shall be made free and clear of and without deduction or withholding for any Taxes, except as required by applicable Law, provided that if applicable Law (as determined in the good faith discretion of the applicable withholding agent) requires the deduction or withholding of any Taxes from such payments, then (i) the applicable withholding agent shall make such deductions or withholding, (ii) the applicable withholding agent shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable Law and (iii) to the extent that the deduction or withholding is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after making all required deductions or withholding (including deductions or withholding applicable to additional sums payable under this Section 3.01) each Lender (or, in the case of a payment made to the Administrative
Agent for its own account, the Administrative Agent) receives an amount equal to the sum it would have received had no such deductions or withholding been made.
(b) Payment of Other Taxes by any Loan Party. Without limiting the provisions of subsection (a) above, any Loan Party, as applicable, shall timely pay any Other Taxes required to be paid to the relevant Governmental Authority in accordance with applicable Law, or, at the option of the Administrative Agent, timely reimburse it for the payment thereof.
(c) Indemnification by the Loan Parties. The Loan Parties shall indemnify the Administrative Agent and each Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed, asserted on or attributable to amounts payable under this Section 3.01) paid or payable by the Administrative Agent or such Lender, as the case may be, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Loan Parties have not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (ii) any Taxes attributable to such Lender'’s failure to comply with the provisions of Section 11.6(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this Section 3.01(d).
(e) Evidence of Payments. As soon as practicable after any payment of Taxes pursuant to this Section 3.01 by any Loan Party to a Governmental Authority, such Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(f) Status of Lenders.
(i) Each Lender that is entitled to an exemption from or reduction of withholding Tax with respect to any payments hereunder or under any other Loan Document shall deliver to such Loan Party and the Administrative Agent, at the time or times reasonably requested by such Loan Party or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by any Loan Party, or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by such Loan Party or the Administrative Agent as will enable such Loan Party or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Each Lender agrees that if any documentation it previously
delivered pursuant to this Section 3.01(f) expires or becomes obsolete or inaccurate in any respect, it shall promptly update such documentation or promptly notify the Borrower and the Administrative Agent in writing of its legal ineligibility to do so.
(ii) Without limiting the generality of the foregoing,
(A) each Lender that is a “U.S. person” as defined in Section 7701(a)(30) of the Code shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), two duly completed executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B) each Foreign Lender shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), two duly completed executed originals of whichever of the following is applicable:
(1) IRS Form W-8BEN or W-8BEN-E claiming eligibility for benefits of an income Tax treaty to which the United States is a party,
(2) IRS Form W-8ECI,
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit E to the effect that such Foreign Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the Code and that no interest payments under any Loan Document are effectively connected with such Foreign Lender’s conduct of a United States trade or business (a “Tax Compliance Certificate”) and (y) IRS Form W-8BEN, W-8BEN-E or W-8IMY, as applicable,
(4) to the extent a Foreign Lender is not the beneficial owner, IRS Form W-8IMY, accompanied by the applicable IRS Form W-8ECI, W-8BEN, W-8BEN-E, and/or W-9, a Tax Compliance Certificate and any other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a Tax Compliance Certificate on behalf of such direct and indirect partner(s),
(5) any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(C) the Administrative Agent shall deliver to the Borrower two duly completed originals of IRS Form W-9 on or prior to the date hereof certifying that the Administrative Agent is exempt from U.S. federal backup withholding tax.
(iii) If a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by Law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for any Loan Party and the Administrative Agent to comply with their obligations under FATCA and to determine whether such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold, if any, from such payment. Solely for purposes of this clause (iii), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
(iv) Notwithstanding anything to the contrary, no Lender shall be required to deliver any documentation pursuant to this Section 3.01(f) that it is not legally eligible to deliver.
(v) Each Lender hereby authorizes the Administrative Agent to deliver to the Loan Parties and to any successor Administrative Agent any documentation provided by such Lender pursuant to this Section 3.01(f).
(g) Treatment of Certain Refunds. If the Administrative Agent or any Lender determines, in its sole discretion exercised in good faith, that it has received a refund of any Indemnified Taxes as to which it has been indemnified by any Loan Party or with respect to which any Loan Party has paid additional amounts pursuant to this Section 3.01, it shall promptly pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party under this Section 3.01 with respect to the Indemnified Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to it pursuant to this Section 3.01(g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 3.01(g), in no event will the Administrative Agent or any Lender be required to pay any amount to any Loan Party pursuant to this Section 3.01(g) the payment of which would place the Administrative Agent or Lender in a less favorable net after-Tax position than such Person would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amount with respect to such Tax had never been paid. This subsection shall not be construed to require the Administrative Agent or any Lender to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to any Loan Party or any other Person.
(h) Defined Terms. For purposes of this Section 3.01, the term “Lender” includes any Issuing Bank and the term “applicable Law” includes FATCA.
3.02 Illegality. If any Lender reasonably determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending
Office to make, maintain or fund Term Benchmark Loans, or to determine or charge interest rates based upon the Term Benchmark, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, the applicable Agreed Currency in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such Lender to make or continue Term Benchmark Loans or to convert ABR Loans to Term Benchmark Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all affected Term Benchmark Loans denominated in U.S. Dollars of such Lender to it to ABR Loans, and to repay all affected Term Benchmark Loans in any other Agreed Currency, either on the last day of the Interest Period, therefor, if such Lender may lawfully continue to maintain such Term Benchmark Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Term Benchmark Loans. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 3.05. The Borrower shall have the rights in respect of any such Lender specified in Section 11.13.
3.03 Inability to Determine Rates. Subject to Section 3.08, (i) if the Administrative Agent determines (which determination shall be conclusive absent manifest error) (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, that adequate and reasonable means do not exist for ascertaining the LIBOAdjusted Term SOFR Rate, the Adjusted LIBOTerm SOFR Rate, the Adjusted EURIBOR Rate, the EURIBOR Rate, the Adjusted CDOR Rate or the Adjusted AUD Rate, as applicable (including because the Relevant Screen Rate is not available or published on a current basis), for the applicable currency and such Interest Period or (B) at any time, that adequate and reasonable means do not exist for ascertaining Adjusted Daily Simple SONIA or Daily Simple SONIA; or
(ii) the Administrative Agent is advised by the Required Lenders that (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, the Adjusted LIBOTerm SOFR Rate, the LIBOTerm SOFR Rate, the Adjusted EURIBOR Rate, the EURIBOR Rate, the Adjusted CDOR Rate or the Adjusted AUD Rate for the applicable currency and such Interest Period will not adequately and fairly reflect the cost to such Lender (or Lenders) of making or maintaining their Committed Loans (or its Committed Loan) included in such Borrowing for the applicably currency and such Interest Period or (B) at any time, the Adjusted Daily Simple SONIA or Daily Simple SONIA, as applicable, for Sterling, will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Committed Loans (or its Committed Loan) included in such Borrowing;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone, telecopy or electronic mail as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist with respect to the relevant Benchmark, (A) any notice of an interest rate election that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Term Benchmark Borrowing shall be ineffective, (B) if any Committed Loan Notice requests a Term Benchmark Borrowing in U.S. Dollars, such Borrowing shall be made as an ABR Borrowing, (C) if any Committed Loan Notice requests a Term Benchmark Borrowing in Canadian Dollars, such borrowing shall be made as Canadian Prime Rate Borrowing and (CD) if any Committed Loan Notice requests a Term Benchmark Borrowing in an Alternative Currency (other than Canadian Dollars) or a SONIA Borrowing for the relevant rate above in an Alternative Currency, then such request shall be ineffective; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then all other Types of Borrowings shall be permitted. Furthermore, if any Term Benchmark Loan in an Alternative Currency (other than Canadian Dollars) or SONIA Loan in any Alternative Currency is outstanding on the date of
the Borrower’s receipt of the notice from the Administrative Agent referred to in this Section 3.083.03 with respect to a Relevant Rate applicable to such Term Benchmark Loan or SONIA Loan, then until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist with respect to the relevant Benchmark,
(i) if such Term Benchmark Loan is denominated in U.S. Dollars, then on the last day of the Interest Period applicable to such Committed Loan (or the next succeeding Business Day if such day is not a Business Day), such Committed Loan shall be converted by the Administrative Agent to, and shall constitute, an ABR Loan denominated in U.S. Dollars on such day,
(ii) of if such Term Benchmark Loan is denominated in Canadian Dollars, then on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), such Loan shall be converted by the Administrative Agent to, and shall constitute, a Canadian Prime Rate Loan denominated in Canadian Dollars on such day,
(iii) if such Term Benchmark Loan is denominated in any Alternative Currency (other than Canadian Dollars), then such Loan shall, on the last day of the Interest Period applicable to such Committed Loan (or the next succeeding Business Day if such day is not a Business Day) bear interest at the Central Bank Rate for the applicable Alternative Currency plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for the applicable Alternative Currency cannot be determined, any outstanding affected Term Benchmark Loans denominated in any Alternative Currency (other than Canadian Dollars) shall, at the Borrower’s election prior to such day: (A) be prepaid by the Borrower on such day or (B) solely for the purpose of calculating the interest rate applicable to such Term Benchmark Loan, such Term Benchmark Loan denominated in any Alternative Currency (other than Canadian Dollars) shall be deemed to be a Term Benchmark Loan denominated in U.S. Dollars and shall accrue interest at the same interest rate applicable to Term Benchmark Loans denominated in U.S. Dollars at such time or
(iv) any such SONIA Loan shall bear interest at the Central Bank Rate for Sterling plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for Sterling cannot be determined, any outstanding affected SONIA Loans, at the Borrower’s election, shall either (A) be converted into ABR Loans denominated in U.S. Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) immediately or (B) be prepaid in full immediately.
3.04 Increased Costs; Reserves on Term Benchmark Loans. (a) Increased Costs Generally. If any Change in Law shall (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e)); (ii) subject any Lender to any Tax of any kind whatsoever with respect to this Agreement or any Term Benchmark Loan made by it or any Letter of Credit or participation therein, or change the basis of taxation of payments to such Lender in respect thereof (except for Indemnified Taxes and any Excluded Taxes); or (iii) impose on any Lender or any Issuing Bank or the Londonapplicable interbank market for the applicable Agreed Currency any other condition, cost or expense (other than Taxes) affecting this Agreement or Term Benchmark Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Term Benchmark Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or such Issuing Bank of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered; provided that any such amount or amounts shall not be duplicative of any amounts to the extent otherwise paid by the Borrower under any other provision of this Agreement. The Borrower shall have the rights specified in Section 11.13 in respect of any Lender for whose account the Borrower makes any payment under this Section 3.04.
(b) Capital Requirements. If any Lender or Issuing Bank determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by any Issuing Bank, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy or liquidity), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender setting forth in reasonable detail the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section 3.04 and delivered to the Borrower shall be conclusive absent manifest error. Such Lender shall also certify that it is generally charging such costs to similarly situated customers of the applicable Lender under agreements having provisions similar to this Section 3.04 after consideration of such factors as such Lender then reasonably determines to be relevant (which determination shall be made in good faith (and not on an arbitrary or capricious basis)). The Borrower shall pay such Lender the amount shown as due on any such certificate within 30 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section 3.04 shall not constitute a waiver of such Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section 3.04 for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions
is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof).
(e) Reserves on Term Benchmark Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Term Benchmark Loan made to it equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.
3.05 Compensation for Losses.
(a) With respect to Loans that are not SONIA Loans, upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (a) any continuation, conversion, payment or prepayment of any Loan made to it other than an ABR Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by it (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than an ABR Loan on the date or in the amount notified by it; or (c) any assignment of a Term Benchmark Loan on a day other than the last day of the Interest Period therefor as a result of a request by it pursuant to Section 11.13; including any loss or expense (excluding loss of anticipated profits) arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Term Benchmark Loan made by it at the Adjusted LIBOTerm SOFR Rate, the Adjusted EURIBOR Rate, the Adjusted AUD Rate or the Adjusted CDOR Rate, as applicable, for such Loan by a matching deposit or other borrowing in the London interbank eurocurrency market for a comparable amount and for a comparable period, whether or not such Term Benchmark Loan was in fact so funded.
(b) With respect to SONIA Loans, upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of: (a) any payment or prepayment of any SONIA Loan made to it on a day other than the Interest Payment Date for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); (b) any failure by it (for a reason other than the failure of such Lender to make a Loan) to prepay or borrow any SONIA Loan on the date or in the amount notified by it; or (c) any assignment of a SONIA Loan on a day other than the Interest Payment Date therefor as a result of a request by it pursuant to Section 11.13; including any loss or expense (excluding loss of anticipated profits) arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each SONIA Loan made by it at SONIA.
3.06 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. Each Lender may make any Loans and each Issuing Bank may issue Letters of Credit to the Borrower through any Lending Office, provided that the exercise of this option shall not affect the obligation of the Borrower to repay the Loans or Letters of Credit in accordance with the terms of this Agreement. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay (or will be required to pay) any additional amounts or indemnification payments in respect of any Indemnified Taxes to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04 as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) Replacement of Lenders. If any Lender requests compensation under Section 3.02 or Section 3.04, or if the Borrower is required to pay (or will be required to pay) any additional amounts or indemnification payments in respect of any Indemnified Taxes to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrower may replace such Lender in accordance with Section 11.13.
3.07 Survival. Each Loan Party’s obligations under this Article III shall survive the termination of this Agreement, the termination of the Aggregate Commitments, repayment of all other Obligations hereunder, the resignation or replacement of the Administrative Agent and any assignment of rights by, or the replacement of, a Lender.
3.08 LIBOR SuccessorBenchmark Replacement.
(a) Notwithstanding anything to the contrary herein or in any other Loan Document, if a Benchmark Transition Event, an Early Opt-in Election or Other Benchmark Rate Election, as applicable, and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (1) or (2) of the definition of “Benchmark Replacement” with respect to U.S. Dollars for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (32) of the definition of “Benchmark Replacement” with respect to any Agreed Currency for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders of each affected Ffacility. If the Benchmark Replacement is based upon Daily Simple SOFR, all interest payments will be payable on a monthly basis.
(b) Notwithstanding anything to the contrary herein or in any other Loan Document and subject to the proviso below in this paragraph, with respect to a Loan denominated in U.S. Dollars, if a Term SOFR Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then the applicable Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder or under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings, without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document; provided that, this clause (c) shall not be effective unless the Administrative Agent has delivered to the Lenders and the Borrower a Term SOFR Notice. For the avoidance of doubt, the Administrative Agent shall not be required to deliver a Term SOFR Notice after the occurrence of a Term SOFR Transition Event and may do so in its sole discretion.[Reserved].
(c) In connection with the implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action by or consent of any other party to this Agreement or any other Loan Document.
(d) The Administrative Agent will promptly notify the Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event, an Early Opt-in Election or Other Benchmark Rate Election, as applicable, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes, (iv) the removal or reinstatement of any tenor of a Benchmark pursuant to clause (e) below and (v) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.08, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 3.08.
(e) Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including the Term SOFR, LIBO Rate, EURIBOR Rate, CDOR Rate or AUD Rate) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is or will be no longer representative, then the Administrative Agent may modify the definition of “Interest Period” for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is or will no longer be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(f) Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any request for a Term Benchmark Borrowing or SONIA Borrowing of, conversion to or continuation of Term Benchmark Loans or SONIA Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, either (x) the
Borrower will be deemed to have converted any request for a Term Benchmark Borrowing denominated in U.S. Dollars into a request for a Borrowing of or conversion to ABR Loans, (y) the Borrower will be deemed to have converted any request for a Term Benchmark Borrowing denominated in Canadian Dollars into a request for a Borrowing of or conversion to Canadian Prime Rate Loans or (z) any Term Benchmark Borrowing or SONIA Borrowing denominated in an Alternative Currency (other than Canadian Dollars) or SONIA Borrowing shall be ineffective, as applicable. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of ABR based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of ABR. Furthermore, if any such Term Benchmark Loan or SONIA Loan in any Alternative Currency is outstanding on the date of the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period with respect to a Relevant Rate applicable to such Term Benchmark Loan or SONIA Loan, then until such time as a Benchmark Replacement for such AlternativeAgreed Currency is implemented pursuant to this Section 3.08, (i) if such Term Benchmark Loan is denominated in U.S. Dollars, then on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), such Loan shall be converted by the Administrative Agent to, and shall constitute, an ABR Loan denominated in U.S. Dollars on such day, (ii) if such Term Benchmark Loan is denominated in Canadian Dollars, then on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day), such Loan shall be converted by the Administrative Agent to, and shall constitute, ana Canadian Prime Rate Loan denominated in Canadian Dollars on such day, (iii) if such Term Benchmark Loan is denominated in any Alternative Currency other than Canadian Dollars, then such Loan shall, on the last day of the Interest Period applicable to such Loan (or the next succeeding Business Day if such day is not a Business Day) bear interest at the Central Bank Rate for the applicable Alternative Currency plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for the applicable Alternative Currency cannot be determined, any outstanding affected Term Benchmark Loans denominated in any Alternative Currency shall, at the Borrower’s election prior to such day: (A) be prepaid by the Borrower on such day or (B) solely for the purpose of calculating the interest rate applicable to such Term Benchmark Loan, such Term Benchmark Loan denominated in any Alternative Currency shall be deemed to be a Term Benchmark Loan denominated in U.S. Dollars and shall accrue interest at the same interest rate applicable to Term Benchmark Loans denominated in U.S. Dollars at such time or (iv) such SONIA Loan shall bear interest at the Central Bank Rate for the applicable Alternative Currency plus the Applicable Rate; provided that, if the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that the Central Bank Rate for the applicable Alternative Currency cannot be determined, any outstanding affected SONIA Loans, at the Borrower’s election, shall either (A) be converted into ABR Loans denominated in U.S. Dollars (in an amount equal to the Dollar Equivalent of such Alternative Currency) immediately or (B) be prepaid in full immediately.
3.09 Issuing Banks. Each Issuing Bank shall be deemed to be a Lender for purposes of this Article III.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 Conditions of Closing. The obligation of each Lender to make its initial Loan and of each Issuing Bank to issue any Letters of Credit hereunder shall not become effective, and the Closing Date shall not occur, until the date on which each of the following conditions is satisfied:
(a) The Administrative Agent’s receipt of the following, each properly executed by a Responsible Officer of the Borrower and/or the Guarantors, as applicable, each dated the
Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance reasonably satisfactory to the Administrative Agent and its legal counsel:
(i) executed counterparts of this Agreement;
(ii) a Note executed by the Borrower in favor of each Lender requesting a Note;
(iii) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each of the Borrower and each of the Guarantors as the Administrative Agent may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents;
(iv) such documents and certifications as the Administrative Agent may reasonably require to evidence that each of the Borrower and each Guarantor is duly organized, and that each of the Borrower and each Guarantor is validly existing, in good standing in its state of organization;
(v) a favorable written opinion of Cooley LLP, counsel to the Borrower, addressed to the Administrative Agent and each Lender and dated as of the Closing Date, covering such matters relating to the Borrower, this Agreement or other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require;
(vi) executed counterparts of the Collateral Agreement;
(vii) the Disclosure Letter;
(viii) a Perfection Certificate executed by each Loan Party;
(ix) evidence that the Administrative Agent shall have received all stock certificates representing the issued and outstanding Equity Interests of each Subsidiary of the Borrower required by the Collateral Agreement to be delivered to the Administrative Agent (or its designee) with endorsements and stock powers in form and substance reasonably satisfactory to the Administrative Agent; and
(x) a certificate signed by a Responsible Officer of the Borrower (on behalf of the Borrower) certifying that the conditions specified in Sections 4.02(a) and (b) have been satisfied.
(b) Any fees required to be paid on or before the Closing Date pursuant to the Engagement Letter, and all expenses required to be reimbursed by the Borrower, for which invoices have presented at least three (3) Business Days prior to the Closing Date, shall have been paid.
(c) The Administrative Agent and the Lenders shall have received, at least five Business Days in advance of the Closing Date, all documentation and other information as is reasonably requested in writing at least ten Business Days prior to the Closing Date by the Administrative Agent or the Lenders about the Loan Parties and required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and
regulations, including the Patriot Act and at least three days prior to the Closing Date, any Loan Party that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation shall have delivered, to each Lender that so requests, a Beneficial Ownership Certification in relation to such Loan Party.
(d) The Administrative Agent shall have received a certificate from the Borrower’s insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to Section 6.07 is in full force and effect and that the Administrative Agent, for the benefit of the Secured Parties, has been named as additional insured and loss payee thereunder to the extent required under Section 6.07; provided, that any requirement under this clause (d) shall not be required to be satisfied on the Closing Date and shall not be a condition to the availability of the initial Loans on the Closing Date but shall be required to be satisfied within ninety (90) days following the Closing Date or such later date as the Administrative Agent may agree in its reasonable discretion.
Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender and Issuing Bank that has signed this Agreement (and each such Lender’s or Issuing Bank’s Affiliates, successors and/or assigns) shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender and Issuing Bank unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
4.02 Conditions to all Borrowings. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of any Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions precedent:
(a) The representations and warranties of the Borrower contained in Article V or any other Loan Document that are qualified by materiality shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, and the representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date (provided, that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof), and except that for purposes of this Section 4.02, the representations and warranties contained in subsections (a) and (b) of Section 5.05 shall be deemed to refer to the most recent financial statements delivered pursuant to clauses (a) and (b) respectively, of Section 6.01.
(b) No Default and no Event of Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.
(c) After giving effect to such Credit Extension, the Borrower would be in pro forma compliance with the Liquidity Covenant, recalculated as of the date of such Credit Extension.
(d) The Administrative Agent shall have received a Committed Loan Notice in accordance with the requirements hereof.
Each Committed Loan Notice in respect of a Borrowing submitted by the Borrower, each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to be a representation and warranty that the conditions specified in this Section 4.02 have been satisfied on and as of the date of the applicable Borrowing or issuance, amendment, renewal or extension of such Letter of Credit.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower and each Guarantor represents and warrants to the Administrative Agent and the Lenders, as to itself and its Subsidiaries, that:
5.01 Existence, Qualification and Power. The Borrower and each Guarantor (a) is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation as identified on Schedule 5.01 to the Disclosure Letter and (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to carry on its business as now conducted and to execute, deliver and perform its obligations under the Loan Documents.
5.02 Authorization; No Contravention. The execution, delivery and performance by the Borrower and each Guarantor of each Loan Document to which such Person is party, have been duly authorized by all necessary corporate action, and do not and will not contravene (a) the terms of any of the Borrower’s or any Guarantor’s Organizational Documents or (b) any Law or any contractual restriction binding on or affecting it, except, in each case referred to in this clause (b), to the extent such contravention could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.03 Governmental Authorization; Other Consents. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Borrower or any Guarantor of this Agreement or any other Loan Document except (a) such as have been obtained and are in full force and effect, (b) for filings and recordings with respect to the Collateral to be made, or otherwise delivered to the Administrative Agent for filing and/or recordation, as of the Closing Date and (c) those which, if not obtained or made, would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by the Borrower and each Guarantor. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of the Borrower and each Guarantor, enforceable against the Borrower and each Guarantor in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, arrangement, moratorium and other similar laws affecting creditors’ rights generally and to the application of general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.
5.05 Financial Statements; No Material Adverse Effect.
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein.
(b) The unaudited consolidated balance sheets of the Borrower and its Subsidiaries dated March 31, 2021 and June 30, 2021, and the related unaudited consolidated statements of income (loss), stockholders’ equity (deficit) and cash flows for the fiscal quarters ended on such dates (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the dates thereof and their results of operations, cash flows and changes in shareholders’ equity for the periods covered thereby, subject to the absence of footnotes and to normal year-end audit adjustments.
(c) Since December 31, 2020, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
5.06 Ownership of Property. Each of the Borrower and each Subsidiary has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.07 Taxes. As of the Closing Date, the Borrower and its Subsidiaries have paid all Taxes that were due and payable by them, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP or to the extent that the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
5.08 ERISA Compliance; Foreign Plans. Except as has not resulted or could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, (i) each Plan is in compliance with the applicable provisions of ERISA, the Code and other Federal or state Laws and each Foreign Plan is in compliance with the applicable provisions of the laws applicable to such Foreign Plan, (ii) there are no pending or, to the knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan or Foreign Plan, (iii) there exists no Unfunded Pension Liability with respect to any Plan, and (iv) no ERISA Event or Foreign Plan Event has occurred or is reasonably expected to occur.
5.09 Margin Regulations; Investment Company Act.
(a) Neither the Borrower nor any Guarantor is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors), or extending credit for the purpose of purchasing or carrying margin stock.
(b) Neither the Borrower nor any Guarantor is required to be registered as an “investment company” under the Investment Company Act of 1940.
5.10 Disclosure. No report, financial statement, certificate or other written information concerning the Borrower and its Subsidiaries (other than information of a general economic or industry specific nature) furnished by or on behalf of the Borrower to the Administrative Agent or any Lender prior to the Closing Date in connection with the transactions contemplated hereby and the negotiation of this Agreement (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact, and no such document, when considered collectively with all other such documents, omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading; provided that, with respect to projections and forward-looking statements, the Borrower represents only that such projections and
forward-looking statements are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made, it being recognized by the Administrative Agent and the Lenders that such projected financial information as to future events and forward-looking statements may not occur and are not to be viewed as facts or a guarantee of performance and are subject to significant uncertainties and contingencies many of which are beyond the control of the Borrower and its Restricted Subsidiaries and that actual results during the period or periods covered by any such projected financial information may differ significantly from the projected results and such differences may be material.
5.11 Intellectual Property; Licenses, Etc. Except as has not resulted or could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, (i) each of the Borrower and its Subsidiaries owns or has the right to use, all trademarks, services marks, trade dress, trade names, copyrights, domain names, trade secrets, know-how, patents, copyrights in software, data and databases and other similar proprietary or intellectual property rights used in or necessary to its business as currently conducted (the “IP Rights”); (ii) the operation of the business of the Borrower and its Subsidiaries does not infringe, misappropriate or otherwise violate the Intellectual Property rights of any other Person and (iii) the Borrower and its Subsidiaries have taken commercially reasonable actions to protect and maintain their ownership in and validity and enforceability of their owned IP Rights.
5.12 Anti-Corruption Laws and Sanctions. The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Borrower, its Subsidiaries and their respective officers and employees and, to the knowledge of the Borrower, directors and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrower, any Subsidiary or any of their respective directors, officers or, employees, or (b) to the knowledge of the Borrower, any agent of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing, Letter of Credit, use of proceeds or other transaction contemplated by this Agreement will violate any Anti-Corruption Law or applicable Sanctions.
5.13 Solvency. The Borrower and its Subsidiaries, on a consolidated basis, are Solvent.
5.14 Equity Interests and Ownership. The Equity Interests constituting Pledged Equity Interests have been duly authorized and validly issued and are fully paid and non-assessable. Except as set forth on Schedule 5.14 to the Disclosure Letter, as of the Closing Date there is no existing option, warrant, call, right, commitment or other agreement (including preemptive rights) to which Borrower or any of its Subsidiaries is a party requiring, and there is no Equity Interest constituting Pledged Equity Interests outstanding which upon conversion or exchange would require, the issuance by Borrower or any of its Subsidiaries of any additional Equity Interests constituting Pledged Equity Interests of Borrower or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, Equity Interests constituting Pledged Equity Interests of Borrower or any of its Subsidiaries. Schedule 5.14 to the Disclosure Letter correctly sets forth the ownership interest of the Borrower and its Subsidiaries in their respective Subsidiaries in which Equity Interests constituting Pledged Equity Interests are held as of the Closing Date.
5.15 Real Estate Assets. As of the Closing Date, Schedule 5.15 to the Disclosure Letter is a complete and correct list of (a) all Real Estate Assets, and (b) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Estate Asset of any Loan Party, regardless of whether such Loan Party is the landlord
or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment.
5.16 Collateral. During the Collateral Period and subject to Sections 4.01(a)(ix), 4.01(d) and 6.16 of this Agreement (including with respect to any security interest that cannot be created, pledged or perfected on the Closing Date after the use by the Borrower of commercially reasonable efforts to create, pledge or perfect any such security interest in the Collateral on the Closing Date), the security interest of the Administrative Agent in the Collateral constitutes a valid, perfected first priority security interest in and continuing Lien on all of each Loan Party’s right, title and interest in, to and under the Collateral (subject to permitted Liens).
5.17 Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened in writing (including “cease and desist” letters and invitations to take a patent license) against or affecting the Borrower or any of its Restricted Subsidiaries (i) that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement, any other Loan Document or the transactions contemplated under this Agreement.
(b) Except with respect to any matter that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Restricted Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, or (iii) has received notice of any claim with respect to any Environmental Liability.
5.18 Compliance with Laws and Agreements. Each of the Borrower and its Restricted Subsidiaries is in compliance with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property and rights and all indentures, agreements, and other instruments binding upon it or its property and rights, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
5.19 Affected Financial Institutions. No Loan Party is an Affected Financial Institution.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation (other than inchoate indemnity obligations) hereunder shall remain unpaid or unsatisfied, any Letter of Credit remains outstanding or any LC Disbursement shall not have been reimbursed or cash collateralized on terms reasonably acceptable to the applicable Issuing Bank (or other arrangements are made with respect thereto reasonably satisfactory to the applicable Issuing Bank):
6.01 Financial Statements. The Borrower shall deliver to the Administrative Agent and each Lender (for further distribution to the Lenders):
(a) commencing with the fiscal year ended December 31, 2021, within (x) prior to an IPO, 120 days after the end of each fiscal year of the Borrower and (y) after an IPO, 90 days after the end of each fiscal year end of the Public Company, the audited consolidated balance sheet and the related audited consolidated statements of income (loss), stockholders’ equity
(deficit) and cash flows of the Borrower (or, after an IPO, the Public Company) as of the end of and for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP; audited and accompanied by a report and opinion of KPMG LLP or another independent certified public accounting firm of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception (other than a qualification related to the maturity of the Commitments and the Loans at the Maturity Date or any other Indebtedness maturing within one year from the time such report is delivered) or any qualification or exception as to the scope of such audit or with respect to the absence of any material misstatement;
(b) commencing with the fiscal quarter ended September 30, 2021, within (x) prior to an IPO, 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower and (y) after an IPO, 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Public Company, the consolidated balance sheet and the related unaudited consolidated statements of income (loss), stockholders’ equity (deficit) and cash flows of the Borrower (or, after an IPO, the Public Company) as of the end of and for such fiscal quarter and for the portion of the fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by its chief executive officer, chief financial officer, treasurer, chief accounting officer or controller as fairly presenting in all material respects the financial condition, results of operations, stockholders’ equity and cash flow of the Borrower (or, after an IPO, the Public Company) and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and
(c) concurrently with any delivery of financial statements under clause (a) above and within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, the Borrower shall provide unaudited financial statements of corresponding character and for dates and periods as in clauses (a) and (b) covering the Unrestricted Subsidiaries, together with a consolidating statement reflecting eliminations or adjustments required to reconcile the financial statements of such Unrestricted Subsidiaries to the financial statements delivered pursuant to such clauses (a) and (b).
6.02 Certificates; Other Information. The Borrower shall deliver to the Administrative Agent (for further distribution to the Lenders), in the case of clauses (a) and (b) below or to each requesting Lender, in the case of clauses (c) and (d) below:
(a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by the chief executive officer, chief accounting officer, chief financial officer, treasurer or controller of the Borrower;
(b) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Restricted Subsidiary with the SEC, or any Governmental Authority succeeding to any or all of the functions of the SEC, or with any national securities exchange, as the case may be, in each case that is not otherwise required to be delivered to the Administrative Agent pursuant hereto; provided that such information shall be deemed to have been delivered on the date on which such information has been posted on the Borrower’s website on the Internet on any investor relations page at http://www.redditinc.com (or any successor page) or at http://www.sec.gov;
(c) subject to any confidentiality obligations imposed on the Borrower or any Subsidiary by applicable Law, court order, contract or otherwise, promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request in connection with this Agreement; and
(d) promptly following any request therefor, information and documentation reasonably requested by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the PATRIOT Act and the Beneficial Ownership Regulation.
Notwithstanding the foregoing, the information required to be delivered pursuant to Section 6.01(a) or (b) shall be (x) deemed to have been delivered on the date (A) on which such information has been posted on the Internet at www.sec.gov or such other website previously notified by the Borrower to the Administrative Agent to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent) or (B) on which the Public Company files its Form 10-K or 10-Q, as applicable, with the SEC and (y) to the extent relating to a Public Company that is a Parent Entity, accompanied by consolidating information that explains in reasonable detail the differences between the information relating to the Public Company, on the one hand, and the information relating to the Borrower and its Subsidiaries on a stand-alone basis, on the other hand. The Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Documents required to be delivered pursuant to Section 6.01 and Section 6.02(b) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which such information has been posted on the internet at www.sec.gov or such other website previously notified by the Borrower to the Administrative Agent to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent), (ii) on which the Relevant Public Company files its Form 10-K or 10-Q, as applicable, with the SEC; provided that, in the case of this clause (ii), to the extent relating to a Relevant Public Company that is a Parent Entity, such delivery is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to the Relevant Public Company, on the one hand, and the information relating to the Borrower and its Subsidiaries on a stand-alone basis, on the other hand or (iii) on which such documents are posted on the Borrower’s behalf on Syndtrak or another relevant website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent). Each Lender shall be solely responsible for timely accessing posted documents and maintaining its copies of such documents.
6.03 Notices. Promptly after the Borrower’s obtaining Actual Knowledge thereof, the Borrower shall notify the Administrative Agent, for prompt further notification of the Lenders by the Administrative Agent:
(a) of the occurrence of any Default; and
(b) of any matter (including litigation, governmental proceedings or investigations), that has resulted or could reasonably be expected to result in a Material Adverse Effect.
Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a Responsible Officer of the Borrower (on behalf of the Borrower) setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
6.04 Payment of Taxes. Except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Borrower shall, and shall cause each of its Restricted Subsidiaries to, pay and discharge as the same shall become due and payable, all Taxes upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary.
6.05 Preservation of Existence, Etc. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, (a) preserve, renew and maintain in full force and effect its legal existence, and solely in the case of the Borrower and the Guarantors, maintain such existence in the United States, in each case, except in a transaction permitted by Section 7.02, and except that no Restricted Subsidiary shall be required to preserve, renew and maintain its corporate existence, if the Borrower or such Restricted Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower and its Restricted Subsidiaries, taken as a whole, and that the loss thereof could not be reasonably expected to have a Material Adverse Effect and (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution, or the transactions permitted under Section 7.02.
6.06 Maintenance of Properties. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.07 Maintenance of Insurance.
(a) Except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Borrower shall (a) use commercially reasonable efforts to maintain or cause to maintain with financially sound and reputable insurance companies insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar businesses, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons, and/or (b) retain risk through a self-insurance mechanism or by agreement with an Affiliate or externally regulated vehicle for funding loss normally provided through insurance coverage carried by companies engaged in the same or similar businesses and owning similar properties. Without limiting the generality of the foregoing, during the Collateral Period, the Borrower and its Restricted Subsidiaries will maintain or cause to be maintained actual casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses. Each such policy of insurance of property and/or liability shall, within ninety (90) days of the Closing Date (or such later date as may be agreed by the Administrative Agent in its reasonable discretion), (i) in the case of liability insurance policies, name the Administrative Agent, on
behalf of the Secured Parties, as an additional insured thereunder as its interests may appear and (ii) during the Collateral Period, in the case of each casualty insurance policy, contain a loss payable clause or endorsement, reasonably satisfactory in form and substance to the Administrative Agent, that names the Administrative Agent, on behalf of the Secured Parties, as the loss payee thereunder for any covered loss and the Borrower shall use its commercially reasonable efforts to have each such loss payable clause or endorsement, as the case may be, provide for at least thirty days’ (or such lesser period as is reasonably acceptable to the Administrative Agent) prior written notice to the Administrative Agent of any modification or cancellation of such policy, except, in each case, where the failure to do so could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. If at any time the area in which any improved Mortgaged Property is located is designated a Special Flood Hazard Area, the applicable Loan Party shall use commercially reasonable efforts to obtain customary flood insurance.
6.08 Compliance with Laws and Agreements. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, (a) comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it to its business or property and all indentures, agreements and other instruments binding upon it or its property and rights, except in such instances in which (i) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (ii) the failure to comply therewith could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and (b) maintain in effect and enforce policies and procedures reasonably designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
6.09 Books and Records. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, maintain proper books of record and account that permit the preparation of consolidated financial statements of the Borrower materially in accordance with GAAP or IFRS, applicable. The Borrower will, and will cause each of its Restricted Subsidiaries to, permit any representatives designated by the Administrative Agent or, solely during the existence of an Event of Default, any Lender (pursuant to the request made through the Administrative Agent), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records to the extent reasonably necessary, and to discuss its affairs, finances and condition with its officers and independent accountants (provided that the Borrower or such Restricted Subsidiary shall be afforded the opportunity to participate in any discussions with such independent accountants), all at such reasonable times and as often as reasonably requested (but no more than once annually if no Event of Default exists). Notwithstanding anything to the contrary in this Section 6.09, none of the Borrower or any of its Restricted Subsidiaries shall be required to disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or other matter that (i) constitutes non-financial trade secrets or non-financial proprietary information, (ii) in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives) is prohibited by applicable law or any third party contract legally binding on Borrower or such Restricted Subsidiary, or (iii) is subject to attorney, client or similar privilege or constitutes attorney work-product.
6.10 Use of Proceeds. The Borrower shall use the proceeds of the Borrowings for working capital, capital expenditures, Acquisitions, investments, permitted Restricted Payments and other purposes not in contravention of any Law or of any Loan Document.
6.11 [Reserved].
6.12 Additional Guarantors. Within 45 days (or such longer period as acceptable to the Administrative Agent) after the date any Person becomes a Restricted Subsidiary of the Borrower, other than an Immaterial Subsidiary, or ceases to be an Excluded Subsidiary, shall:
(a) Notice to Administrative Agent. Promptly send to the Administrative Agent written notice setting forth with respect to such Person, if applicable, (x) the date on which such Person became a Restricted Subsidiary of the Borrower or ceased to be an Excluded Subsidiary and (y) all of the data required to be set forth in Schedules 5.01 and 5.14 to the Disclosure Letter with respect to the Borrower and its applicable Subsidiaries, and such written notice shall be deemed to supplement Schedules 5.01 and 5.14 to the Disclosure Letter for all purposes hereof;
(b) Counterpart Agreement. Other than with respect to an Excluded Subsidiary, promptly cause such Subsidiary to become a Guarantor hereunder and, during the Collateral Period, a Grantor under the Collateral Agreement by executing and delivering to the Administrative Agent a Counterpart Agreement and, if applicable, a supplement to the Collateral Agreement in form and substance reasonably satisfactory to the Administrative Agent;
(c) Corporate Documents and Opinions. Other than with respect to an Excluded Subsidiary, (i) take all such corporate or limited liability company or other entity organizational actions, as applicable, and execute and deliver, or cause to be executed and delivered, all such applicable documents, instruments, agreements, and certificates as are similar to those described in Section 4.01(a)(iii) and (iv) and (ii) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions consistent with the legal opinions delivered on the Closing Date, which opinions shall be in form and substance reasonably satisfactory to the Administrative Agent; and
(d) Collateral Documents. Other than with respect to an Excluded Subsidiary and only during the Collateral Period, deliver all such applicable documents, instruments, agreements, and certificates consistent with those delivered on the Closing Date and take all of the actions necessary to grant and to perfect a first priority Lien (subject to Liens permitted by Section 7.01) in favor of the Administrative Agent, for the benefit of the Secured Parties, under the Collateral Agreement (but subject to any limitations sets forth therein) in the Equity Interests of such Subsidiary and in substantially all of the personal property of such Subsidiary (other than Excluded Assets).
6.13 Designation of Subsidiaries.
(a) Subject to Section 6.13(b), the Borrower may at any time designate any Restricted Subsidiary as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Restricted Subsidiary. The designation of any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the incurrence at the time of designation of any Indebtedness, Liens and Investments (as applicable) of such Subsidiary existing at such time.
(b) The Borrower may not (x) designate any Restricted Subsidiary as an Unrestricted Subsidiary or (y) designate an Unrestricted Subsidiary as a Restricted Subsidiary, in each case unless:
(i) no Event of Default exists or would result therefrom;
(ii) in the case of clause (x) only, immediately after giving pro forma effect to such designation, the total assets of all Unrestricted Subsidiaries shall not exceed 10.0% of Consolidated Total Assets as of such date; and
(iii) in the case of clause (x) only, the Subsidiary to be so designated does not own any (i) Equity Interests of the Borrower or any Restricted Subsidiary or (ii) (x) any Reddit Intellectual Property or (y) Material Intellectual Property (except to the extent permitted pursuant to Section 7.09).
(c) If, at any time, any Unrestricted Subsidiary holds the legal or beneficial ownership interest in any (x) Reddit Intellectual Property or (y) Material Intellectual Property (except to the extent permitted pursuant to Section 7.09), it will, without any further action necessary, immediately cease to be an Unrestricted Subsidiary and will automatically be deemed to be designated as a Restricted Subsidiary (whether or not clause (b)(i) above is satisfied at the time of such deemed designation).
6.14 Material Real Estate.
(a) Within ninety (90) days after the acquisition of any Material Real Estate (or such later date as may be agreed by the Administrative Agent in its reasonable discretion), the Borrower or the applicable Guarantor shall execute and/or deliver, or cause to be executed and/or delivered, to the Administrative Agent, for each Material Real Estate, the following, each in form and substance reasonably satisfactory to the Administrative Agent:
(i) to the extent an appraisal is required under FIRREA, an appraisal complying with FIRREA;
(ii) a fully executed and acknowledged Mortgage in form suitable for filing or recording in all filing or recording offices that the Administrative Agent may reasonably deem necessary or desirable in order to create a valid and enforceable first priority Lien (subject only to permitted Liens) on the Mortgaged Property described therein in favor of the Administrative Agent;
(iii) a Title Policy insuring that the Mortgage is a valid and enforceable first priority Lien on the respective property, free and clear of all defects, encumbrances and Liens other than permitted Liens;
(iv) then current A.L.T.A. surveys in respect of such Mortgaged Property, certified to the Administrative Agent by a licensed surveyor or an update to an existing A.L.T.A. survey or an existing A.L.T.A. survey with a “no change” affidavit sufficient to allow the issuer of the lender’s title insurance policy to issue such policy without a survey exception;
(v) the Borrower shall use commercially reasonable efforts to deliver (A) a completed “Life of Loan” standard flood hazard determination form as to any improved Mortgaged Property, (B) if the improvements located on a Mortgaged Property are located in a Special Flood Hazard Area, a notification to the Borrower (a “Flood Notice”) and (if applicable) notification to the Borrower that flood insurance coverage under the NFIP is not available because the community in which the Mortgaged Property is located does not participate in the NFIP, and (C) if the Flood Notice is required to be given (x) documentation evidencing the Borrower’s receipt of the Flood Notice (e.g., a countersigned Flood Notice) and (y) evidence of flood insurance as required by Section 6.07;
(vi) a PZR Zoning Report, or equivalent zoning report or municipal zoning letter, providing that the continued operation of the properties and assets as currently conducted
conforms with all applicable zoning and building laws, rules or regulations or a zoning endorsement to the Lender’s title policy;
(vii) an opinion of local counsel in each state in which such Mortgaged Property is located with respect to the enforceability of the form of Mortgage to be recorded in such state and such other matters as are customary and as the Administrative Agent may reasonably request.
(b) In addition to the obligations set forth in Section 6.14(a), within forty-five (45) days after written notice from the Administrative Agent to the Borrower that any Mortgaged Property which was not previously located in an area designated as a Special Flood Hazard Area has been redesignated as a Special Flood Hazard Area, the Loan Parties shall satisfy the flood insurance requirements of Section 6.07.
(c) From time to time, if the Administrative Agent reasonably determines that obtaining appraisals is necessary in order for the Administrative Agent or any Lender to comply with applicable laws or regulations (including any appraisals required to comply with FIRREA), and at any time if an Event of Default shall have occurred and be continuing, the Administrative Agent may, or may require the Borrower to, in either case at the Borrower’s expense, obtain appraisals in form and substance and from appraisers reasonably satisfactory to the Administrative Agent stating the then current fair market value of all or any portion of the personal property of any Loan Party and the fair market value or such other value as determined by the Administrative Agent (for example, replacement cost for purposes of flood insurance) of any Material Real Estate of any Loan Party.
6.15 Further Assurances. Subject to the express limitations set forth herein and in the Collateral Documents, at any time or from time to time upon the request of the Administrative Agent, each Loan Party will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as the Administrative Agent may reasonably request in order to effect fully the purposes of the Loan Documents. In furtherance and not in limitation of the foregoing, each Loan Party shall take such actions as the Administrative Agent may reasonably request from time to time to ensure that the Secured Obligations are guaranteed by the Guarantors and, during the Collateral Period, are secured by substantially all of the assets of the Borrower, and its Subsidiaries that are Grantors and all of the outstanding Equity Interests of the Subsidiaries of the Borrower (subject to limitations contained in the Loan Documents with respect to Foreign Subsidiaries and any Excluded Subsidiaries).
6.16 Certain Post-Closing Obligations. As promptly as practicable, and in any event within the time periods after the Closing Date specified in Schedule 6.16 (which may be extended by the Administrative Agent in its sole discretion), the Borrower and each other Loan Party shall deliver the documents or take the actions specified on Schedule 6.16.
6.17 ERISA. The Borrower shall supply to the Administrative Agent (in sufficient copies for all the Lenders, if the Administrative Agent so requests): (a) promptly, and in any event within 30 days, after the Borrower, any Restricted Subsidiary or any ERISA Affiliate knows that any ERISA Event or Foreign Plan Event has occurred that, when taken together with all other ERISA Events and Foreign Plan Events that have occurred, or are reasonably expected to occur, has or could reasonably be expected to have a Material Adverse Effect, a certificate of the chief financial officer of the Borrower describing such ERISA Event and/or Foreign Plan Event and the action, if any, proposed to be taken with respect to such ERISA Event and/or Foreign Plan Event and a copy of any notice filed with the PBGC, IRS or any other domestic or foreign Governmental Authority pertaining to such ERISA Event and/or Foreign Plan Event and any notices received by the Borrower, Restricted Subsidiary, or ERISA Affiliate from the
PBGC, IRS or any other domestic or foreign Governmental Authority with respect thereto and (b) if, at any time after the Effective Date, the Borrower, any Restricted Subsidiary or any ERISA Affiliate maintains, or contributes to (or incurs an obligation to contribute to), a Pension Plan or Multiemployer Plan which is not set forth in Schedule 5.08 to the Disclosure Letter, then the Borrower shall deliver to the Administrative Agent an updated Schedule 5.08 to the Disclosure Letter as soon as practicable, and in any event within 20 days after the Borrower, such Restricted Subsidiary or such ERISA Affiliate maintains, or contributes to (or incurs an obligation to contribute to), thereto.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation (other than inchoate indemnity obligations) shall remain unpaid or unsatisfied, any Letter of Credit remains outstanding or any LC Disbursement shall not have been reimbursed or cash collateralized on terms reasonably acceptable to the applicable Issuing Bank (or other arrangements are made with respect thereto reasonably satisfactory to the applicable Issuing Bank):
7.01 Liens. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:
(a) Liens pursuant to any Loan Document;
(b) Liens existing on the date hereof and listed on Schedule 7.01 to the Disclosure Letter and any replacements, renewals or extensions thereof, provided that (x) the property covered thereby is not changed other than (A) after-acquired property that is affixed or incorporated into the property covered by such Lien or financed by Indebtedness permitted under Section 7.05 and (B) proceeds and products thereof and (y) the replacement, renewal, extension or refinancing of the obligations secured or benefited by such Liens, to the extent constituting Indebtedness, is permitted by Section 7.05;
(c) Liens for taxes, fees, assessments or other governmental charges, levies or claims that are not overdue for a period of more than thirty days which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
(d) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, supplier’s or other like Liens arising in the ordinary course of business;
(e) (i) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA and (ii) pledges and deposits in the ordinary course of business securing liability for reimbursement or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance to the Borrower or any of its Subsidiaries;
(f) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory or regulatory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
(h) Liens securing Indebtedness incurred pursuant to Section 7.05(j); provided that such Liens do not at any time encumber any property other than the property financed by such Indebtedness (except for replacements, additions and accessions to such assets);
(i) Liens existing on property at the time of its acquisition or existing on the property of any Person at the time such Person becomes a Restricted Subsidiary (other than by designation as a Restricted Subsidiary pursuant to Section 6.13), in each case after the Closing Date; provided that (i) such Lien is not created solely in contemplation of such acquisition or such Person becoming a Subsidiary, as the case may be; (ii) such Lien shall not apply to any other property or assets of the Borrower or any other Subsidiary (other than the proceeds or products thereof and other than after-acquired property subjected to a Lien securing Indebtedness and other obligations incurred prior to such time and which Indebtedness and other obligations are permitted hereunder that require, pursuant to their terms at such time, a pledge of after-acquired property, it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition); and (iii) the Indebtedness secured thereby is permitted by Section 7.05;
(j) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(g);
(k) Liens that are contractual, statutory or common law provision relating to banker’s liens, rights of set-off, rights of pledge or similar rights and remedies (A) relating to the establishment of depository relations with banks or other deposit-taking financial institutions or investment or securities accounts, (B) relating to pooled deposit or sweep accounts of the Borrower or any of its Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower or any of its Subsidiaries or (C) relating to purchase orders and other agreements entered into with customers of the Borrower or any of its Subsidiaries in the ordinary course of business;
(l) Liens arising under repurchase agreements, reverse repurchase agreements, securities lending and borrowing agreements and similar transactions;
(m) Liens arising under master netting agreements and other Swap Contracts to hedge exposure to currency and interest rate risks entered into in the ordinary course of business and not for speculative purposes;
(n) Liens arising from precautionary Uniform Commercial Code financing statement or similar filings;
(o) Liens arising from leases, licenses, subleases or sublicenses granted to others in the ordinary course of business which would not reasonably be expected to have a Material Adverse Effect;
(p) any interest or title of a lessor in the property (and the proceeds, accession or products thereof) subject to any operating lease, and Liens arising from Uniform Commercial
Code financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to true leases or leases permitted hereunder;
(q) Liens (i) in favor of the Borrower or a Restricted Subsidiary on assets of a Restricted Subsidiary that is not a Loan Party securing permitted intercompany Indebtedness and (ii) in favor of the Borrower or any Guarantor;
(r) Liens arising in connection with any Securitization, provided that such Liens do not encumber any assets other than the receivables or other assets being financed, the property securing or otherwise relating to such receivables or other assets, and the proceeds thereof;
(s) Liens solely on deposits, advances, contractual payments, including implementation allowances or escrows to or with landlords, customers or clients or in connection with insurance arrangement in the ordinary course of business;
(t) [Reserved];
(u) Liens arising in connection with any Sale Lease-Back Transaction, provided that (i) such Sale Lease-Back Transaction involves a lease for a term of not more than three years, (ii) such Sale Lease-Back Transaction is between the Borrower and one of its Restricted Subsidiaries, or between any of its Restricted Subsidiaries or (iii) the Borrower or any of its Restricted Subsidiaries applies an amount equal to the net proceeds of such Sale Lease-Back Transaction within 365 days after such Sale Lease-Back Transaction to any of (or a combination of) (A) the prepayment or retirement of bonds, notes, debentures or similar instruments or Indebtedness of the Borrower or a Restricted Subsidiary of the Borrower that by its terms matures more than 12 months after its creation or (B) the purchase, construction, development, expansion or improvement of properties or facilities that are used in or useful to the business of the Borrower or any of its Restricted Subsidiaries;
(v) Liens on Collateral securing Indebtedness incurred pursuant to Section 7.05(f); provided that, the applicable holders of such Indebtedness (or a representative thereof on behalf of such holders) shall have entered into the applicable Intercreditor Agreement;
(w) Liens securing Indebtedness or other obligations in an aggregate principal amount at any time outstanding not to exceed the greater of (i) $500,000,000 and (ii) 15.0% of Consolidated Total Assets; provided that during the Collateral Period (i) Liens incurred in reliance on this clause (w) on property that does not constitute Collateral shall not exceed $200,000,000 in the aggregate at any time outstanding and (ii) to the extent any such Liens are on Collateral, the applicable holders of such Indebtedness (or a representative thereof on behalf of such holders) shall have entered into the applicable Intercreditor Agreement;
(x) [Reserved];
(y) in the case of any non-wholly owned Subsidiary, any put and call arrangements related to its Equity Interests set forth in its organizational documents or any related joint venture or similar agreement;
(z) Liens solely on any cash earnest money deposits made by the Borrower or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement;
(aa) Liens (i) in favor of customs and revenue authorities arising as a matter of Law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business, and (ii) Liens on specific items of inventory or other goods and proceeds thereof of any Person securing such Person’s obligations in respect of bankers’ acceptances or letters of credit issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods in the ordinary course of business;
(bb) Liens arising out of conditional sale, title retention, consignment or similar arrangements for sale of goods entered into by the Borrower or any of its Restricted Subsidiaries in the ordinary course of business permitted by this Agreement;
(cc) ground leases in respect of Real Estate Assets on which facilities owned or leased by the Borrower or any of its Restricted Subsidiaries are located;
(dd) (i) zoning, building, entitlement and other land use regulations by Governmental Authorities with which the normal operation of the business complies, and (ii) any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate the use of any real property that does not materially interfere with the ordinary conduct of the business of the Borrower and its Restricted Subsidiaries, taken as a whole;
(ee) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(ff) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;
(gg) deposits of cash with the owner or lessor of premises leased and operated by the Borrower or its Restricted Subsidiaries to secure the performance of the Borrower’s or such Restricted Subsidiary’s obligations under the terms of the lease for such premises;
(hh) Liens arising by operation of law in the United States under Article 2 of the UCC in favor of a reclaiming seller of goods or buyer of goods;
(ii) Liens disclosed as an exception to a Title Policy;
(jj) Liens on amounts deposited as “security deposits” (or their equivalent) in the ordinary course of business in connection with actions or transactions not prohibited by this Agreement;
(kk) Liens on cash and cash equivalents securing obligations under master netting agreements and other Swap Contracts permitted hereunder; and
(ll) Liens on cash collateral securing any letters of credit in an aggregate face amount at any time outstanding not to exceed $25,000,000.
7.02 Fundamental Changes. The Borrower and each Restricted Subsidiary shall not: merge, dissolve, liquidate or consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the assets of itself and its Restricted Subsidiaries (whether now owned or hereafter acquired), to or in favor of any Person; provided, however, that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing, (i) any Person may merge with or into or
consolidate with the Borrower or a Restricted Subsidiary, if (A) the Borrower or such Restricted Subsidiary (which Restricted Subsidiary shall have assumed the Obligations of the applicable Guarantor by operation of Law or through assumption documents satisfactory to the Administrative Agent to the extent a Guarantor is merged with or into or consolidated with such Restricted Subsidiary and such Guarantor is not the surviving Person) is the surviving Person or (B) if the Borrower or the applicable Restricted Subsidiary, as the case may be, is not the surviving Person, (x) all Obligations of the Borrower or the applicable Guarantor, as the case may be, shall have been expressly assumed by the surviving Person in a written instrument in form and substance reasonably satisfactory to the Administrative Agent (y) the surviving Person shall be a corporation or limited liability company organized under the laws of the United States, any state thereof or the District of Columbia) and (z) such corporation shall have delivered to the Administrative Agent and the Lenders such legal opinions as the Administrative Agent may reasonably request in connection with the matters specified in the preceding clauses (x) and (y), provide such documentation and information as each Lender or the Administrative Agent reasonably requests in connection with applicable “know-your-customer” and anti-money laundering rules and regulations, including the Patriot Act, (ii) the Borrower or a Restricted Subsidiary may (A) merge into any of its Subsidiaries for the purpose of effecting a change in its state of incorporation in the United States (if all Obligations shall have been assumed by such Restricted Subsidiary by operation of Law or through assumption documents reasonably satisfactory to the Administrative Agent), and (B) reincorporate under the laws of the United States, any state thereof or the District of Columbia but must in each case promptly notify the Administrative Agent thereof and (iii) any Restricted Subsidiary may be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to the Borrower or any other Restricted Subsidiary. Notwithstanding the foregoing, none of the Borrower or any of its Restricted Subsidiaries will Dispose of (x) Reddit Intellectual Property or (y) Material Intellectual Property to any Person that is not the Borrower or a Restricted Subsidiary in reliance on this Section 7.02 (other than, solely in the case of clause (y) above and solely to the extent otherwise permitted pursuant to this Section 7.02, Dispositions of Material Intellectual Property for fair market value in an aggregate amount not to exceed the greater of $100,000,000 and 10.0% of Consolidated Total Assets).
7.03 Use of Proceeds.
(a) The Borrower will not, and will not permit any of its Subsidiaries to, use the proceeds of any Borrowing, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the Board of Governors) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose, in each case in violation of, or for a purpose which violates, or would be inconsistent with, Regulation T, U or X of the Board of Governors.
(b) The Borrower will not request any Borrowing or Letter of Credit, and the Borrower will not, and will not permit any of its Subsidiaries to, use, directly or, to its knowledge, indirectly, the proceeds of any Borrowing or Letter of Credit or lend, contribute to or otherwise make available such proceeds to any Subsidiary, joint venture partner or other Person (i) to finance an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person by the Borrower or any of its Subsidiaries in violation of any Anti-Corruption Laws or (ii) for the purpose of funding, financing or facilitating any activities, business or transaction by the Borrower or any of its Subsidiaries with any Sanctioned Person, or in any Sanctioned Country, to the extent such activities, businesses or transaction would be prohibited by Sanctions if conducted by a corporation incorporated in the United States or in a European Union member state or in any manner that would result in the violation of any Sanctions applicable to the Loan Parties.
7.04 Restricted Payments. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, declare or make any Restricted Payments with respect to the Borrower or any of its Restricted Subsidiaries, except:
(a) any Restricted Subsidiary of the Borrower may make Restricted Payments to the Borrower or to any direct or indirect wholly-owned Restricted Subsidiary of the Borrower, and any non-wholly-owned Restricted Subsidiary may make Restricted Payments to the Borrower or any of its other Restricted Subsidiaries and to each other owner of Equity Interests of such Restricted Subsidiary ratably based on their relative ownership interests of the relevant class of Equity Interests;
(b) the Borrower may declare and make dividends payable solely in additional shares of Borrower’s Equity Interests and may exchange Equity Interests for its Equity Interests (other than, in each case, Disqualified Equity Interests);
(c) the Borrower may (x) repurchase fractional shares of its Equity Interests, or make cash payments in lieu of the issuance of fractional shares, arising out of stock dividends, splits or combinations, business combinations or conversions of convertible securities (including the Convertible Notes) or exercises of warrants, options or restricted stock units, (y) “net exercise” or “net share settle” warrants, options or restricted stock units or (z) so long as no Event of Default then exists or would result therefrom, make cash settlement payments upon the exercise of warrants, options or restricted stock units to purchase its Equity Interests;
(d) the Borrower may redeem or otherwise cancel Equity Interests or rights in respect thereof granted to (or make payments on behalf of) directors, officers, employees or other providers of services to the Borrower and the Restricted Subsidiaries in an amount required to satisfy tax withholding obligations relating to the vesting, settlement or exercise of such Equity Interests or rights;
(e) the Borrower may declare or make Restricted Payments not otherwise permitted under this Section 7.04, so long as no Event of Default then exists or would result therefrom, in an aggregate amount not to exceed $100,000,000;
(f) following an IPO, the Borrower may repurchase Equity Interests pursuant to any accelerated stock repurchase or similar agreement; provided that the payment with respect to such repurchase would otherwise be permitted under clause (g) of this Section 7.04 at the time such agreement is entered into and at the time such payment is made;
(g) the Borrower may declare or make Restricted Payments if, after giving pro forma effect to such Restricted Payment (i) prior to an IPO, the Borrower and its Restricted Subsidiaries have Liquidity of at least $500,000,000 and the Senior Leverage Ratio does not exceed 3.00 to 1.00 and (ii) following an IPO, the Borrower and its Restricted Subsidiaries have Liquidity of at least $500,000,000; and
(h) the Borrower may make Restricted Payments:
(i) for any taxable period for which the Borrower and/or any of its Subsidiaries are members of a group filing a consolidated, combined or similar income tax return with any Parent Entity, to such Parent Entity to pay any consolidated, combined or similar income taxes for which such Parent Entity is liable that are attributable to the income of the Borrower and/or such Subsidiaries; provided that (i) the amount of any such Restricted Payments made with respect to
any taxable period shall not exceed the amount of such income taxes that the Borrower and/or such Subsidiaries (as applicable) would have been required to pay if the Borrower and/or such Subsidiaries had paid such tax on a separate company basis or a separate group basis (as applicable) for all relevant taxable periods, (ii) any such Restricted Payments attributable to income of an Unrestricted Subsidiary shall be limited to the amount of any cash paid by such Unrestricted Subsidiary to the Borrower or any Restricted Subsidiary for such purpose and (iii) with respect to any taxable period (or portion thereof) ending prior to the Closing Date, distributions otherwise permitted under this definition shall be permitted only to the extent such tax distributions relate to income or similar tax audit adjustments that arise after the Closing Date;
(ii) the proceeds of which shall be used by any Parent Entity hereunder to pay its operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including administrative, legal, accounting and similar expenses provided by third parties), which are reasonable and customary and incurred in the ordinary course of business in any fiscal year plus any reasonable and customary indemnification claims made by directors or officers of any Parent Entity attributable to the ownership or operations of the Borrower and its Subsidiaries;
(iii) the proceeds of which shall be used by any Parent Entity to pay franchise or similar taxes and other fees and expenses required to maintain its corporate existence;
(iv) the proceeds of which shall be used to pay customary salary, bonus and other benefits payable to officers and employees of any Parent Entity to the extent such salaries, bonuses and other benefits are attributable to the ownership or operations of the Borrower and its Restricted Subsidiaries; and
(v) to allow any Parent Entity to pay fees and expenses (other than to Affiliates) related to any unsuccessful equity or debt offering by any Parent Entity that is directly attributable to the ownership or operations of the Borrower and its Restricted Subsidiaries.
Notwithstanding anything herein to the contrary, none of the Borrower or any of its Restricted Subsidiaries will Dispose of or declare or make a Restricted Payment of (x) Reddit Intellectual property or (y) Material Intellectual Property to any Person that is not the Borrower or a Restricted Subsidiary in reliance on this Section 7.04 (other than, solely in the case of clause (y) above and solely to the extent otherwise permitted pursuant to this Section 7.04, Dispositions or Restricted Payments of Material Intellectual Property for fair market value in an aggregate amount not to exceed the greater of $100,000,000 and 10.0% of Consolidated Total Assets).
7.05 Indebtedness. Neither the Borrower nor any Restricted Subsidiary will create, incur, assume or suffer to exist any Indebtedness, except:
(a) Indebtedness under any Loan Document;
(b) Indebtedness outstanding on the date hereof and listed on Schedule 7.05 to the Disclosure Letter and any Permitted Refinancing thereof;
(c) Guarantees of the Borrower or any Restricted Subsidiary in respect of Indebtedness otherwise permitted hereunder of the Borrower or any Restricted Subsidiary, so long as, (i) in the case of guarantee provided by a Loan Party in respect of Indebtedness of a
Subsidiary that is not a Loan Party, such guarantee is in the ordinary course of business and (ii) a Subsidiary that is not a Loan Party shall not guarantee any Indebtedness for borrowed money of any Loan Party;
(d) obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person for non-speculative purposes and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;
(e) other Indebtedness (including any Permitted Refinancing thereof) of the Borrower or any Restricted Subsidiary in an aggregate principal amount at any time outstanding not to exceed (i) $1,000,000,000 plus (ii) an additional amount so long as the Senior Leverage Ratio does not exceed 3.00 to 1.00, determined on a pro forma basis after giving effect to the Indebtedness incurred pursuant to clause (ii) hereof (but excluding, for purposes of calculating the leverage ratio under this clause (e), any Indebtedness incurred pursuant to clause (i) hereof and any Convertible Notes incurred pursuant to Section 7.05(u), in each case, substantially concurrently or as part of the same transaction or series of related transactions), as of the most recently ended period for which financial statements have been delivered and, in each case of this clause (e), treating (x) any new commitments incurred on such date (or, in the case of a Limited Conditionality Acquisition, to be incurred in connection with such Acquisition) and (y) any such Indebtedness consisting of a revolving credit facility in each case as fully drawn; provided, that, in the case of any such Indebtedness the proceeds of which are to be used primarily to consummate a Limited Conditionality Acquisition substantially concurrently with the issuance or incurrence of such Indebtedness, the Senior Leverage Ratio shall be determined on the date the acquisition agreement with respect to such Limited Conditionality Acquisition is signed and not on the date such Indebtedness is incurred or issued; provided, that, any Indebtedness incurred pursuant to this clause (e) shall have terms and conditions (excluding any collateral, pricing, rate floors, discounts, fees, premiums and optional prepayment or redemption terms) that, taken as a whole, shall not be materially less favorable (taken as a whole) to the Loan Parties than those applicable to the Commitments (taken as a whole), as determined in good faith by the board of directors of Borrower (except for covenants or other provisions applicable only to periods after the Maturity Date);
(f) Incremental Equivalent Debt; provided that it shall be a condition precedent to the effectiveness of any Incremental Equivalent Debt that (x) after giving effect thereto, the Incremental Amount does not exceed the Available Increase Amount, and (y) no Default shall have occurred and be continuing immediately prior to or immediately after giving effect to such Incremental Equivalent Debt;
(g) Indebtedness consisting of cash management services, including treasury, depository, overdraft, credit or debit card, purchasing cards, electronic funds transfer and other cash management arrangements of Borrower or any Restricted Subsidiary;
(h) Indebtedness in respect of bid bonds, performance bonds, surety bonds and similar obligations, in each case, incurred by Borrower or any of its Restricted Subsidiaries in the ordinary course of business, including guarantees or obligations with respect to letters of credit supporting such bid bonds, performance bonds, surety bonds and similar obligations;
(i) Indebtedness representing the financing of insurance premiums in the ordinary course of business;
(j) Indebtedness in respect of finance leases (inclusive of build to suit accounting under ASC 840), Synthetic Lease Obligations, purchase money obligations and other obligations the proceeds of which are used to acquire or construct fixed or capital assets or improvements with respect thereto or any refinancings, refundings, renewals, amendments or extensions thereof (provided that the amount of such Indebtedness is not increased at the time of any such refinancing, refunding, renewal, amendment or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing, refunding, renewal, amendment or extension) and Sale Lease-Back Transactions, in an aggregate principal amount at any time outstanding not to exceed $250,000,000;
(k) Indebtedness of the Borrower or any Restricted Subsidiary owing to the Borrower or any other Restricted Subsidiary; provided that all such Indebtedness of any Loan Party owed to any Person that is not a Loan Party shall be subject to subordination terms reasonably acceptable to the Administrative Agent;
(l) Indebtedness representing deferred compensation to employees of the Borrower or any of its Restricted Subsidiaries incurred in the ordinary course of business or in connection with an Acquisition or other investment;
(m) Indebtedness of the Borrower and the Restricted Subsidiaries assumed in connection with any Acquisition, together with any Permitted Refinancing thereof, in an aggregate principal amount not to exceed $100,000,000 at any time outstanding; provided that (i) such Indebtedness is not incurred in contemplation of such Acquisition and (ii) both immediately prior to and after giving effect to the assumption of such Indebtedness and the incurrence of all Indebtedness resulting from any Permitted Refinancing thereof, no Default shall exist or result therefrom;
(n) Indebtedness that may be deemed to exist pursuant to any guaranties, performance, surety, statutory, appeal or similar obligations (but not with respect to letters of credit) incurred in the ordinary course of business or in respect of workers’ compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement-type obligations regarding workers’ compensation claims or with respect to host protection insurance programs for which the host is a beneficiary;
(o) Indebtedness of the Borrower or any of its Restricted Subsidiaries in respect of netting services, overdraft protections and otherwise in connection with deposit and securities accounts arising in the ordinary course of business;
(p) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, such Indebtedness is extinguished within 30 days after its incurrence;
(q) guaranties in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of the Borrower and its Restricted Subsidiaries;
(r) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business;
(s) unsecured Indebtedness of the Borrower or any of its Subsidiaries (which may consist of promissory notes issued by the Borrower or any of its Subsidiaries) to current or former officers, managers, consultants, directors and employees, their respective estates, spouses or former spouses to finance the purchase or redemption of Equity Interests of the Borrower or any parent thereof permitted by Section 7.04; provided, such Indebtedness shall be subordinated in right of payment to the payment in full of the Obligations pursuant to terms reasonably satisfactory to the Administrative Agent;
(t) surety bonds, guarantees, insurance or similar instruments allowable to meet the safeguarding requirements of Payments and Electronic Money Institution regulators with the purpose of enabling greater utilization of cash held on behalf of customers for working capital purposes;
(u) following an IPO, Indebtedness in the form of Convertible Notes in an aggregate principal amount not to exceed $1,750,000,000; and
(v) allowances for tenant improvements in the ordinary course of business.
Notwithstanding anything to the contrary herein, (i) the aggregate outstanding principal amount of Indebtedness that is either incurred by non-Guarantor Restricted Subsidiaries or secured by a Lien incurred pursuant to Section 7.01(r) or (u) shall not exceed the greater of (i) $100,000,000 and (b) 10.0% of Consolidated Total Assets and (ii) the aggregate amount of Indebtedness incurred under Section 7.05(b) (with respect to Permitted Refinancings only), Section 7.05(e) or Section 7.05(f) and Permitted Refinancings thereof that has either a final maturity date that is earlier than the date that is 91 days after the Maturity Date or a weighted average life to maturity less than the Maturity Date shall not exceed (a) $250,000,000 plus (b) an additional amount if, after giving pro forma effect to the incurrence of such Indebtedness, the Senior Leverage Ratio does not exceed 2.50 to 1.00 (this clause (ii), the “Inside Maturity Basket”).
7.06 Affiliate Transactions. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates (other than between or among the Borrower and its Restricted Subsidiaries and not involving any other Affiliate), except (a) on terms and conditions not less favorable to the Borrower or such Restricted Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, (b) payment of customary directors’ fees, reasonable out-of-pocket expense reimbursement, indemnities (including the provision of directors and officers insurance) and compensation arrangements for members of the board of directors, officers or other employees of the Borrower or any of its Subsidiaries, (c) transactions approved by a majority of the disinterested directors of the Borrower’s board of directors or as in accordance with the Borrower’s related party transaction policy, (d) any transaction involving amounts less than $1,000,000 individually and $10,000,000 in the aggregate, (e) any Restricted Payment permitted by Section 7.04, (f) any transaction existing on the Closing Date and set forth on Schedule 7.06 to the Disclosure Letter or any amendment thereto to the extent such amendment is not adverse to the Lenders in any material respect and (h) loans and other transactions by the Borrower and its Restricted Subsidiaries to the extent not prohibited by this Article VII.
7.07 Burdensome Agreements. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or
other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Restricted Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets to secure the Obligations or (b) the ability of any Restricted Subsidiary to pay dividends or other distributions with respect to any shares of its Equity Interests or to make or repay loans or advances to the Borrower or any other Restricted Subsidiary or of any Restricted Subsidiary to guarantee Indebtedness of the Borrower or any other Restricted Subsidiary under the Loan Documents; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement or any other Loan Document, (ii) the foregoing shall not apply to customary prohibitions, restrictions and conditions contained in agreements relating to the sale of a Restricted Subsidiary or assets of the Borrower or any Restricted Subsidiary pending such sale; provided such restrictions and conditions apply only to the Restricted Subsidiary or assets to be sold and such sale is not prohibited hereunder, (iv) the foregoing shall not apply to any agreement, prohibition, or restriction or condition in effect at the time any Restricted Subsidiary becomes a Restricted Subsidiary of the Borrower, so long as such agreement was not entered into solely in contemplation of such Person becoming a Restricted Subsidiary of the Borrower (and any amendments or modifications thereof that do not materially expand the scope of any such prohibition restriction or condition), (v) the foregoing shall not apply to customary provisions in joint venture agreements and other similar agreements applicable to joint ventures, (vi) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (vii) clause (a) of the foregoing shall not apply to customary restrictions in leases, subleases, licenses or asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets subject thereto, (viii) the foregoing shall not apply to restrictions or conditions set forth in any agreement governing Indebtedness not prohibited by Section 7.05; provided that such restrictions and conditions are customary for such Indebtedness, (ix) the foregoing shall not apply to restrictions on cash or other deposits (including escrowed funds) imposed under contracts entered into in the ordinary course of business or restrictions imposed by the terms of a permitted Lien on the property subject to such permitted Lien, (x) the foregoing shall not apply to transactions pursuant to agreements in existence on the Closing Date and set forth on Schedule 7.07 to the Disclosure Letter or any amendment thereto to the extent such amendment is not adverse to the Lenders in any material respect, (xi) the foregoing shall not apply to restrictions that are customary provisions restricting assignment of any agreement entered into in the ordinary course of business and (xii) the foregoing shall not apply to customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or any Restricted Subsidiary.
7.08 Financial Covenant. As of the last day of each fiscal quarter of the Borrower, commencing with the fiscal quarter ending December 31, 2021, the Borrower shall have Liquidity of at least $250,000,000 (the “Liquidity Covenant”).
7.09 Investments. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make or own any Investment in any Person, except:
(a) Investments in cash, cash equivalents and Permitted Investments;
(b) Investments outstanding on the date hereof and listed on Schedule 7.09 to the Disclosure Letter;
(c) Investments by the Borrower or any Restricted Subsidiary in any other Restricted Subsidiary;
(d) payroll, travel, moving, entertainment and similar advances to directors and employees of the Borrower or any Subsidiary to cover matters that are expected at the time of
such advances to be treated as expenses of the Borrower or such Subsidiary for accounting purposes and that are made in the ordinary course of business;
(e) loans or advances to directors and employees of the Borrower or any Subsidiary made in the ordinary course of business; provided that the aggregate amount of such loans and advances outstanding at any time shall not exceed $10,000,000;
(f) Investments to the extent that payment for such Investments is made with Qualified Equity Interests of Borrower or any Parent Entity;
(g) Investments of any Person in existence at the time such Person becomes a Restricted Subsidiary; provided such Investment was not made in connection with or anticipation of such Person becoming a Restricted Subsidiary;
(h) other Investments if, after giving pro forma effect to such Investment (i) prior to an IPO, the aggregate principal amount of Committed Loans then outstanding plus the aggregate amount of LC Disbursements that have not been reimbursed within one Business Day by or on behalf of the Borrower at such time shall not exceed 25% of the aggregate principal amount of Commitments and (ii) following an IPO, the Borrower and its Restricted Subsidiaries have Liquidity of at least $375,000,000;
(i) Investments not otherwise permitted by the foregoing provisions of this Section 7.09 in an aggregate outstanding amount for all such Investments under this clause (j) not to exceed $125,000,000;
(j) on or following an IPO, loans or advances to directors and employees of the Borrower or any Subsidiary made to satisfy tax obligations relating to the vesting, settlement or exercise of Equity Interests or rights;
(k) following an IPO, any Permitted Call Spread Option;
(l) Investments consisting of Swap Contracts;
(m) Investments consisting of trade receivables in the ordinary course of business;
(n) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers and in good faith settlement of delinquent obligations of, and other disputes with, customers arising in the ordinary course of business;
(o) lease, utility and other similar deposits in the ordinary course of business;
(p) Investments in or relating to a Restricted Subsidiary that, in the good faith determination of the Borrower, are necessary or advisable to effect any Securitization or any obligation in respect of a Securitization in connection therewith (including the contribution or lending of cash equivalents to Restricted Subsidiaries to finance the purchase of such assets from the Borrower or any Restricted Subsidiary or to otherwise fund required reserves); and
(q) Investments made as a result of the receipt of noncash consideration from any Disposition of any asset of the Borrower or a Restricted Subsidiary.
Notwithstanding anything herein to the contrary, none of the Borrower or any of its Restricted Subsidiaries will make an Investment of (x) Reddit Intellectual Property or (y) Material Intellectual
Property to any Person that is not the Borrower or a Restricted Subsidiary in reliance on this Section 7.09 (other than, solely in the case of clause (y) above and solely to the extent otherwise permitted pursuant to this Section 7.09, Investments of Material Intellectual Property for fair market value in an aggregate amount not to exceed the greater of $100,000,000 and 10.0% of Consolidated Total Assets).
7.10 Change Line of Business. The Borrower and the Restricted Subsidiaries, taken as a whole, will not fundamentally and substantively alter the character of their business, taken as a whole, from the business conducted by them on the Closing Date and other business activities which are extensions thereof or otherwise incidental, reasonably related or ancillary to any of the foregoing.
7.11 Change in Fiscal Year . The Borrower will not permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower’s method of determining fiscal quarters.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default. Any of the following shall constitute an “Event of Default”:
(a) Non-Payment. The Borrower fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan or any reimbursement obligation in respect of any LC Disbursement, or (ii) within five Business Days after the same becomes due, any interest on any Loan, or any fee due hereunder, or any other amount payable hereunder or under any other Loan Document; or
(b) Specific Covenants. The Borrower fails to perform or observe any term, covenant or agreement contained in any of Section 6.03(a) or 6.05(a) (with respect to the Borrower’s or any Guarantor’s existence), or Article VII; or
(c) Other Defaults. The Borrower or any Restricted Subsidiary fails to perform or observe any other covenant or agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days after the receipt by the Borrower of notice from the Administrative Agent or any Lender thereof; or
(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any Restricted Subsidiary herein, in any other Loan Document, or in any document delivered in connection herewith or therewith (i) if not qualified by materiality, shall be incorrect in any material respect when made or deemed made, or (ii) if qualified by materiality, shall be incorrect when made or deemed made; or
(e) Cross-Default. (i) The Borrower or any Restricted Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount of more than the Threshold Amount (“Specified Indebtedness”), after giving effect to any applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or (B) fails to observe or perform any other agreement or condition relating to any Specified Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, after giving effect to any applicable grace period, if any, specified in the agreement or instrument relating to such Specified Indebtedness, or any other event occurs, the effect of which default or other event
is to cause, or to permit the holder or holders of such Specified Indebtedness or the beneficiary or beneficiaries of any Specified Indebtedness constituting a Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Specified Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Specified Indebtedness to be made, prior to its stated maturity, or such Specified Indebtedness consisting of a Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which the Borrower or any Restricted Subsidiary is the Defaulting Party (as defined in such Swap Contract) and the Swap Termination Value owed by the Borrower or such Restricted Subsidiary as a result thereof is greater than the Threshold Amount, or (B) any Termination Event (as so defined, but which shall not under any circumstances include any “Additional Termination Event” (however described)) under such Swap Contract as to which the Borrower or any Restricted Subsidiary is an Affected Party (as so defined) and (x) the Borrower or such Restricted Subsidiary is required to make a payment in connection with such Termination Event, (y) the Swap Termination Value owed by the Borrower or such Restricted Subsidiary as a result thereof is greater than the Threshold Amount, and (z) the Borrower or such Restricted Subsidiary shall fail to make such payment within the later to occur of five Business Days after the due date thereof and the expiration of any grace periods in such Swap Contract applicable to such payment obligation; provided that this clause (e) shall not apply to (i) secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness in a transaction permitted hereunder, (ii) any redemption, repurchase, conversion, exchange, settlement or event with respect to any Convertible Notes pursuant to its terms (or the occurrence of any event that permits such redemption, repurchase, conversion, exchange or settlement) unless such redemption, repurchase, conversion, exchange or settlement results from a default thereunder or an event of the type that constitutes an Event of Default or (iii) any early payment requirement or unwinding or termination with respect to any Swap Contract (other than any such payment requirement or termination resulting from an Early Termination Date); or
(f) Inability to Pay Debts; Insolvency Proceedings, Etc. The Borrower or any Restricted Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due; or the Borrower or any of its Restricted Subsidiaries institutes or consents to the institution of any case or proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of the Borrower or such Restricted Subsidiary and the appointment continues undischarged or unstayed for 60 calendar days; or any case or proceeding under any Debtor Relief Law relating to the Borrower or such Restricted Subsidiary or to all or any material part of its property is instituted without the consent of the Borrower or such Restricted Subsidiary and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such case or proceeding; or
(g) Judgments. There is entered against the Borrower or any Restricted Subsidiary one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments or orders) exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer does not deny coverage) and (i) enforcement proceedings are commenced by any creditor upon such judgment or order, or (ii)
there is a period of 60 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
(h) ERISA. An ERISA Event or Foreign Plan Event shall have occurred that, when taken together with all other ERISA Events and Foreign Plan Events that have occurred, has resulted in or could reasonably be expected to result in a Material Adverse Effect; or
(i) Invalidity of Loan Documents. Any Loan Document (or any material provision thereof), at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or the Borrower or a Guarantor contests in any manner the validity or enforceability of any Loan Document; or the Borrower denies that it has any or further liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any Loan Document; or
(j) Change of Control. There occurs any Change of Control; or
(k) Guarantee. The guarantee contained in Article X shall cease, for any reason, to be in full force and effect or the Borrower or any Guarantor shall so assert in writing; or
(l) Collateral. During the Collateral Period (i) the Administrative Agent shall not have or shall cease to have a valid and perfected Lien in a material portion of the Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document or the Lien securing the Secured Obligations shall cease to constitute first priority security interests (subject to Liens permitted by Section 7.01) or (ii) the Borrower or any of its Subsidiaries shall contest in writing the validity or perfection of any Lien in a material portion of Collateral purported to be covered by the Collateral Documents.
Solely for the purpose of determining whether a Default or Event of Default has occurred under Section 8.01(f) or (g), any reference in any such clause to any Restricted Subsidiary shall be deemed to include only any Restricted Subsidiary that is not an Immaterial Subsidiary.
8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the Commitment of each Lender to make Loans to be terminated, whereupon such Commitments and obligation shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower;
(c) if the Loans have been declared due and payable pursuant to clause (b) above, demand cash collateral pursuant to Section 2.14(j);
(d) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;
provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower or any Restricted Subsidiary under the Bankruptcy Code or any other applicable
Debtor Relief Law, the obligation of each Lender to make Loans shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Lender and the Administrative Agent shall be deemed to have made a demand for cash collateral to the full extent permitted under Section 2.14(j). No Lender shall have any right individually to realize upon any of the Collateral or to enforce any Guarantee of the Secured Obligations, it being understood and agreed that all powers, rights and remedies under the Loan Documents may be exercised solely by the Administrative Agent on behalf of the Lenders in accordance with the terms thereof.
8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable), any amounts received on account of the Secured Obligations (and proceeds of Collateral) shall be applied by the Administrative Agent in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit fees) payable to the Lenders and Issuing Banks (including fees, charges and disbursements of counsel to the respective Lenders and Issuing Banks and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid interest and Letter of Credit fees on the Loans, LC Disbursements and other Obligations under the Loan Documents, ratably among the Lenders and Issuing Banks in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Secured Obligations constituting unpaid principal of the Loans and reimbursement obligations in respect of Letters of Credit (including to cash collateralize outstanding Letters of Credit), Secured Obligations then owing under Secured Cash Management Obligations and Secured Swap Obligations and all other Secured Obligations, ratably among the applicable Secured Parties in proportion to the respective amounts described in this clause Fourth held by them; and
Last, the balance, if any, after all of the Secured Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
Notwithstanding the foregoing, Excluded Swap Obligations with respect to any Guarantor shall not be paid with amounts received from such Guarantor or its assets, but appropriate adjustments shall be made with respect to payments from other Loan Parties to preserve the allocation to Secured Obligations otherwise set forth above and/or the similar provisions in the other Loan Documents.
Subject to Sections 2.14(b), amounts used to cash collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fourth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as cash collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
Notwithstanding the foregoing, Secured Cash Management Obligations and Secured Swap Obligations shall be excluded from the application described above if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may request, from the applicable provider of such Secured Cash Management Obligations or Secured Swap Obligations.
ARTICLE IX
ADMINISTRATIVE AGENT
9.01 Appointment and Authority.
(a) Each of the Lenders and each Issuing Bank hereby irrevocably appoints the entity named as Administrative Agent in the heading of this Agreement and its successors and assigns to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions (including, for the avoidance of doubt, pursuant to Section 11.18) on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article IX are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Banks, and the Borrower shall not have rights as a third-party beneficiary of any of such provisions, other than Section 9.07(b). It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties. Without limiting the foregoing, each Lender and each Issuing Bank hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under, each of the Loan Documents to which the Administrative Agent is a party, and to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents.
(b) The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders and the Issuing Banks hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender and the Issuing Banks for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Secured Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof granted under the Loan Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article XI (including Section 11.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto. Without limiting the generality of the foregoing, the Administrative Agent is further authorized on behalf of all the Lenders and Issuing Banks, without the necessity of any notice to or further consent from the Lenders or Issuing Banks, from time to time to take any action, or permit the any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent to take any action, with respect to any Collateral or the Loan Documents which may be necessary to perfect and maintain perfected the Liens upon any Collateral granted pursuant to any Loan Document. The Administrative Agent is further authorized to file with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country) such documents as may be necessary or advisable for the purpose of perfecting, confirming, continuing, enforcing or protecting the security
interest granted by each Grantor, without the signature of any Grantor, and naming any Grantor or the Grantors as debtors and the Administrative Agent as secured party.
9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
9.03 Exculpatory Provisions. The Administrative Agent or the Arrangers, as applicable, shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent or the Arrangers, as applicable: (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing (and it is understood and agreed that the use of the term “agent” (or any similar term) herein or in any other Loan Document with reference to the Administrative Agent is not intended to connote any fiduciary duty or other implied or (express) obligations arising under agency doctrine of any applicable law, and that such term is used as a matter of market custom and is intended to create or reflect only an administrative relationship between contracting parties) and additionally each Lender agrees that it will not assert any claim against the Administrative Agent based on an alleged breach of fiduciary duty by the Administrative Agent in connection with this Agreement and/or the transactions contemplated hereby; (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and (c) shall not have any duty or responsibility to disclose, and shall not be liable for the failure to disclose, to any Lender or any Issuing Bank, any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any of the Loan Parties or any of their Affiliates, that is communicated to, obtained or in the possession of, the Administrative Agent, the Arrangers or any of their Related Parties in any capacity, except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent herein. Neither the Administrative Agent nor any Arranger shall be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 8.02 and 11.01) or (ii) in the absence of its own gross negligence or willful misconduct (which gross negligence or willful misconduct shall be as determined by a court of competent jurisdiction in a final, non-appealable judgment). The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower, a Lender or an Issuing Bank. Neither the Administrative Agent nor any Arranger shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document (v) the value or the sufficiency of any Collateral or creation, perfection or priority of any Lien purported to be created by the Collateral Documents or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall not be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or enforce, compliance with the provisions hereof relating to Disqualified Lenders or Affiliated Lenders. Without limiting the generality of the foregoing, the Administrative Agent shall not (a) be obligated to ascertain, monitor or inquire as to whether any Lender or participant or prospective Lender or Participant is a Disqualified Lender or Affiliated Lender or (b) have any liability with respect to or arising out of any assignment or participation of Loans or Commitments, or disclosure of confidential information, to any Disqualified Lender or Affiliated Lender. Nothing in this Agreement or any Loan Document shall require the Administrative Agent to account to any Lender for any sum or the profit element of any sum received by the Administrative Agent for its own account. Nothing in this Agreement shall require the Administrative Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
9.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, increase, reinstatement or renewal of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an Issuing Bank, the Administrative Agent may presume that such condition is satisfactory to such Lender or Issuing Bank unless the Administrative Agent shall have received notice to the contrary from such Lender or Issuing Bank prior to the making of such Loan or the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article IX shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
9.06 Resignation of Administrative Agent.
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders, each Issuing Bank and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right with the consent Borrower (not to be unreasonably withheld or delayed) unless a Specified Event of Default shall have occurred and be continuing to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders (the “Resignation Effective Date”)), then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders and each Issuing Bank, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that in no event shall any such successor Administrative Agent be a Defaulting Lender or a Disqualified Lender. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable Law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (ii) except for any indemnity payments owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and Issuing Bank directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to the retiring or removed Administrative Agent), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article IX and Section 11.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
9.07 Non-Reliance on Administrative Agent and Other Lenders; Payments. (a) Each Lender and each Issuing Bank expressly acknowledges that neither the Administrative Agent nor any of the Arrangers has made any representation or warranty to it, and that no act by the Administrative Agent or any of the Arrangers hereafter taken, including any consent to, and acceptance of any assignment or review of the affairs of any Loan Party of any Affiliate thereof, shall be deemed to constitute any representation or warranty by the Administrative Agent or any of the Arrangers to any Lender or any Issuing Bank as to any matter, including whether the Administrative Agent or any of the Arrangers have disclosed material information in their (or their Related Parties’) possession. Each Lender and each Issuing Bank represents to the Administrative Agent and the Arrangers that it has, independently and without reliance upon the Administrative Agent, the Arrangers, or any other Lender or any Issuing Bank,
or any of their Related Parties of any of the foregoing, and based on such documents and information as it has deemed appropriate, made its own credit analysis of, appraisal of, and investigation into, the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties and their Subsidiaries, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Lender and Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Arrangers, or any Issuing Bank, or any other Lender or any of their Related Parties of any of the foregoing, and based on such documents and information as it shall from time to time deem appropriate, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under or based upon this Agreement or any other Loan Document or any related agreement or any document furnished hereunder or thereunder, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties. Without limiting the foregoing, each Lender acknowledges and agrees that neither such Lender, nor any of its respective Affiliates, participants or assignees, may rely on the Administrative Agent to carry out such Lender’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the PATRIOT Act or the regulations thereunder, including the regulations contained in 31 C.F.R. 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with any of the Loan Parties, their Affiliates or their agents, the Loan Documents or the transactions hereunder or contemplated hereby: (a) any identity verification procedures, (b) any recordkeeping, (c) comparisons with government lists, (d) customer notices or (e) other procedures required under the CIP Regulations or such other Laws. Each Lender and each Issuing Bank represents and warrants that (i) the Loan Documents set forth the terms of a commercial lending facility and (ii) it is engaged in making, acquiring or holding commercial loans in the ordinary course and is entering into this Agreement as a Lender or Issuing Bank for the purpose of making, acquiring or holding commercial loans and providing other facilities set forth herein as may be applicable to such Lender or Issuing Bank, and not for the purpose of purchasing, acquiring or holding any other type of financial instrument, and each Lender and each Issuing Bank agrees not to assert a claim in contravention of the foregoing. Each Lender and each Issuing Bank represents and warrants that it is sophisticated with respect to decisions to make, acquire and/or hold commercial loans and to provide other facilities set forth herein, as may be applicable to such Lender or such Issuing Bank, and either it, or the Person exercising discretion in making its decision to make, acquire and/or hold such commercial loans or to provide such other facilities, is experienced in making, acquiring or holding such commercial loans or providing such other facilities.
(b) (i) Each Lender and Issuing Bank hereby further agrees that (x) if the Administrative Agent notifies such Lender or Issuing Bank that the Administrative Agent has determined in its sole discretion that any funds received by such Lender or Issuing Bank from the Administrative Agent or any of its Affiliates (whether as a payment, prepayment or repayment of principal, interest, fees or otherwise; individually and collectively, a “Payment”) were erroneously transmitted to such Lender or Issuing Bank (whether or not known to such Lender or Issuing Bank), and demands the return of such Payment (or a portion thereof), such Lender or Issuing Bank shall promptly, but in no event later than one Business Day thereafter, return to the Administrative Agent the amount of any such Payment (or portion thereof) as to which such a demand was made in same day funds, together with interest thereon in respect of each day from and including the date such Payment (or portion thereof) was received by such Lender or Issuing Bank to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect, and (y) to the extent permitted by applicable law, such Lender or Issuing Bank shall not assert, and hereby waives, as to the Administrative Agent, any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or
counterclaim by the Administrative Agent for the return of any Payments received, including without limitation any defense based on “discharge for value” or any similar doctrine. A notice of the Administrative Agent to any Lender or Issuing Bank under this Section 9.07(b) shall be conclusive, absent manifest error.
(ii) Each Lender and Issuing Bank hereby further agrees that if it receives a Payment from the Administrative Agent or any of its Affiliates (x) that is in a different amount than, or on a different date from, that specified in a notice of payment sent by the Administrative Agent (or any of its Affiliates) with respect to such Payment (a “Payment Notice”) or (y) that was not preceded or accompanied by a Payment Notice, it shall be on notice, in each such case, that an error has been made with respect to such Payment. Each Lender and Issuing Bank agrees that, in each such case, or if it otherwise becomes aware a Payment (or portion thereof) may have been sent in error, such Lender or Issuing Bank shall promptly notify the Administrative Agent of such occurrence and, upon demand from the Administrative Agent it shall promptly, but in no event later than one Business Day thereafter, return to the Administrative Agent the amount of any such Payment (or portion therefor) as to which such demand was made in same day funds, together with interest thereon in respect of each day from including the date such Payment (or portion thereof) was received by such Lender or Issuing Bank to the date such amount is repaid to the Administrative Agent at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
(iii) The Borrower and each other Loan Party hereby agrees that (x) in the event an erroneous Payment (or portion thereof) are not recovered from any Lender or Issuing Bank that has received such Payment (or portion thereof) for any reason, the Administrative Agent shall be subrogated to all the rights of such Lender or Issuing Bank with respect to such amount and (y) an erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by the Borrower or any other Loan Party.
(iv) Each party’s obligations under this Section 9.07(b) shall survive the resignation or replacement of the Administrative Agent or any transfer of rights or obligations by, or the replacement of, a Lender, the termination of the Commitments or the repayment, satisfaction or discharge of all Obligations under any Loan Document.
9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder. Without limiting the foregoing, none of such Lenders shall have or be deemed to have a fiduciary relationship with any Lender. The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender.
9.09 Withholding Tax. To the extent required by any applicable Laws (as determined in good faith by the Administrative Agent), the Administrative Agent may withhold from any payment to any Lender under any Loan Document an amount equivalent to any applicable withholding Tax. Without limiting or expanding the provisions of Section 3.01, each Lender shall indemnify and hold harmless the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Borrower or any Guarantor pursuant to Section 3.01 and without limiting or expanding the obligation of any Loan Party to do so) against, and shall make payable in respect thereof within 10 days after demand therefor, all Taxes and all related losses, claims, liabilities and expenses (including fees, charges and disbursements of any counsel for the Administrative Agent) incurred by or asserted against the Administrative Agent by the IRS or any other Governmental Authority as a result of the failure of the Administrative Agent to properly withhold Tax from amounts paid to or for the account of such Lender
for any reason (including because the appropriate documentation was not delivered or not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstance that rendered the exemption from, or reduction of withholding Tax ineffective), in each case, whether or
not such tax was correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due the Administrative Agent under this Section 9.09. The agreements in this Section 9.09 shall survive the resignation or replacement of the Administrative Agent, the replacement of any Lender, the termination of this Agreement, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations. For the avoidance of doubt, for purposes of this Section 9.09, the term “Lender” shall include any Issuing Bank.
9.10 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to the Borrower, the Administrative Agent (irrespective of whether the principal of any Loan or LC Exposure shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, LC Exposures and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Banks and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuing Banks and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the Issuing Banks and the Administrative Agent under Section 11.04) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and each Issuing Bank to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the Issuing Banks, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 11.04. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or Issuing Bank or to authorize the Administrative Agent to vote in respect of the claim of any Lender or Issuing Bank in any such proceeding.
9.11 Agent Discretion. Notwithstanding anything set forth herein or in the other Loan Documents to the contrary, to the extent any such Loan Document grants any Agent Party discretion to act or refrain from acting without the direction of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent Party shall believe in good faith shall be necessary, under the circumstances as provided in Section 11.01 and Sections 8.01, 8.02 and 8.03), such Agent Party shall nonetheless be entitled to request direction from the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent Party shall believe in good faith shall be necessary, under the circumstances as provided in Section 11.01 and Sections 8.01, 8.02 and 8.03) as to the matter over which such Agent Party has been granted discretion, and no Agent Party shall be required to exercise or be liable for failure to exercise such discretion until such time as it has obtained the requested direction from the Required Lenders (or such other number or percentage of
the Lenders as shall be necessary, or as such Agent Party shall believe in good faith shall be necessary, under the circumstances as provided in Section 11.01 and Sections 8.01, 8.02 and 8.03).
9.12 Posting of Communications. The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make any Communications available to the Lenders and the Issuing Banks by posting the Communications on IntraLinks™, DebtDomain, SyndTrak, ClearPar or any other electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “Approved Electronic Platform”).
(a) Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Closing Date, a user ID/password authorization system) and the Approved Electronic Platform is secured through a per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders, each of the Issuing Banks and the Borrower acknowledges and agrees that the distribution of material through an electronic medium is not necessarily secure, that the Administrative Agent is not responsible for approving or vetting the representatives or contacts of any Lender that are added to the Approved Electronic Platform, and that there may be confidentiality and other risks associated with such distribution. Each of the Lenders, each of the Issuing Banks and the Borrower hereby approves distribution of the Communications through the Approved Electronic Platform and understands and assumes the risks of such distribution.
(b) THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS ARE PROVIDED “AS IS” AND “AS AVAILABLE”. THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE APPROVED ELECTRONIC PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD-PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT, ANY ARRANGER, ANY DOCUMENTATION AGENT OR ANY OF THEIR RESPECTIVE RELATED PARTIES (COLLECTIVELY, “AGENT PARTIES”) HAVE ANY LIABILITY TO ANY LOAN PARTY, ANY LENDER, ANY ISSUING BANK OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF ANY LOAN PARTY’S OR THE ADMINISTRATIVE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET OR THE APPROVED ELECTRONIC PLATFORM.
“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower or any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or any Issuing Bank by means of electronic communications pursuant to this Section, including through an Approved Electronic Platform.
(c) Each Lender and each Issuing Bank agrees that notice to it (as provided in the next sentence) specifying that Communications have been posted to the Approved Electronic Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents.
Each Lender and Issuing Bank agrees (i) to notify the Administrative Agent in writing (which could be in the form of electronic communication) from time to time of such Lender’s or Issuing Bank’s (as applicable) email address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such email address.
(d) Each of the Lenders, each of the Issuing Banks and the Borrower agrees that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally applicable document retention procedures and policies.
(e) Nothing herein shall prejudice the right of the Administrative Agent, any Lender or any Issuing Bank to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.
ARTICLE X
GUARANTY
10.01 Guarantee. In order to induce the Administrative Agent, the Lenders and each Issuing Bank to execute and deliver this Agreement, make or maintain the Loans and issue the Letters of Credit, as applicable, and to induce each counterparty to any Swap Contract the obligations under which constitute Secured Swap Obligations to enter into such Swap Contract, and in considerationof all of the foregoing, each Guarantor hereby unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, to the Administrative Agent, for the benefit of the Secured Parties, the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, and such Guarantor further agrees to pay any and all reasonable expenses (including, without limitation, all reasonable fees, charges and disbursements of counsel) which may be paid or incurred by any Secured Party in enforcing, or obtaining advice of counsel in respect of, any of their rights under the guarantee contained in this Article X. The guarantee contained in this Article X, subject to Section 10.05, shall remain in full force and effect until the Termination Date, notwithstanding that from time to time prior thereto the Borrower may be free from any Obligations.
Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to any Secured Party on account of its liability under this Article X, it will notify the Administrative Agent and such other Secured Party, as applicable, in writing that such payment is made under the guarantee contained in this Article X for such purpose. No payment or payments made by the Borrower or any other Person or received or collected by any Secured Party from the Borrower or any other Person by virtue of any action or proceeding or any setoff or appropriation or application, at any time or from time to time, in reduction of or in payment of the Secured Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of such Guarantor under this Article X which, notwithstanding any such payment or payments, shall remain liable for the unpaid and outstanding Secured Obligations until, subject to Section 10.05, the Termination Date.
10.02 No Subrogation. Notwithstanding any payment made by any Guarantor pursuant to this Article X or any set-off or application of funds of such Guarantor by any Secured Party in connection with the guarantee contained in this Article X, no Guarantor shall be entitled to be subrogated to any of the rights of any Secured Party against the Borrower or any collateral security or guarantee or right of offset held by any Secured Party for the payment of the Secured Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower in respect of payments made by such Guarantor under this Article X, until the Termination Date. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Secured Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Secured
Parties, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Secured Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. The provisions of this Section 10.02 shall survive the term of the guarantee contained in this Article X and the Termination Date.
10.03 Amendments, etc. with respect to the Obligations. Each Guarantor shall remain obligated under this Article X notwithstanding that, without any reservation of rights against such Guarantor, and without notice to or further assent by such Guarantor, any demand for payment of or reduction in the principal amount of any of the Secured Obligations made by any Secured Party may be rescinded by such Secured Party, as applicable, and any of the Secured Obligations continued, and the Secured Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by such Secured Party, and this Agreement and any other documents executed and delivered in connection herewith may be amended, modified, supplemented or terminated, in whole or in part, as the Lenders (or the Required Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by any Secured Party for the payment of the Secured Obligations may be sold, exchanged, waived, surrendered or released. No Secured Party shall have any obligation to protect, secure, perfect or insure any lien at any time held by it as security for the Secured Obligations or for the guarantee contained in this Article X or any property subject thereto.
10.04 Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Secured Obligations and notice of or proof of reliance by any Secured Party upon the guarantee contained in this Article X or acceptance of the guarantee contained in this Article X; the Secured Obligations shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Article X; and all dealings between the Borrower or any Guarantor, on the one hand, and the Secured Parties, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Article X. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon such Guarantor or the Borrower with respect to the Secured Obligations. To the full extent permitted by law, the guarantee contained in this Article X shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of this Agreement, any of the Secured Obligations or any collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by any Secured Party, (b) the legality under applicable Laws of repayment by the Borrower of the Secured Obligations or the adoption of any requirement of law purporting to render any Secured Obligations null and void, (c) any defense, setoff or counterclaim (other than a defense of payment or performance by the Borrower) which may at any time be available to or be asserted by such Guarantor against any Secured Party, (d) any change in ownership of the Borrower, any merger or consolidation of the Borrower into another Person or any loss of the Borrower separate legal identity or existence, or (e) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or any Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Secured Obligations, or of any Guarantor under the guarantee contained in this Article X in bankruptcy or in any other instance. When any Secured Party is pursuing its rights and remedies under this Article X against any Guarantor, any such Secured Party may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Borrower or any other Person or against any collateral security or guarantee for the Secured Obligations or any right of offset with respect thereto, and any failure by any Secured Party to pursue such other rights or remedies or to collect any payments from the Borrower or any such other Person or to realize upon any such collateral security or
guarantee or to exercise any such right of offset, or any release of the Borrower or any such other Person or of any such collateral security, guarantee or right of offset, shall not relieve the Borrower of any liability under this Article X and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Secured Parties against any Guarantor.
10.05 Reinstatement. The guarantee contained in this Article X shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Secured Obligations is rescinded, avoided, or must otherwise be restored or returned by any Secured Party upon or in connection with the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property, or otherwise, all as though such payments had not been made.
10.06 Payments. Each Guarantor hereby agrees that any payments in respect of the Secured Obligations pursuant to this Article X will be paid to the Administrative Agent without setoff or counterclaim in U.S. Dollars, at the office of the Administrative Agent specified in Section 11.02.
10.07 Independent Obligations. The obligations of each Guarantor under the guarantee contained in this Article X are independent of the obligations of the Borrower, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not the Borrower is joined in any such action or actions. Each Guarantor waives, to the full extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Borrower or other circumstance which operates to toll any statute of limitations as to the Borrower shall operate to toll the statute of limitations as to such Guarantor.
10.08 Customer Obligations. Each Secured Party acknowledges and agrees that it shall have no equitable or beneficial interest in any cash held in trust for the benefit of customers and/or as eligible securities that are held pursuant to section 2081 of the California Financial Code by any Guarantor, and any such money in its possession at any time is, and at all times shall remain, the property of the relevant customer, and shall not, in the event of a bankruptcy or similar proceeding involving any Guarantor, become property of any Guarantor’s bankruptcy or other estate.
ARTICLE XI
MISCELLANEOUS
11.01 Amendments, Etc. Except as otherwise expressly set forth in this Agreement, no amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower therefrom, shall be effective unless in writing signed by the Required Lenders (or the Administrative Agent at the direction of the Required Lenders) and the Borrower, and acknowledged by the Administrative Agent and each Issuing Bank, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01(a) without the written consent of each Lender;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) or any
scheduled or mandatory reduction of the Aggregate Commitments hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or LC Disbursement, or any fees or other amounts payable hereunder or under any other Loan Document, without the written consent of each Lender directly affected thereby; provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate;
(e) change Section 2.11 or Section 8.03 (or similar “waterfall” provisions in the other Loan Documents) in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;
(f) change Section 2.14 or Section 2.15 without the consent of the Administrative Agent and each Issuing Bank;
(g) subject to Section 11.18 (in which case such release may be made by the Administrative Agent acting alone), release the value of all or substantially all of the guaranty contained in Article X without the written consent of each Lender;
(h) change any provision of this Section 11.01 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders (or, subject to the penultimate sentence of this Section 11.01, the Lenders of any class) required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender;
(i) subject to Section 11.18 (in which case such release may be made by the Administrative Agent acting alone), release all or substantially all the Collateral from the Liens of the Collateral Documents, without the written consent of each Lender (except as expressly provided in the Loan Documents);
(j) extend the stated expiration date of any Letter of Credit beyond the Maturity Date without the written consent of each Lender directly affected thereby;
(k) contractually subordinate the Obligations (including any guarantee thereof) or the Administrative Agent’s Lien on all or substantially all of the Collateral without the written consent of each Lender; or
(l) permit the Borrower to incur Loans in additional currencies, including pursuant to Section 1.09, without the written consent of each Lender, or in the case of Letters of Credit, without the consent of the Administrative Agent and the applicable Issuing Bank;
and, provided further, that no such amendment, waiver or consent shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or any Issuing Bank under this Agreement without the prior written consent of the Administrative Agent or each Issuing Bank, as the case may be, in addition to the Lenders required above. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time. Notwithstanding anything to the contrary herein, (i) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of
Lenders holding Loans of a particular class (but not the Lenders holding Loans of any other class) or Commitments may be effected by an agreement or agreements in writing entered into by the Borrower and the requisite percentage in interest of the affected Lenders that would be required to consent thereto under this Section 11.01 if such Lenders were the only Lenders hereunder at such time, (ii) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent under this Agreement, except that (x) the Commitment of such Lender may not be increased or extended without the consent of such Lender and (y) the principal amount of, or interest or fees payable on, Loans or LC Disbursements may not be reduced or excused or the scheduled date of payment may not be postponed as to such Defaulting Lender without such Defaulting Lender’s consent and (iii) in connection with an amendment that addresses solely a re-pricing transaction in which any Commitments and/or Loans are refinanced with a replacement class of commitments and/or loans bearing (or is modified in such a manner such that the resulting commitments and/or loans bear) a lower yield (with the comparative determinations to be made by the Administrative Agent consistent with generally accepted financial practices, after giving effect to, among other factors, margin, interest rate floors, upfront or similar fees or original issue discount, but excluding the effect of any arrangement, structuring, syndication or other fees payable to any lead arranger (or its affiliates) and which may include other customary technical amendments related thereto, including providing that such replacement commitments and/or loans may have a prepayment premium in connection therewith) (a “Permitted Repricing Transaction”), only the consent of the Lenders holding Commitments and/or Loans subject to such Permitted Repricing Transaction that will continue as a Lender in respect of the repriced Commitments and/or Loans or modified Commitments and/or Loans shall be required for such Permitted Repricing Transaction.
Furthermore, notwithstanding the foregoing, the Administrative Agent, with the consent of the Borrower, may amend, modify or supplement any Loan Document without the consent of any Lender or the Required Lenders in order to correct, amend or cure any ambiguity, inconsistency or defect or correct any typographical error or other manifest error in any Loan Document.
11.02 Notices; Effectiveness; Electronic Communication.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows: (i) if to any Loan Party or the Administrative Agent, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 11.02; provided that any Loan Party shall be notified by electronic mail of any notice sent by telecopier; and (ii) if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire. Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
(b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under Article II by electronic
communication. The Administrative Agent and each Loan Party may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it (or in the case of any Loan Party, the Borrower), provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c) Change of Address, Etc. Each Loan Party and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.
(d) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower, provided that such indemnity shall not be available as to any Indemnitee (as defined in Section 11.04(b)) to the extent that such losses, costs, expenses and liabilities result from the gross negligence or willful misconduct of such Indemnitee. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
11.03 No Waiver; Cumulative Remedies. No failure by any Lender, any Issuing Bank or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
11.04 Expenses; Indemnity; Limitation of Liability.
(a) Costs and Expenses. The Borrower shall pay (i) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent and the Arrangers (including the reasonable and documented fees, charges and disbursements of one counsel for the Administrative Agent and the Arrangers), in connection with the syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable and documented out-of-pocket expenses incurred by each Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable and documented out-of-pocket expenses incurred by the Administrative Agent, any Issuing Bank, any Arranger or any Lender ((including the reasonable and documented out-of-pocket fees, charges and disbursements of one counsel for the Administrative Agent, each Issuing Bank, the Arrangers and one, and, if reasonably necessary, of a single local counsel in each appropriate jurisdiction (such jurisdiction, the “Applicable Jurisdiction”) (and, in the case of an actual or perceived conflict of interest where the Administrative Agent and/or its Affiliates, each Issuing Bank and/or the Arrangers affected by such conflict has retained its own counsel, of another law firm acting as counsel for such Person and, if reasonably necessary, a single local counsel in each Applicable Jurisdiction)) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section 11.04, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Issuing Bank, the Arrangers, each Lender and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all Liabilities, penalties, and related expenses ((including the reasonable and documented fees, charges and disbursements of one counsel for the Indemnitees, taken as a whole, and, if reasonably necessary, one local counsel for the Indemnitees, taken as a whole, in each Applicable Jurisdiction) (and, in the case of an actual or perceived conflict of interest where the Indemnitee affected by such conflict has retained its own counsel, of another law firm acting as counsel for such Indemnitee and, if reasonably necessary, another local counsel in each Applicable Jurisdiction)) incurred by any Indemnitee or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit) and (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower, its equity holders, affiliates or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) result from the gross negligence or willful misconduct of such Indemnitee as determined by a court of competent jurisdiction in a final non-appealable judgment, (y) result from a claim brought by the Borrower against an Indemnitee for a material breach of such Indemnitee’s obligations hereunder or under any other Loan Document, as determined by a court of competent jurisdiction in a final non-appealable judgment or (z) arising from any dispute between or among Indemnitees that does not involve any act or omission by the Borrower or its Subsidiaries as determined by a court of competent jurisdiction in a final non-appealable judgment, other than any proceeding against the Administrative Agent or any Arranger, in each case acting in such capacity. All amounts due under this Section 11.04(b) shall be paid within thirty (30) days after written demand therefor (together with reasonable backup documentation supporting such reimbursement request); provided, however, that such Indemnitee shall promptly refund the amount of any payment, to the extent determined by a court of
competent jurisdiction in a final, non-appealable judgment that such Indemnitee was not entitled to indemnification rights with respect to such payment pursuant to the express terms of this Section 11.04(b). This Section 11.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section 11.04 to be paid by it to the Administrative Agent (or any sub-agent thereof), each Issuing Bank or any Related Party of any of the foregoing, but without releasing the Borrower from its obligation to do so, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), each Issuing Bank or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or each Issuing Bank in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.10(d).
(d) Waiver of Consequential Damages, etc. To the fullest extent permitted by applicable law, (i) no Loan Party shall assert, and hereby waives, any claim against any other party, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof to the extent permitted by applicable law and (ii) the Borrower and any Loan Party shall not assert, and the Borrower and each Loan Party hereby waives, any claim against the Administrative Agent (and any sub-agent thereof), each Issuing Bank, the Arrangers, each Lender and each Related Party of any of the foregoing Persons (each such Person being called a “Lender-Related Person”) for any Liabilities arising from the use others of any information or other materials distributed (including, without limitation, personal data) through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a court of competent jurisdiction in a final non-appealable judgment; provided that, nothing in this Section 11.04(d) shall relieve the Borrower and each Loan Party of any obligation it may have to indemnify an Indemnitee, as provided in Section 11.04(b), against any special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.
(e) Payments. All amounts due under this Section 11.04 shall be payable not later than 30 days after demand therefor.
(f) Survival. The agreements in this Section 11.04 shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of this Agreement, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.
11.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently avoided, invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any case or proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Effective Rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
11.06 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent, each Issuing Bank and each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) pursuant to Section 9.10 hereof, (ii) to an assignee in accordance with the provisions of subsection (b) of this Section 11.06, (iii) by way of participation in accordance with the provisions of subsection (d) of this Section 11.06, or (iv) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section 11.06 (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, the Arrangers, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), Participants to the extent provided in subsection (d) of this Section 11.06 and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, each Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts. (A) in the case of an assignment (i) of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, or (ii) pursuant to Section 9.10, no minimum amount need be assigned; and (B) in any case not described in subsection (b)(i)(A) of this Section 11.06, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Specified Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single assignee (or to an assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met.
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned;
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section 11.06 and the last sentence of this subsection (b)(iii) and, in addition: (A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) a Specified Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and (B) the consent of the Administrative Agent and each Issuing Bank (such consent not to be unreasonably withheld or delayed) shall be required. Notwithstanding the foregoing, the Borrower shall be deemed to have consented to any assignment unless it shall object thereto by written notice to the Administrative Agent within 15 Business Days after having received written notice thereof.
(iv) Assignment and Assumption. Other than in connection with an assignment pursuant to Section 9.10, the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower’s Affiliates or Subsidiaries (each, an “Affiliated Lender”).
(vi) No Assignment to Certain Persons. No such assignment shall be made to (i) a natural person (or to a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of a natural person), (ii) any Disqualified Lender or (iii) any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (ii).
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section 11.06, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 11.04 with respect to facts and circumstances, in each case, occurring prior to the effective date of such assignment. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section 11.06.
(c) Register. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and related stated interest amounts) of the
Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall, in the absence of manifest error, be conclusive, and the Borrower, the Administrative Agent, each Issuing Bank and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, each Issuing Bank and any Lender (with respect to such Issuing Bank or Lender’s interest only), at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Any Lender may, without the consent of, or notice to, the Borrower, the Administrative Agent, the Issuing Banks or any other Person, at any time sell participations to any Person (other than a natural person, a Disqualified Lender or an Affiliated Lender) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent, each Issuing Bank and the Lenders shall continue to deal solely and directly, with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in Sections 11.01(b), (c), (d), (g) or (h) that affects such Participant. Subject to subsection (e) of this Section 11.06, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 (subject to the requirements and limitations of such Sections (it being understood that the documentation required under Section 3.01(f) shall be delivered solely to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section 11.06. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.08 as though it were a Lender, provided such Participant shall be subject to Section 2.11 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant to which it sells a participation and the principal amounts (and related stated interest amounts) of each such Participant’s interest in the Commitments, Loans, Letters of Credit or other obligations under this Agreement (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person (including the identity of any Participant or any information relating to a Participant’s interest in any obligations under any Loan Document) except to the extent that such disclosure is necessary to establish that such obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.
(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant (except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation) unless the sale of the participation to such Participant is made with the Borrower’s prior written consent, not to be unreasonably withheld or delayed.
(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or
any other relevant central bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g) [Reserved].
(h) Disqualified Lenders.
(i) No assignment or participation shall be made to any Person that was a Disqualified Lender as of the date (the “Trade Date”) on which the assigning Lender entered into a binding agreement to sell and assign all or a portion of its rights and obligations under this Agreement to such Person (unless the Borrower has consented to such assignment in writing in its sole and absolute discretion, in which case such Person will not be considered a Disqualified Lender for the purpose of such assignment or participation). For the avoidance of doubt, with respect to any assignee that becomes a Disqualified Lender after the applicable Trade Date (including as a result of the delivery of a notice pursuant to, and/or the expiration of the notice period referred to in, the definition of “Disqualified Lender”), (x) such assignee shall not retroactively be disqualified from becoming a Lender and (y) the execution by the applicable Borrower of an Assignment and Assumption with respect to such assignee will not by itself result in such assignee no longer being considered a Disqualified Lender. Any assignment in violation of this clause (h)(i) shall not be void, but the other provisions of this clause (h) shall apply.
(ii) If any assignment or participation is made to any Disqualified Lender without the Borrower’s prior written consent in violation of clause (i) above, or if any Person becomes a Disqualified Lender after the applicable Trade Date, the Borrower may, at its sole expense and effort, upon notice to the applicable Disqualified Lender and the Administrative Agent, (A) terminate any Commitment of such Disqualified Lender and repay all obligations of the Borrower owing to such Disqualified Lender in connection with such Commitment; provided that proceeds of Loans may not be used for such purpose and/or (B) require such Disqualified Lender to assign, without recourse (in accordance with and subject to the restrictions contained in this Section 11.06), all of its interest, rights and obligations under this Agreement to one or more Eligible Assignees at the lesser of (x) the principal amount thereof and (y) the amount that such Disqualified Lender paid to acquire such interests, rights and obligations, in each case plus accrued interest, accrued fees and all other amounts (other than principal amounts) payable to it hereunder.
(iii) Notwithstanding anything to the contrary contained in this Agreement, Disqualified Lenders (A) will not (x) have the right to receive information, reports or other materials provided to Lenders by the Borrower, the Administrative Agent or any other Lender, (y) attend or participate in meetings attended by the Lenders and the Administrative Agent, or (z) access any electronic site established for the Lenders or confidential communications from counsel to or financial advisors of the Administrative Agent or the Lenders and (B) (x) for purposes of any consent to any amendment, waiver or modification of, or any action under, and for the purpose of any direction to the Administrative Agent or any Lender to undertake any action (or refrain from taking any action) under this Agreement or any other Loan Document, each Disqualified Lender will be deemed to have consented in the same proportion as the Lenders that are not Disqualified Lenders consented to such matter, and (y) for purposes of voting on any plan of reorganization or plan of liquidation pursuant to any Debtor Relief Laws (a “Bankruptcy Plan”), each Disqualified Lender party hereto hereby agrees (1) not to vote on such Bankruptcy Plan, (2) if such Disqualified Lender does vote on such Bankruptcy Plan
notwithstanding the restriction in the foregoing clause (1), such vote will be deemed not to be in good faith and shall be “designated” pursuant to Section 1126(e) of the Bankruptcy Code (or any similar provision in any other Debtor Relief Laws), and such vote shall not be counted in determining whether the applicable class has accepted or rejected such Bankruptcy Plan in accordance with Section 1126(c) of the Bankruptcy Code (or any similar provision in any other Debtor Relief Laws) and (3) not to contest any request by any party for a determination by the court hearing such proceeding (or other applicable court of competent jurisdiction) effectuating the foregoing clause (2).
(iv) The Administrative Agent shall have the right, and the Borrower hereby expressly authorizes the Administrative Agent, to (A) post the list of Disqualified Lenders provided by the Borrower and any updates thereto from time to time (collectively, the “DQ List”) on the Platform, including that portion of the Platform that is designated for “public side” Lenders and/or (B) provide the DQ List to each Lender requesting the same.
11.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, each Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates (other than portfolio companies) and to its and its Related Parties on a need-to-know basis, in each case, who are informed of the confidential nature of such Information and who are subject to customary confidentiality obligations of professional practice or who are and have been advised to keep the same confidential), (b) to the extent required or requested by any regulatory authority having jurisdiction over it or any of its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners) provided, unless prohibited by applicable Law or court order each of the Administrative Agent, Issuing Bank and Lenders, as applicable, shall make reasonable efforts to notify the Borrower of any request by such regulatory authority (other than any such request in connection with any examination of the financial condition or other routine audits and examination of such Person by such regulatory authority) for disclosure of any such non-public information prior to the actual disclosure thereof, (c) in any legal, judicial, administrative proceeding or in accordance with a judicial or other governmental order, subpoena, interrogatory, discovery request, investigative demand or other legal process or as required by applicable law or regulations ((in which case, except with respect to any routine audit or examination conducted by the bank accountants or any self-regulatory authority or governmental or regulatory authority exercising examination or regulatory authority) to the extent such disclosure only relates to Information unique to the Borrower, the Administrative Agent, such Issuing Bank or such Lender shall promptly notify the Borrower in writing, in advance, and give the Borrower the opportunity to seek confidential treatment of the information prior to such disclosure, to the extent practical and not prohibited by law), (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 11.07, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its Related Parties) to any Securitization, swap or derivative transaction relating to the Borrower and its obligations, or any Subsidiary and its obligations, or any credit insurance provider relating to the Borrower and its Obligations, in each case, prior to an IPO and so long as no Specified Event of Default has occurred and is continuing, with the consent of the Borrower (not to be unreasonably withheld or delayed); provided that such consent shall not be required to the extent such assignee or Participant is a Lender, an Affiliate of a Lender or an Approved Fund, (g) with the consent of the Borrower, (h) to rating agencies or, on a confidential basis, to the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the Loans, (i) to service providers providing administrative and ministerial services solely in connection with the syndication and administration of the Loan Documents
and the facilities (e.g., identities of parties, maturity dates, interest rates, etc.) on a confidential basis or (j) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 11.07, (y) becomes available to the Administrative Agent, any Issuing Bank, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower or any of its Subsidiaries or (z) to the extent that such Information is independently developed by the Administrative Agent, any Lender or any Issuing Bank. In addition, the Administrative Agent may disclose the existence of this Agreement and information about this Agreement to (i) service providers to the lending industry and service providers to the Administrative Agent, in each case, (x) who are informed of the confidential nature of such information and who are subject to customary confidentiality obligations of professional practice or who are and have been advised to keep the same confidential and (y) to the extent required in connection with the administration of this Agreement, the other Loan Documents and the Commitments and (ii) following an IPO, to market data collectors.
For purposes of this Section 11.07, “Information” means all information received from or on behalf of the Borrower or any Subsidiary relating to the Borrower or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by or on behalf of the Borrower or any Subsidiary; provided that all information received after the Closing Date from or on behalf of the Borrower or any of its Subsidiaries shall be deemed confidential unless such information is clearly identified at the time of delivery as not being confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 11.07 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each of the Administrative Agent, each Issuing Bank and the Lenders acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Securities Laws.
Notwithstanding anything herein to the contrary, the Administrative Agent, the Lenders and their respective Affiliates shall not, directly or indirectly, use the name of the Borrower or its Affiliates in any publicity, advertising or other media and may not issue a press release or otherwise publicize to any person, directly or indirectly, orally or in writing, any information related to the existence of this Credit Agreement, the transactions contemplated herein or the terms or conditions hereof or thereof; provided that such party may repeat information about the transactions contemplated hereby that has been publicly disclosed by the Borrower and no additional information can be publicized.
11.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, each Issuing Bank and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Issuing Bank, such Lender or such Affiliate to or for the credit or the account of any Loan Party against any and all of the obligations of any Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Issuing Bank or such Lender, irrespective of whether or not such Issuing Bank or such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of any Loan Party may be contingent or unmatured or are owed to a branch or office of such Issuing Bank or such Lender different from the branch or office holding such deposit or obligated on such indebtedness. The rights of each Issuing Bank and each Lender under this Section 11.08 are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. Each Issuing
Bank and each Lender agrees to notify the applicable Loan Party and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. Notwithstanding the foregoing, if any Defaulting Lender shall exercise any such right of setoff, (i) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of this Agreement and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, each Issuing Bank and the Lenders and (ii) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the obligations owing to such Defaulting Lender as to which it exercised such right of setoff.
11.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
11.10 Counterparts; Integration; Effectiveness; Electronic Execution.
(a) Counterparts: This Agreement and each of the other Loan Documents may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents, and the Engagement Letter constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.
(b) Electronic Execution: Delivery of an executed counterpart of a signature page of (x) this Agreement, (y) any other Loan Document and/or (z) any document, amendment, approval, consent, information, notice (including, for the avoidance of doubt, any notice delivered pursuant to this Agreement), certificate, request, statement, disclosure or authorization related to this Agreement, any other Loan Document and/or the transactions contemplated hereby and/or thereby (each an “Ancillary Document”) that is an Electronic Signature transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement, such other Loan Document or such Ancillary Document, as applicable. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Agreement, any other Loan Document and/or any Ancillary Document shall be deemed to include Electronic Signatures, deliveries or the keeping of records in any electronic form (including deliveries by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page), each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be; provided that nothing herein shall require the Administrative Agent to accept Electronic Signatures in any form or format without its prior written consent and
pursuant to procedures approved by it; provided, further, without limiting the foregoing, (i) to the extent the Administrative Agent has agreed to accept any Electronic Signature, the Administrative Agent and each of the Lenders shall be entitled to rely on such Electronic Signature purportedly given by or on behalf of the Borrower or any other Loan Party without further verification thereof and without any obligation to review the appearance or form of any such Electronic signature and (ii) upon the reasonable request of the Administrative Agent, any Electronic Signature shall be promptly followed by a manually executed counterpart. Without limiting the generality of the foregoing, the Borrower and each Loan Party hereby (A) agrees that, for all purposes, including without limitation, in connection with any workout, restructuring, enforcement of remedies, bankruptcy proceedings or litigation among the Administrative Agent, the Lenders, the Borrower and the Loan Parties, Electronic Signatures transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page and/or any electronic images of this Agreement, any other Loan Document and/or any Ancillary Document shall have the same legal effect, validity and enforceability as any paper original, (B) the Administrative Agent and each of the Lenders may, at its option, create one or more copies of this Agreement, any other Loan Document and/or any Ancillary Document in the form of an imaged electronic record in any format, which shall be deemed created in the ordinary course of such Person’s business, and destroy the original paper document (and all such electronic records shall be considered an original for all purposes and shall have the same legal effect, validity and enforceability as a paper record), (C) waives any argument, defense or right to contest the legal effect, validity or enforceability of this Agreement, any other Loan Document and/or any Ancillary Document based solely on the lack of paper original copies of this Agreement, such other Loan Document and/or such Ancillary Document, respectively, including with respect to any signature pages thereto and (D) waives any claim against any Lender-Related Person for any Liabilities arising solely from the Administrative Agent’s and/or any Lender’s reliance on or use of Electronic Signatures and/or transmissions by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page, including any Liabilities arising as a result of the failure of the Borrower and/or any Loan Party to use any available security measures in connection with the execution, delivery or transmission of any Electronic Signature.
11.11 Survival. All covenants, agreements, representations and warranties made by any Loan Party herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount or Obligation payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 3.04, 3.05, 11.04, 11.09 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the payment in full of the Obligations, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.
11.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
11.13 Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay (or will be required to pay) any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 or if any Lender determines pursuant to Section 3.02 that it is not permitted to make Term Benchmark Loans, or if any Lender is a Defaulting Lender, or if any Lender declines to approve any waiver, amendment or modification of this Agreement or any Loan Document that requires approval of all Lenders pursuant to Section 11.01 or if any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a party hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that: (a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 11.06(b); (b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts); (c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and (d) such assignment does not conflict with applicable Laws. A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Each party hereto agrees that (a) an assignment required pursuant to this Section 11.13 may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee and (b) the Lender required to make such assignment need not be a party thereto in order for such assignment to be effective and shall be deemed to have consented to an be bound by the terms thereof; provided that, following the effectiveness of any such assignment, the other parties to such assignment agree to execute and deliver such documents necessary to evidence such assignment as reasonably requested by the applicable Lender, provided, further that any such documents shall be without recourse to or warranty by the parties thereto.
Notwithstanding anything in this Section 11.13 to the contrary, any Lender that acts as an Issuing Bank may not be replaced hereunder at any time it has any Letter of Credit outstanding hereunder unless arrangements satisfactory to such Lender (including the furnishing of a backstop standby letter of credit in form and substance, and issued by an issuer, reasonably satisfactory to such Issuing Bank or the depositing of cash collateral into a cash collateral account in amounts required by Section 2.14(c) and pursuant to arrangements reasonably satisfactory to such Issuing Bank) have been made with respect to such outstanding Letter of Credit.
11.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) SUBMISSION TO JURISDICTION. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT
SITTING IN NEW YORK COUNTY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
(c) WAIVER OF VENUE. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION 11.14. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
11.15 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.15.
11.16 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby, the Borrower acknowledges and agrees that (except, with respect to clauses (ii) and (iii) below, as expressly set forth in any other engagement agreement between the Borrower and/or any of its Affiliates, on the one hand, and the Administrative Agent, any Lender or any Arranger, on the other hand): (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, the Lenders and the Arrangers, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof);
(ii) in connection with the process leading to such transaction, the Administrative Agent, the Lenders and the Arrangers each is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its Affiliates, stockholders, creditors or employees or any other Person; (iii) neither the Administrative Agent, any Lender nor any other Arrangers have assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether the Administrative Agent, the Lenders or the Arrangers have advised or are currently advising the Borrower or any of its Affiliates on other matters) and neither the Administrative Agent, any Lender nor any other Arranger has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent, the Lenders and the Arrangers and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and neither the Administrative Agent, any Lender nor any other Arranger has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Administrative Agent, the Lenders and the other Arrangers have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent, the Lenders and the other Arrangers with respect to any breach or alleged breach of agency or fiduciary duty.
11.17 USA PATRIOT Act Notice. Each Lender that is subject to the Patriot Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Patriot Act.
11.18 Release of Liens and Guarantees.
(a) A Guarantor shall automatically be released from its obligations under the Loan Documents, and all security interests created by the Collateral Documents in Collateral owned by such Guarantor shall be automatically released, (1) upon the consummation of any transaction permitted by this Agreement as a result of which such Guarantor ceases to be a Restricted Subsidiary (including pursuant to a merger with a Subsidiary that is not a Loan Party or a designation as an Unrestricted Subsidiary) or (2) upon the request of the Borrower, upon any Guarantor becoming an Excluded Subsidiary (other than as a result of becoming a non-wholly-owned Subsidiary).
(b) Upon (i) any sale or other transfer by any Loan Party (other than to the Borrower or any other Loan Party) of any Collateral in a transaction permitted under this Agreement or (ii) the effectiveness of any written consent to the release of the security interest created under any Collateral Document in any Collateral or the release of any Loan Party from its Guarantee hereunder pursuant to Section 11.01, the security interests in such Collateral created by the Collateral Documents or such guarantee shall be automatically released. Upon the occurrence of the Termination Date, all obligations under the Loan Documents and all security interests created by the Collateral Documents shall be automatically released. In connection with any termination or release pursuant to this Section, the Administrative Agent shall execute and deliver to any Loan Party, at such Loan Party’s expense, all documents that such Loan Party shall reasonably request to evidence such termination or release. Any
execution and delivery of documents pursuant to this Section shall be without recourse to or warranty by the Administrative Agent.
(c) The Lenders irrevocably authorize the Administrative Agent to release or subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Sections 7.01(h) and 7.01(r), to the extent required by the terms of the obligations secured by such Liens pursuant to documents reasonably acceptable to the Administrative Agent). Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interests in particular types or items of property or to release any Guarantor from its obligations under the Guarantyee pursuant to this Section 11.18. The Administrative Agent shall be entitled to rely on an officer’s certificate of the Borrower (including as to its authority hereunder) in connection with the matters described in this Section 11.18, which shall be delivered to the Administrative Agent by the Borrower upon reasonable request.
(d) Upon the occurrence of a Collateral Release Event, the Administrative Agent shall promptly release the Liens and security interests in the Collateral, all at the expense of the Loan Parties. In connection with any termination or release pursuant to this Section, the Administrative Agent shall execute and deliver to any Loan Party, at such Loan Party’s expense, all documents that such Loan Party shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section shall be without recourse to or warranty by the Administrative Agent.
11.19 Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Solely to the extent an Affected Financial Institution is a party to this Agreement and notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender or Issuing Bank that is an Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder that may be payable to it by any Lender or Issuing Bank that is an Affected Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(A) a reduction in full or in part or cancellation of any such liability;
(B) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(C) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of the applicable Resolution Authority.
11.20 Acknowledgement Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for any Swap Contract or any other agreement or instrument that is a QFC (such support, “QFC Credit Support,” and each such QFC, a
“Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):
(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
(b) As used in this Section 11.20, the following terms have the following meanings:
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
11.21 Certain ERISA Matters.
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Arrangers and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of Section 3(42) of ERISA or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) of one or more Benefit Plans with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments or this Agreement;
(ii) the prohibited transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable so as to exempt from prohibitions of Section 406 of ERISA and Section 4975 of the Code such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement;
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement; or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
In addition, unless either (I) sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or (II) a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Arrangers and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that the Administrative Agent, the Arrangers or any of their respective Affiliates is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
(Remainder of Page Intentionally Left Blank)
Exhibit B
Form of Committed Loan Notice
(Attached hereto)
EXHIBIT B
FORM OF COMMITTED LOAN NOTICE1
Date: [●], 20[●]
To: JPMorgan Chase Bank, N.A., Inc., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit and Guarantee Agreement, dated as of October 8, 2021 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Agreement”; the terms defined therein being used herein as therein defined), among Reddit, Inc., a Delaware corporation (the “Borrower”), the Guarantors from time to time party thereto, the Lenders and Issuing Banks from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent.
The undersigned hereby requests (select one):
o A Borrowing of Committed Loans o A conversion or continuation of Loans
1. On _________________ (a Business Day).
2. In the amount of $______________.
3. Comprised of: [Term Benchmark Loans][ABR Loans][SONIA Loans]
[Type of Committed Loan]
4. Denominated in:
[U.S. Dollars or Foreign Currency]
5. [With an Interest Period of months.]2
[After giving effect to the Borrowing requested hereby, (x) the Dollar Equivalent of the Total Outstandings of the Lenders does not exceed the Aggregate Commitments and (y) the Dollar Equivalent of the Total Outstandings of the Lenders borrowed in Alternative Currencies does not exceed the Alternative Currency Sublimit] 3
1 Must be delivered (i) in the case of Term Benchmark Loans in USD, prior to 11:00 a.m. New York City time 3 U.S. Government Securities Business Days prior to the requested Borrowing Date, (ii) in the case of Term Benchmark Loans in Euros, not later than 12:00 p.m. New York City time, 3 Business Days prior to the requested Borrowing Date, (iii) in the case of ABR Loans, prior to 10:00 a.m., New York City time, on the proposed Borrowing Date, (iv) in the case of Term Benchmark Loans denominated in an Alternative Currency (other than Euros), prior to 12:00 p.m., New York City time, 4 Business Days prior to the requested Borrowing Date and (iv) in the case of SONIA Loans denominated in Sterling, not later than 12:00 p.m., New York City time, 5 Business Days prior to the requested Borrowing Date).
2 Include for Term Benchmark Loans.
3 Include for any Borrowing of Loans.
| | | | | |
| REDDIT, INC. |
| |
| By: | |
| Name: |
| Title: |
REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the reddit Inc. 2012 Stock Option and Grant Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, directors, Consultants and other key persons of reddit Inc., a Delaware corporation (including any successor entity, the “Company”) and its Subsidiaries, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company.
The following terms shall be defined as set forth below:
“Affiliate” of any Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the first mentioned Person. A Person shall be deemed to control another Person if such first Person possesses directly or indirectly the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise.
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units or any combination of the foregoing.
“Award Agreement” means a written or electronic agreement setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Agreement may contain terms and conditions in addition to those set forth in the Plan, so long as such terms and conditions are not contrary to the terms of the Plan.
“Board” means the Board of Directors of the Company.
“Cause” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Cause,” it shall mean (i) the grantee’s dishonest statements or acts with respect to the Company or any Affiliate of the Company, or any current or prospective customers, suppliers vendors or other third parties with which such entity does business; (ii) the grantee’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud that is reasonably expected to cause material harm (including reputational harm) to the Company; (iii) the grantee’s failure to perform his assigned duties and responsibilities to the reasonable satisfaction of the Company which failure continues, in the reasonable judgment of the Company, after written notice given to the grantee by the Company; (iv) the grantee’s gross negligence, willful misconduct or insubordination with respect to the Company or any Affiliate of the Company; or (v) the grantee’s material violation of any
provision of any agreement(s) between the grantee and the Company relating to confidentiality, nondisclosure and/or assignment of inventions.
“Chief Executive Officer” means the Chief Executive Officer of the Company or, if there is no Chief Executive Officer, then the President of the Company.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Committee” means the Committee of the Board referred to in Section 2.
“Consultant” means any natural person that provides bona fide services to the Company (including a Subsidiary), and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.
“Disability” means “disability” as defined in Section 422(c) of the Code.
“Effective Date” means the date on which the Plan is adopted as set forth on the final page of the Plan.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Committee based on the reasonable application of a reasonable valuation method not inconsistent with Section 409A of the Code. If the Stock is admitted to trade on a national securities exchange, the determination shall be made by reference to the closing price reported on such exchange. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price. If the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.
“Good Reason” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Good Reason,” it shall mean (i) a material diminution in the grantee’s base salary except for across-the-board salary reductions similarly affecting all or substantially all similarly situated employees of the Company or (ii) a change of more than 50 miles in the geographic location at which the grantee provides services to the Company, so long as the grantee provides at least 90 days’ notice to the Company following the initial occurrence of any such event and the Company fails to cure such event within 30 days thereafter.
“Grant Date” means the date that the Committee designates in its approval of an Award in accordance with applicable law as the date on which the Award is granted, which date may not precede the date of such Committee approval.
“Holder” means, with respect to an Award or any Shares, the Person holding such Award or Shares, including the initial recipient of the Award or any Permitted Transferee.
“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.
“Initial Public Offering” means the consummation of the first firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale by the Company of its equity securities, as a result of or following which the Stock shall be publicly held.
“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Permitted Transferees” shall mean any of the following to whom a Holder may transfer Shares hereunder (as set forth in Section 9(a)(ii)(A)): the Holder’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons control the management of assets, and any other entity in which these persons own more than fifty percent of the voting interests; provided, however, that any such trust does not require or permit distribution of any Shares during the term of the Award Agreement unless subject to its terms. Upon the death of the Holder, the term Permitted Transferees shall also include such deceased Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees, as the case may be.
“Person” shall mean any individual, corporation, partnership (limited or general), limited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization or any similar entity.
“Restricted Stock Award” means Awards granted pursuant to Section 6 and “Restricted Stock” means Shares issued pursuant to such Awards.
“Restricted Stock Unit” means an Award of phantom stock units to a grantee, which may be settled in cash or Shares as determined by the Committee, pursuant to Section 8.
“Sale Event” means the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated
basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the surviving or resulting entity (or its ultimate parent, if applicable), (iv) the acquisition of all or a majority of the outstanding voting stock of the Company in a single transaction or a series of related transactions by a Person or group of Persons, or (v) any other acquisition of the business of the Company, as determined by the Board; provided, however, that the Company’s Initial Public Offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Sale Event.”
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Service Relationship” means any relationship as a full-time employee, part-time employee, director or other key person (including Consultants) of the Company or any Subsidiary or any successor entity (e.g., a Service Relationship shall be deemed to continue without interruption in the event an individual’s status changes from full-time employee to part-time employee or Consultant).
“Shares” means shares of Stock.
“Stock” means the Common Stock, par value $0.0001 per share, of the Company. “Subsidiary” means any corporation or other entity (other than the Company) in which the Company has more than a 50 percent interest, either directly or indirectly.
“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent of the Company or any Subsidiary.
“Termination Event” means the termination of the Award recipient’s Service Relationship with the Company and its Subsidiaries for any reason whatsoever, regardless of the circumstances thereof, and including, without limitation, upon death, disability, retirement, discharge or resignation for any reason, whether voluntarily or involuntarily. The following shall not constitute a Termination Event: (i) a transfer to the service of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another Subsidiary or (ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Committee, if the individual’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.
“Unrestricted Stock Award” means any Award granted pursuant to Section 7 and “Unrestricted Stock” means Shares issued pursuant to such Awards.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS
(a) Administration of Plan. The Plan shall be administered by the Board, or at the discretion of the Board, by a committee of the Board, comprised of not less than two directors. All references herein to the “Committee” shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee or committees of the Board, as applicable).
(b) Powers of Committee. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i) to select the individuals to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the amount, if any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units, or any combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number of Shares to be covered by any Award and, subject to the provisions of the Plan, the price, exercise price, conversion ratio or other price relating thereto;
(iv) to determine and, subject to Section 12, to modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of Award Agreements;
(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;
(vi) to revise or toll in an equitable manner the exercisability or vesting of all or any portion of any Award in the event of a change in a grantee’s Service Relationship, such as a change from full-time to part-time employment or in the event of a leave of absence;
(vii) to impose any limitations on Awards, including limitations on transfers, repurchase provisions and the like, and to exercise repurchase rights or obligations;
(viii) subject to Section 5(a)(ii) and any restrictions imposed by Section 409A, to extend at any time the period in which Stock Options may be exercised; and
(ix) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including Award Agreements); to make all determinations it deems advisable for the administration of the Plan; to decide all
disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all persons, including the Company and all Holders.
(c) Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award.
(d) Indemnification. Neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s governing documents, including its certificate of incorporation or bylaws, or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
(e) Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and any Subsidiary operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries, if any, shall be covered by the Plan; (ii) determine which individuals, if any, outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to the Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS AND OTHER TRANSACTIONS; SUBSTITUTION
(a) Stock Issuable. The maximum number of Shares reserved and available for issuance under the Plan shall be 10,800,000 Shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the Shares underlying any Awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, and
no more than 30,000,000 Shares may be issued pursuant to Incentive Stock Options. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, Options with respect to no more than 5,000,000 Shares shall be granted to any one individual in any calendar year period.
(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional Shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such Shares or other securities, in each case, without the receipt of consideration by the Company, or, if, as a result of any merger or consolidation, or sale of all or substantially all of the assets of the Company, the outstanding Shares are converted into or exchanged for other securities of the Company or any successor entity (or a parent or subsidiary thereof), the Committee shall make an appropriate and proportionate adjustment in (i) the maximum number of Shares reserved for issuance under the Plan, (ii) the number and kind of Shares or other securities subject to any then outstanding Awards under the Plan, (iii) the repurchase price, if any, per Share subject to each outstanding Award, and (iv) the exercise price for each Share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options) as to which such Stock Options remain exercisable. The Committee shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporation Code and the rules and regulations promulgated thereunder. The adjustment by the Committee shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make a cash payment in lieu of fractional shares.
(c) Sale Events.
(i) Options.
(A) In the case of and subject to the consummation of a Sale Event, the Plan and all outstanding Options issued hereunder shall terminate upon the effective time of any such Sale Event unless assumed or continued by the successor entity, or new stock options or other awards of the successor entity or parent thereof are substituted therefor, with an equitable or proportionate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).
(B) In the event of the termination of the Plan and all outstanding Options issued hereunder pursuant to Section 3(c)(i)(A), each Holder of Options shall be permitted, within a period of time prior to the consummation of the Sale Event as specified by the Committee, to exercise all of such Holder’s Options whether or not vested and/or exercisable; provided, however, that the exercise of Options not vested and/
or exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.
(C) Alternatively, in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Options (whether or not then vested and/or exercisable), without any consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Committee of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of Shares subject to all such outstanding Options being cancelled (at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options. Any such Options with an exercise price in excess of the Sale Price may be canceled hereunder for no consideration.
(ii) Restricted Stock and Restricted Stock Unit Awards.
(A) In the case of and subject to the consummation of a Sale Event, all outstanding Restricted Stock and unvested Restricted Stock Unit Awards issued hereunder shall become fully vested as of immediately prior to the consummation of the Sale Event unless assumed or continued by the successor entity, or awards of the successor entity or parent thereof are substituted therefor, with an equitable or proportionate adjustment as to the number and kind of shares subject to such awards as such parties shall agree.
(B) Alternatively, in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Restricted Stock or Restricted Stock Unit Awards, without consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the Sale Price times the number of Shares subject to such Awards, to be paid at the time of such Sale Event or upon the later vesting of such Awards.
SECTION 4. ELIGIBILITY
Grantees under the Plan will be such full or part-time officers and other employees, directors, Consultants and key persons of the Company and any Subsidiary who are selected from time to time by the Committee in its sole discretion; provided, however, that Awards shall be granted only to those individuals described in Rule 701(c) of the Securities Act.
SECTION 5. STOCK OPTIONS
Upon the grant of a Stock Option, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the
Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
(a) Terms of Stock Options. The Committee in its discretion may grant Stock Options to those individuals who meet the eligibility requirements of Section 4. Stock Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(i) Exercise Price. The exercise price per share for the Shares covered by a Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100 percent of the Fair Market Value on the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price per share for the Shares covered by such Incentive Stock Option shall not be less than 110 percent of the Fair Market Value on the Grant Date.
(ii) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years from the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the Grant Date.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable and/or vested at such time or times, whether or not in installments, as shall be determined by the Committee at or after the Grant Date. The Award Agreement may permit a grantee to exercise all or a portion of a Stock Option immediately at grant; provided that the Shares issued upon such exercise shall be subject to restrictions and a vesting schedule identical to the vesting schedule of the related Stock Option, such Shares shall be deemed to be Restricted Stock for purposes of the Plan, and the optionee may be required to enter into an additional or new Award Agreement as a condition to exercise of such Stock Option. An optionee shall have the rights of a stockholder only as to Shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. An optionee shall not be deemed to have acquired any Shares unless and until a Stock Option shall have been exercised pursuant to the terms of the Award Agreement and this Plan and the optionee’s name has been entered on the books of the Company as a stockholder.
(iv) Method of Exercise. Stock Options may be exercised by an optionee in whole or in part, by the optionee giving written or electronic notice of exercise to the Company, specifying the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the following methods (or any combination thereof) to the extent provided in the Award Agreement:
(A) In cash, by certified or bank check, by wire transfer of immediately available funds, or other instrument acceptable to the Committee;
(B) If permitted by the Committee, by the optionee delivering to the Company a promissory note, if the Board has expressly authorized the loan of funds to
the optionee for the purpose of enabling or assisting the optionee to effect the exercise of his or her Stock Option; provided, that at least so much of the exercise price as represents the par value of the Stock shall be paid in cash if required by state law;
(C) If permitted by the Committee and the Initial Public Offering has occurred (or the Stock otherwise becomes publicly-traded), through the delivery (or attestation to the ownership) of Shares that have been purchased by the optionee on the open market or that are beneficially owned by the optionee and are not then subject to restrictions under any Company plan. To the extent required to avoid variable accounting treatment under ASC 718 or other applicable accounting rules, such surrendered Shares if originally purchased from the Company shall have been owned by the optionee for at least six months. Such surrendered Shares shall be valued at Fair Market Value on the exercise date;
(D) If permitted by the Committee and the Initial Public Offering has occurred (or the Stock otherwise becomes publicly-traded), by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure; or
(E) If permitted by the Committee, and only with respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issuable upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price.
Payment instruments will be received subject to collection. No certificates for Shares so purchased will be issued to the optionee or, with respect to uncertificated Stock, no transfer to the optionee on the records of the Company will take place, until the Company has completed all steps it has deemed necessary to satisfy legal requirements relating to the issuance and sale of the Shares, which steps may include, without limitation, (i) receipt of a representation from the optionee at the time of exercise of the Option that the optionee is purchasing the Shares for the optionee’s own account and not with a view to any sale or distribution of the Shares or other representations relating to compliance with applicable law governing the issuance of securities, (ii) the legending of the certificate (or notation on any book entry) representing the Shares to evidence the foregoing restrictions, and (iii) obtaining from optionee payment or provision for all withholding taxes due as a result of the exercise of the Option. The delivery of certificates representing the shares of Stock (or the transfer to the optionee on the records of the Company with respect to uncertificated Stock) to be purchased pursuant to the exercise of a Stock Option will be contingent upon (A) receipt from the optionee (or a purchaser acting in his or her stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such Shares and the fulfillment of any other requirements contained in the Award Agreement
or applicable provisions of laws and (B) if required by the Company, the optionee shall have entered into any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Stock. In the event an optionee chooses to pay the purchase price by previously-owned Shares through the attestation method, the number of Shares transferred to the optionee upon the exercise of the Stock Option shall be net of the number of Shares attested to.
(b) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the Grant Date) of the Shares with respect to which Incentive Stock Options granted under the Plan and any other plan of the Company or its parent and any Subsidiary that become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000 or such other limit as may be in effect from time to time under Section 422 of the Code. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
(c) Termination. Any portion of a Stock Option that is not vested and exercisable on the date of termination of an optionee’s Service Relationship shall immediately expire and be null and void. Once any portion of the Stock Option becomes vested and exercisable, the optionee’s right to exercise such portion of the Stock Option (or the optionee’s representatives and legatees as applicable) in the event of a termination of the optionee’s Service Relationship shall continue until the earliest of: (i) the date which is: (A) 12 months following the date on which the optionee’s Service Relationship terminates due to death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (B) three months following the date on which the optionee’s Service Relationship terminates if the termination is due to any reason other than death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (ii) the Expiration Date set forth in the Award Agreement; provided that notwithstanding the foregoing, an Award Agreement may provide that if the optionee’s Service Relationship is terminated for Cause, the Stock Option shall terminate immediately and be null and void upon the date of the optionee’s termination and shall not thereafter be exercisable.
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible individual under Section 4 hereof a Restricted Stock Award under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Award at the time of grant. Conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or such other criteria as the Committee may determine. Upon the grant of a Restricted Stock Award, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee of Restricted Stock shall be considered the record owner of and shall be entitled to vote the Restricted Stock if, and to the extent, such Shares are entitled to voting rights, subject to such conditions contained in the Award Agreement. The grantee shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution. Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in subsection (d) below of this Section, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank and such other instruments of transfer as the Committee may prescribe.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Award Agreement. Except as may otherwise be provided by the Committee either in the Award Agreement or, subject to Section 12 below, in writing after the Award Agreement is issued, if a grantee’s Service Relationship with the Company and any Subsidiary terminates, the Company or its assigns shall have the right, as may be specified in the relevant instrument, to repurchase some or all of the Shares subject to the Award at such purchase price as is set forth in the Award Agreement.
(d) Vesting of Restricted Stock. The Committee at the time of grant shall specify in the Award Agreement the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the substantial risk of forfeiture imposed shall lapse and the Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the Award Agreement.
SECTION 7. UNRESTRICTED STOCK AWARDS
The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible person under Section 4 hereof an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
SECTION 8. RESTRICTED STOCK UNITS
(a) Nature of Restricted Stock Units. The Committee may, in its sole discretion, grant to an eligible person under Section 4 hereof Restricted Stock Units under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Vesting conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or other such criteria as the Committee may determine. Upon the grant of Restricted Stock Units, the grantee and the Company shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee and may differ among individual Awards and grantees. On or promptly following the vesting date or dates applicable to
any Restricted Stock Unit, but in no event later than March 15 of the year following the year in which such vesting occurs, such Restricted Stock Unit(s) shall be settled in the form of cash or shares of Stock, as specified in the Award Agreement. Restricted Stock Units may not be sold, assigned, transferred, pledged, or otherwise encumbered or disposed of.
(b) Rights as a Stockholder. A grantee shall have the rights of a stockholder only as to Shares, if any, acquired upon settlement of Restricted Stock Units. A grantee shall not be deemed to have acquired any such Shares unless and until the Restricted Stock Units shall have been settled in Shares pursuant to the terms of the Plan and the Award Agreement, the Company shall have issued and delivered a certificate representing the Shares to the grantee (or transferred on the records of the Company with respect to uncertificated stock), and the grantee’s name has been entered in the books of the Company as a stockholder.
(c) Termination. Except as may otherwise be provided by the Committee either in the Award Agreement or in writing after the Award Agreement is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s cessation of Service Relationship with the Company and any Subsidiary for any reason.
SECTION 9. TRANSFER RESTRICTIONS; COMPANY RIGHT OF FIRST REFUSAL; COMPANY REPURCHASE RIGHTS
(a) Restrictions on Transfer.
(i) Non-Transferability of Stock Options. Stock Options and, prior to exercise, the Shares issuable upon exercise of such Stock Option, shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award Agreement regarding a given Stock Option that the optionee may transfer by gift, without consideration for the transfer, his or her Non-Qualified Stock Options to his or her family members (as defined in Rule 701 of the Securities Act), to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners (to the extent such trusts or partnerships are considered “family members” for purposes of Rule 701 of the Securities Act), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award Agreement, including the execution of a stock power upon the issuance of Shares. Stock Options, and the Shares issuable upon exercise of such Stock Options, shall be restricted as to any pledge, hypothecation, or other transfer, including any short position, any “put equivalent position” (as defined in the Exchange Act) or any “call equivalent position” (as defined in the Exchange Act) prior to exercise.
(ii) Shares. No Shares shall be sold, assigned, transferred, pledged, hypothecated, hedged, given away or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless (i) the transfer is in compliance with the terms of the applicable Award Agreement, all applicable securities laws (including, without limitation, the Securities Act), and with the terms and conditions of this Section 9, (ii) the transfer does not
cause the Company to become subject to the reporting requirements of the Exchange Act, and (iii) the transferee consents in writing to be bound by the provisions of the Plan and the Award Agreement, including this Section 9, if required by the Committee. Notwithstanding the foregoing, the Committee, in its sole discretion, may waive certain of the foregoing restrictions by providing a written waiver thereof. In connection with any proposed transfer, the Committee may require the transferor to provide at the transferor’s own expense an opinion of counsel to the transferor, satisfactory to the Committee, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act). Any attempted transfer of Shares not in accordance with the terms and conditions of this Section 9 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Shares as a result of any such transfer, shall otherwise refuse to recognize any such transfer and shall not in any way give effect to any such transfer of Shares. The Company shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity including, without limitation, seeking specific performance or the rescission of any transfer not made in strict compliance with the provisions of this Section 9. Subject to the foregoing general provisions, and unless otherwise provided in the applicable Award Agreement, Shares may be transferred pursuant to the following specific terms and conditions (provided that with respect to any transfer of Restricted Stock, all vesting and forfeiture provisions shall continue to apply with respect to the original recipient):
(A) Transfers to Permitted Transferees. The Holder may transfer any or all of the Shares for no consideration to one or more Permitted Transferees; provided, however, that following such transfer, such Shares shall continue to be subject to the terms of this Plan (including this Section 9) and such Permitted Transferee(s) shall, as a condition to any such transfer, deliver a written acknowledgment to that effect to the Company and shall deliver a stock power to the Company with respect to the Shares. Notwithstanding the foregoing, the Holder may not transfer any of the Shares to a Person whom the Company reasonably determines is a direct competitor or a potential competitor of the Company or any of its Subsidiaries.
(B) Transfers Upon Death. Upon the death of the Holder, any Shares then held by the Holder at the time of such death and any Shares acquired after the Holder’s death by the Holder’s legal representative shall be subject to the provisions of this Plan, and the Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees shall be obligated to agree in writing to the terms of the Plan and the Award Agreement if requested by the Committee.
(b) Right of First Refusal. In the event that a Holder desires at any time to sell or otherwise transfer all or any part of his or her Shares (other than shares of Restricted Stock which by their terms are not transferrable), the Holder first shall give written notice to the Company of the Holder’s intention to make such transfer. Such notice shall state the number of Shares that the Holder proposes to sell (the “Offered Shares”), the price and the terms at which the proposed sale is to be made and the name and address of the proposed transferee. At any time within 30 days after the receipt of such notice by the Company, the Company or its assigns may elect to purchase all or any portion of the Offered Shares at the price and on the terms offered by the
proposed transferee and specified in the notice. The Company or its assigns shall exercise this right by mailing or delivering written notice to the Holder within the foregoing 30-day period. If the Company or its assigns elect to exercise its purchase rights under this Section 9(b), the closing for such purchase shall, in any event, take place within 45 days after the receipt by the Company of the initial notice from the Holder. In the event that the Company or its assigns do not elect to exercise such purchase right, or in the event that the Company or its assigns do not pay the full purchase price within such 45-day period, the Holder may, within 60 days thereafter, sell the Offered Shares to the proposed transferee and at the same price and on the same terms as specified in the Holder’s notice. Any Shares not sold to the proposed transferee shall remain subject to the Plan. If the Holder is a party to any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Shares, (i) the transferring Holder shall comply with the requirements of such stockholders agreements or other agreements relating to any proposed transfer of the Offered Shares, and (ii) any proposed transferee that purchases Offered Shares shall enter into such stockholders agreements or other agreements with the Company and/or certain of the Company’s stockholders relating to the Offered Shares on the same terms and in the same capacity as the transferring Holder.
(c) Company’s Right of Repurchase.
(i) Right of Repurchase for Unvested Shares Issued Upon the Exercise of an Option. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares acquired upon exercise of a Stock Option which are still subject to a risk of forfeiture as of the Termination Event. Such repurchase rights may be exercised by the Company within the later of (A) six months following the date of such Termination Event or (B) seven months after the acquisition of Shares upon exercise of a Stock Option. The repurchase price shall be equal to the original per share purchase (exercise) price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan.
(ii) Right of Repurchase With Respect to Restricted Stock. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares received pursuant to a Restricted Stock Award any Shares that are still subject to a risk of forfeiture as of the Termination Event. Such repurchase right may be exercised by the Company within six months following the date of such Termination Event. The repurchase price shall be equal to the original per share purchase price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan.
(iii) Procedure. Any repurchase right of the Company shall be exercised by the Company or its assigns by giving the Holder written notice on or before the last day of the repurchase period of its intention to exercise such repurchase right. Upon such notification, the Holder shall promptly surrender to the Company, free and clear of any liens or encumbrances, any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company or the Company’s assignee or assignees. Upon the Company’s or its assignee’s receipt of the certificates from the Holder, the Company or its assignee or assignees shall deliver to him, her or them a check for the applicable repurchase
price; provided, however, that the Company may pay the repurchase price by offsetting and canceling any indebtedness then owed by the Holder to the Company.
(d) Reserved.
(e) Escrow Arrangement.
(i) Escrow. In order to carry out the provisions of this Section 9 of this Plan more effectively, the Company shall hold any Shares issued pursuant to Awards granted under the Plan in escrow together with separate stock powers executed by the Holder in blank for transfer. The Company shall not dispose of the Shares except as otherwise provided in this Plan. In the event of any repurchase by the Company (or any of its assigns), the Company is hereby authorized by the Holder, as the Holder’s attorney-in-fact, to date and complete the stock powers necessary for the transfer of the Shares being purchased and to transfer such Shares in accordance with the terms hereof. At such time as any Shares are no longer subject to the Company’s repurchase and first refusal rights, the Company shall, at the written request of the Holder, deliver to the Holder a certificate representing such Shares with the balance of the Shares to be held in escrow pursuant to this Section.
(ii) Remedy. Without limitation of any other provision of this Plan or other rights, in the event that a Holder or any other Person is required to sell a Holder’s Shares pursuant to the provisions of Sections 9(b) or (c) hereof and in the further event that he or she refuses or for any reason fails to deliver to the Company or its designated purchaser of such Shares the certificate or certificates evidencing such Shares together with a related stock power, the Company or such designated purchaser may deposit the applicable purchase price for such Shares with a bank designated by the Company, or with the Company’s independent public accounting firm, as agent or trustee, or in escrow, for such Holder or other Person, to be held by such bank or accounting firm for the benefit of and for delivery to him, her, them or it, and/or, in its discretion, pay such purchase price by offsetting any indebtedness then owed by such Holder as provided above. Upon any such deposit and/or offset by the Company or its designated purchaser of such amount and upon notice to the Person who was required to sell the Shares to be sold pursuant to the provisions of Sections 9(b) or (c), such Shares shall at such time be deemed to have been sold, assigned, transferred and conveyed to such purchaser, such Holder shall have no further rights thereto (other than the right to withdraw the payment thereof held in escrow, if applicable), and the Company shall record such transfer in its stock transfer book or in any appropriate manner.
(f) Lockup Provision. If requested by the Company, a Holder shall not sell or otherwise transfer or dispose of any Shares (including, without limitation, pursuant to Rule 144 under the Securities Act) held by him or her for such period following the effective date of a public offering by the Company of Shares as the Company shall specify reasonably and in good faith. Any underwriter engaged by the Company shall be a third party beneficiary of this Section. If requested by the underwriter engaged by the Company, each Holder shall execute a separate letter confirming his or her agreement to comply with this Section.
(g) Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Section 9 shall apply with equal force to additional and/or substitute securities, if any, received by Holder in exchange for, or by virtue of his or her ownership of, Shares.
(h) Termination. The terms and provisions of Section 9(b) and Section 9(c) (except for the Company’s right to repurchase Shares still subject to a risk of forfeiture upon a Termination Event) shall terminate upon the closing of the Company’s Initial Public Offering or upon consummation of any Sale Event, in either case as a result of which Shares are registered under Section 12 of the Exchange Act and publicly-traded on any national security exchange.
SECTION 10. TAX WITHHOLDING
(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Shares or other amounts received thereunder first becomes includable in the gross income of the grantee for income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and any Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates (or evidence of book entry) to any grantee is subject to and conditioned on any such tax withholding obligations being satisfied by the grantee.
(b) Payment in Stock. The Company’s minimum required tax withholding obligation may be satisfied, in whole or in part, by the Company withholding from Shares to be issued pursuant to an Award a number of Shares having an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum withholding amount due.
SECTION 11. SECTION 409A AWARDS
To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as may be specified by the Committee from time to time. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. The Company makes no representation or warranty and shall have no liability to any grantee under the Plan or any other Person with respect to any penalties or taxes under Section 409A that are, or may be, imposed with respect to any Award.
SECTION 12. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the consent of the Holder of the Award. The Committee may exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation of outstanding Stock Options and by granting such holders new Awards in replacement of the cancelled Stock Options. To the extent determined by the Committee to be required either by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or by other applicable laws, rules or regulations, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 12 shall limit the Board’s or Committee’s authority to take any action permitted pursuant to Section 3(c). The Board reserves the right to amend the Plan and/or the terms of any outstanding Stock Options to the extent reasonably necessary to comply with the requirements of the exemption pursuant to paragraph (f)(4) of Rule 12h-1 of the Exchange Act.
SECTION 13. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly so determine in connection with any Award.
SECTION 14. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring Shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. No Shares shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to grantees under the Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company; provided that stock certificates to be held in escrow pursuant to Section 9 of the Plan shall be deemed delivered when the Company shall have recorded the issuance in its records. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records).
(c) No Employment Rights. The adoption of the Plan and the grant of Awards do not confer upon any Person any right to continued employment or Service Relationship with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policy-related restrictions, terms and conditions as may be established by the Committee, or in accordance with policies set by the Committee, from time to time.
(e) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award on or after the grantee’s death or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
(f) Legend. Any certificate(s) representing the Shares shall carry substantially the following legend (and with respect to uncertificated Stock, the book entries evidencing such shares shall contain the following notation):
The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including repurchase and restrictions against transfers) contained in the reddit Inc. 2012 Stock Option and Grant Plan and any agreements entered into thereunder by and between the company and the holder of this certificate (a copy of which is available at the offices of the company for examination).
(g) Information to Holders of Options. In the event the Company is relying on the exemption from the registration requirements of Section 12(g) of the Exchange Act contained in paragraph (f)(1) of Rule 12h-1 of the Exchange Act, the Company shall provide the information described in Rule 701(e)(3), (4) and (5) of the Securities Act to all holders of Options in accordance with the requirements thereunder. The foregoing notwithstanding, the Company shall not be required to provide such information unless the optionholder has agreed in writing, on a form prescribed by the Company, to keep such information confidential.
SECTION 15. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board and shall be approved by stockholders in accordance with applicable state law and the Company’s articles of incorporation and bylaws within 12 months thereafter. If the stockholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, then any Awards granted or sold under the Plan shall be rescinded and no additional grants or sales shall thereafter be made under the Plan. Subject to such approval by stockholders and to the requirement that no Shares may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on
and after adoption of the Plan by the Board. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the date the Plan is adopted by the Board or the date the Plan is approved by the Company’s stockholders, whichever is earlier.
SECTION 16. GOVERNING LAW
This Plan, all Awards and any controversy arising out of or relating to this Plan and all Awards shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
DATE ADOPTED BY THE BOARD OF DIRECTORS: April 10, 2012
DATE APPROVED BY THE STOCKHOLDERS: April 10, 2012
INCENTIVE STOCK OPTION GRANT NOTICE
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
Pursuant to the reddit Inc. 2012 Stock Option and Grant Plan (the “Plan”), reddit Inc., a Delaware corporation (together with any successor, the “Company”), has granted to the individual named below, an option (the “Stock Option”) to purchase on or prior to the Expiration Date, or such earlier date as is specified herein, all or any part of the number of shares of common stock of the Company (“Common Stock”) indicated below (the “Shares”), at the Option Exercise Price per share, subject to the terms and conditions set forth in this Incentive Stock Option Grant Notice (the “Grant Notice”), the attached Incentive Stock Option Agreement (the “Agreement”) and the Plan. This Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”). To the extent that any portion of the Stock Option does not so qualify, it shall be deemed a non-qualified stock option.
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| Name of Optionee: | ____________________ (the “Optionee”) |
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| No. of Shares: | ___________ Shares of Common Stock |
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| Grant Date: | ____________ |
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| Vesting Commencement Date: | ____________ (the “Vesting Commencement Date”) |
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| Expiration Date: | ____________ (the “Expiration Date”)1 |
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| Option Exercise Price/Share: | $___________ (the “Option Exercise Price”)2 |
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| Vesting Schedule: | [25] percent of the Shares shall vest and become exercisable on the first anniversary of the Vesting Commencement Date; provided that the Optionee continues to have a Service Relationship with the Company at such time. Thereafter, the remaining [75] percent of the Shares shall vest and become exercisable in [36] equal monthly installments following the first anniversary of the Vesting Commencement Date, provided the Optionee continues to have a Service Relationship with the Company at such time. Notwithstanding anything in the Agreement to the contrary, in the case of a Sale Event, this Stock Option and the Shares shall be treated as provided in Section 3(c) of the Plan[ provided; however INSERT ANY ACCELERATED VESTING PROVISION HERE]. |
1 The maximum term for an incentive stock option is 10 years (five years for 10 percent owner).
2 The exercise price may be no less than the fair market value of the Common Stock on the date of grant (110% of fair market value if the optionee is a 10% owner).
Attachments: Incentive Stock Option Agreement, 2012 Stock Option and Grant Plan
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.
I.VESTING, EXERCISABILITY AND TERMINATION.
A.No portion of this Stock Option may be exercised until such portion shall have vested and become exercisable.
B.Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall vest and become exercisable in accordance with the Vesting Schedule set forth in the Grant Notice.
C.Termination. Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case, to Section 3(c) of the Plan):
1.Termination Due to Death or Disability. If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or Disability, this Stock Option may be exercised, to the extent exercisable on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or Disability or until the Expiration Date, if earlier.
2.Other Termination. If the Optionee’s Service Relationship terminates for any reason other than death or Disability, and unless otherwise determined by the Committee, this Stock Option may be exercised, to the extent exercisable on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however, if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.
For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. Any portion of this Stock Option that is not vested and exercisable on the date of termination of the Service Relationship shall terminate immediately and be null and void.
D.It is understood and intended that this Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code to the extent permitted under applicable law. Accordingly, the Optionee understands that in order to obtain the benefits of an incentive stock option under Section 422 of the Code, no sale or other disposition may be
made of Shares for which incentive stock option treatment is desired within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the two-year period beginning on the day after Grant Date of this Stock Option and further that this Stock Option must be exercised within three months after termination of employment as an employee (or 12 months in the case of death or disability) to qualify as an incentive stock option. If the Optionee disposes (whether by sale, gift, transfer or otherwise) of any such Shares within either of these periods, he or she will notify the Company within 30 days after such disposition. The Optionee also agrees to provide the Company with any information concerning any such dispositions required by the Company for tax purposes. Further, to the extent this Stock Option and any other incentive stock options of the Optionee having an aggregate Fair Market Value in excess of $100,000 (determined as of the Grant Date) first become exercisable in any year, such options will not qualify as incentive stock options.
II.EXERCISE OF STOCK OPTION.
A.The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver a Stock Option exercise notice (an “Exercise Notice”) in the form of Appendix A hereto indicating his or her election to purchase some or all of the Shares with respect to which this Stock Option is then exercisable. Such notice shall specify the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.
B.Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.
III.INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.
IV.TRANSFERABILITY OF STOCK OPTION. This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.
V.RESTRICTIONS ON TRANSFER OF SHARES. The Shares acquired upon exercise of the Stock Option shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.
VI.MISCELLANEOUS PROVISIONS.
A.Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.
B.Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Shares acquired pursuant thereto.
C.Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.
D.Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
E.Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.
F.Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.
G.Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.
H.Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.
I.Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
J.Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
VII.CONSENT TO JURISDICTION; WAIVER. The Optionee (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each of the Optionee and the Company (each a “Party”) hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.
[SIGNATURE PAGE FOLLOWS]
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.
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| REDDIT INC. |
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| By: | |
| Name: | |
| Title: | |
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| Address: | |
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The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that this Stock Option is subject to the terms of the Plan and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, are hereby agreed to, by the undersigned as of the date first above written.
[SPOUSE’S CONSENT3
I acknowledge that I have read the
foregoing Incentive Stock Option Agreement
and understand the contents thereof.
3 A spouse’s consent is recommended if the Optionee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
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APPENDIX A
STOCK OPTION EXERCISE NOTICE
Pursuant to the terms of the grant notice and stock option agreement between the undersigned and reddit Inc. (the “Company”) dated ____________ (the “Agreement”) under the reddit Inc. 2012 Stock Option and Grant Plan, I, [Insert Name] _______________, hereby [Circle One] partially/fully exercise such option by including herein payment in the amount of $_______ representing the purchase price for [Fill in number of Shares] ______ Shares. I have chosen the following form(s) of payment:
| | | | | | | | | | | |
| [ ] | 1. | Cash | |
| [ ] | 2. | Certified or bank check payable to reddit Inc. | |
| [ ] | 3. | Other (as referenced in the Agreement and described in the Plan | |
| | (please describe)) | |
| | | . |
In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:
(i)I am purchasing the Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.
(ii)I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.
(iii)I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.
(iv)I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period of time.
(v)I understand that the Shares may not be registered under the Securities Act of 1933 (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and
under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.
(vi)I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.
(vii)I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.
(viii)I understand and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.
(ix)I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.
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| Sincerely yours, |
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| Name: | |
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| Address: | |
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C:4267385
NON-QUALIFIED STOCK OPTION GRANT NOTICE
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
Pursuant to the reddit Inc. 2012 Stock Option and Grant Plan (the “Plan”), reddit Inc., a Delaware corporation (together with any successor, the “Company”), has granted to the individual named below, an option (the “Stock Option”) to purchase on or prior to the Expiration Date, or such earlier date as is specified herein, all or any part of the number of shares of common stock of the Company (“Common Stock”) indicated below (the “Shares”), at the Option Exercise Price per share, subject to the terms and conditions set forth in this Non-Qualified Stock Option Grant Notice (the “Grant Notice”), the attached Non-Qualified Stock Option Agreement (the “Agreement”) and the Plan. This Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”).
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| Name of Optionee: | ____________________ (the “Optionee”) |
| |
| No. of Shares: | ___________ Shares of Common Stock |
| |
| Grant Date: | ____________ |
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| Vesting Commencement Date: | ____________ (the “Vesting Commencement Date”) |
| |
| Expiration Date: | ____________ (the “Expiration Date”) |
| |
| Option Exercise Price/Share: | $___________ (the “Option Exercise Price”) |
| |
| Vesting Schedule: | [25] percent of the Shares shall vest and become exercisable on the first anniversary of the Vesting Commencement Date; provided that the Optionee continues to have a Service Relationship with the Company at such time. Thereafter, the remaining [75] percent of the Shares shall vest and become exercisable in [36] equal monthly installments following the first anniversary of the Vesting Commencement Date, provided the Optionee continues to have a Service Relationship with the Company at such time. Notwithstanding anything in the Agreement to the contrary, in the case of a Sale Event, this Stock Option and the Shares shall be treated as provided in Section 3(c) of the Plan[ provided; however INSERT ANY ACCELERATED VESTING PROVISION HERE]. |
Attachments: Non-Qualified Stock Option Agreement, 2012 Stock Option and Grant Plan
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.
I.VESTING, EXERCISABILITY AND TERMINATION.
A.No portion of this Stock Option may be exercised until such portion shall have vested and become exercisable.
B.Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall vest and become exercisable in accordance with the Vesting Schedule set forth in the Grant Notice.
C.Termination. Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case, to Section 3(c) of the Plan):
1.Termination Due to Death or Disability. If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or Disability, this Stock Option may be exercised, to the extent exercisable on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or Disability or until the Expiration Date, if earlier.
2.Other Termination. If the Optionee’s Service Relationship terminates for any reason other than death or Disability, and unless otherwise determined by the Committee, this Stock Option may be exercised, to the extent exercisable on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however, if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.
For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees and any Permitted Transferee. Any portion of this Stock Option that is not vested and exercisable on the date of termination of the Service Relationship shall terminate immediately and be null and void.
II.EXERCISE OF STOCK OPTION.
A.The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver a Stock Option exercise notice
(an “Exercise Notice”) in the form of Appendix A hereto indicating his or her election to purchase some or all of the Shares with respect to which this Stock Option is then exercisable. Such notice shall specify the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.
B.Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.
III.INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.
IV.TRANSFERABILITY OF STOCK OPTION. This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.
V.RESTRICTIONS ON TRANSFER OF SHARES. The Shares acquired upon exercise of the Stock Option shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.
VI.MISCELLANEOUS PROVISIONS.
A.Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.
B.Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Shares acquired pursuant thereto.
C.Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.
D.Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
E.Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.
F.Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.
G.Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.
H.Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.
I.Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
J.Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
VII.CONSENT TO JURISDICTION; WAIVER. The Optionee (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient
forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each of the Optionee and the Company (each a “Party”) hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.
[SIGNATURE PAGE FOLLOWS]
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.
| | | | | | | | |
| REDDIT INC. |
| | |
| By: | | |
| Name: | |
| Title: | |
| | |
| Address: | |
| | |
| | |
| | |
The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that this Stock Option is subject to the terms of the Plan and this of Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, are hereby agreed to, by the undersigned as of the date first above written.
| | | | | |
| [SPOUSE’S CONSENT1 | |
I acknowledge that I have read the
foregoing Non-Qualified Stock Option Agreement
and understand the contents thereof. |
| ] |
1 A spouse’s consent is recommended if the Optionee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
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| DESIGNATED BENEFICIARY: |
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| Beneficiary's Address: |
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|
|
Appendix A
STOCK OPTION EXERCISE NOTICE
| | |
| reddit Inc. |
| Attention: [________________________] |
|
|
Pursuant to the terms of the grant notice and stock option agreement between the undersigned and reddit Inc. (the “Company”) dated ____________ (the “Agreement”) under the reddit Inc. 2012 Stock Option and Grant Plan, I, [Insert Name] _______________, hereby [Circle One] partially/fully exercise such option by including herein payment in the amount of $_______ representing the purchase price for [Fill in number of Shares] ______ Shares. I have chosen the following form(s) of payment:
| | | | | | | | | | | | | | |
| [ ] | | 1. | | Cash |
| [ ] | | 2. | | Certified or bank check payable to reddit Inc. |
| [ ] | | 3. | | Other (as referenced in the Agreement and described in the Plan (please describe)) |
| | | | _____________________________________________________. |
In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:
(i)I am purchasing the Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.
(ii)I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.
(iii)I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.
(iv)I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period of time.
(v)I understand that the Shares may not be registered under the Securities Act of 1933 (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the
registration requirement thereof). I further acknowledge that certificates representing Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.
(vi)I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.
(vii)I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.
(viii)I understand and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.
(ix)I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.
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| Sincerely yours, |
|
| Name: |
|
| Address: |
|
|
|
C:4267387
EARLY EXERCISE
INCENTIVE STOCK OPTION GRANT NOTICE
UNDER THE REDDIT INC. 2012 STOCK OPTION AND GRANT PLAN
Pursuant to the reddit Inc. 2012 Stock Option and Grant Plan (the “Plan”), reddit Inc., a Delaware corporation (together with any successor, the “Company”), has granted to the individual named below, an option (the “Stock Option”) to purchase on or prior to the Expiration Date, or such earlier date as is specified herein, all or any part of the number of shares of common stock of the Company (“Common Stock”) indicated below (the “Shares”), at the Option Exercise Price per share, subject to the terms and conditions set forth in this Early Exercise Incentive Stock Option Grant Notice (the “Grant Notice”), the attached Early Exercise Incentive Stock Option Agreement (the “Agreement”) and the Plan. This Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”). To the extent that any portion of the Stock Option does not so qualify, it shall be deemed a non-qualified stock option.
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| Name of Optionee: | ________________ (the “Optionee”) |
| |
| No. of Shares: | _______ Shares of Common Stock |
| |
| Grant Date: | ________________ |
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| Vesting Commencement Date: | ________________ (the “Vesting Commencement Date”) |
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| Expiration Date: | ________________ (the “Expiration Date”)1 |
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| Option Exercise Price/Share: | $_______________ (the “Option Exercise Price”)2 |
| |
| Vesting Schedule: | [25] percent of the Shares shall vest on the first anniversary of the Vesting Commencement Date; provided that the Optionee continues to have a Service Relationship with the Company at such time. Thereafter, the remaining [75] percent of the Shares shall vest in [36] equal monthly installments following the first anniversary of the Vesting Commencement Date, provided the Optionee continues to have a Service Relationship with the Company at such time. Notwithstanding anything in the Agreement to the contrary, in the case of a Sale Event, this Stock Option and the Shares shall be treated as provided in Section 3(c) of the Plan[ provided; however INSERT ANY ACCELERATED VESTING PROVISION HERE]. |
1 The maximum term for an incentive stock option is 10 years (five years for 10 percent owner).
2 The exercise price may be no less than the fair market value of the Common Stock on the date of grant (110% of fair market value if the optionee is a 10% owner).
Attachments: Early Exercise Incentive Stock Option Agreement, Restricted Stock Agreement, 2012 Stock Option and Grant Plan
EARLY EXERCISE
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.
I. VESTING, EXERCISABILITY AND TERMINATION.
A. Vesting. This Stock Option shall be immediately exercisable, regardless of whether the Shares are vested. Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the Shares shall vest in accordance with the Vesting Schedule set forth in the Grant Notice.
B. Termination. Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case to Section 3(c) of the Plan):
1. Termination Due to Death or Disability. If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or Disability, this Stock Option may continue to be exercised, to the extent the Shares are vested on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or Disability or until the Expiration Date, if earlier.
2. Other Termination. If the Optionee’s Service Relationship terminates for any reason other than death or Disability, and unless otherwise determined by the Committee, this Stock Option may continue to be exercised, to the extent the Shares are vested on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however, if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.
For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. Any portion of this Stock Option with respect to Shares that are not vested on the date of termination of the Service Relationship shall terminate immediately and be null and void.
C. It is understood and intended that this Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code to the extent permitted under applicable law. Accordingly, the Optionee understands that in order to obtain the benefits of an incentive stock option under Section 422 of the Code, no sale or other disposition may be made of Shares for which incentive stock option treatment is desired within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the
two-year period beginning on the day after Grant Date of this Stock Option and further that this Stock Option must be exercised within three months after termination of employment as an employee (or 12 months in the case of death or disability) to qualify as an incentive stock option. If the Optionee disposes (whether by sale, gift, transfer or otherwise) of any such Shares within either of these periods, he or she will notify the Company within 30 days after such disposition. The Optionee also agrees to provide the Company with any information concerning any such dispositions required by the Company for tax purposes. Further, to the extent this Stock Option and any other incentive stock options of the Optionee having an aggregate Fair Market Value in excess of $100,000 (determined as of the Grant Date) first become exercisable in any year, such options will not qualify as incentive stock options.
II. EXERCISE OF STOCK OPTION.
A. The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver a Stock Option exercise notice (an “Exercise Notice”) in the form of Appendix A hereto indicating his or her election to purchase some or all of the Shares. Such notice shall specify the number of Shares to be purchased. To the extent this Stock Option is only partially exercised, such exercise shall first be with respect to the Shares, if any, that have previously vested, and then with respect to the Shares that will next vest, with the Shares that vest at the latest date being exercised last. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.
B. In the event the Optionee exercises a portion of this Stock Option with respect to Shares that have not vested, the Optionee shall also deliver a Restricted Stock Agreement covering such unvested Shares in the form of Appendix B hereto (the “Restricted Stock Agreement”) with the same vesting schedule for such Shares as set forth for such Shares herein.
C. Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.
III. INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.
IV. TRANSFERABILITY OF STOCK OPTION. This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary,
or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.
V. RESTRICTIONS ON TRANSFER OF SHARES. The Shares acquired upon exercise of the Stock Option shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan and, if applicable, the Restricted Stock Agreement.
VI. MISCELLANEOUS PROVISIONS.
A. Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.
B. Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Shares acquired pursuant thereto.
C. Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.
D. Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
E. Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.
F. Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.
G. Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to
the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.
H. Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.
I. Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
J. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
VII. CONSENT TO JURISDICTION; WAIVER. The Optionee (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each of the Optionee and the Company (each a “Party”) hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.
[SIGNATURE PAGE FOLLOWS]
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.
| | | | | |
| REDDIT INC. |
| |
| By: | |
| Name: |
| Title: |
| |
| Address: |
|
|
|
The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that this Stock Option is subject to the terms of the Plan and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, are hereby agreed to, by the undersigned as of the date first above written.
| | |
| [SPOUSE’S CONSENT3 |
I acknowledge that I have read the foregoing Incentive Stock Option Agreement and understand the contents thereof. |
| ___________________________________] |
| | |
| DESIGNATED BENEFICIARY: |
|
|
| Beneficiary’s Address: |
|
|
|
3 A spouse’s consent is recommended if the Optionee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
Appendix A
STOCK OPTION EXERCISE NOTICE
| | |
| reddit Inc. |
| Attention: [____________________] |
|
|
Pursuant to the terms of the grant notice and stock option agreement between the undersigned and reddit Inc. (the “Company”) dated ____________ (the “Agreement”) under the reddit Inc. 2012 Stock Option and Grant Plan, I, [Insert Name] _______________, hereby [Circle One] partially/fully exercise such option by including herein payment in the amount of $_______ representing the purchase price for [Fill in number of Shares] _______ Shares. I have chosen the following form(s) of payment:
| | | | | | | | | | | | | | |
| [ ] | | 1. | | Cash |
| [ ] | | 2. | | Certified or bank check payable to reddit Inc. |
| [ ] | | 3. | | Other (as referenced in the Agreement and described in the Plan (please describe)) |
| | | | _____________________________________________________. |
In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:
(i) I am purchasing the Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.
(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.
(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.
(iv) I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period of time.
(v) I understand that the Shares may not be registered under the Securities Act of 1933 (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and
under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.
(vi) To the extent required, I have executed and delivered to the Company the Restricted Stock Agreement attached as Appendix B to the Agreement.
(vii) I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.
(viii) I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.
(ix) I understand and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.
(x) I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.
| | |
| Sincerely yours, |
|
| Name: |
|
| Address: |
|
|
|
RESTRICTED STOCK AGREEMENT FOR EARLY EXERCISE OPTION
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Early Exercise Incentive Stock Option Grant Notice (the “Grant Notice”) and Early Exercise Incentive Stock Option Agreement (the “Option Agreement”) between reddit Inc. (the “Company”) and _____________ (the “Grantee”) for ____________ Shares of Common Stock with a Grant Date of ___________, ______ under the reddit Inc. 2012 Stock Option and Grant Plan (the “Plan”).
I. PURCHASE AND SALE OF SHARES; VESTING.
A. Purchase and Sale. The Company hereby sells to the Grantee, and the Grantee hereby purchases from the Company, the number of Shares set forth in the Stock Option Exercise Notice (_______ Shares) dated _________, pursuant to the Grant Notice and Option Agreement, for the aggregate Option Exercise Price for the Shares so purchased.
B. Vesting. The risk of forfeiture shall lapse with respect to the Shares, and such Shares shall become vested, on the respective dates indicated on the Vesting Schedule set forth in the Grant Notice.
II. REPURCHASE RIGHT. Upon a Termination Event, the Company shall have the right to repurchase Shares of Restricted Stock that are unvested as of the date of such Termination Event as set forth in Section 9(c) of the Plan.
III. RESTRICTIONS ON TRANSFER OF SHARES. The Shares (whether or not vested) shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.
IV. INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary, this Restricted Stock Agreement shall be subject to and governed by all the terms and conditions of the Plan.
V. MISCELLANEOUS PROVISIONS.
A. Record Owner; Dividends. The Grantee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Shares if and to the extent the Shares are entitled to voting rights. The Grantee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution.
B. Section 83(b) Election. The Grantee shall consult with the Grantee’s tax advisor to determine whether it would be appropriate for the Grantee to make an election under Section 83(b) of the Code with respect to the Shares. Any such election must be filed with the
Internal Revenue Service within 30 days of the date of exercise. If the Grantee makes an election under Section 83(b) of the Code, the Grantee shall give prompt notice to the Company (and provide a copy of such election to the Company).
C. Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.
D. Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.
E. Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
F. Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.
G. Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.
H. Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.
I. Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.
J. Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
VI. CONSENT TO JURISDICTION; WAIVER. The Grantee (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent
jurisdiction for the purpose of enforcing the award or decision in any proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each of the Grantee and the Company (each a “Party”) hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.
[SIGNATURE PAGE FOLLOWS]
The foregoing Restricted Stock Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned as of the date first above written.
| | | | | |
| REDDIT INC. |
| |
| By: | |
| Name: |
| Title: |
| |
| Address: |
|
|
|
The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof and understands that the Shares purchased hereby are subject to the terms of the Plan, the Grant Notice, and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, are hereby agreed to, by the undersigned as of the date first above written.
| | | | | |
| [SPOUSE’S CONSENT4 | |
I acknowledge that I have read the foregoing Restricted Stock Agreement and understand the contents thereof. | |
| ] |
C:4267360
4 A spouse’s consent is recommended if the Grantee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.
EARLY EXERCISE
NON-QUALIFIED STOCK OPTION GRANT NOTICE
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
Pursuant to the reddit Inc. 2012 Stock Option and Grant Plan (the “Plan”), reddit Inc., a Delaware corporation (together with any successor, the “Company”), has granted to the individual named below, an option (the “Stock Option”) to purchase on or prior to the Expiration Date, or such earlier date as is specified herein, all or any part of the number of shares of common stock of the Company (“Common Stock”), indicated below (the “Shares”), at the Option Exercise Price per share, subject to the terms and conditions set forth in this Early Exercise Non-Qualified Stock Option Grant Notice (the “Grant Notice”), the attached Early Exercise Non-Qualified Stock Option Agreement (the “Agreement”) and the Plan. This Stock Option is not intended to qualify as an “incentive stock option” as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”).
| | | | | |
| Name of Optionee: | ____________________ (the “Optionee”) |
| |
| No. of Shares: | ___________ Shares of Common Stock |
| |
| Grant Date: | ____________ |
| |
| Vesting Commencement Date: | ____________ (the “Vesting Commencement Date”) |
| |
| Expiration Date: | ____________ (the “Expiration Date”) |
| |
| Option Exercise Price/Share: | $___________ (the “Option Exercise Price”)1 |
| |
| Vesting Schedule: | [25] percent of the Shares shall vest on the first anniversary of the Vesting Commencement Date; provided that the Optionee continues to have a Service Relationship with the Company at such time. Thereafter, the remaining [75] percent of the Shares shall vest in [36] equal monthly installments following the first anniversary of the Vesting Commencement Date, provided the Optionee continues to have a Service Relationship with the Company at such time. Notwithstanding anything in the Agreement to the contrary, in the case of a Sale Event, this Stock Option and the Shares shall be treated as provided in Section 3(c) of the Plan[ provided; however INSERT ANY ACCELERATED VESTING PROVISION HERE]. |
Attachments: Early Exercise Non-Qualified Stock Option Agreement, Restricted Stock Agreement, 2012 Stock Option and Grant Plan
1 The exercise price may be no less than the fair market value of the Common Stock on the date of grant.
EARLY EXERCISE
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.
I. VESTING, EXERCISABILITY AND TERMINATION.
A. Vesting. This Stock Option shall be immediately exercisable, regardless of whether the Shares are vested. Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the Shares shall vest in accordance with the Vesting Schedule set forth in the Grant Notice.
B. Termination. Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case, to Section 3(c) of the Plan):
1. Termination Due to Death or Disability. If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or Disability, this Stock Option may continue to be exercised, to the extent the Shares are vested on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or Disability or until the Expiration Date, if earlier.
2. Other Termination. If the Optionee’s Service Relationship terminates for any reason other than death or Disability, and unless otherwise determined by the Committee, this Stock Option may continue to be exercised, to the extent the Shares are vested on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however, if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.
For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees and any Permitted Transferee. Any portion of this Stock Option with respect to Shares that are not vested on the date of termination of the Service Relationship shall terminate immediately and be null and void.
II. EXERCISE OF STOCK OPTION.
A. The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver a Stock Option exercise notice (an “Exercise Notice”) in the form of Appendix A hereto indicating his or her election to purchase some or all of the Shares. Such notice shall specify the number of Shares to be
purchased. To the extent this Stock Option is only partially exercised, such exercise shall first be with respect to the Shares, if any, that have previously vested, and then with respect to the Shares that will next vest, with the Shares that vest at the latest date being exercised last. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.
B. In the event the Optionee exercises a portion of this Stock Option with respect to Shares that have not vested, the Optionee shall also deliver a Restricted Stock Agreement covering such unvested Shares in the form of Appendix B hereto (the “Restricted Stock Agreement”) with the same vesting schedule for such Shares as set forth for such Shares herein.
C. Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.
III. INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.
IV. TRANSFERABILITY OF STOCK OPTION. This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.
V. RESTRICTIONS ON TRANSFER OF SHARES. The Shares acquired upon exercise of the Stock Option shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan and, if applicable, the Restricted Stock Agreement.
VI. MISCELLANEOUS PROVISIONS.
A. Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.
B. Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Shares acquired pursuant thereto.
C. Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.
D. Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
E. Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.
F. Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.
G. Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.
H. Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.
I. Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
J. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
VII. CONSENT TO JURISDICTION; WAIVER. The Optionee (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each of the Optionee and the Company (each a “Party”) hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.
[SIGNATURE PAGE FOLLOWS]
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.
| | | | | |
| REDDIT INC. |
| |
| By: | |
| Name: |
| Title: |
| |
| Address: |
|
|
|
The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that this Stock Option is subject to the terms of the Plan and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, are hereby agreed to, by the undersigned as of the date first above written.
| | | | | | | | |
| [SPOUSE’S CONSENT2 | | |
I acknowledge that I have read the foregoing Non-Qualified Stock Option Agreement and understand the contents thereof. |
| ] | |
2 A spouse’s consent is recommended if the Optionee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
| | |
| DESIGNATED BENEFICIARY: |
|
|
| Beneficiary's Address: |
|
|
|
Appendix A
STOCK OPTION EXERCISE NOTICE
| | |
| reddit Inc. |
| Attention: [________________________] |
|
|
Pursuant to the terms of the grant notice and stock option agreement between the undersigned and reddit Inc. (the “Company”) dated __________ (the “Agreement”) under the reddit Inc. 2012 Stock Option and Grant Plan, I, [Insert Name] ____________, hereby [Circle One] partially/fully exercise such option by including herein payment in the amount of $_______ representing the purchase price for [Fill in number of Shares] _______ Shares. I have chosen the following form(s) of payment:
| | | | | | | | | | | | | | |
| [ ] | | 1. | | Cash |
| [ ] | | 2. | | Certified or bank check payable to reddit Inc. |
| [ ] | | 3. | | Other (as referenced in the Agreement and described in the Plan (please describe)) |
| | | | _____________________________________________________. |
In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:
(i) I am purchasing the Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.
(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.
(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.
(iv) I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period of time.
(v) I understand that the Shares may not be registered under the Securities Act of 1933 (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the
registration requirement thereof). I further acknowledge that certificates representing Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.
(vi) To the extent required, I have executed and delivered to the Company the Restricted Stock Agreement attached as Appendix B to the Agreement.
(vii) I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.
(viii) I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.
(ix) I understand and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.
(x) I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.
| | |
| Sincerely yours, |
|
| Name: |
|
| Address: |
|
|
|
Appendix B
RESTRICTED STOCK AGREEMENT FOR EARLY EXERCISE OPTION
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Early Exercise Non-Qualified Stock Option Grant Notice (the “Grant Notice”) and Early Exercise Non-Qualified Stock Option Agreement (the “Option Agreement”) between reddit Inc. (the “Company”) and ____________ (the “Grantee”) for _____________ Shares of Common Stock with a Grant Date of ___________, _____ under the reddit Inc. 2012 Stock Option and Grant Plan (the “Plan”).
I. PURCHASE AND SALE OF SHARES; VESTING.
A. Purchase and Sale. The Company hereby sells to the Grantee, and the Grantee hereby purchases from the Company, the number of Shares set forth in the Stock Option Exercise Notice (________ Shares) dated ________, pursuant to the Grant Notice and Option Agreement, for the aggregate Option Exercise Price for the Shares so purchased.
B. Vesting. The risk of forfeiture shall lapse with respect to the Shares, and such Shares shall become vested, on the respective dates indicated on the Vesting Schedule set forth in the Grant Notice.
II. REPURCHASE RIGHT. Upon a Termination Event, the Company shall have the right to repurchase Shares of Restricted Stock that are unvested as of the date of such Termination Event as set forth in Section 9(c) of the Plan.
III. RESTRICTIONS ON TRANSFER OF SHARES. The Shares (whether or not vested) shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan
IV. INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary, this Restricted Stock Agreement shall be subject to and governed by all the terms and conditions of the Plan.
V. MISCELLANEOUS PROVISIONS.
A. Record Owner; Dividends. The Grantee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Shares if and to the extent the Shares are entitled to voting rights. The Grantee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution.
B. Section 83(b) Election. The Grantee shall consult with the Grantee’s tax advisor to determine whether it would be appropriate for the Grantee to make an election under Section 83(b) of the Code with respect to the Shares. Any such election must be filed with the Internal Revenue Service within 30 days of the date of exercise. If the Grantee makes an election under Section 83(b) of the Code, the Grantee shall give prompt notice to the Company (and provide a copy of such election to the Company).
C. Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.
D. Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.
E. Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
F. Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.
G. Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.
H. Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.
I. Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.
J. Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
VI. CONSENT TO JURISDICTION; WAIVER. The Grantee (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each of the Grantee and the Company (each a “Party”) hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.
[SIGNATURE PAGE FOLLOWS]
The foregoing Restricted Stock Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned as of the date first above written.
| | | | | |
| REDDIT INC. |
| |
| By: | |
| Name: |
| Title: |
| |
| Address: |
|
|
|
The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof and understands that the Shares purchased hereby are subject to the terms of the Plan, the Grant Notice, and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, are hereby agreed to, by the undersigned as of the date first above written.
| | | | | |
| [SPOUSE’S CONSENT3 | |
| |
I acknowledge that I have read the foregoing Restricted Stock Agreement and understand the contents thereof. | |
| ] |
C:4267384
3 A spouse’s consent is recommended if the Grantee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.
RESTRICTED STOCK AWARD NOTICE
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
Pursuant to the reddit Inc. 2012 Stock Option and Grant Plan (the “Plan”), reddit Inc., a Delaware corporation (together with any successor, the “Company”), hereby grants, sells and issues to the individual named below, the Shares at the Per Share Purchase Price, subject to the terms and conditions set forth in this Restricted Stock Award Notice (the “Award Notice”), the attached Restricted Stock Agreement (the “Agreement”) and the Plan. The Grantee agrees to the provisions set forth herein and acknowledges that each such provision is a material condition of the Company’s agreement to issue and sell the Shares to him or her. The Company hereby acknowledges receipt of $[_______] in full payment for the Shares. All references to share prices and amounts herein shall be equitably adjusted to reflect stock splits, stock dividends, recapitalizations, mergers, reorganizations and similar changes affecting the capital stock of the Company, and any shares of capital stock of the Company received on or in respect of Shares in connection with any such event (including any shares of capital stock or any right, option or warrant to receive the same or any security convertible into or exchangeable for any such shares or received upon conversion of any such shares) shall be subject to this Agreement on the same basis and extent at the relevant time as the Shares in respect of which they were issued, and shall be deemed Shares as if and to the same extent they were issued at the date hereof.
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| Name of Grantee: | ____________________ (the “Grantee”) |
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| No. of Shares: | ___________ Shares of Common Stock (the “Shares”) |
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| Grant Date: | ____________ __, ___ |
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| Vesting Commencement Date: | ____________ __, ___ (the “Vesting Commencement Date”) |
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| Per Share Purchase Price: | $__________ (the “Per Share Purchase Price”) |
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| Vesting Schedule: | [25] percent of the Shares shall vest on the [first] anniversary of the Vesting Commencement Date; provided that the Grantee continues to have a Service Relationship with the Company at such time. Thereafter, the remaining [75] percent of the Shares shall vest in [36] equal monthly installments following the first anniversary of the Vesting Commencement Date, provided the Grantee continues to have a Service Relationship with the Company at such time. Notwithstanding anything in the Agreement to the contrary in the case of a Sale Event, the Shares of Restricted Stock shall be treated as provided in Section 3(c) of the Plan [provided; however INSERT ANY ACCELERATED VESTING PROVISION HERE]. |
Attachments: Restricted Stock Agreement, 2012 Stock Option and Grant Plan
RESTRICTED STOCK AGREEMENT
UNDER THE REDDIT INC.
2012 STOCK OPTION AND GRANT PLAN
All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Award Notice and the Plan.
I. PURCHASE AND SALE OF SHARES; VESTING; INVESTMENT REPRESENTATIONS.
A. Purchase and Sale. The Company hereby sells to the Grantee, and the Grantee hereby purchases from the Company, the number of Shares set forth in the Award Notice for the Per Share Purchase Price.
B. Vesting. Initially, all of the Shares are non-transferable and subject to a substantial risk of forfeiture and are Shares of Restricted Stock. The risk of forfeiture shall lapse with respect to the Shares on the respective dates indicated on the Vesting Schedule set forth in the Award Notice.
C. Investment Representations. In connection with the purchase and sale of the Shares contemplated by Section 1(a) above, the Grantee hereby represents and warrants to the Company as follows:
1. The Grantee is purchasing the Shares for the Grantee’s own account for investment only, and not for resale or with a view to the distribution thereof.
2. The Grantee has had such an opportunity as he or she has deemed adequate to obtain from the Company such information as is necessary to permit him or her to evaluate the merits and risks of the Grantee’s investment in the Company and has consulted with the Grantee’s own advisers with respect to the Grantee’s investment in the Company.
3. The Grantee has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.
4. The Grantee can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding such Shares for an indefinite period.
5. The Grantee understands that the Shares are not registered under the Act (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirements thereof). The Grantee further acknowledges that certificates representing the Shares will bear
restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.
6. The Grantee has read and understands the Plan and acknowledges and agrees that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.
7. The Grantee understands and agrees that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.
8. The Grantee understands and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.
9. The Grantee understands and agrees that the Grantee may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.
II. REPURCHASE RIGHT. Upon a Termination Event, the Company shall have the right to repurchase Shares of Restricted Stock that are unvested as of the date of such Termination Event as set forth in Section 9(c) of the Plan.
III. RESTRICTIONS ON TRANSFER OF SHARES. The Shares (whether or not vested) shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan
IV. INCORPORATION OF PLAN. Notwithstanding anything herein to the contrary, this Restricted Stock Award shall be subject to and governed by all the terms and conditions of the Plan.
V. MISCELLANEOUS PROVISIONS.
A. Record Owner; Dividends. The Grantee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Shares if and to the extent the Shares are entitled to voting rights. The Grantee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution.
B. Section 83(b) Election. The Grantee shall consult with the Grantee’s tax advisor to determine whether it would be appropriate for the Grantee to make an election under Section 83(b) of the Code with respect to this Award. Any such election must be filed with the Internal Revenue Service within 30 days of the date of this Award. If the Grantee makes an election under Section 83(b) of the Code, the Grantee shall give prompt notice to the Company (and provide a copy of such election to the Company).
C. Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief,
including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.
D. Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.
E. Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
F. Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.
G. Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.
H. Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.
I. Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.
J. Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
K. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
VI. CONSENT TO JURISDICTION; WAIVER. The Grantee (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit,
action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each of the Grantee and the Company (each a “Party”) hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.
[SIGNATURE PAGE FOLLOWS]
The foregoing Restricted Stock Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned as of the date first above written.
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| REDDIT INC. |
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| By: | |
| Name: |
| Title: |
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| Address: |
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The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof and understands that the Shares granted hereby are subject to the terms of the Plan and of this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Award Notice and this Agreement, are hereby agreed to, by the undersigned as of the date first above written.
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| [SPOUSE’S CONSENT1 | |
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I acknowledge that I have read the foregoing Restricted Stock Agreement and understand the contents thereof. | |
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| C:4267391 | |
1 A spouse’s consent is recommended if the Grantee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.
REDDIT, INC.
2017 EQUITY INCENTIVE AND GRANT PLAN
As adopted on July 10, 2017
As amended on June 25, 2018, January 23, 2019, August 7, 2020, September 17, 2020
December 14, 2020, February 18, 2021, September 16, 2021, December 13, 2021, March 24, 2022, November 3, 2022 and November 2, 2023.
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Reddit, Inc. 2017 Equity Incentive and Grant Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, directors, Consultants and other key persons of Reddit, Inc., a Delaware corporation (including any successor entity, the “Company”) and its Subsidiaries, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 of the Securities Act (as defined below), grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 of the Securities Act or Section 25102(o) of the California Corporation Code. Any requirement of this Plan that is required in law only because of Section 25102(o) of the California Corporation Code need not apply if the Committee (as defined below) so provides.
The following terms shall be defined as set forth below:
“Affiliate” of any Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the first mentioned Person. A Person shall be deemed to control another Person if such first Person possesses directly or indirectly the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise.
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units or any combination of the foregoing.
“Award Agreement” means a written or electronic agreement setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Agreement may contain terms and conditions in addition to those set forth in the Plan, so long as such terms and conditions are not contrary to the terms of the Plan.
“Board” means the Board of Directors of the Company.
“Cause” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Cause,” it shall mean (i) the grantee’s dishonest statements or acts with respect to the Company or any Affiliate of the Company, or any
current or prospective customers, suppliers vendors or other third parties with which such entity does business; (ii) the grantee’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud that is reasonably expected to cause material harm (including reputational harm) to the Company; (iii) the grantee’s failure to perform his assigned duties and responsibilities to the reasonable satisfaction of the Company which failure continues, in the reasonable judgment of the Company, after written notice given to the grantee by the Company; (iv) the grantee’s gross negligence, willful misconduct or insubordination with respect to the Company or any Affiliate of the Company; or (v) the grantee’s material violation of any provision of any agreement(s) between the grantee and the Company relating to confidentiality, nondisclosure and/or assignment of inventions.
“Chief Executive Officer” means the Chief Executive Officer of the Company or, if there is no Chief Executive Officer, then the President of the Company.
“Class A Common Stock” means the Class A Common Stock, par value $0.0001 per share, of the Company.
“Class B Common Stock” means the Class B Common Stock, par value $0.0001 per share, of the Company.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Committee” means the Committee of the Board referred to in Section 2.
“Consultant” means any natural person that provides bona fide services to the Company (including a Subsidiary), and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.
“Disability” means “disability” as defined in Section 22(e)(3) of the Code.
“Effective Date” means the date on which the Plan is adopted as set forth on the final page of the Plan.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” of a class of Common Stock of the Company on any given date means the fair market value of the class of Common Stock of the Company determined in good faith by the Committee based on the reasonable application of a reasonable valuation method not inconsistent with Section 409A of the Code. If the class of Common Stock of the Company is admitted to trade on a national securities exchange, the determination shall be made by reference to the closing price reported on such exchange. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price. If the date for which Fair Market Value is determined is the date of effectiveness
of the Company’s registration statement under the Securities Act and before the first day when trading prices for the class of Common Stock of the Company are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.
“Good Reason” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Good Reason,” it shall mean (i) a material diminution in the grantee’s base salary except for across-the-board salary reductions similarly affecting all or substantially all similarly situated employees of the Company or (ii) a change of more than 50 miles in the geographic location at which the grantee provides services to the Company, so long as the grantee provides at least 90 days’ notice to the Company following the initial occurrence of any such event and the Company fails to cure such event within 30 days thereafter.
“Grant Date” means the date that the Committee designates in its approval of an Award in accordance with applicable law as the date on which the Award is granted, which date may not precede the date of such Committee approval.
“Holder” means, with respect to an Award or any Shares, the Person holding such Award or Shares, including the initial recipient of the Award or any Permitted Transferee.
“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.
“Initial Public Offering” means the consummation of the first firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale by the Company of its equity securities, as a result of or following which the securities shall be publicly held.
“Investors’ Rights Agreement” means that certain Investors’ Rights Agreement, dated September 19, 2014, by and among the Company and the stockholders and investors listed as parties thereto, as the same may be amended and/or restated from time to time.
“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Permitted Transferees” shall mean any of the following to whom a Holder may transfer Shares hereunder (as set forth in Section 9(a)(iii)(A)): the Holder’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons control the management of assets, and any other entity in which these
persons own more than fifty percent of the voting interests; provided, however, that any such trust does not require or permit distribution of any Shares during the term of the Award Agreement unless subject to its terms. Upon the death of the Holder, the term Permitted Transferees shall also include such deceased Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees, as the case may be.
“Permitted Transfer” means any of the following:
(i) any Transfer by a Holder of any or all of the Shares to the Company;
(ii) any Transfer by a Holder of any or all of the Shares for no consideration to the Holder’s family members (as defined in Rule 701 of the Securities Act), to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners (to the extent such trusts or partnerships are considered “family members” for purposes of Rule 701 of the Securities Act), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of the Plan and any applicable Award Agreement;
(iii) any Transfer by a Holder of any or all of the Shares effected pursuant to the Holder’s will or the laws of intestate succession;
(iv) any Transfer with Transfer Approval. Notwithstanding the foregoing, if a Permitted Transfer is approved pursuant to a Transfer Approval 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 Committee or the Board.
“Person” shall mean any individual, corporation, partnership (limited or general), limited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization or any similar entity.
“Preferred Stock” means each series of the authorized Preferred Stock, par value $0.0001 per share, of the Company.
“Restated Bylaws” shall mean the current Amended and Restated Bylaws of the Company, as amended and/or restated from time to time.
“Restated Certificate” shall mean the Company’s Amended and Restated Certificate of Incorporation, as amended and/or restated from time to time.
“Restricted Stock Award” means Awards granted pursuant to Section 6 and “Restricted Stock” means Shares issued pursuant to such Awards.
“Restricted Stock Unit” means an Award of phantom stock units to a grantee, which may be settled in cash or Shares as determined by the Committee, pursuant to Section 8.
“ROFR Agreement” means that certain Right of First Refusal Agreement dated September 19, 2014, by and among the Company and the stockholders and investors listed as parties thereto, as the same may be amended and/or restated from time to time.
“Sale Event” means the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the surviving or resulting entity (or its ultimate parent, if applicable), (iv) the acquisition of all or a majority of the outstanding voting stock of the Company in a single transaction or a series of related transactions by a Person or group of Persons, or (v) any other acquisition of the business of the Company, as determined by the Board; provided, however, that the Company’s Initial Public Offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Sale Event.”
“Sale of the Company” shall mean either: (a) a transaction or series of related transactions in which a party, or a group of related parties, acquires from stockholders of the Company shares representing fifty percent (50%) or more of the voting power of the capital stock of the Company (or the surviving or acquiring entity) (a “Stock Sale”); or (b) a transaction that otherwise qualifies as a Liquidation Event (as defined in the Restated Certificate).
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Series A Preferred Stock” means the Series A Preferred Stock, par value $0.0001 per share, of the Company.
“Series B Preferred Stock” means the Series B Preferred Stock, par value $0.0001 per share, of the Company.
“Service Relationship” means any relationship as a full-time employee, part-time employee, director or other key person (including Consultants) of the Company or any Subsidiary or any successor entity (e.g., a Service Relationship shall be deemed to continue without interruption in the event an individual’s status changes from full-time employee to part-time employee or Consultant).
“Shares” means shares of Class A Common Stock and Class B Common Stock. Except as otherwise explicitly set forth in an Award Agreement, all references to “Shares” in an Award Agreement means shares of Class A Common Stock.
“Stock” means the Class A Common Stock and the Class B Common Stock. Except as otherwise explicitly set forth in an Award Agreement, all references to “Stock” in an Award Agreement means Class A Common Stock.
“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has more than a 50 percent interest, either directly or indirectly.
“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent of the Company or any Subsidiary.
“Termination Event” means the termination of the Award recipient’s Service Relationship with the Company and its Subsidiaries for any reason whatsoever, regardless of the circumstances thereof, and including, without limitation, upon death, disability, retirement, discharge or resignation for any reason, whether voluntarily or involuntarily. The following shall not constitute a Termination Event: (i) a transfer to the service of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another Subsidiary or (ii) an approved leave of absence. In the case of an approved leave of absence, the Committee may make such provisions respecting crediting of service, including suspension of vesting of the Award (including pursuant to a formal policy adopted from time to time by the Company) as it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Award Agreement.
“Transfer” means sell, assign, transfer, pledge, encumber or in any manner dispose of any Award or Shares.
“Transfer Approval” means any Transfer permitted by written approval of the Committee or the Board, which Transfer Approval shall be granted or withheld in the sole and absolute discretion of the Committee and/or the Board.
“Unrestricted Stock Award” means any Award granted pursuant to Section 7 and “Unrestricted Stock” means Shares issued pursuant to such Awards.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS
(a) Administration of Plan. The Plan shall be administered by the Board, or at the discretion of the Board, by a committee of the Board, comprised of at least one member of the Board (or such greater number as may then be required by applicable law). All references herein to the “Committee” shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee or committees of the Board, as applicable). To the extent permitted by applicable law, the Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan, provided that each such officer is a member of the Board.
(b) Powers of Committee. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i) to select the individuals to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the amount, if any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units, or any combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number of Shares to be covered by any Award and, subject to the provisions of the Plan, the price, exercise price, conversion ratio or other price relating thereto;
(iv) to determine and, subject to Section 12, to modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of Award Agreements;
(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;
(vi) to revise or toll in an equitable manner the exercisability or vesting of all or any portion of any Award in the event of a change in a grantee’s Service Relationship, such as a change from full-time to part-time employment or in the event of a leave of absence;
(vii) to impose any limitations on Awards, including limitations on transfers, repurchase provisions and the like, and to exercise repurchase rights or obligations;
(viii) subject to Section 5(a)(ii) and any restrictions imposed by Section 409A, to extend at any time the period in which Stock Options may be exercised; and
(ix) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including Award Agreements); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all persons, including the Company and all Holders.
(c) Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award.
(d) Indemnification. Neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s governing documents, including its certificate of incorporation or bylaws, or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
(e) Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and any Subsidiary operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries, if any, shall be covered by the Plan; (ii) determine which individuals, if any, outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to the Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitation contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS AND OTHER TRANSACTIONS; SUBSTITUTION
(a) Stock Issuable. Subject to Sections 3(b) and 3(c), the maximum number of Shares reserved and available for issuance under the Plan, which for the avoidance of doubt, may be shares of Class A Common Stock or Class B Common Stock, shall be 58,837,485 Shares plus (a) the authorized shares not issued or subject to outstanding grants under the Reddit, Inc. Amended and Restated 2012 Stock Option and Grant Plan (the “Prior Plan”) on the Effective Date; (b) shares that are subject to issuance or become subject to issuance (including options or other awards granted after the Effective Date) under the Prior Plan but cease to be subject to an award for any reason other than exercise of an option after the Effective Date; and (c) shares subject to awards that were issued or will be issued (including options or other awards granted after the Effective Date) under the Prior Plan which are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) or expire by their terms at any time or that are withheld upon exercise of an option or settlement of an award to cover the exercise price or tax withholding, provided in all cases, however, that shares reserved and available for grant and issuance pursuant to subparts (a) – (c) of this Section 3(a) shall be issuable as Stock regardless of their series or class under the Prior Plan. Subject to Sections 3(b) and 3(c), the Shares underlying any Awards that are
forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) or expire by their terms at any time and Shares that are withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall be added back to the Shares then available for issuance under the Plan. Subject to such overall limitations, Shares may be issued up to such maximum number pursuant to any type or types of Award, but in no event shall the total number of Shares issued (counting each reissuance of a Share that was previously issued and then forfeited or repurchased by the Company as a separate issuance) under the Plan upon exercise of Incentive Stock Options exceed 86,000,000 Shares (adjusted in proportion to any adjustments under Section 3(b) hereof) over the term of the Plan. The Shares available for issuance under the Plan may be authorized but unissued Shares or Shares reacquired by the Company.
(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional Shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such Shares or other securities, in each case, without the receipt of consideration by the Company, or, if, as a result of any merger or consolidation, or sale of all or substantially all of the assets of the Company, the outstanding Shares are converted into or exchanged for other securities of the Company or any successor entity (or a parent or subsidiary thereof), the Committee shall make an appropriate and proportionate adjustment in (i) the maximum number of Shares reserved for issuance under the Plan, (ii) the maximum number of Incentive Stock Options that may be issued under the Plan, (iii) the number and kind of Shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price, if any, per Share subject to each outstanding Award, and (v) the exercise price for each Share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options) as to which such Stock Options remain exercisable, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws. The Committee shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporation Code and the rules and regulations promulgated thereunder. The adjustment by the Committee shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make a cash payment in lieu of fractional shares.
(c) Sale Events.
(i) Options.
(A) In the case of and subject to the consummation of a Sale Event, the Plan and all outstanding Options issued hereunder shall terminate upon the effective time of any such Sale Event unless assumed or continued by the successor entity, or new stock options or other awards of the successor entity or parent thereof are substituted therefor, with an equitable or proportionate adjustment as to the number and kind of shares and, if
appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement), subject to compliance with Sections 424(a) and 409A of the Code, as applicable.
(B) In the event of the termination of the Plan and all outstanding Options issued hereunder pursuant to Section 3(c)(i)(A), each Holder of Options shall be permitted, within a period of time prior to the consummation of the Sale Event as specified by the Committee, to exercise all of such Holder’s Options whether or not vested and/or exercisable; provided, however, that the exercise of Options not vested and/or exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.
(C) Alternatively, in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Options (whether or not then vested and/or exercisable), without any consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Committee of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of Shares subject to all such outstanding Options being cancelled (at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options. Any such Options with an exercise price in excess of the Sale Price may be canceled hereunder for no consideration. For the avoidance of doubt, the value of the consideration payable per share of Stock and the Sale Price as referred to under (A) above include amounts estimated to be distributable and/or issuable after the Sale Event pursuant to any escrow, earn-out or similar arrangement to the stockholders (the “Contingent Amounts”) and that the Contingent Amounts, if any, will not be paid unconditionally at the closing date of the Sale Event but shall be subject to the same or similar deferrals, contingencies, and other terms and conditions for payment under the definitive agreement for the Sale Event all as determined in the discretion of the Committee.
(ii) Restricted Stock and Restricted Stock Unit Awards.
(A) In the case of and subject to the consummation of a Sale Event, all outstanding Restricted Stock and unvested Restricted Stock Unit Awards issued hereunder shall become fully vested as of immediately prior to the consummation of the Sale Event unless, subject to compliance with Sections 424(a) and 409A of the Code, if applicable, assumed or continued by the successor entity, or awards of the successor entity or parent thereof are substituted therefor, with an equitable or proportionate adjustment as to the number and kind of shares subject to such awards as such parties shall agree.
(B) Alternatively, in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the Holders of Restricted Stock or Restricted Stock Unit Awards, without consent of the Holders, in exchange for the cancellation thereof, in an amount equal to the Sale Price times the
number of Shares subject to such Awards, to be paid at the time of such Sale Event or upon the later vesting of such Awards. For the avoidance of doubt, the Sale Price as referred to above includes the Contingent Amounts and that the Contingent Amounts, if any, will not be paid unconditionally at the closing date of the Sale Event or upon the later vesting of the Awards but shall be subject to the same or similar deferrals, contingencies, and other terms and conditions for payment under the definitive agreement for the Sale Event all as determined in the discretion of the Committee.
(d) Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another entity, whether in connection with an acquisition of such other entity or otherwise, by either (a) granting an Award under this Plan in substitution of such other entity’s award or (b) assuming and/or converting such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other entity had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another entity, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any Award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted exercise price.
SECTION 4. ELIGIBILITY
Grantees under the Plan will be such full or part-time officers and other employees, directors, Consultants and key persons of the Company and any Subsidiary who are selected from time to time by the Committee in its sole discretion; provided, however, that Awards shall be granted only to those individuals described in Rule 701(c) of the Securities Act.
SECTION 5. STOCK OPTIONS
Upon the grant of a Stock Option, the Company and the grantee shall enter into an Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
(a) Terms of Stock Options. The Committee in its discretion may grant Stock Options to those individuals who meet the eligibility requirements of Section 4. Stock Options
shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(i) Exercise Price. The exercise price per share for the Shares covered by a Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100 percent of the Fair Market Value on the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price per share for the Shares covered by such Incentive Stock Option shall not be less than 110 percent of the Fair Market Value on the Grant Date.
(ii) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years from the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the Grant Date.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable and/or vested at such time or times, whether or not in installments, as shall be determined by the Committee at or after the Grant Date. The Award Agreement may permit a grantee to exercise all or a portion of a Stock Option immediately at grant; provided that the Shares issued upon such exercise shall be subject to restrictions and a vesting schedule identical to the vesting schedule of the related Stock Option, such Shares shall be deemed to be Restricted Stock for purposes of the Plan, and the optionee may be required to enter into an additional or new Award Agreement as a condition to exercise of such Stock Option. An optionee shall have the rights of a stockholder only as to Shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. An optionee shall not be deemed to have acquired any Shares unless and until a Stock Option shall have been exercised pursuant to the terms of the Award Agreement and this Plan and the optionee’s name has been entered on the books of the Company as a stockholder.
(iv) Method of Exercise. Stock Options may be exercised by an optionee in whole or in part, by the optionee giving written or electronic notice of exercise to the Company in a form specified by the Committee, specifying the number of Shares to be purchased. Payment of the purchase price may be made by one or more of the following methods (or any combination thereof) to the extent provided in the Award Agreement:
(A) In cash, by certified or bank check, by wire transfer of immediately available funds, by electronic payment via Automatic Clearinghouse (ACH), or other instrument acceptable to the Committee;
(B) If permitted by the Committee and applicable law, by the optionee delivering to the Company a promissory note, if the Board has expressly authorized the loan of funds to the optionee for the purpose of enabling or assisting the optionee to effect the exercise of his or her Stock Option and having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, that at least so much of the exercise price as represents the par value of the Stock shall be paid in cash if required by state law;
(C) If permitted by the Committee and the Initial Public Offering has occurred (or any class of Stock otherwise becomes publicly-traded) and subject to compliance with applicable law, through the delivery (or attestation to the ownership) of Shares or other shares of Common Stock of the Company that have been purchased by the optionee on the open market or that are beneficially owned by the optionee and are not then subject to restrictions under any Company plan and that are clear of all liens, claims, encumbrances or security interests. Such surrendered Shares or other shares of Common Stock of the Company shall be valued at Fair Market Value on the exercise date;
(D) If the Initial Public Offering has occurred (or any class of Stock otherwise becomes publicly-traded), by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure; or
(E) By participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(F) If permitted by the Committee, by a “net exercise” arrangement pursuant to which the Company will reduce the number of Shares issuable upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate exercise price.
Payment instruments will be received subject to collection. No certificates for Shares so purchased will be issued to the optionee or, with respect to uncertificated Stock, no transfer to the optionee on the records of the Company will take place, until the Company has completed all steps it has deemed necessary to satisfy legal requirements relating to the issuance and sale of the Shares, which steps may include, without limitation, (i) receipt of a representation from the optionee at the time of exercise of the Option that the optionee is purchasing the Shares for the optionee’s own account and not with a view to any sale or distribution of the Shares or other representations relating to compliance with applicable law governing the issuance of securities, (ii) the legending of the certificate (or notation on any book entry) representing the Shares to evidence the foregoing restrictions, and (iii) obtaining from optionee payment or provision for all withholding taxes due as a result of the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 3(b) of the Plan. The delivery of certificates representing the shares of Stock (or the transfer to the optionee on the records of the Company with respect to uncertificated Stock) to be purchased pursuant to the exercise of a Stock Option will be contingent upon (A) receipt from the optionee (or a purchaser acting in his or her stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such Shares, any applicable withholding taxes and the fulfillment of any other requirements
contained in the Award Agreement or applicable provisions of laws and (B) if required by the Company, the optionee shall have entered into any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Stock. In the event an optionee chooses to pay the purchase price by previously-owned Shares or other shares of Common Stock of the Company through the attestation method, the number of Shares or other shares of Common Stock of the Company transferred to the optionee upon the exercise of the Stock Option shall be net of the number of Shares or other shares of Common Stock of the Company attested to.
(b) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the Grant Date) of the Shares or other shares of Common Stock of the Company with respect to which Incentive Stock Options granted under the Plan and any other plan of the Company or its parent and any Subsidiary that become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000 or such other limit as may be in effect from time to time under Section 422 of the Code. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option. For purposes of the $100,000 limit described in this paragraph, a Stock Option that is bifurcated into an Incentive Stock Option and a Non-Qualified Stock Option shall vest in each pursuant to the Company’s capitalization practices generally.
(c) Termination. Any portion of a Stock Option that is not vested and exercisable on the date of termination of an optionee’s Service Relationship shall immediately expire and be null and void. Subject to earlier termination pursuant to Sections 3(c) and 12 and notwithstanding the exercise periods set forth in the Award Agreement, once any portion of the Stock Option becomes vested and exercisable, the optionee’s right to exercise such portion of the Stock Option (or the optionee’s representatives and legatees as applicable) in the event of a termination of the optionee’s Service Relationship shall continue until the earliest of: (i) the date which is: (A) 12 months following the date on which the optionee’s Service Relationship terminates due to death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (B) 3 months following the date on which the optionee’s Service Relationship terminates if the termination is due to any reason other than death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Award Agreement), or (ii) the Expiration Date set forth in the Award Agreement; provided that notwithstanding the foregoing, an Award Agreement may provide that if the optionee’s Service Relationship is terminated for Cause, the Stock Option shall terminate immediately and be null and void upon the date of the optionee’s termination and shall not thereafter be exercisable.
SECTION 6. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible individual under Section 4 hereof a Restricted Stock Award under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock
Award at the time of grant. Conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or such other criteria as the Committee may determine. Payment of the purchase price may be made using one of the methods set forth in Section 5(a)(iv), as applicable. Upon the grant of a Restricted Stock Award, the Company and the grantee shall enter into an Award Agreement in electronic or written form. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee of Restricted Stock shall be considered the record owner of and shall be entitled to vote the Restricted Stock if, and to the extent, such Shares are entitled to voting rights, subject to such conditions contained in the Award Agreement. The grantee shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution. Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in subsection (d) below of this Section, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank and such other instruments of transfer as the Committee may prescribe.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Award Agreement. Except as may otherwise be provided by the Committee either in the Award Agreement or, subject to Section 12 below, in writing after the Award Agreement is issued, if a grantee’s Service Relationship with the Company and any Subsidiary terminates, the Company or its assigns shall have the right, as may be specified in the relevant instrument, to repurchase some or all of the Shares subject to the Award at such purchase price as is set forth in the Award Agreement. With respect to a Restricted Stock Award to which Section 25102(o) of the California Corporation Code is to apply, restrictions may not be inconsistent with Section 25102(o) of the California Corporation Code.
(d) Vesting of Restricted Stock. The Committee at the time of grant shall specify in the Award Agreement the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the substantial risk of forfeiture imposed shall lapse and the Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the Award Agreement.
(e) Dividend Equivalent Payments. The Board may permit Holders of Restricted Stock to receive dividend equivalent payments on outstanding Restricted Stock if and when dividends are paid to stockholders on Shares. In the discretion of the Board, such dividend equivalent payments may be paid in cash or Shares and may either be paid at the same time as dividend payments are made to stockholders or delayed until Shares are issued pursuant to the Restricted Stock grants and may be subject to the same vesting requirements as the Restricted
Stock. If the Board permits dividend equivalent payments to be made on Restricted Stock, the terms and conditions for such payments will be set forth in the Award Agreement.
SECTION 7. UNRESTRICTED STOCK AWARDS
The Committee may, in its sole discretion, grant (or sell at par value or such other purchase price determined by the Committee) to an eligible person under Section 4 hereof an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
SECTION 8. RESTRICTED STOCK UNITS
(a) Nature of Restricted Stock Units. The Committee may, in its sole discretion, grant to an eligible person under Section 4 hereof Restricted Stock Units under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Vesting conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or other such criteria as the Committee may determine. Upon the grant of Restricted Stock Units, the grantee and the Company shall enter into an Award Agreement in electronic or written form. The terms and conditions of each such Award Agreement shall be determined by the Committee and may differ among individual Awards and grantees. On or promptly following the vesting date or dates applicable to any Restricted Stock Unit, but in no event later than March 15 of the year following the year in which such vesting occurs, such Restricted Stock Unit(s) shall be settled in the form of cash or shares of Stock, as specified in the Award Agreement. Restricted Stock Units may not be sold, assigned, transferred, pledged, or otherwise encumbered or disposed of. No Restricted Stock Unit will have a term longer than ten (10) years from the date the Restricted Stock Unit is granted.
(b) Rights as a Stockholder. A grantee shall have the rights of a stockholder only as to Shares, if any, acquired upon settlement of Restricted Stock Units. A grantee shall not be deemed to have acquired any such Shares unless and until the Restricted Stock Units shall have been settled in Shares pursuant to the terms of the Plan and the Award Agreement, the Company shall have issued and delivered a certificate representing the Shares to the grantee (or transferred on the records of the Company with respect to uncertificated stock), and the grantee’s name has been entered in the books of the Company as a stockholder.
(c) Termination. Except as may otherwise be provided by the Committee either in the Award Agreement or in writing after the Award Agreement is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s cessation of Service Relationship with the Company and any Subsidiary for any reason.
(d) Dividend Equivalent Payments. The Board may permit Holders of Restricted Stock Units to receive dividend equivalent payments on outstanding Restricted Stock Units if and when dividends are paid to stockholders on Shares. In the discretion of the Board, such dividend equivalent payments may be paid in cash or Shares and they may either be paid at the same time as dividend payments are made to stockholders or delayed until Shares are issued
pursuant to the Restricted Stock Unit grants and may be subject to the same vesting requirements as the Restricted Stock Units. If the Board permits dividend equivalent payments to be made on Restricted Stock Units, the terms and conditions for such payments will be set forth in the Award Agreement.
SECTION 9. TRANSFER RESTRICTIONS; COMPANY RIGHT OF FIRST REFUSAL; COMPANY REPURCHASE RIGHTS
(a) Restrictions on Transfer.
(i) Restated Bylaws. All Awards and Shares issued under this Plan shall be subject to and bound by all of the transfer restrictions set forth in the Restated Bylaws.
(ii) Non-Transferability of Stock Options and Restricted Stock Units. Stock Options and, prior to exercise, the Shares issuable upon exercise of such Stock Option, and Restricted Stock Units shall not be transferable by the grantee other than by will, or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award Agreement regarding a given Stock Option or Restricted Stock Unit that the grantee may transfer by gift, without consideration for the transfer, his or her Non-Qualified Stock Options or Restricted Stock Units, respectively, to his or her family members (as defined in Rule 701 of the Securities Act), to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners (to the extent such trusts or partnerships are considered “family members” for purposes of Rule 701 of the Securities Act), provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award Agreement, including the execution of a stock power upon the issuance of Shares. Stock Options, and the Shares issuable upon exercise of such Stock Options, shall be restricted as to any pledge, hypothecation, or other transfer, including any short position, any “put equivalent position” (as defined in the Exchange Act) or any “call equivalent position” (as defined in the Exchange Act) prior to exercise.
(iii) Securities Law. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 of the Securities Act or Section 25102(o) of the California Corporation Code. Any requirement of this Plan which is required in law only because of Section 25102(o) of the California Corporation Code need not apply with respect to a particular Award to which Section 25102(o) of the California Corporation Code will not apply. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) compliance with any exemption,
completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the Securities and Exchange Commission or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure so do.
(iv) Shares. No Shares shall be sold, assigned, transferred, pledged, hypothecated, hedged, given away or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless (i) the transfer is in compliance with the terms of the applicable Award Agreement, all applicable securities laws (including, without limitation, the Securities Act), and with the terms and conditions of this Section 9, (ii) the transfer does not cause the Company to become subject to the reporting requirements of the Exchange Act, and (iii) the transferee consents in writing to be bound by the provisions of the Plan and the Award Agreement, including this Section 9, if required by the Committee. Notwithstanding the foregoing, the Committee, in its sole discretion, may waive certain of the foregoing restrictions by providing a written waiver thereof. In connection with any proposed transfer, the Committee may require the transferor to provide at the transferor’s own expense an opinion of counsel to the transferor, satisfactory to the Committee, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act). Any attempted transfer of Shares not in accordance with the terms and conditions of this Section 9 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Shares as a result of any such transfer, shall otherwise refuse to recognize any such transfer and shall not in any way give effect to any such transfer of Shares. The Company shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity including, without limitation, seeking specific performance or the rescission of any transfer not made in strict compliance with the provisions of this Section 9. Subject to the foregoing general provisions, and unless otherwise provided in the applicable Award Agreement, Shares may be transferred pursuant to the following specific terms and conditions (provided that with respect to any transfer of Restricted Stock, all vesting and forfeiture provisions shall continue to apply with respect to the original recipient):
(A) Transfers to Permitted Transferees. The Holder may transfer any or all of the Shares for no consideration to one or more Permitted Transferees; provided, however, that following such transfer, such Shares shall continue to be subject to the terms of this Plan (including this Section 9) and such Permitted Transferee(s) shall, as a condition to any such transfer, deliver a written acknowledgment to that effect to the Company and shall deliver a stock power to the Company with respect to the Shares. Notwithstanding the foregoing, the Holder may not transfer any of the Shares to a Person whom the Company reasonably determines is a direct competitor or a potential competitor of the Company or any of its Subsidiaries.
(B) Transfers Upon Death. Upon the death of the Holder, any Shares then held by the Holder at the time of such death and any Shares acquired after the Holder’s death by the Holder’s legal representative shall be subject to the provisions of
this Plan, and the Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees shall be obligated to agree in writing to the terms of the Plan and the Award Agreement if requested by the Committee.
(b) Right of First Refusal. In the event that a Holder desires at any time to sell or otherwise transfer all or any part of his or her Shares (other than shares of Restricted Stock which by their terms are not transferrable), and including any Permitted Transfer (if applicable), the Holder first shall give written notice to the Company of the Holder’s intention to make such transfer. Such notice shall state the number of Shares that the Holder proposes to sell (the “Offered Shares”), the price and the terms at which the proposed sale is to be made and the name and address of the proposed transferee. At any time within 30 days after the receipt of such notice by the Company, the Company or its assigns may elect to purchase all or any portion of the Offered Shares at the price and on the terms offered by the proposed transferee and specified in the notice. The Company or its assigns shall exercise this right by mailing or delivering written notice to the Holder within the foregoing 30-day period. If the Company or its assigns elect to exercise its purchase rights under this Section 9(b), the closing for such purchase shall, in any event, take place within 45 days after the receipt by the Company of the initial notice from the Holder. In the event that the Company or its assigns do not elect to exercise such purchase right, or in the event that the Company or its assigns do not pay the full purchase price within such 45-day period, the Holder may, within 60 days thereafter, sell the Offered Shares to the proposed transferee and at the same price and on the same terms as specified in the Holder’s notice. Any Shares not sold to the proposed transferee shall remain subject to the Plan. If the Holder is a party to any stockholders agreements or other agreements with the Company and/or certain other of the Company’s stockholders relating to the Shares, (i) the transferring Holder shall comply with the requirements of such stockholders agreements or other agreements relating to any proposed transfer of the Offered Shares, and (ii) any proposed transferee that purchases Offered Shares shall enter into such stockholders agreements or other agreements with the Company and/or certain of the Company’s stockholders relating to the Offered Shares on the same terms and in the same capacity as the transferring Holder.
(c) Company’s Right of Repurchase.
(i) Right of Repurchase for Unvested Shares Issued Upon the Exercise of an Option. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares acquired upon exercise of a Stock Option which are still subject to a risk of forfeiture as of the Termination Event. Such repurchase rights may be exercised by the Company within the later of (A) six months following the date of such Termination Event or (B) seven months after the acquisition of Shares upon exercise of a Stock Option. The repurchase price shall be equal to the original per share purchase (exercise) price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan.
(ii) Right of Repurchase With Respect to Restricted Stock. Upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Shares received pursuant to a Restricted Stock Award any Shares that are still subject to a risk of forfeiture as of the Termination Event. Such repurchase right may be exercised by
the Company within six months following the date of such Termination Event. The repurchase price shall be equal to the original per share purchase price paid by the Holder, subject to adjustment as provided in Section 3(b) of the Plan.
(iii) Procedure. Any repurchase right of the Company shall be exercised by the Company or its assigns by giving the Holder written notice on or before the last day of the repurchase period of its intention to exercise such repurchase right. Upon such notification, the Holder shall promptly surrender to the Company, free and clear of any liens or encumbrances, any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company or the Company’s assignee or assignees. Upon the Company’s or its assignee’s receipt of the certificates from the Holder, the Company or its assignee or assignees shall deliver to him, her or them a check for the applicable repurchase price; provided, however, that the Company may pay the repurchase price by offsetting and canceling any indebtedness then owed by the Holder to the Company.
(d) Drag Along Right.
(i) Actions to be Taken. In the event that (a) the holders of a majority of the shares of Stock or other shares of Common Stock of the Company issuable or issued upon conversion of the Series B Preferred Stock, (b) the holders of a majority of the shares of Stock or other shares of Common Stock of the Company issuable or issued upon conversion of the Series A Preferred Stock, (c) the holders of a majority of the then-outstanding shares of Stock or other shares of Common Stock of the Company held by Persons formerly or presently in a Service Relationship with the Company (but excluding Advance Magazine Publishers Inc.), and (d) the Board (collectively, the “Requisite Holders”) approve a Sale of the Company in writing, specifying that this Section 9(d) shall apply to such transaction, then each Holder shall be required:
(A) if such transaction requires stockholder approval, with respect to all shares that each Holder owns or over which such Holder otherwise exercises voting power, to vote (in person, by proxy or by action by written consent, as applicable) all shares in favor of, and adopt, such Sale of the Company (together with any related amendment to the Restated Certificate required in order to implement such Sale of the Company) and to vote in opposition to any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale of the Company;
(B) if such transaction is a Stock Sale, to sell the number of shares of capital stock of the Company beneficially held by such Holder in the proportion and on the other terms and conditions approved by the Requisite Holders, except as permitted in Section 9(d)(ii) below;
(C) to execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably be requested by the Company or the other Requisite Holders in order to carry out the terms and provision of this Section 9(d), including, without limitation, executing and delivering instruments
of conveyance and transfer, and any purchase agreement, merger agreement, indemnity agreement, escrow agreement, consent, waiver, governmental filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances), and any similar or related documents;
(D) not to deposit, and to cause their Affiliates not to deposit, except as provided in the Plan, any shares of the Company owned by such party or Affiliate in a voting trust or subject any shares to any arrangement or agreement with respect to the voting of such shares, unless specifically requested to do so by the acquiror in connection with the Sale of the Company;
(E) to refrain from exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect to such Sale of the Company;
(F) if the consideration to be paid in exchange for the shares pursuant to this Section 9(d) includes any securities and due receipt thereof by any Holder would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Holder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Act, the Company may cause to be paid to any such Holder in lieu thereof, against surrender of the shares which would have otherwise been sold by such Holder, an amount in cash equal to the fair value (as determined in good faith by the Company) of the securities which such Holder would otherwise receive as of the date of the issuance of such securities in exchange for the shares; and
(G) in the event that the Requisite Holders, in connection with such Sale of the Company, appoint a stockholder representative (the “Stockholder Representative”) with respect to matters affecting the Holders under the applicable definitive transaction agreements following consummation of such Sale of the Company, (x) to consent to (i) the appointment of such Stockholder Representative, (ii) the establishment of any applicable escrow, expense or similar fund in connection with any indemnification or similar obligations, and (iii) the payment of such Holder’s pro rata portion (from the applicable escrow or expense fund or otherwise) of any and all reasonable fees and expenses to such Stockholder Representative in connection with such Stockholder Representative’s services and duties in connection with such Sale of the Company and its related service as the representative of the stockholders, and (y) not to assert any claim or commence any suit against the Stockholder Representative or any other Holder with respect to any action or inaction taken or failed to be taken by the Stockholder Representative in connection with its service as the Stockholder Representative, absent fraud or willful misconduct.
(ii) Exceptions. Notwithstanding the foregoing, a Holder will not be required to comply with Section 9(d)(i) above in connection with any proposed Sale of the Company (the “Proposed Sale”), unless:
(A) any representations and warranties to be made by such Holder in connection with the Proposed Sale are limited to representations and warranties related to authority, ownership and the ability to convey title to such shares, including, but not limited to, representations and warranties that (i) the Holder holds all right, title and interest in and to the shares such stockholder purports to hold, free and clear of all liens and encumbrances, (ii) the obligations of the Holder in connection with the transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Holder have been duly executed by the Holder and delivered to the acquirer and are enforceable against the Holder in accordance with their respective terms; and (iv) neither the execution and delivery of documents to be entered into in connection with the transaction, nor the performance of the Holder’s obligations thereunder, will cause a breach or violation of the terms of any agreement, law or judgment, order or decree of any court or governmental agency;
(B) the Holder shall not be liable for the inaccuracy of any representation or warranty made by any other person in connection with the Proposed Sale, other than the Company (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders);
(C) the liability for indemnification, if any, of such Holder in the Proposed Sale and for the inaccuracy of any representations and warranties made by the Company or its stockholders in connection with such Proposed Sale, is several and not joint with any other person (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders), and is pro rata in proportion to, and does not exceed, the amount of consideration paid to such Holder in connection with such Proposed Sale;
(D) liability shall be limited to such Holder's applicable share (determined based on the respective proceeds payable to each stockholder in connection with such Proposed Sale in accordance with the provisions of the Restated Certificate) of a negotiated aggregate indemnification amount that applies equally to all stockholders but that in no event exceeds the amount of consideration otherwise payable to such Holder in connection with such Proposed Sale, except with respect to claims related to fraud or intentional misrepresentation by such Holder, the liability for which need not be limited as to such Holder;
(E) upon the consummation of the Proposed Sale (i) each holder of each class or series of the Company’s stock will receive the same form of consideration
for their shares of such class or series as is received by other holders in respect of their shares of such same class or series of stock, (ii) each holder of a series of Preferred Stock will receive the same amount of consideration per share of such series of Preferred Stock as is received by other holders in respect of their shares of such same series, (iii) each holder of Class A Common Stock will receive the same amount of consideration per share of Class A Common Stock as is received by other holders in respect of their shares of Class A Common Stock, (iv) each holder of Class B Common Stock will receive the same amount of consideration per share of Class B Common Stock as is received by other holders in respect of their shares of Class B Common Stocks, and (v) unless the holders of a majority of the Series A Preferred Stock and a majority of the Series B Preferred Stock elect to receive a lesser amount by written notice given to the Company at least 10 days prior to the effective date of any such Proposed Sale, the aggregate consideration receivable by all holders of the Preferred Stock and Stock shall be allocated among the holders of the Preferred Stock and Stock on the basis of the relative liquidation preferences to which the holders of each respective series of Preferred Stock and the holders of Stock are entitled in a Liquidation Event in accordance with the Restated Certificate in effect immediately prior to the Proposed Sale; provided, however, that, notwithstanding the foregoing, if the consideration to be paid in exchange for shares of the Company, as applicable, pursuant to this Section 9(d) includes any securities and due receipt thereof by any stockholder would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Act, the Company may cause to be paid to any such stockholder in lieu thereof, against surrender of the stockholder’s shares, which would have otherwise been sold by such stockholder, an amount in cash equal to the fair value (as determined in good faith by the Company) of the securities which such stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the shares, as applicable; and
(F) subject to clause (E) above, requiring the same form of consideration to be available to the holders of any single class or series of capital stock, if any holders of any capital stock of the Company are given an option as to the form and amount of consideration to be received as a result of the Proposed Sale, all holders of such capital stock will be given the same option; provided, however, that nothing in this Section 9(d)(ii)(F) shall entitle any holder to receive any form of consideration that such holder would be ineligible to receive as a result of such holder’s failure to satisfy any condition, requirement or limitation that is generally applicable to the Company’s stockholders.
(iii) Proxy. Each Holder hereby constitutes and appoints as the proxies of the Holder and hereby grants a power of attorney to the President of the Company, and a designee of the Requisite Holders, and each of them, with full power of substitution, with respect to the matters set forth in this Section 9(d), and hereby authorizes each of them to represent and vote, if and only if such Holder (a) fails to vote, or (b) attempts to vote (whether by proxy, in person or
by written consent), in a manner which is inconsistent with the terms of this Section 9(d), all of such Holder’s shares of Company capital stock in accordance with the terms and provisions of this Section 9(d) or to take any action necessary to effect this Section 9(d). Each of the proxy and power of attorney granted pursuant to the immediately preceding sentence is given in consideration of the agreements and covenants of the Company and the parties in connection with the Award(s) granted to Holder under the Plan, as such, each is coupled with an interest and shall be irrevocable unless and until this Section 9(d) terminates or expires pursuant to Section 9(d)(ii) hereof. The proxy and power of attorney granted pursuant to the first sentence of this Section does not apply to any votes or actions pursuant to Section 280G of the Code. Each Holder hereby revokes any and all previous proxies or powers of attorney with respect to the shares (except to the extent such Holder may be or become a party to the ROFR Agreement and the Investors’ Rights Agreement) and shall not hereafter, unless and until this Section 9(d) terminates or expires, purport to grant any other proxy or power of attorney with respect to any of the shares, deposit any of the shares into a voting trust or enter into any agreement (other than pursuant to this Section 9(d)(iii), the ROFR Agreement and the Investors’ Rights Agreement), arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of any of the shares, in each case, with respect to any of the matters set forth herein.
(e) Escrow Arrangement.
(i) Escrow. Unless the Company determines otherwise, in order to carry out the provisions of this Section 9 of this Plan more effectively, the Company shall hold any Shares issued pursuant to Awards granted under the Plan in escrow together with separate stock powers executed by the Holder in blank for transfer. The Company shall not dispose of the Shares except as otherwise provided in this Plan. In the event of any repurchase by the Company (or any of its assigns), the Company is hereby authorized by the Holder, as the Holder’s attorney-in-fact, to date and complete the stock powers necessary for the transfer of the Shares being purchased and to transfer such Shares in accordance with the terms hereof. At such time as any Shares are no longer subject to the Company’s repurchase and first refusal rights, the Company shall, at the written request of the Holder, deliver to the Holder a certificate representing such Shares with the balance of the Shares to be held in escrow pursuant to this Section.
(ii) Remedy. Without limitation of any other provision of this Plan or other rights, in the event that a Holder or any other Person is required to sell a Holder’s Shares pursuant to the provisions of Sections 9(b) or (c) hereof and in the further event that he or she refuses or for any reason fails to deliver to the Company or its designated purchaser of such Shares the certificate or certificates evidencing such Shares together with a related stock power, the Company or such designated purchaser may deposit the applicable purchase price for such Shares with a bank designated by the Company, or with the Company’s independent public accounting firm, as agent or trustee, or in escrow, for such Holder or other Person, to be held by such bank or accounting firm for the benefit of and for delivery to him, her, them or it, and/or, in its discretion, pay such purchase price by offsetting any indebtedness then owed by such Holder as provided above. Upon any such deposit and/or offset by the Company or its designated purchaser of such amount and upon notice to the Person who was required to sell the Shares to
be sold pursuant to the provisions of Sections 9(b) or (c), such Shares shall at such time be deemed to have been sold, assigned, transferred and conveyed to such purchaser, such Holder shall have no further rights thereto (other than the right to withdraw the payment thereof held in escrow, if applicable), and the Company shall record such transfer in its stock transfer book or in any appropriate manner.
(f) Lockup Provision. If requested by the Company, a Holder shall not sell or otherwise transfer or dispose of any Shares (including, without limitation, pursuant to Rule 144 under the Securities Act) held by him or her for such period following the effective date of a public offering by the Company of Shares as the Company shall specify reasonably and in good faith. Any underwriter engaged by the Company shall be a third party beneficiary of this Section. If requested by the underwriter engaged by the Company, each Holder shall execute a separate letter confirming his or her agreement to comply with this Section.
(g) Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding Shares are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Section 9 shall apply with equal force to additional and/or substitute securities, if any, received by Holder in exchange for, or by virtue of his or her ownership of, Shares.
(h) Additional Transfer Restrictions. Notwithstanding anything provided herein to the contrary, a Holder may not Transfer Shares, or any other shares of Company Common Stock previously or subsequently acquired by the Holder, whether voluntarily or by operation of law, or by gift or otherwise, except by means of a Permitted Transfer and in accordance with this Section 9. Any Transfer of Shares shall be null and void unless the terms, conditions and provisions of this Section 9 are strictly observed and followed.
(i) Termination. The terms and provisions of Section 9(b), Section 9(c) (except for the Company’s right to repurchase Shares still subject to a risk of forfeiture upon a Termination Event), Section 9(d) and Section 9(h) shall terminate upon the closing of the Company’s Initial Public Offering or upon consummation of any Sale Event, in either case as a result of which Shares are registered under Section 12 of the Exchange Act and publicly-traded on any national security exchange.
SECTION 10. TAX WITHHOLDING
(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Shares or other amounts received thereunder first becomes includable in the gross income of the grantee for income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and any Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates (or evidence of book entry) to any grantee is subject to and conditioned on any such tax withholding obligations being satisfied by the grantee.
(b) Payment in Stock. When, under applicable tax laws, a grantee incurs tax or social insurance liability in connection with the grant, exercise or vesting of any Award that is subject to tax withholding and the grantee is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the grantee to satisfy the applicable tax withholding obligation by electing to have the Company withhold from the Shares to be issued up to the minimum number of Shares having a Fair Market Value on the date that the amount of tax to be withheld is to be determined that is not more than the applicable amount to be withheld; or to arrange a mandatory “sell to cover” on the grantee’s behalf (without further authorization) but in no event will the Company withhold Shares or “sell to cover” if such withholding would result in adverse accounting consequences to the Company. Any elections to have Shares withheld or sold for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.
SECTION 11. SECTION 409A AWARDS.
To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as may be specified by the Committee from time to time. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. The Company makes no representation or warranty and shall have no liability to any grantee under the Plan or any other Person with respect to any penalties or taxes under Section 409A that are, or may be, imposed with respect to any Award.
SECTION 12. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the consent of the Holder of the Award. Notwithstanding the foregoing, the Committee may exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation of outstanding Stock Options and by granting such holders new Awards in replacement of the cancelled Stock Options. To the extent determined by the Committee (x) to be required either by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or by other applicable laws, rules or regulations, or (y) for awards to comply with Section 25102(o) of the California Corporation Code, to the extent applicable, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 12 shall limit the Board’s or Committee’s authority to take any action permitted pursuant to Section 3(c). The Board reserves the right to amend the Plan and/or the terms of any
outstanding Stock Options to the extent reasonably necessary to comply with the requirements of the exemption pursuant to paragraph (f)(4) of Rule 12h-1 of the Exchange Act.
SECTION 13. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly so determine in connection with any Award.
SECTION 14. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring Shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. No Shares shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to grantees under the Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company; provided that stock certificates to be held in escrow pursuant to Section 9 of the Plan shall be deemed delivered when the Company shall have recorded the issuance in its records and provided, further, that electronic stock certificates shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or when access to such electronic stock certificate is provided to grantee by means of electronic delivery specified by the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records).
(c) No Employment Rights. The adoption of the Plan and the grant of Awards do not confer upon any Person any right to continued employment or Service Relationship with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policy-related restrictions, terms and conditions as may be established by the Committee, or in accordance with policies set by the Committee, from time to time.
(e) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award on or after the
grantee’s death or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
(f) Legend. Any certificate(s), including electronic certificates, representing the Shares shall carry substantially the following legend (and with respect to uncertificated Stock, the book entries evidencing such shares shall contain the following notation):
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS, TERMS AND CONDITIONS (INCLUDING REPURCHASE AND RESTRICTIONS AGAINST TRANSFERS) CONTAINED IN THE REDDIT, INC. 2017 EQUITY INCENTIVE AND GRANT PLAN AND ANY AGREEMENTS ENTERED INTO THEREUNDER BY AND BETWEEN THE COMPANY AND THE HOLDER OF THIS CERTIFICATE (A COPY OF WHICH IS AVAILABLE AT THE OFFICES OF THE COMPANY FOR EXAMINATION).
(g) Electronic Delivery. To the fullest extent permitted by applicable law, the Company may, in its sole discretion, decide to deliver any documents related to the optionee’s current or future participation in the Plan by electronic means or to request the optionee’s consent to participate in the Plan by electronic means.
SECTION 15. EFFECTIVE DATE OF PLAN AND TERM
(a) Effective Date. The Plan shall become effective upon adoption by the Board and shall be approved by stockholders in accordance with applicable state law and the Company’s articles of incorporation and bylaws within 12 months thereafter. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided, however, that: (a) no Option may be exercised prior to initial stockholder approval of this Plan; (b) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards for which only the exemption from California’s securities qualification requirements provided by Section 25102(o) of the California Corporation Code can apply shall be canceled, any Shares issued pursuant to any such Award shall be canceled and any purchase of such Shares issued hereunder shall be rescinded; and (d) Awards (to which only the exemption from California’s securities qualification requirements provided by Section 25102(o) of the California Corporation Code can apply) granted pursuant to an increase in the number of Shares approved by the Board which increase is not approved by stockholders within the time then required under Section 25102(o) of the California Corporation Code shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall
be rescinded. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
(b) Term of Plan. Unless earlier terminated as provided herein, this Plan will automatically terminate ten (10) years after the Effective Date.
SECTION 16. GOVERNING LAW
This Plan, all Awards and any controversy arising out of or relating to this Plan and all Awards shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
DATE ADOPTED BY THE BOARD OF DIRECTORS: July 10, 2017
DATE APPROVED BY THE STOCKHOLDERS: July 10, 2017
EARLY EXERCISE
INCENTIVE STOCK OPTION GRANT NOTICE
UNDER THE REDDIT, INC.
2017 EQUITY INCENTIVE AND GRANT PLAN
Pursuant to the Reddit, Inc. 2017 Equity Incentive and Grant Plan (the “Plan”), Reddit, Inc., a Delaware corporation (together with any successor, the “Company”), has granted to the individual named below, an option (the “Stock Option”) to purchase on or prior to the Expiration Date, or such earlier date as is specified herein, all or any part of the number of shares of common stock of the Company (“Common Stock”) indicated below (the “Shares”), at the Option Exercise Price per share, subject to the terms and conditions set forth in this Early Exercise Incentive Stock Option Grant Notice (the “Grant Notice”), the attached Early Exercise Incentive Stock Option Agreement (the “Agreement”) and the Plan. This Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”). To the extent that any portion of the Stock Option does not so qualify, it shall be deemed a non-qualified stock option.
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| Name of Optionee: | As described on Shareworks (the “Optionee”) |
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| No. of Shares: | As described on Shareworks [(Number of Shares that qualify as an Incentive Stock Option: as described on Shareworks and number of Shares that are non-qualified: as described on Shareworks)] |
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| Grant Date: | As described on Shareworks |
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| Vesting Commencement Date: | As described on Shareworks (the “Vesting Commencement Date”) |
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| Expiration Date: | As described on Shareworks (the “Expiration Date”) |
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| Option Exercise Price/Share: | As described on Shareworks (the “Option Exercise Price”) |
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| Vesting Schedule: | As described on Shareworks. Notwithstanding anything in the Agreement to the contrary, in the case of a Sale Event, this Stock Option and the Shares shall be treated as provided in Section 3(c) of the Plan. |
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| Acceleration: Notwithstanding the foregoing, if the Company is subject to a Change in Control before the Optionee’s service with the Company terminates and the Optionee is subject to an Involuntary Termination within 12 months after the Change in Control, then 50% of the unvested Shares subject to the Stock Option shall automatically be vested, provided the Optionee has complied with the Severance Conditions. |
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| For purposes of this agreement, “Cause” means (a) the Optionee’s unauthorized use or disclosure of the Company's confidential information or trade secrets, which use or disclosure causes material harm to the Company, (b) the Optionee’s material breach of any agreement between the Optionee and the Company, (c) the Optionee’s material failure to comply with the Company's written policies or rules, (d) the Optionee’s conviction of, or the Optionee’s plea of “guilty” or “no contest” to, a felony under the laws of the United States or any State, (e) the Optionee’s gross misconduct, (f) the Optionee’s continuing failure to perform assigned material duties after receiving written notification of the failure from the Company or (g) the Optionee’s failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested the Optionee’s cooperation. |
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| For purposes of this agreement, “Change in Control” means (a) the consummation of a merger or consolidation of the Company with or into another entity, (b) the dissolution, liquidation or winding up of the Company or (c) or a Liquidation Event as defined in the Company’s Restated Certificate of Incorporation, as may be amended from time to time. The foregoing notwithstanding, a merger or consolidation of the Company does not constitute a “Change in Control” if 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 such 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. |
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| For purposes of this agreement, “Involuntary Termination” means either (a) involuntary discharge by the Company for reasons other than Cause or (b) voluntary resignation following (i) a change in the Optionee’s position with the Company that materially reduces the Optionee’s level of authority or responsibility, (ii) a reduction in the Optionee’s base salary by more than 10% unless such reduction is part of a generalized salary reduction affecting similarly situated employees or (iii) receipt of notice that the Optionee’s principal workplace will be relocated more than 30 miles from San Francisco, California. |
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| For purposes of this agreement “Severance Conditions” means that the Optionee (i) has returned all Company property in the Optionee’s possession and (ii) has executed a general release of all claims that the Optionee may have against the Company or persons or entities affiliated with the Company. The release must be materially in the form prescribed by the Company. |
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| Class of Shares | Class A Common Stock of the Company |
Attachments: Early Exercise Incentive Stock Option Agreement, 2017 Equity Incentive and Grant Plan
EARLY EXERCISE
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE REDDIT, INC.
2017 EQUITY INCENTIVE AND GRANT PLAN
All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.
1.Vesting, Exercisability and Termination.
(a)Vesting. This Stock Option shall be immediately exercisable, regardless of whether the Shares are vested. Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the Shares shall vest in accordance with the Vesting Schedule set forth in the Grant Notice.
(b)Termination. Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case to Section 3(c) of the Plan):
(i)Termination Due to Death or Disability. If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or Disability, this Stock Option may continue to be exercised, to the extent the Shares are vested on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or Disability or until the Expiration Date, if earlier.
(ii)Other Termination. If the Optionee’s Service Relationship terminates for any reason other than death or Disability, and unless otherwise determined by the Committee, this Stock Option may continue to be exercised, to the extent the Shares are vested on the date of termination, for a period of 3 months from the date of termination or until the Expiration Date, if earlier; provided however, if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.
For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. Any portion of this Stock Option with respect to Shares that are not vested on the date of termination of the Service Relationship shall terminate immediately and be null and void. Nothing in this Agreement shall be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or Subsidiary of the Company) to terminate Optionee’s employment or other relationship with Company (or Subsidiary of the Company) at any time, for any reason or no reason, with or without Cause.
(c)It is understood and intended that this Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code to the extent permitted
under applicable law. Accordingly, the Optionee understands that in order to obtain the benefits of an incentive stock option under Section 422 of the Code, no sale or other disposition may be made of Shares for which incentive stock option treatment is desired within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the two-year period beginning on the day after Grant Date of this Stock Option and further that this Stock Option must be exercised within three months after termination of employment as an employee (or 12 months in the case of death or disability) to qualify as an incentive stock option. If the Optionee disposes (whether by sale, gift, transfer or otherwise) of any such Shares within either of these periods, he or she will notify the Company within 30 days after such disposition. The Optionee also agrees to provide the Company with any information concerning any such dispositions required by the Company for tax purposes. Further, to the extent this Stock Option and any other incentive stock options of the Optionee having an aggregate Fair Market Value in excess of $100,000 (determined as of the Grant Date) first become exercisable in any year, such options will not qualify as incentive stock options.
2.Exercise of Stock Option.
(a)The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver a Stock Option exercise notice (an “Exercise Notice”) in the form of Appendix A hereto indicating his or her election to purchase some or all of the Shares, including pursuant to an electronic acceptance platform established and maintained by the Company or another third party designated by the Company. Such notice shall specify the number of Shares to be purchased. To the extent this Stock Option is only partially exercised, such exercise shall first be with respect to the Shares, if any, that have previously vested, and then with respect to the Shares that will next vest, with the Shares that vest at the latest date being exercised last. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.
(b)Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.
3.Repurchase Right. Upon a Termination Event, the Company shall have the right to repurchase Shares received upon exercise of the Option that are unvested as of the date of such Termination Event as set forth in Section 9(c) of the Plan.
4.Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.
5.Transferability of Stock Option. This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any
time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.
6.Restrictions on Transfer of Shares. The Shares acquired upon exercise of the Stock Option shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.
7.Record Owner; Dividends. The Optionee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Shares received upon the exercise of the Option if and to the extent such Shares are entitled to voting rights. The Optionee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Shares; provided, however, that the Company is under no duty to declare any such dividends or to make any such distribution.
8.Section 83(b) Election. The Optionee shall consult with his or her tax advisor to determine whether it would be appropriate for the Optionee to make an election under Section 83(b) of the Code with respect to the Shares. Any such election must be filed with the Internal Revenue Service within 30 days of the date of exercise. If the Optionee makes an election under Section 83(b) of the Code, the Optionee shall give prompt notice to the Company (and provide a copy of such election to the Company).
9.Withholding. Prior to the issuance of the Shares upon exercise of the Option, Optionee must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits and subject to Section 10(b) of the Plan, Optionee may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the applicable amount of taxes required to be withheld; or to arrange a mandatory “sell to cover” on Optionee’s behalf (without further authorization); but in no event will the Company withhold Shares or “sell to cover” if such withholding would result in adverse accounting consequences to the Company. In case of stock withholding or a sell to cover, the Company shall issue the net number of Shares to Optionee by deducting the Shares retained from the Shares issuable upon exercise.
10.Issuance of Shares. Provided that the Exercise Notice and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares issuable upon a valid exercise of this Option registered in the name of Optionee, Optionee’s authorized assignee who is a Permitted Transferee, or Optionee’s legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.
11.Compliance with Laws and Regulations. The Plan and this Agreement are intended to comply with Section 25102(o) and Rule 701. If applicable, any provision of this Agreement that is inconsistent with Section 25102(o) or Rule 701 shall, without further act or amendment by the Company or the Committee, be reformed to comply with the requirements of Section 25102(o) and/or Rule 701. The exercise of this Option and the issuance and transfer of
Shares shall be subject to compliance by the Company and Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance.
12.Miscellaneous Provisions.
(a)Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.
(b)Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Shares acquired pursuant thereto.
(c)Change and Modifications. This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.
(d)Governing Law. This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
(e)Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.
(f)Saving Clause. If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.
(g)Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time an electronic confirmation of receipt is received, if delivery is by email or other electronic communication; (iii) at the time
of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iv) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (v) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. Any notice for delivery outside the United States will be sent by email or other electronic communication, facsimile or by express courier. Any notice not delivered personally or by email or other electronic communication will be sent with postage and/or other charges prepaid and properly addressed to Optionee at the last known address or facsimile number on the books of the Company, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto or, in the case of the Company, to it at its principal place of business. Notices to the Company will be marked “Attention: General Counsel.” Notices by facsimile shall be machine verified as received.
(h)Benefit and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.
(i)Counterparts. For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
(j)Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
13.Consent to Jurisdiction; Waiver. The Optionee (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each of the Optionee and the Company (each a “Party”) hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by
suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.
14.Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to the Optionee’s current or future participation in the Plan by electronic means or to request the Optionee’s consent to participate in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an online or electronic system established and maintained by the Company or a third party designated by the Company. References to “Shareworks” or “as described on Shareworks” in the Grant Notice, this Agreement, the exhibits or other attachments to this Agreement (including any exhibits to such exhibits or attachments) shall be to the relevant information made available to the Optionee on the online equity management platform operated by Solium Capital Inc. (or any successor platform), which information shall be deemed incorporated by reference wherever “Shareworks” or “as described on Shareworks” appears.
15.Receipt of Plan. The Optionee hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that this Stock Option is subject to the terms of the Plan and this Agreement. By accepting this Stock Option (whether written, electronic or otherwise), the Optionee consents to receive such documents by electronic delivery and to participate in the Plan through an online or electronic system established and maintained by the Company or another third party designated by the Company. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, are hereby agreed to, by the Optionee as of the date first above written
16.Acceptance. Issuance and acceptance of this Stock Option through an online or electronic system established and maintained by the Company or another third party designated by the Company shall be deemed to be agreement to and acceptance of the terms and conditions of the Plan, the Grant Notice and this Agreement by the Optionee and the Company.
[1[SIGNATURE PAGE FOLLOWS]
1 Note: Signatures to be maintained if grant cannot be accepted via Shareworks.
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the Optionee as of the date first above written.
| | | | | |
| REDDIT, INC. |
| |
| |
| By: | |
| Name: |
| Title: |
| |
| Address: |
| 420 Taylor Street |
| San Francisco, CA 94102 |
|
This Agreement is hereby accepted, and the terms and conditions of the Plan, the Grant Notice and this Agreement, are hereby agreed to, by the Optionee as of the date first above written.
Appendix A
STOCK OPTION EXERCISE NOTICE
Reddit, Inc.
Attention: Equity Administration
420 Taylor Street
San Francisco, CA 94102
Pursuant to the terms of the grant notice and stock option agreement between the Optionee and Reddit, Inc. (the “Company”) dated [as described on Shareworks] (the “Agreement”) under the Reddit, Inc. 2017 Equity Incentive and Grant Plan, I, [as described on Shareworks], hereby exercise such option by including herein payment in the amount of $[as described on Shareworks] representing the purchase price for [as described on Shareworks] Shares. I have chosen the following form(s) of payment*: [as described on Shareworks]
| | | | | | | | | | | |
| [ ] | 1. | Cash |
| [ ] | 2. | Certified or bank check payable to Reddit, Inc. |
| [ ] | 3. | Electronic payment via Automatic Clearinghouse (ACH) |
| [ ] | 4. | Other (as referenced in the Agreement and described in the Plan (please describe)) |
| | | . |
* If you are a non-U.S. Optionee, please see the Company for permitted forms of payment.
In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:
(i)I am purchasing the Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.
(ii)I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.
(iii)I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.
(iv)I can afford a complete loss of the value of the Shares and am able to bear the economic risk of holding such Shares for an indefinite period of time.
(v)I understand that the Shares may not be registered under the Securities Act (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.
(vi)I understand and agree that the Shares will be subject to all of the transfer restrictions set forth in the Company’s Restated Bylaws.
(vii)I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.
(viii)I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.
(ix)I understand and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.
(x)I understand and agree that the Company has certain drag-along rights and has been granted a proxy pursuant to Section 9(d) of the Plan.
(xi)I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan. I am aware of Rule 144 of the Securities Act, which permits limited public resales of securities acquired in a non-public offering, subject to satisfaction of certain conditions, which include (without limitation) that: (a) certain current public information about the Company is available; (b) the resale occurs only after the holding period required by Rule 144 has been met; (c) the sale occurs through an unsolicited “broker’s transaction;” and (d) the amount of securities being sold during any three-month period does not exceed specified limitations. I understand that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future.
(xii)I understand and agree that if, as a result of the issuance of the Shares to me hereunder, I will hold shares of Common Stock of the Company constituting one percent (1%) or more of the Company’s then outstanding capital stock (treating for this purpose all shares of Common Stock issuable upon exercise or conversion of all then outstanding options, warrants or convertible securities (whether or not then exercisable or convertible) as outstanding), then, as a condition to my receipt of the Shares, I am required to execute an adoption agreement or joinder to that certain Right of First Refusal Agreement, dated September 19, 2014, by and among the Company and the stockholders and investors listed as
parties thereto, as the same may be amended and/or restated from time to time (the “ROFR Agreement”), as a Common Holder (as such term is defined in the ROFR Agreement), and I shall thereby be bound by, and subject to, all the terms and provisions of the ROFR Agreement applicable to a Common Holder.
(xiii)I agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes my tax liabilities. I will not make any claim against the Company or its Board, officers or employees related to tax liabilities arising from my options or my other compensation. In particular, I acknowledge that my options (including the Option) are exempt from Section 409A of the Internal Revenue Code only if the exercise price per share is at least equal to the fair market value per share of the Common Stock at the time the option was granted by the Board. Since shares of the Common Stock are not traded on an established securities market, the determination of their fair market value was made by the Board and/or by an independent valuation firm retained by the Company. I acknowledge that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and I will 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.
(xiv)I agree that, to ensure compliance with the restrictions imposed by the Plan and the Agreement, the Company may issue appropriate “stop-transfer” instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(xv)I agree that the Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of the Plan or 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 have been so transferred.
(xvi)I agree to seek the consent of my spouse to the extent required by the Company to enforce the foregoing.
(xvii)I acknowledge that the Company has encouraged me to consult my own adviser to determine the form of ownership of the Shares that is appropriate for me. In the event that I choose to transfer my Shares to a trust, I agree to sign a stock transfer agreement. In the event that I choose to transfer my Shares to a trust that is not an eligible revocable trust, I also acknowledge that the transfer will be treated as a “disposition” for tax purposes. As a result, the favorable Incentive Stock Option tax treatment will be unavailable and other unfavorable tax consequences may occur.
(xviii)I acknowledge that the Company has encouraged me to consult my own adviser to determine the tax consequences of acquiring the Shares at this time.
(xix)As a condition of exercising this Option, I agree to make adequate provision for foreign, federal, state or other tax withholding obligations, if any, which arise
upon the grant, vesting or exercise of this Option, or disposition of the Shares, whether by withholding, direct payment to the Company, or otherwise.
IMPORTANT NOTE: UNVESTED SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY. PLEASE CONSULT WITH YOUR TAX ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE WHICH MUST BE FILED WITHIN THIRTY (30) DAYS AFTER THE PURCHASE OF SHARES TO BE EFFECTIVE.
A form of Election under Section 83(b) is attached hereto as Exhibit 1 for reference. Unless an 83(b) election is timely filed with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), electing pursuant to Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the purchase price of the Shares and their fair market value on the date of purchase, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to Optionee, measured by the excess, if any, of the Fair Market Value of the Shares at the time they cease to be unvested Shares, over the purchase price of the Shares.
Exercise of the Option through an online or electronic system established and maintained by the Company or another third party designated by the Company shall be deemed to be my agreement to and acceptance of the terms and conditions of this Stock Option Exercise Notice
| | | | | |
| 2 | [Sincerely yours, |
| |
| |
| Name: |
| |
| Address: |
| |
| ] |
2 Note: Signature to be included if manual exercise is used.
Exhibit 1
ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services in the calculation of: (1) regular gross income; (2) alternative minimum taxable income; or (3) disqualifying disposition gross income, as the case may be.
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| 1. | TAXPAYER’S NAME: | |
| | |
| TAXPAYER’S ADDRESS: | |
| | |
| SOCIAL SECURITY NUMBER: | |
| | |
| 2. | The property with respect to which the election is made is described as follows: _______ shares of Common Stock of Reddit, Inc., a Delaware corporation (the “Company”) which were transferred upon exercise of an option by Company, which is Taxpayer’s employer or the corporation for whom the Taxpayer performs services. |
| |
| 3. | The date on which the shares were transferred pursuant to the exercise of the option was ____________________, _____ and this election is made for calendar year _____. |
| |
| 4. | The shares received upon exercise of the option are subject to the following restrictions: The Company may repurchase all or a portion of the shares at Taxpayer’s original purchase price per share, under certain conditions at the time of Taxpayer’s termination of employment or services. |
| |
| 5. | The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $_____ per share x _______ shares = $_______ at the time of exercise of the option. |
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| 6. | The amount paid for such shares upon exercise of the option was $____ per share x ________ shares = $________. |
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| 7. | The Taxpayer has submitted a copy of this statement to the Company. |
| |
| 8. | The amount to include in gross income is $______________. [The result of the amount reported in Item 5 minus the amount reported in Item 6.] |
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE (“IRS”), AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER THE DATE OF TRANSFER OF THE SHARES, AND MUST ALSO BE FILED WITH THE TAXPAYER’S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS.
NOTICE OF RESTRICTED STOCK UNIT AWARD
Reddit, Inc.
2017 Equity Incentive and Grant Plan
Terms defined in the Company’s 2017 Equity Incentive and Grant Plan, as amended (the “Plan”) shall have the same meanings in this Notice of Restricted Stock Unit Award (“Notice of Grant”). Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant.
The Participant named below has been granted an award of restricted stock units (“RSUs”), subject to the terms and conditions of the Plan and the Restricted Stock Unit Agreement, attached as Annex A (the “RSU Agreement”) under the Plan, as follows:
Participant Name:
Address:
Total Number of RSUs:
RSU Grant Date:
Vesting Commencement Date:
Expiration Date: The earlier to occur of: (a) the date on which settlement of all vested RSUs granted hereunder occurs and (b) the [seventh][tenth] year following the Grant Date.
[Vesting:
(a)Two-Tiered Vesting. The vesting of the RSUs is conditioned on satisfaction of two vesting requirements before the Expiration Date or earlier termination of the RSUs pursuant to the Plan or the RSU Agreement: a time- and service-based requirement (the “Service Requirement”) and a liquidity-event requirement (the “Liquidity Event Requirement”), each as described below.
(i)Service Requirement. For so long as Participant is in a Service Relationship through each applicable date, the Service Requirement will be satisfied as follows: [(i) twenty-five percent (25%) of the RSUs subject to this award on the first anniversary of the Vesting Commencement Date, and (ii) an additional 1/16 of the RSUs thereafter on each subsequent February 20, May 20, August 20 and November 20 (each, a “Quarterly Vesting Date”).]1
[1/16 of the RSUs for each February 20, May 20, August 20 and November 20 (each, a “Quarterly Vesting Date”) that occurs after the Vesting Commencement Date.]2
1 NTD: For new hires.
2 NTD: For refresh grants.
(ii)Liquidity Event Requirement. The Liquidity Event Requirement will be satisfied on the earliest to occur of: (i) the effective date of an Initial Public Offering or (ii) the date of a Sale Event, but only if the Sale Event also constitutes a permissible payment event as a change in ownership, effective control, or sale of substantially all of the assets, as provided under Section 409A (the earliest of the prong (i) or (ii) to occur, the “Initial Vesting Event”).
(b)RSUs Vested at Initial Vesting Event. If at the time of the Initial Vesting Event, Participant is not in a Service Relationship and did not meet the Service Requirement with respect to any portion of the RSUs, then no portion of the RSUs shall vest. If at the time of the Initial Vesting Event, Participant is in a Service Relationship or has ceased to be in a Service Relationship but did meet the Service Requirement with respect to any portion of the RSUs, then the RSUs shall vest as to the number of RSUs, if any, that have satisfied the Service Requirement as of the Initial Vesting Event in accordance with clause (a)(i) above.
(c)RSUs Vested after Initial Vesting Event. If Participant is in a Service Relationship at the time of the Initial Vesting Event, then with respect to RSUs that have not vested as of the Initial Vesting Event under the preceding clause (b) above, vesting shall continue after the Initial Vesting Event in accordance with the Service Requirement set forth in clause (a)(i) above (each subsequent vesting date, a “Subsequent Vesting Event”).]
[Vesting: Subject to the limitations set forth in this Notice, the Plan, and the Agreement, the RSUs will vest in accordance with the following schedule: For so long as Participant is in a Service Relationship through the applicable date, [1/4][1/12] of the RSUs for each February 20, May 20, August 20 and November 20 (each, a “Quarterly Vesting Date”) that occurs after the Vesting Commencement Date.]
Settlement: RSUs shall be settled no later than March 15 of the calendar year following the calendar year in which [the Initial Vesting Event occurs and shall be settled no later than March 15 of the calendar year following the calendar year in which each Subsequent Vesting Event] [vesting] occurs. Settlement means the delivery of the Shares vested under an RSU. Settlement of RSUs [on the Initial Vesting Event or any Subsequent Vesting Event] shall be in Shares. Settlement of vested RSUs shall occur whether or not Participant is in a Service Relationship at the time of settlement. No fractional RSUs or rights for fractional Shares shall be created pursuant to this Notice of Grant.
Participant understands that Participant’s employment or consulting relationship with the Company is for an unspecified duration, can be terminated at any time (i.e., is “at-will”) and that nothing in this Notice of Grant, the RSU Agreement or the Plan changes the at-will nature of that relationship. Participant [acknowledges that the vesting of the RSUs pursuant to this Notice of Grant is conditioned on the occurrence of an Initial Vesting Event or a Subsequent Vesting Event. Participant] also understands that this Notice of Grant is subject to the terms and conditions of both the RSU Agreement and the Plan, each of which are incorporated herein by reference. Participant has read both the RSU Agreement and the Plan.
By Participant’s acceptance hereof (whether written, electronic or otherwise), Participant agrees, to the fullest extent permitted by law, that in lieu of receiving documents in paper format, Participant accepts the electronic delivery of any documents the Company, or any third party involved in administering the Plan which the Company may designate, may deliver in connection with this grant (including the Plan, the Notice of Grant, this RSU Agreement, any disclosures provided pursuant to Rule 701 of the Securities Act, account statements or other communications or information) whether via the Company’s intranet or the internet site of another third party or via email, or other means of electronic delivery specified by the Company.
By Participant’s and the Company’s acceptance hereof (in each case, whether written, electronic or otherwise), Participant and the Company agree that this RSU is granted under and governed by the terms and conditions of the Plan, the Notice of Grant and the RSU Agreement.
[Grant Agreement Acceptance Date:]
ANNEX A
RESTRICTED STOCK UNIT AGREEMENT
Participant has been granted RSUs subject to the terms, restrictions and conditions of the Company’s 2017 Equity Incentive and Grant Plan, as amended (the “Plan”), the Notice of Restricted Stock Unit Award (“Notice of Grant”) and this Restricted Stock Unit Agreement (this “Agreement”). Unless otherwise defined herein or in the Notice of Grant, the terms defined in the Plan shall have the same defined meanings in this Agreement.
1.No Stockholder Rights. Until such time as Shares are issued in settlement of vested RSUs, Participant shall have no ownership of the Shares allocated to the RSUs and shall have no right to dividends or to vote such Shares. As a condition to the issuance of any Shares in settlement of vested RSUs, Participant agrees to enter into a joinder if requested to do so to be bound by any stockholders’ agreement by and between the Company and its stockholders in force from time to time.
2.Dividend Equivalents. Dividend equivalents, if any, shall not be credited to Participant in respect of Participant’s RSUs, except as otherwise permitted by the Committee.
3.No Transfer. The RSUs and any interest therein shall not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, other than by will or by the laws of descent and distribution. Any transferee who receives an interest in the RSU or the underlying Shares upon the death of Participant shall acknowledge in writing that the RSU shall continue to be subject to the restrictions set forth in this Section 3.
4.Termination. The RSUs shall terminate on the Expiration Date or earlier as provided in this Section 4. If Participant’s Service Relationship terminates for any reason, all [unvested] RSUs [for which vesting is no longer possible under the terms of the Notice of Grant and this Agreement] shall be forfeited to the Company forthwith, and all rights of Participant to the RSUs shall immediately terminate. In case of any dispute as to whether termination of Participant’s Service Relationship has occurred, the Committee shall have sole discretion to determine whether termination has occurred and the effective date of such termination.
5.Acknowledgement. The Company and Participant agree that the RSUs are granted under and governed by the Notice of Grant, this Agreement, and the provisions of the Plan (incorporated herein by reference). Participant (i) acknowledges receipt of a copy of each of the foregoing documents, (ii) represents that Participant has carefully read and is familiar with their provisions and (iii) hereby accepts the RSUs subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice of Grant.
6.Limitations on Transfer of Stock. In addition to any other limitation on transfer created by applicable securities laws, Participant shall not assign, encumber or dispose of any interest in the Shares issued pursuant to this Agreement except with the Company’s prior written consent and in compliance with the Plan, the Company’s then-current insider trading policy and applicable securities laws. The restrictions on transfer also include a prohibition on any short position, any “put equivalent position” or any “call equivalent position” by the RSU holder with respect to the RSU itself as well as any shares issuable upon settlement of the RSU prior to the settlement thereof until the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.
7.Restrictions Binding on Transferees. All transferees of Shares or any interest therein will receive and hold such shares or interest subject to the provisions of this Agreement, including the transfer restrictions of Sections 3 and 6, and the transferee shall acknowledge the restrictions in writing. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied.
8.Withholding of Tax. When the RSUs are vested and/or settled, the fair market value of the Shares shall be treated as income subject to withholding by the Company for income and employment taxes if Participant is or was an employee of the Company. Prior to any relevant taxable or tax withholding event, as applicable, Participant shall pay or make adequate arrangements satisfactory to the Company to satisfy any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account and other tax-related items related to the Participant’s participation in this Plan and legally applicable to the Participant (collectively, “Tax-Related Obligations”). In this regard, Participant authorizes the Company to withhold all applicable Tax-Related Obligations legally payable by Participant from Participant’s wages or other cash compensation paid to Participant by the Company and/or a parent or Subsidiary of the Company. With the Company’s consent, these arrangements may also include, if permissible under local law, (i) withholding Shares that otherwise would be issued to Participant when Participant’s RSUs are settled; (ii) having the Company withhold taxes from the proceeds of the sale of the Shares, through a voluntary sale or through a mandatory sale arranged by the Company (on Participant’s behalf and Participant hereby authorizes such sales by this authorization); (iii) Participant’s payment of a cash amount; or (iv) any other arrangement approved by the Company; all under such rules as may be established by the Committee and in compliance with the Company’s insider trading policy and 10b5-1 trading plan policy, if applicable; provided, however, that if Participant is a Section 16 officer of the Company under the Exchange Act, then the method of withholding shall be through a mandatory sale under (ii) above, and as to minimum statutory withholding rates only. Depending on the withholding method, the Company and/or a parent or Subsidiary of the Company may withhold or account for Tax-Related Obligations by considering applicable minimum statutory withholding rates or other applicable withholding rates, including maximum applicable rates, in which case Participant may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in Shares. In the case of withholding in Shares, the Company shall issue the net number of Shares to Participant by deducting the Shares retained for Tax-Related Obligations from the Shares issuable upon vesting. For tax purposes, Participant is deemed to have been issued the full number of Shares subject to the vested RSUs, notwithstanding that a number of the Shares is held back solely for the purpose of paying the Tax-Related Obligations.
9.Code Section 409A. For purposes of this Agreement, a termination of employment will be determined consistent with the rules relating to a “separation from service” as defined in Section 409A. Notwithstanding anything else provided herein, to the extent any payments provided under this Agreement in connection with Participant’s termination of employment constitute deferred compensation subject to Section 409A, and Participant is deemed at the time of termination of employment to be a “specified employee” under Section 409A, then the payment shall not be made or commence until the earlier of (i) the expiration of the six-month period measured from Participant’s separation from service from the Company or (ii) the date of Participant’s death following a separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Participant including, without limitation, the additional tax for which Participant would otherwise be liable under Section 409A(a)(1)(B) in the absence of such a deferral. The first payment thereof will include a catch-up payment covering the amount that would have otherwise been paid during the period between Participant’s termination of employment and the first payment date but for the application of this provision, and the balance of the installments (if any) will be payable in accordance with their original schedule. [The occurrence of the Initial Vesting Event prior to the Expiration Date is intended to be a
“substantial risk of forfeiture,” within the meaning of Section 409A, and the settlements related to the Initial Vesting Event and any Subsequent Vesting Event are each intended to be an exempt “short-term deferral,” within the meaning of Section 409A and the Company intends that its initial tax position on its tax return will be consistent with this intent absent a change in legal guidance or other circumstance.] To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder comply with Section 409A. To the extent any payment under this Agreement may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.
10.Tax Consequences. Participant acknowledges that there will be tax consequences upon vesting and/or settlement of the RSUs and/or disposition of the Shares, if any, received in connection therewith, and Participant should consult a tax adviser regarding Participant’s tax obligations prior to the settlement or disposition.
11.Compliance with Laws and Regulations. The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant (including any written representations, warranties and agreements as the Committee may request of Participant for compliance with applicable laws) with all applicable foreign and US state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the [Company’s] Stock may be listed or quoted at the time of the issuance or transfer. Participant may not be issued any Shares if the issuance would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Shares shall relieve the Company of any liability in respect of the failure to issue or sell the shares.
12.Legend on Certificates. The certificates representing the Shares issued hereunder shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, this Agreement or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which such shares of the [Company’s] Stock are listed and any applicable federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
13.Successors and Assigns. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon Participant and Participant’s heirs, executors, administrators, legal representatives, successors and assigns.
14.Entire Agreement; Severability. The Plan and the Notice of Grant are incorporated herein by reference. The Plan, the Notice of Grant and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof (including, without limitation, any commitment to make any other form of equity award (such as stock options) that may have been set forth in any employment offer letter or other agreement between the parties). If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
15.Market Standoff Agreement. Participant agrees that, subject to any early release provisions, Participant will not, for a period of up to one hundred eighty (180) days (plus up to an additional thirty five (35) days to the extent reasonably requested by the Company or such underwriter(s) to accommodate regulatory restrictions on the publication or other distribution of research reports or earnings releases by the Company, including NASD and NYSE rules) following the effective date of the registration statement filed with the SEC relating to the Initial Public Offering, directly or indirectly sell, offer to sell, grant any option for the sale of, or otherwise dispose of any Stock or securities convertible into Stock, except for: (i) transfers of Shares permitted under Section 6 hereof so long as such transferee furnishes to the Company and the managing underwriter their written consent to be bound by this Section 15 as a condition precedent to such transfer; and (ii) sales of any securities to be included in the registration statement for the Initial Public Offering. For the avoidance of doubt, the provisions of this Section shall only apply to the Initial Public Offering. The restricted period shall in any event terminate two (2) years after the closing date of the Initial Public Offering. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the Shares subject to this Section and to impose stop transfer instructions with respect to the Shares until the end of such period. Participant further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing restrictions on transfer. For the avoidance of doubt, the foregoing provisions of this Section shall not apply to any registration of securities of the Company (a) under an employee benefit plan or (b) in a merger, consolidation, business combination or similar transaction.
16.No Rights as Employee, Director or Consultant. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or Subsidiary of the Company, to terminate Participant’s Service Relationship, for any reason, with or without cause.
17.Information to Participants. If the Company is relying on an exemption from registration under Section 12(h)-1 of the Exchange Act and such information is required to be provided by Section 12(h)-1, the Company shall provide the information described in Rules 701(e)(3), (4) and (5) of the Securities Act by a method allowed under Section 12(h)-1 of the Exchange Act in accordance with Section 12(h)-1 of the Exchange Act, provided, that Participant agrees to keep the information confidential.
18.Delivery of Documents and Notices. Any document relating to participating in the Plan and/or notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery or deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the e-mail address, if any, provided for Participant by the Company or at such other address as such party may designate in writing from time to time to the other party.
19.Choice of Law and Venue. This Agreement shall be governed by, and construed in accordance with, the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.
* * * * * * * * * *
REDDIT, INC.
2024 INCENTIVE AWARD PLAN
ARTICLE I.
PURPOSE
The Plan’s purpose is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership opportunities.
ARTICLE II.
DEFINITIONS
As used in the Plan, the following words and phrases have the meanings specified below, unless the context clearly indicates otherwise:
2.1“Administrator” means the Board or a Committee to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee. With reference to the Board’s or a Committee’s powers or authority under the Plan that have been delegated to one or more officers pursuant to Section 4.2, the term “Administrator” shall refer to such officer(s) unless and until such delegation has been revoked.
2.2“Applicable Law” means any applicable law, including without limitation: (a) provisions of the Code, the Securities Act, the Exchange Act and any rules or regulations thereunder; (b) corporate, securities, tax or other laws, statutes, rules, requirements or regulations, whether U.S. or non-U.S. federal, state or local; and (c) rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded.
2.3“Automatic Exercise Date” means, with respect to an Option or a Stock Appreciation Right, the last business day of the applicable Option term or Stock Appreciation Right term that was initially established by the Administrator for such Option or Stock Appreciation Right (e.g., the last business day prior to the tenth anniversary of the date of grant of such Option or Stock Appreciation Right if the Option or Stock Appreciation Right initially had a ten-year Option term or Stock Appreciation Right term, as applicable).
2.4“Award” means an Option award, Stock Appreciation Right award, Restricted Stock award, Restricted Stock Unit award, Performance Bonus Award, Performance Stock Unit award, Dividend Equivalents award or Other Stock or Cash Based Award granted to a Participant under the Plan.
2.5“Award Agreement” means an agreement evidencing an Award, which may be written or electronic, that contains such terms and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.
2.6“Board” means the Board of Directors of the Company.
2.7“Cause” shall have the meaning ascribed to such term, or term of similar effect, in any offer letter, employment, severance or similar agreement, including any Award Agreement, between the Participant and the Company or any Subsidiary; provided, that in the absence of an offer letter, employment, severance or similar agreement containing such definition, “Cause” means (i) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or a Subsidiary or other affiliate of the Company, (ii) the Participant’s conviction for, or guilty plea to, a felony (or crime of similar magnitude under Applicable Law outside the United States) or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, act of material dishonesty or misappropriation or similar conduct against the Company, (iii) the Participant’s commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (iv) any material breach or violation by the Participant of any provision of any agreement or understanding between the Company or any Subsidiary or other affiliate of the Company and the Participant regarding the terms of the Participant’s service as an employee, officer, director or consultant to the Company or a Subsidiary or other affiliate of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, officer, director or consultant of the Company or a Subsidiary or other affiliate of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Subsidiary or other affiliate of the Company and the Participant, (v) the Participant’s violation of the Company’s code of ethics, (vi) the Participant’s disregard of the policies of the Company or any Subsidiary or other affiliate of the Company so as to cause loss, harm, damage or injury to the property, reputation or employees of the Company or a Subsidiary or other affiliate of the Company, or (vii) any other misconduct by the Participant which is injurious to the financial condition or business reputation of, or is otherwise injurious to, the Company or a Subsidiary or other affiliate of the Company.
2.8“Change in Control” means any of the following:
(a)A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) directly or indirectly acquires beneficial ownership (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) of the Company’s securities possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition by the Company or any Subsidiary; (ii) any acquisition by an employee benefit plan maintained by the Company or any Subsidiary, (iii) any acquisition which complies with clauses (c)(i), (c)(ii) and (c)(iii) of this definition; or (iv) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of persons including the Participant (or any entity controlled by the Participant or any group of persons including the Participant);
(b)The Incumbent Directors cease for any reason to constitute a majority of the Board;
(c)The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i)which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction;
(ii)after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (c)(ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; and
(iii)after which at least a majority of the members of the board of directors (or the analogous governing body) of the Successor Entity were Board members at the time of the Board’s approval of the execution of the initial agreement providing for such transaction; or
(d)The completion of a liquidation or dissolution of the Company.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or any portion of an Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b), (c) or (d) of this definition with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its sole discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
2.9“Code” means the U.S. Internal Revenue Code of 1986, as amended, and all regulations, guidance, compliance programs and other interpretative authority issued thereunder.
2.10“Committee” means one or more committees or subcommittees of the Board, which may include one or more Directors or executive officers of the Company, to the extent permitted by Applicable Law. To the extent required to comply with the provisions of Rule 16b-3, it is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule 16b-3, a “non-employee director” within the meaning of Rule 16b-3; however, a Committee member’s failure to qualify as a “non-employee director” within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
2.11“Common Stock” means the Class A common stock of the Company.
2.12“Company” means Reddit, Inc., a Delaware corporation, or any successor.
2.13“Consultant” means any person, including any adviser, engaged by the Company or a Subsidiary to render services to such entity if the consultant or adviser: (i) renders bona fide services to the Company or a Subsidiary; (ii) renders services not in connection with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) is a natural person for the purposes of Instruction A.1.(a)(1) of Form S-8 under the Securities Act.
2.14“Designated Beneficiary” means, if permitted by the Company, the beneficiary or beneficiaries the Participant designates, in a manner the Company determines, to receive amounts due or exercise the Participant’s rights if the Participant dies. Without a Participant’s effective designation, “Designated Beneficiary” will mean the Participant’s estate or legal heirs.
2.15“Director” means a Board member.
2.16“Disability” means a permanent and total disability under Section 22(e)(3) of the Code.
2.17“Dividend Equivalents” means a right granted to a Participant to receive the equivalent value (in cash or Shares) of dividends paid on a specified number of Shares. Such Dividend Equivalent shall be converted to cash or additional Shares, or a combination of cash and Shares, by such formula and at such time and subject to such limitations as may be determined by the Administrator.
2.18“DRO” means a “domestic relations order” as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.
2.19“Effective Date” has the meaning set forth in Section 11.3.
2.20“Employee” means any employee of the Company or any of its Subsidiaries.
2.21“Equity Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split (including a reverse stock split), spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other Company securities) or the share price of Common Stock (or other Company securities) and causes a change in the per share value of the Common Stock underlying outstanding Awards.
2.22“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and all regulations, guidance and other interpretative authority issued thereunder.
2.23“Fair Market Value” means, as of any date, the value of a Share determined as follows: (i) if the Common Stock is listed on any established stock exchange, the value of a Share will be the closing sales price for a Share as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not listed on an established stock exchange but is quoted on a national market or other quotation system, the value of a Share will be the closing sales price for a Share on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) if the Common Stock is not listed on any established stock exchange or quoted on a national market or other quotation system, the value established by the Administrator in its sole discretion. Notwithstanding the foregoing, with respect to any Award granted after the effectiveness of the Company’s registration statement relating to its initial public offering but prior to the Public Trading Date, the Fair Market Value means the initial public offering price of a Share as set forth in the Company’s final prospectus relating to its initial public offering filed with the Securities and Exchange Commission.
2.24“Good Reason” shall have the meaning ascribed to such term, or term of similar effect, in any offer letter, employment, severance or similar agreement, including any Award Agreement, between the Participant and the Company; provided, that in the absence of an offer letter, employment, severance or similar agreement containing such definition, Good Reason means the occurrence of one or more of the following without the Participant’s consent: (i) a material reduction in the Participant’s base compensation, or (ii) a relocation of the principal place at which the Participant must perform services by more than 50 miles. In order to establish Good Reason, the Participant must provide the Administrator with notice of the event giving rise to Good Reason within 30 days of the occurrence of such event, the event shall remain uncured 30 days thereafter and the Participant must actually terminate services with 30 days following the end of such cure period.
2.25“Greater Than 10% Stockholder” means an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any parent corporation or subsidiary corporation of the Company, as determined in accordance with Section 424(e) and (f) of the Code, respectively.
2.26“Incentive Stock Option” means an Option that meets the requirements to qualify as an “incentive stock option” as defined in Section 422 of the Code.
2.27“Incumbent Directors” means, for any period of 12 consecutive months, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in clause (a) or (c) of the Change in Control definition) whose election or nomination for election to the Board was approved by a vote of at least a majority (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) of the Directors then still in office who either were Directors at the beginning of the 12-month period or whose election or nomination for election was previously so approved. No individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director.
2.28“Non-Employee Director” means a Director who is not an Employee.
2.29“Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.
2.30“Option” means a right granted under Article VI to purchase a specified number of Shares at a specified price per Share during a specified time period. An Option may be either an Incentive Stock Option or a Nonqualified Stock Option.
2.31“Other Stock or Cash Based Awards” means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property.
2.32“Overall Share Limit” means the sum of (i) [____]1 Shares plus (ii) any Shares that are available for issuance under the Prior Plans as of the Effective Date plus (iii) any Shares or shares of Class B common stock that are subject to Prior Plan Awards that become available for issuance under the Plan as Shares pursuant to Article V plus (iv) an increase commencing on January 1, 2025 and continuing annually on the anniversary thereof through (and including) January 1, 2034, equal to the lesser of (A) five (5)% of the aggregate number of shares of all classes of the Company’s common stock outstanding on the last day of the immediately preceding calendar year and (B) such smaller number of Shares as determined by the Board or the Committee.
2.33“Participant” means a Service Provider who has been granted an Award.
2.34“Performance Bonus Award” has the meaning set forth in Section 8.3.
2.35“Performance Stock Unit” means a right granted to a Participant pursuant to Section 8.1 and subject to Section 8.2, to receive cash or Shares, the payment of which is
1 Note to Draft: To equal 10% of fully diluted shares outstanding as of the IPO (after giving effect to the number of shares being sold in the IPO, on an as converted basis, and including shares subject to outstanding equity awards and the reserve under this Plan and the ESPP).
contingent upon achieving certain performance goals or other performance-based targets established by the Administrator.
2.36“Permitted Transferee” means, with respect to a Participant, any “family member” of the Participant, as defined in the General Instructions to Form S-8 Registration Statement under the Securities Act (or any successor form thereto), or any other transferee specifically approved by the Administrator after taking into account Applicable Law.
2.37“Plan” means this 2024 Incentive Award Plan.
2.38“Prior Plan Award” means an award outstanding under a Prior Plan as of immediately prior to the Effective Date.
2.39“Prior Plans” means, collectively, the Spiketrap Inc. Amended and Restated 2019 Equity Incentive Plan, the Dubsmash Inc. 2018 Stock Plan, the Spell, Inc. 2017 Stock Plan, the Company’s 2012 Stock Option and Grant Plan and the Company’s 2017 Equity Incentive and Grant Plan, as each may be amended from time to time.
2.40“Public Trading Date” means the first date upon which Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
2.41“Restricted Stock” means Shares awarded to a Participant under Article VII, subject to certain vesting conditions and other restrictions.
2.42“Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator to be equal to the Fair Market Value as of such settlement date, subject to certain vesting conditions and other restrictions.
2.43“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, including any amendments thereto.
2.44“Section 409A” means Section 409A of the Code.
2.45“Securities Act” means the Securities Act of 1933, as amended, and all regulations, guidance and other interpretative authority issued thereunder.
2.46“Service Provider” means an Employee, Consultant or Director.
2.47“Shares” means shares of Common Stock.
2.48“Stock Appreciation Right” or “SAR” means a right granted under Article VI to receive a payment equal to the excess of the Fair Market Value of a specified number of Shares on the date the right is exercised over the exercise price set forth in the applicable Award Agreement.
2.49“Subsidiary” means any entity (other than the Company), whether U.S. or non-U.S., in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.
2.50“Substitute Awards” means Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company or other entity acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
2.51“Tax-Related Items” means any U.S. and non-U.S. federal, state and/or local taxes (including, without limitation, income tax, social insurance contributions, fringe benefit tax, employment tax, stamp tax and any employer tax liability which has been transferred to a Participant) for which a Participant is liable in connection with Awards and/or Shares.
2.52“Termination of Service” means:
(a)As to a Consultant, the time when the engagement of a Participant as a Consultant to the Company or a Subsidiary is terminated for any reason, with or without Cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment or service with the Company or any Subsidiary.
(b)As to a Non-Employee Director, the time when a Participant who is a Non-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Participant simultaneously commences or remains in employment or service with the Company or any Subsidiary.
(c)As to an Employee, the time when the employee-employer relationship between a Participant and the Company or any Subsidiary is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, disability or retirement; but excluding terminations where the Participant simultaneously commences or remains in employment or service with the Company or any Subsidiary.
The Company, in its sole discretion, shall determine the effect of all matters and questions relating to any Termination of Service, including, without limitation, whether a Termination of Service has occurred, whether a Termination of Service resulted from a discharge for Cause and all questions of whether particular leaves of absence constitute a Termination of Service. For purposes of the Plan, a Participant’s employee-employer relationship or consultancy relationship shall be deemed to be terminated in the event that the Subsidiary employing or contracting with such Participant ceases to remain a Subsidiary following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off), even though the Participant may subsequently continue to perform services for that entity.
ARTICLE III.
ELIGIBILITY
Service Providers are eligible to be granted Awards under the Plan, subject to the limitations described herein. No Service Provider shall have any right to be granted an Award pursuant to the Plan and neither the Company nor the Administrator is obligated to treat Service Providers, Participants or any other persons uniformly.
ARTICLE IV.
ADMINISTRATION AND DELEGATION
4.1Administration.
(a)The Plan is administered by the Administrator. The Administrator has authority to determine which Service Providers receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan. The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may correct defects and ambiguities, supply omissions, reconcile inconsistencies in the Plan or any Award and make all other determinations that it deems necessary or appropriate to administer the Plan and any Awards. The Administrator (and each member thereof) is entitled to, in good faith, rely or act upon any report or other information furnished to the Administrator or member thereof by any officer or other Employee, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan. The Administrator’s determinations under the Plan are in its sole discretion and will be final, binding and conclusive on all persons having or claiming any interest in the Plan or any Award.
(b)Without limiting the foregoing, the Administrator has the exclusive power, authority and sole discretion to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant; (iii) determine the number of Awards to be granted and the number of Shares to which an Award will relate; (iv) subject to the limitations in the Plan, determine the terms and conditions of any Award and related Award Agreement, including, but not limited to, the exercise price, grant price, purchase price, any performance criteria, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations, waivers or amendments thereof; (v) determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, or other property, or an Award may be canceled, forfeited, or surrendered; and (vi) make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.
4.2Delegation of Authority. To the extent permitted by Applicable Law, the Board or any Committee may delegate any or all of its powers under the Plan to one or more Committees or officers of the Company or any of its Subsidiaries; provided, however, that in no event shall
an officer of the Company or any of its Subsidiaries be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, or (b) officers of the Company or any of its Subsidiaries or Directors to whom authority to grant or amend Awards has been delegated hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation or that are otherwise included in the applicable organizational documents, and the Board or Committee, as applicable, may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 4.2 shall serve in such capacity at the pleasure of the Board or the Committee, as applicable, and the Board or the Committee may abolish any committee at any time and re-vest in itself any previously delegated authority. Further, regardless of any delegation, the Board or a Committee may, in its discretion, exercise any and all rights and duties as the Administrator under the Plan delegated thereby, except with respect to Awards that are required to be determined in the sole discretion of the Board or Committee under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded.
ARTICLE V.
STOCK AVAILABLE FOR AWARDS
5.1Number of Shares. Subject to adjustment under Article IX and the terms of this Article V, Awards may be made under the Plan covering up to the Overall Share Limit. As of the Effective Date, the Company will cease granting awards under the Prior Plans; however, Prior Plan Awards will remain subject to the terms of the applicable Prior Plan. Shares issued or delivered under the Plan may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares.
5.2Share Recycling.
(a)If all or any part of an Award or Prior Plan Award expires, lapses or is terminated, converted into an award in respect of shares of another entity in connection with a spin-off or other similar event, exchanged or settled for cash, surrendered, repurchased, cancelled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring Shares or shares of Class B common stock covered by the Award or Prior Plan Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for such Shares or shares or not issuing any Shares or shares of Class B common stock covered by the Award or Prior Plan Award, the unused Shares or shares of Class B common stock covered by the Award or Prior Plan Award will, as applicable, become or again be available, in each case, as Common Stock for Awards under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards or Prior Plan Awards shall not count against the Overall Share Limit.
(b)In addition, the following shall be available as Shares for future grants of Awards: (i) Shares or shares of Class B common stock tendered by a Participant or withheld by the Company in payment of the exercise price of an Option or any stock option granted under a Prior Plan; (ii) Shares or shares of Class B common stock tendered by the Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award or any Prior
Plan Award; and (iii) Shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof, in each case, prior to the tenth anniversary of the Effective Date. Notwithstanding the provisions of this Section 5.2(b), no Shares may again be optioned, granted or awarded pursuant to an Incentive Stock Option if such action would cause such Option to fail to qualify as an incentive stock option under Section 422 of the Code.
5.3Incentive Stock Option Limitations. Notwithstanding anything to the contrary herein, no more than [_____]2 Shares (as adjusted to reflect any Equity Restructuring) may be issued pursuant to the exercise of Incentive Stock Options.
5.4Substitute Awards. In connection with an entity’s merger or consolidation with the Company or any Subsidiary or the Company’s or any Subsidiary’s acquisition of an entity’s property or stock, the Administrator may grant Substitute Awards in respect of any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate. Substitute Awards may be granted on such terms and conditions as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards will not count against the Overall Share Limit (nor shall Shares subject to a Substitute Award be added to the Shares available for Awards under the Plan as provided under Section 5.2 above), except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as appropriately adjusted to reflect the transaction) may be used for Awards under the Plan and shall not count against the Overall Share Limit (and Shares subject to such Awards may again become available for Awards under the Plan as provided under Section 5.2 above); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Service Providers prior to such acquisition or combination.
5.5Non-Employee Director Award Limit. Notwithstanding any provision to the contrary in the Plan or in any policy of the Company regarding non-employee director compensation, the sum of the grant date fair value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of all equity-based Awards and the maximum amount that may become payable pursuant to all cash-based Awards that may be granted to a Service Provider as compensation for services as a Non-Employee Director during any calendar year shall not exceed $1,000,000.
2 Note to Draft: To equal 75% of fully diluted shares outstanding as of the IPO (after giving effect to the number of shares being sold in the IPO, on an as converted basis, and including shares subject to outstanding equity awards and the reserve under this Plan and the ESPP).
ARTICLE VI.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
6.1General. The Administrator may grant Options or Stock Appreciation Rights to one or more Service Providers, subject to such terms and conditions not inconsistent with the Plan as the Administrator shall determine. The Administrator will determine the number of Shares covered by each Option and Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the conditions and limitations applicable to the exercise of each Option and Stock Appreciation Right. A Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying (x) the excess, if any, of the Fair Market Value of one Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by (y) the number of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator may impose, and payable in cash, Shares valued at Fair Market Value on the date of exercise or a combination of the two as the Administrator may determine or provide in the Award Agreement.
6.2Exercise Price. The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and specify the exercise price in the Award Agreement. Subject to Section 6.7, the exercise price will not be less than 100% of the Fair Market Value on the grant date of the Option or Stock Appreciation Right. Notwithstanding the foregoing, in the case of an Option or Stock Appreciation Right that is a Substitute Award, the exercise price per share of the Shares subject to such Option or Stock Appreciation Right, as applicable, may be less than Fair Market Value on the date of grant; provided that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.
6.3Duration of Options. Subject to Section 6.7, each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years; provided, further, that, unless otherwise determined by the Administrator or specified in the Award Agreement, (a) no portion of an Option or Stock Appreciation Right which is unexercisable at a Participant’s Termination of Service shall thereafter become exercisable and (b) the portion of an Option or Stock Appreciation Right that is unexercisable at a Participant’s Termination of Service shall automatically expire on the date of such Termination of Service. In addition, in no event shall an Option or Stock Appreciation Right granted to an Employee who is a non-exempt employee for purposes of overtime pay under the U.S. Fair Labor Standards Act of 1938 be exercisable earlier than six months after its date of grant. Notwithstanding the foregoing, if the Participant, prior to the end of the term of an Option or Stock Appreciation Right, commits an act of Cause (as determined by the Administrator), or violates any non-competition, non-solicitation or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company or any of its Subsidiaries, the right to exercise the Option or Stock Appreciation Right, as applicable, may be terminated by the Company and the Company may suspend the Participant’s right to exercise the
Option or Stock Appreciation Right when it reasonably believes that the Participant may have participated in any such act or violation.
6.4Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company (or such other person or entity designated by the Administrator) a notice of exercise, in a form and manner the Company approves (which may be written, electronic or telephonic and may contain representations and warranties deemed advisable by the Administrator), signed or authenticated by the person authorized to exercise the Option or Stock Appreciation Right, together with, as applicable, (a) payment in full of the exercise price for the number of Shares for which the Option is exercised in a manner specified in Section 6.5 and (b) satisfaction in full of any withholding obligation for Tax-Related Items in a manner specified in Section 10.5. The Administrator may, in its discretion, limit exercise with respect to fractional Shares and require that any partial exercise of an Option or Stock Appreciation Right be with respect to a minimum number of Shares.
6.5Payment Upon Exercise. The Administrator shall determine the methods by which payment of the exercise price of an Option shall be made, including, without limitation:
(a)Cash, check or wire transfer of immediately available funds; provided that the Company may limit the use of one of the foregoing methods if one or more of the methods below is permitted;
(b)If there is a public market for Shares at the time of exercise, unless the Company otherwise determines, (A) delivery (including electronically or telephonically to the extent permitted by the Company) of a notice that the Participant has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable upon exercise of the Option and that the broker has been directed to deliver promptly to the Company funds sufficient to pay the exercise price, or (B) the Participant’s delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company an amount sufficient to pay the exercise price by cash, wire transfer of immediately available funds or check; provided that such amount is paid to the Company at such time as may be required by the Company;
(c)To the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued at their Fair Market Value on the date of delivery;
(d)To the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise valued at their Fair Market Value on the exercise date;
(e)To the extent permitted by the Administrator, delivery of a promissory note or any other lawful consideration; or
(f)To the extent permitted by the Administrator, any combination of the above payment forms.
6.6Expiration of Option Term or Stock Appreciation Right Term: Automatic Exercise of In-The-Money Options and Stock Appreciation Rights. Unless otherwise provided by the Administrator in an Award Agreement or otherwise or as otherwise directed by a holder of an Option or a Stock Appreciation Right in writing to the Company, each vested and exercisable Option and Stock Appreciation Right outstanding on the Automatic Exercise Date with an exercise price per Share that is less than the sum of the Fair Market Value and any related broker’s fees (as described in Section 11.19(c)) per Share as of such date shall automatically and without further action by the holder of the Option or Stock Appreciation Right or the Company be exercised on the Automatic Exercise Date. In the sole discretion of the Administrator, payment of the exercise price of any such Option shall be made pursuant to Section 6.5(b) or 6.5(d) and the Company or any Subsidiary shall be entitled to deduct or withhold an amount sufficient to satisfy any withholding obligation for Tax-Related Items associated with such exercise in accordance with Section 10.5. Unless otherwise determined by the Administrator, this Section 6.6 shall not apply to an Option or Stock Appreciation Right if the holder of such Option or Stock Appreciation Right incurs a Termination of Service on or before the Automatic Exercise Date. For the avoidance of doubt, no Option or Stock Appreciation Right with an exercise price per Share that is equal to or greater than Fair Market Value on the Automatic Exercise Date shall be exercised pursuant to this Section 6.6.
6.7Additional Terms of Incentive Stock Options. The Administrator may grant Incentive Stock Options only to employees of the Company, any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. If an Incentive Stock Option is granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value on the Option’s grant date, and the term of the Option will not exceed five years. All Incentive Stock Options (and Award Agreements related thereto) will be subject to and construed consistently with Section 422 of the Code. By accepting an Incentive Stock Option, the Participant agrees to give prompt notice to the Company of dispositions or other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within the later of (a) two years from the grant date of the Option or (b) one year after the transfer of such Shares to the Participant, specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such disposition or other transfer. Neither the Company nor the Administrator will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an “incentive stock option” under Section 422 of the Code. Any Incentive Stock Option or portion thereof that fails to qualify as an “incentive stock option” under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Nonqualified Stock Option.
ARTICLE VII.
RESTRICTED STOCK; RESTRICTED STOCK UNITS
7.1General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service Provider, subject to forfeiture or the Company’s right to
repurchase all or part of the underlying Shares at their issue price or other stated or formula price from the Participant if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable restriction period or periods that the Administrator establishes for such Award. In addition, the Administrator may grant Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement, to Service Providers. The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock and Restricted Stock Units; provided, however, that if a purchase price is charged, such purchase price shall be no less than the par value, if any, of the Shares to be purchased, unless otherwise permitted by Applicable Law. In all cases, legal consideration shall be required for each issuance of Restricted Stock and Restricted Stock Units to the extent required by Applicable Law. The Award Agreement for each Award of Restricted Stock and Restricted Stock Units shall set forth the terms and conditions not inconsistent with the Plan as the Administrator shall determine.
7.2Restricted Stock.
(a)Stockholder Rights. Unless otherwise determined by the Administrator, each Participant holding Shares of Restricted Stock will be entitled to all the rights of a stockholder with respect to such Shares, subject to the restrictions in the Plan and the applicable Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the Shares to the extent such dividends and other distributions have a record date that is on or after the date on which such Participant becomes the record holder of such Shares; provided, however, that with respect to a share of Restricted Stock subject to restrictions or vesting conditions, except in connection with a spin-off or other similar event as otherwise permitted under Section 9.2, dividends which are paid to Company stockholders prior to the removal of restrictions and satisfaction of vesting conditions shall only be paid to the Participant to the extent that the restrictions are subsequently removed and the vesting conditions are subsequently satisfied and the share of Restricted Stock vests.
(b)Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates issued in respect of Shares of Restricted Stock, together with a stock power endorsed in blank.
(c)Section 83(b) Election. If a Participant makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which such Participant would otherwise be taxable under Section 83(a) of the Code, such Participant shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service along with proof of the timely filing thereof.
7.3Restricted Stock Units. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participant’s election, subject to compliance with Applicable Law. A Participant holding Restricted Stock Units will have only the rights of a general unsecured creditor of the Company (solely to the extent of any rights then applicable to Participant with respect to such Restricted Stock Units) until delivery of
Shares, cash or other securities or property is made as specified in the applicable Award Agreement.
ARTICLE VIII.
OTHER TYPES OF AWARDS
8.1General. The Administrator may grant Performance Stock Unit awards, Performance Bonus Awards, Dividend Equivalents or Other Stock or Cash Based Awards, to one or more Service Providers, in such amounts and subject to such terms and conditions not inconsistent with the Plan as the Administrator shall determine.
8.2Performance Stock Unit Awards. Each Performance Stock Unit award shall be denominated in a number of Shares or in unit equivalents of Shares or units of value (including a dollar value of Shares) and may be linked to any one or more of performance or other specific criteria, including service to the Company or Subsidiaries, determined to be appropriate by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. In making such determinations, the Administrator may consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Participant.
8.3Performance Bonus Awards. Each right to receive a bonus granted under this Section 8.3 shall be denominated in the form of cash (but may be payable in cash, stock or a combination thereof) (a “Performance Bonus Award”) and shall be payable upon the attainment of performance goals that are established by the Administrator and relate to one or more of performance or other specific criteria, including service to the Company or Subsidiaries, in each case on a specified date or dates or over any period or periods determined by the Administrator.
8.4Dividend Equivalents. If the Administrator provides, an Award (other than an Option or Stock Appreciation Right) may provide a Participant with the right to receive Dividend Equivalents. Dividend Equivalents may be paid currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Award with respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement. Notwithstanding anything to the contrary herein, Dividend Equivalents with respect to an Award subject to vesting shall either (a) to the extent permitted by Applicable Law, not be paid or credited or (b) be accumulated and subject to vesting to the same extent as the related Award. All such Dividend Equivalents shall be paid at such time as the Administrator shall specify in the applicable Award Agreement or as determined by the Administrator in the event not specified in such Award Agreement.
8.5Other Stock or Cash Based Awards. Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive cash or Shares to be delivered in the future and annual or other periodic or long-term cash bonus awards (whether based on specified performance criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu
of compensation to which a Participant is otherwise entitled, subject to compliance with Section 409A. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator determines. Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash Based Award, including any purchase price, performance goal(s), transfer restrictions, and vesting conditions, which will be set forth in the applicable Award Agreement. Except in connection with a spin-off or other similar event as otherwise permitted under Article IX, dividends that are paid prior to vesting of any Other Stock or Cash Based Award shall only be paid to the applicable Participant to the extent that the vesting conditions are subsequently satisfied and the Other Stock or Cash Based Award vests.
ARTICLE IX.
ADJUSTMENTS FOR CHANGES IN COMMON STOCK
AND CERTAIN OTHER EVENTS
9.1Equity Restructuring. In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article IX, the Administrator will equitably adjust the terms of the Plan and each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include (a) adjusting the number and type of securities subject to each outstanding Award or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article V hereof on the maximum number and kind of shares that may be issued); (b) adjusting the terms and conditions of (including the grant or exercise price), and the performance goals or other criteria included in, outstanding Awards; and (c) granting new Awards or making cash payments to Participants. The adjustments provided under this Section 9.1 will be nondiscretionary and final and binding on all interested parties, including the affected Participant and the Company; provided that the Administrator will determine whether an adjustment is equitable.
9.2Corporate Transactions. In the event of any extraordinary dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, split-up, spin off, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any Applicable Law or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or
with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Law or accounting principles:
(a)To provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights under the vested portion of such Award, as applicable, in each case as of the date of such cancellation; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to or less than zero, then the Award may be terminated without payment;
(b)To provide that such Award shall vest and, to the extent applicable, be exercisable as to all Shares (or other property) covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;
(c)To provide that such Award be assumed by the successor or survivor corporation or entity, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation or entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and applicable exercise or purchase price, in all cases, as determined by the Administrator;
(d)To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding Awards or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article V hereof on the maximum number and kind of Shares which may be issued) or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards;
(e)To replace such Award with other rights or property selected by the Administrator; or
(f)To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.
9.3Change in Control.
(a)Notwithstanding any other provision of the Plan, in the event of a Change in Control, unless the Administrator elects to (i) terminate an Award in exchange for cash, rights or property, or (ii) cause an Award to become fully exercisable and no longer subject to any forfeiture restrictions prior to the consummation of a Change in Control, pursuant to Section 9.2, (A) such Award (other than any portion subject to performance-based vesting) shall continue in effect or be assumed or an equivalent Award substituted by the successor corporation or a parent or subsidiary of the successor corporation and (B) the portion of such Award subject to performance-based vesting shall be subject to the terms and conditions of the applicable Award Agreement and, in the absence of applicable terms and conditions, the Administrator’s discretion.
(b)In the event that the successor corporation in a Change in Control refuses to assume or substitute for an Award (other than any portion subject to performance-based vesting, which shall be treated as specified in the individual Award Agreement or as otherwise provided by the Administrator), the Administrator shall cause such Award to become fully vested and, if applicable, exercisable immediately prior to the consummation of such transaction and all forfeiture restrictions on such Award to lapse and, to the extent unexercised upon the consummation of such transaction, to terminate in exchange for cash, rights or other property. The Administrator shall notify the Participant of any Award that becomes exercisable pursuant to the preceding sentence that such Award shall be fully exercisable for a period of time as determined by the Administrator from the date of such notice (which shall be 15 days if no period is determined by the Administrator), contingent upon the occurrence of the Change in Control, and such Award shall terminate upon the consummation of the Change in Control in accordance with the preceding sentence.
(c)For the purposes of this Section 9.3, an Award shall be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) received in the Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control was not solely common stock of the successor corporation or its parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award, for each Share subject to an Award, to be solely common stock of the successor corporation or its parent equal in fair market value to the per-share consideration received by holders of Common Stock in the Change in Control.
(d)Notwithstanding anything to the contrary herein, if a Participant experiences a Termination of Service during the period beginning three months prior to a Change in Control and ending 12 months following the Change in Control that is effected by the Company without Cause or by the Participant for Good Reason, then, the Award(s) held by such Participant shall become fully vested and, if applicable, exercisable and all forfeiture restrictions on such Award(s) shall lapse as of immediately prior to the consummation of such Change in Control or, if later, the date of such Termination of Service.
9.4Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary transaction or change affecting the Shares or the share price of Common Stock (including any Equity Restructuring or any securities offering or other similar transaction) or for reasons of administrative convenience or to facilitate compliance with any Applicable Law, the Administrator may refuse to permit the exercise or settlement of one or more Awards for such period of time as the Company may determine to be reasonably appropriate under the circumstances.
9.5General. Except as expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with respect to an Equity Restructuring under Section 9.1 above or the Administrator’s action under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award or the Award’s grant price or exercise price. The existence of the Plan, any Award Agreements and the Awards granted hereunder will not affect or restrict in any way the Company’s right or power to make or authorize (a) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (b) any merger, consolidation, spinoff, dissolution or liquidation of the Company or sale of Company assets or (c) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible into or exchangeable for Shares.
ARTICLE X.
PROVISIONS APPLICABLE TO AWARDS
10.1Transferability.
(a)No Award may be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a DRO, unless and until such Award has been exercised or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed. During the life of a Participant, Awards will be exercisable only by the Participant, unless it has been disposed of pursuant to a DRO. After the death of a Participant, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Award Agreement, be exercised by the Participant’s personal representative or by any person empowered to do so under the deceased Participant’s will or under the then-Applicable Law of descent and distribution. References to a Participant, to the extent relevant in the context, will include references to a transferee approved by the Administrator.
(b)Notwithstanding Section 10.1(a), the Administrator, in its sole discretion, may determine to permit a Participant or a Permitted Transferee of such Participant to transfer an Award other than an Incentive Stock Option (unless such Incentive Stock Option is intended to become a Nonqualified Stock Option) to any one or more Permitted Transferees of such Participant, subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than (A) to another Permitted Transferee of the applicable Participant or (B) by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO; (ii) an Award transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Participant (other than the ability to further transfer the Award to any Person other than another Permitted Transferee of the applicable Participant); (iii) the Participant (or transferring Permitted Transferee) and the receiving Permitted Transferee
shall execute any and all documents requested by the Administrator, including, without limitation, documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under Applicable Law and (C) evidence the transfer; and (iv) any transfer of an Award to a Permitted Transferee shall be without consideration, except as required by Applicable Law. In addition, and further notwithstanding Section 10.1(a), the Administrator, in its sole discretion, may determine to permit a Participant to transfer Incentive Stock Options to a trust that constitutes a Permitted Transferee if, under Section 671 of the Code and other Applicable Law, the Participant is considered the sole beneficial owner of the Incentive Stock Option while it is held in the trust.
(c)Notwithstanding Section 10.1(a), if permitted by the Administrator, a Participant may, in the manner determined by the Administrator, designate a Designated Beneficiary. A Designated Beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Participant and any additional restrictions deemed necessary or appropriate by the Administrator. If the Participant is married or a domestic partner in a domestic partnership qualified under Applicable Law and resides in a community property state, a designation of a person other than the Participant’s spouse or domestic partner, as applicable, as the Participant’s Designated Beneficiary with respect to more than 50% of the Participant’s interest in the Award shall not be effective without the prior written or electronic consent of the Participant’s spouse or domestic partner. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time; provided that the change or revocation is delivered in writing to the Administrator prior to the Participant’s death.
10.2Documentation. Each Award will be evidenced in an Award Agreement in such form as the Administrator determines in its discretion. Each Award may contain such terms and conditions as are determined by the Administrator in its sole discretion, to the extent not inconsistent with those set forth in the Plan.
10.3Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.
10.4Changes in Participant’s Status. The Administrator will determine how the disability, death, retirement, authorized leave of absence or any other change or purported change in a Participant’s Service Provider status affects an Award and the extent to which, and the period during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award, if applicable. Except to the extent otherwise required by Applicable Law or expressly authorized by the Company or by the Company’s written policy on leaves of absence, no service credit shall be given for vesting purposes for any period the Participant is on a leave of absence.
10.5Withholding. Each Participant must pay the Company or a Subsidiary, as applicable, or make provision satisfactory to the Administrator for payment of, any Tax-Related Items to be withheld in connection with such Participant’s Awards and/or Shares. At the
Company’s discretion and subject to any Company insider trading policy (including black-out periods), any withholding obligation for Tax-Related Items may be satisfied by (a) deducting an amount sufficient to satisfy such withholding obligation from any payment of any kind otherwise due to a Participant; (b) accepting a payment from the Participant in cash, by wire transfer of immediately available funds, or by check made payable to the order of the Company or a Subsidiary, as applicable; (c) accepting the delivery of Shares, including Shares delivered by attestation; (d) retaining Shares from an Award; (e) if there is a public market for Shares at the time the withholding obligation for Tax-Related Items is to be satisfied, selling Shares issued pursuant to an Award, either voluntarily by the Participant or mandatorily by the Company; (f) accepting delivery of a promissory note or any other lawful consideration; (g) any other method of withholding determined by the Company and, to the extent required by Applicable Law or the Plan, approved by the Administrator; or (h) any combination of the foregoing payment forms. The amount withheld pursuant to any of the foregoing payment forms shall be determined by the Company and may be up to, but no greater than, the aggregate amount of such obligations based on the maximum statutory withholding rates in the applicable Participant’s jurisdiction for all Tax-Related Items. If any tax withholding obligation will be satisfied under clause (e) of the preceding paragraph, each Participant’s acceptance of an Award under the Plan will constitute the Participant’s authorization to the Company and instruction and authorization to any brokerage firm selected by the Company to effect the sale to complete the transactions described in clause (e).
10.6Amendment of Award; Repricing. The Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different type, changing the exercise or settlement date, and converting an Incentive Stock Option to a Nonqualified Stock Option. The Participant’s consent to such action will be required unless (a) the action, taking into account any related action, does not materially and adversely affect the Participant’s rights under the Award, or (b) the change is permitted under Article IX or pursuant to Section 11.6. In addition, the Administrator shall, without the approval of the stockholders of the Company, have the authority to (i) amend any outstanding Option or Stock Appreciation Right to reduce its exercise price per Share or (ii) cancel any Option or Stock Appreciation Right in exchange for cash or another Award.
10.7Conditions on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously delivered under the Plan until (a) all Award conditions have been met or removed to the Company’s satisfaction, (b) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including, without limitation, any applicable securities laws and stock exchange or stock market rules and regulations, (c) any approvals from governmental agencies that the Company determines are necessary or advisable have been obtained, and (d) the Participant has executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy Applicable Law. The inability or impracticability of the Company to obtain or maintain authority to issue or sell any securities from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained, and shall constitute circumstances in which the Administrator may determine to amend or cancel Awards pertaining to such Shares, with or without consideration to the Participant.
10.8Acceleration. The Administrator may at any time provide that any Award will become immediately vested and fully or partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
ARTICLE XI.
MISCELLANEOUS
11.1No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of an Award will not be construed as giving a Participant the right to commence or continue employment or any other relationship with the Company or a Subsidiary. The Company and its Subsidiaries expressly reserve the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement or other written agreement between the Participant and the Company or any Subsidiary.
11.2No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such Shares. Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Law requires, the Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company may place legends on any share certificate or book entry to reference restrictions applicable to the Shares (including, without limitation, restrictions applicable to Restricted Stock).
11.3Effective Date. The Plan will become effective on the date prior to the Public Trading Date (the “Effective Date”), provided that it is approved by the Company’s stockholders prior to such date and occurring within 12 months following the date the Board approved the Plan. If the Plan is not approved by the Company’s stockholders within the foregoing time frame, the Plan will not become effective. No Incentive Stock Option may be granted pursuant to the Plan after the tenth anniversary of the earlier of (a) the date the Plan was approved by the Board or (b) the date the Plan was approved by the Company’s stockholders.
11.4Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time and from time to time; provided that (a) no amendment requiring stockholder approval to comply with Applicable Law shall be effective unless approved by the stockholders, and (b) no amendment, other than an increase to the Overall Share Limit or pursuant to Article IX or Section 11.6, may materially and adversely affect any Award outstanding at the time of such amendment without the affected Participant’s consent. No Awards may be granted under the Plan during any suspension period or after Plan termination. Awards outstanding at the time of any Plan suspension or termination will continue to be governed by the Plan and the
Award Agreement, as each is in effect before such suspension or termination. The Administrator will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Law.
11.5Provisions for Non-U.S. Participants. The Administrator may modify Awards granted to Participants who are nationals of a country other than the United States or employed or residing outside the United States, establish subplans or procedures under the Plan or take any other necessary or appropriate action to address Applicable Law, including (a) differences in laws, rules, regulations or customs of such jurisdictions with respect to tax, securities, currency, employee benefit or other matters, (b) listing and other requirements of any non-U.S. securities exchange, and (c) any necessary local governmental or regulatory exemptions or approvals.
11.6Section 409A.
(a)General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (i) exempt this Plan or any Award from Section 409A, or (ii) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Award’s grant date. The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 11.6 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
(b)Separation from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement of such Award upon a Participant’s Termination of Service will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A), whether such “separation from service” occurs upon or after the Participant’s Termination of Service. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms means a “separation from service.”
(c)Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as defined under Section 409A and as the Administrator determines) due to such Person’s “separation from service” will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on
the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of “nonqualified deferred compensation” under such Award payable more than six months following the Participant’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.
(d)Separate Payments. If an Award includes a “series of installment payments” within the meaning of Section 1.409A-2(b)(2)(iii) of Section 409A, the Participant’s right to the series of installment payments will be treated as a right to a series of separate payments and not as a right to a single payment and, if an Award includes “dividend equivalents” within the meaning of Section 1.409A-3(e) of Section 409A, the Participant’s right to receive the dividend equivalents will be treated separately from the right to other amounts under the Award.
(e)Change in Control. Any payment due upon a Change in Control of the Company will be paid only if such Change in Control constitutes a “change in ownership” or “change in effective control” within the meaning of Section 409A, and in the event that such Change in Control does not constitute a “change in the ownership” or “change in the effective control” within the meaning of Section 409A, such Award for which payment is due upon a Change in Control of the Company will vest upon the Change in Control and any payment will be delayed until the first compliant date under Section 409A.
11.7Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a Director, officer or other Employee will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in such person’s capacity as an Administrator, Director, officer or other Employee. The Company will indemnify and hold harmless each Director, officer or other Employee that has been or will be granted or delegated any duty or power relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability (including any sum paid in settlement of a claim with the Administrator’s approval) arising from any act or omission concerning this Plan unless arising from such person’s own fraud or bad faith; provided that such person gives the Company an opportunity, at its own expense, to handle and defend the same before undertaking to handle and defend it on such person’s own behalf.
11.8Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section 11.8 by and among the Company and its Subsidiaries and affiliates exclusively for implementing, administering and managing the Participant’s participation in the Plan. The Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participant’s name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and Awards (the “Data”). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participant’s participation in the Plan, and the
Company and its Subsidiaries and affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than a recipient’s country. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participant’s participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan. A Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or withdraw the consents in this Section 11.8 in writing, without cost, by contacting the local human resources representative. The Company may cancel Participant’s ability to participate in the Plan and, in the Administrator’s sole discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents in this Section 11.8. For more information on the consequences of refusing or withdrawing consent, Participants may contact their local human resources representative.
11.9Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been excluded, and the illegal or invalid action will be null and void.
11.10Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written agreement between a Participant and the Company (or any Subsidiary), the Plan will govern, unless such Award Agreement or other written agreement was approved by the Administrator and expressly provides that a specific provision of the Plan will not apply.
11.11Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to the conflict of law rules thereof or of any other jurisdiction. By accepting an Award, each Participant irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Delaware and of the United States of America, in each case located in the State of Delaware, for any action arising out of or relating to the Plan (and agrees not to commence any litigation relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to the address contained in the records of the Company shall be effective service of process for any litigation brought against it in any such court. By accepting an Award, each Participant irrevocably and unconditionally waives any objection to the laying of venue of any litigation arising out of the Plan or Award hereunder in the courts of the State of Delaware or the United States of America, in each case located in the State of Delaware, and further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such litigation brought in any such court has been brought in an inconvenient forum. By accepting an Award, each Participant irrevocably and unconditionally
waives, to the fullest extent permitted by Applicable Law, any and all rights to trial by jury in connection with any litigation arising out of or relating to the Plan or any Award hereunder.
11.12Clawback Provisions. The Administrator may, in its discretion, specify in an Award Agreement or a policy that will be deemed incorporated into an Award Agreement by reference (regardless of whether such policy is established before or after the date of such Award Agreement), that a Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, rescission or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting, restrictions or performance conditions of an Award. Such events may include, but shall not be limited to, Termination of Service with or without Cause, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Participant, or restatement of the Company’s financial statements to reflect adverse results from those previously released financial statements, as a consequence of errors, omissions, fraud, or misconduct. Without limiting the foregoing, all Awards (including, without limitation, any proceeds, gains or other economic benefit actually or constructively received by a Participant upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) shall be subject to the provisions of any clawback policy implemented by the Company, including, without limitation, any clawback policy adopted to comply with Applicable Law (including the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as and to the extent set forth in such clawback policy or the Award Agreement.
11.13Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plan’s text, rather than such titles or headings, will control.
11.14Conformity to Applicable Law. Participant acknowledges that the Plan is intended to conform to the extent necessary with Applicable Law. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in a manner intended to conform with Applicable Law. To the extent Applicable Law permits, the Plan and all Award Agreements will be deemed amended as necessary to conform to Applicable Law.
11.15Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary, except as expressly provided in writing in such other plan or an agreement thereunder.
11.16Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.
11.17Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3)
that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
11.18Prohibition on Executive Officer and Director Loans. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment, with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.
11.19Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section 10.5: (a) any Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all Participants receive an average price; (c) the applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant agrees to indemnify and hold the Company and its Directors, officers and other Employees harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participant’s applicable obligation, the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participant’s obligation.
* * * * *
REDDIT, INC.
2024 INCENTIVE AWARD PLAN
STOCK OPTION GRANT NOTICE
Reddit, Inc., a Delaware corporation, (the “Company”), pursuant to its 2024 Incentive Award Plan, as may be amended from time to time (the “Plan”), hereby grants to the holder listed below (“Participant”), an option to purchase the number of shares of the Company’s Common Stock (the “Shares”), set forth below (the “Option”). This Option is subject to all of the terms and conditions set forth herein, as well as in the Plan and the Stock Option Agreement attached hereto as Exhibit A (the “Stock Option Agreement”), each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Stock Option Grant Notice (the “Grant Notice”) and the Stock Option Agreement.
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Participant: | [____________] |
Grant Date: | [____________] |
Vesting Commencement Date: | [____________] |
Exercise Price per Share: | $[___________] |
Total Exercise Price: | [____________] |
Total Number of Shares Subject to the Option: | [____________] |
Expiration Date: | [____________] |
Vesting Schedule: | [____________] |
Type of Option: [____] Incentive Stock Option [____] Nonqualified Stock Option
If the Company uses an electronic capitalization table system (such as Shareworks, Carta or Equity Edge) and the fields in this Grant Notice are blank or the information is otherwise provided in a different format electronically, the blank fields and other information will be deemed to come from the electronic capitalization system and is considered part of this Grant Notice. In addition, the Company’s signature below shall be deemed to have occurred by the Company’s input of the Option in such electronic capitalization table system and Participant’s signature below shall be deemed to have occurred by Participant’s online acceptance of the Option through such electronic capitalization table system.
By Participant’s acceptance of the Option through the online acceptance procedure established by the Company or by signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Stock Option Agreement and this Grant Notice. Participant has reviewed the Plan, the Stock Option Agreement and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, the Stock Option Agreement and this Grant Notice. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Stock Option Agreement or this Grant Notice.
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REDDIT, INC.: HOLDER: | | PARTICIPANT: | |
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By: | | | By: | | |
Print Name: | | | Print Name: | | |
Title: | | | | | |
Address: | | | Address: | | |
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| | | Date | | |
EXHIBIT A
TO STOCK OPTION GRANT NOTICE
STOCK OPTION AGREEMENT
Pursuant to the Stock Option Grant Notice (the “Grant Notice”) to which this Stock Option Agreement (this “Agreement”) is attached, Reddit, Inc., a Delaware corporation (the “Company”), has granted to Participant an Option under the Company’s 2024 Incentive Award Plan, as may be amended from time to time (the “Plan”), to purchase the number of Shares indicated in the Grant Notice.
ARTICLE 1.
GENERAL
1.1Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.
1.2Incorporation of Terms of Plan. The Option is subject to the terms and conditions of the Plan which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
ARTICLE 2.
GRANT OF OPTION
2.1Grant of Option. In consideration of Participant’s past and/or continued employment with or service to the Company or any Subsidiary and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice (the “Grant Date”), the Company irrevocably grants to Participant the Option to purchase any part or all of an aggregate of the number of Shares set forth in the Grant Notice, upon the terms and conditions set forth in the Plan and this Agreement, subject to adjustments as provided in Article IX of the Plan. Unless designated as a Nonqualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to the maximum extent permitted by law.
2.2Exercise Price. The exercise price of the Shares subject to the Option shall be as set forth in the Grant Notice, without commission or other charge; provided, however, that the exercise price per share of the Shares subject to the Option shall not be less than 100% of the Fair Market Value of a Share on the Grant Date. Notwithstanding the foregoing, if this Option is designated as an Incentive Stock Option and Participant is a Greater Than 10% Stockholder as of the Grant Date, the exercise price per share of the Shares subject to the Option shall not be less than 110% of the Fair Market Value of a Share on the Grant Date.
ARTICLE 3.
PERIOD OF EXERCISABILITY
3.1Commencement of Exercisability.
(a)Subject to this Section 3.1 and Sections 3.2, 3.3, 5.11 and 5.17 hereof, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice.
(b)No portion of the Option which has not become vested and exercisable at the date of Participant’s Termination of Service shall thereafter become vested and exercisable, except as may be otherwise provided by the Administrator or as set forth in a written agreement between the Company (or any Subsidiary that is the employer of Participant) and Participant.
(c)Notwithstanding Section 3.1(a) hereof and the Grant Notice, but subject to Section 3.1(b) hereof, in the event of a Change in Control the Option shall be treated pursuant to Sections 9.2 and 9.3 of the Plan.
3.2Duration of Exercisability. The installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment which becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3 hereof.
3.3Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of the following events:
(a)The Expiration Date set forth in the Grant Notice, which shall in no event be more than ten years from the Grant Date;
(b)If this Option is designated as an Incentive Stock Option and Participant, at the time the Option was granted, was a Greater Than 10% Stockholder, the expiration of five years from the Grant Date;
(c)The expiration of three months from the date of Participant’s Termination of Service, unless such termination occurs by reason of Participant’s death or Disability or Cause;
(d)The expiration of one year from the date of Participant’s Termination of Service by reason of Participant’s death or Disability; or
(e)Participant’s Termination of Service for Cause.
3.4Special Tax Consequences. Participant acknowledges that, to the extent that the aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares with respect to which Incentive Stock Options, including the Option (if applicable), are exercisable for the first time by Participant in any calendar year exceeds $100,000, the Option and such other options shall be Nonqualified Stock Options to the extent necessary to comply with the limitations imposed by Section 422(d) of the Code. Participant further acknowledges that the rule set forth in the preceding sentence shall be applied by taking the Option and other “incentive stock options” into account in the order in which they were granted, as determined under Section 422(d) of the Code and the Treasury Regulations thereunder. Participant also acknowledges that an Incentive Stock Option exercised more than three months after Participant’s Termination of Employment, other than by reason of death or Disability, will be taxed as a Nonqualified Stock Option.
3.5Tax Indemnity.
(a)Participant agrees to hold harmless, indemnify and keep indemnified the Company, any Subsidiary and Participant’s employing company, if different, from and against any liability for or obligation to pay any Tax-Related Items that is attributable to (1) the grant or exercise of,
or any benefit derived by Participant from, the Option, (2) the acquisition by Participant of the Shares on exercise of the Option or (3) the disposal of any Shares.
(b)The Option cannot be exercised until Participant has made such arrangements as the Company may require for the satisfaction of any Tax-Related Items that may arise in connection with the exercise of the Option or the acquisition of the Shares by Participant. The Company shall not be required to issue, allot or transfer Shares until Participant has satisfied this obligation.
(c)Participant hereby 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 Option and (ii) does not commit to and is under no obligation to structure the terms of the grant or any aspect of any Award, including the Option, to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Furthermore, if Participant becomes subject to tax in more than one jurisdiction between the date of grant of an Award, including the Option, and the date of any relevant taxable event, Participant acknowledges that the Company may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
ARTICLE 4.
EXERCISE OF OPTION
4.1Person Eligible to Exercise. Except as provided in Section 5.3 hereof, during the lifetime of Participant, only Participant may exercise the Option or any portion thereof, unless it has been disposed of pursuant to a DRO. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3 hereof, be exercised by the deceased Participant’s personal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.
4.2Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3 hereof. However, the Option shall not be exercisable with respect to fractional Shares.
4.3Manner of Exercise. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company (or any third party administrator or other person or entity designated by the Company; for the avoidance of doubt, delivery shall include electronic delivery), during regular business hours, of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3 hereof:
(a)An exercise notice in a form specified by the Administrator, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Administrator. The notice shall be signed by Participant or other person then entitled to exercise the Option or such portion of the Option;
(b)The receipt by the Company of full payment for the Shares with respect to which the Option or portion thereof is exercised, including payment of any applicable Tax-Related Items, which shall be made by deduction from other compensation payable to Participant or in such other form of consideration permitted under Section 4.4 hereof that is acceptable to the Company;
(c)Any other written representations or documents as may be required in the Administrator’s sole discretion to evidence compliance with the Securities Act, the Exchange Act or any other Applicable Law; and
(d)In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 hereof by any person or persons other than Participant, appropriate proof of the right of such person or persons to exercise the Option.
Notwithstanding any of the foregoing, the Company shall have the right to specify all conditions of the manner of exercise, which conditions may vary by country and which may be subject to change from time to time.
4.4Method of Payment. Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of Participant:
(a)Cash or check;
(b)With the consent of the Administrator, surrender of Shares (including, without limitation, Shares otherwise issuable upon exercise of the Option) held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; or
(c)Other legal consideration acceptable to the Administrator (including, without limitation, through the delivery of a notice that Participant has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price; provided that payment of such proceeds is then made to the Company at such time as may be required by the Company, but in any event not later than the settlement of such sale).
4.5Conditions to Issuance of Shares. The Shares deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued Shares or issued Shares which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any Shares purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the conditions in Section 10.7 of the Plan and the following conditions:
(a)The admission of such Shares to listing on all stock exchanges on which such Shares are then listed;
(b)The completion of any registration or other qualification of such Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable;
(c)The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable;
(d)The receipt by the Company of full payment for such Shares, including payment of any applicable Tax-Related Items, which may be in one or more of the forms of consideration permitted under Section 4.4 hereof; and
(e)The lapse of such reasonable period of time following the exercise of the Option as the Administrator may from time to time establish for reasons of administrative convenience.
4.6Rights as Stockholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company, including, without limitation, voting rights and rights to dividends, in respect of any Shares purchasable upon the exercise of any part of the Option unless and until such Shares shall have been issued by the Company and held of record by such holder (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article IX of the Plan.
ARTICLE 5.
OTHER PROVISIONS
5.1Administration. The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Participant, the Company and all other interested persons. No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the Option.
5.2Whole Shares. The Option may only be exercised for whole Shares.
5.3Transferability. The Option shall be subject to the restrictions on transferability set forth in Section 10.1 of the Plan.
5.4Tax Consultation. Participant understands that Participant may suffer adverse tax consequences as a result of the grant, vesting or exercise of the Option, or with the purchase or disposition of the Shares subject to the Option. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of such Shares and that Participant is not relying on the Company for any tax advice.
5.5Binding Agreement. Subject to the limitation on the transferability of the Option contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
5.6Adjustments Upon Specified Events. The Administrator may accelerate the vesting of the Option in such circumstances as it, in its sole discretion, may determine. Participant acknowledges that the Option is subject to adjustment, modification and termination in certain events as provided in this Agreement and Article IX of the Plan.
5.7Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Participant shall be addressed to Participant at Participant’s last address
reflected on the Company’s records. By a notice given pursuant to this Section 5.7, either party may hereafter designate a different address for notices to be given to that party. Any notice which is required to be given to Participant shall, if Participant is then deceased, be given to the person entitled to exercise his or her Option pursuant to Section 4.1 hereof by written notice under this Section 5.7. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
5.8Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
5.9Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
5.10Conformity to Applicable Law. Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any other Applicable Law. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such Applicable Law. To the extent permitted by Applicable Law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such Applicable Law.
5.11Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Option in any material way without the prior written consent of Participant, unless such action is necessary to ensure or facilitate compliance with Applicable Law, as determined by the Administrator.
5.12Successors and Assigns. The Company may assign any of its rights and delegate any of its obligations under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth in Section 5.3 hereof, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
5.13Notification of Disposition. If this Option is designated as an Incentive Stock Option, Participant shall give prompt notice to the Company of any disposition or other transfer of any Shares acquired under this Agreement if such disposition or transfer is made (a) within two years from the Grant Date with respect to such Shares or (b) within one year after the transfer of such Shares to Participant. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.
5.14Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, then the Plan, the Option and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted
by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
5.15Not a Contract of Service Relationship. Nothing in this Agreement or in the Plan shall confer upon Participant any right to commence or continue to serve as an Employee or other Service Provider or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise by Applicable Law or in a written agreement between the Company or a Subsidiary (as applicable) and Participant.
5.16Entire Agreement. The Plan, the Grant Notice and this Agreement (including all Exhibits thereto, if any) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, provided that the Option shall be subject to any accelerated vesting provisions in any written agreement between Participant and the Company (or any Subsidiary that is the employer of Participant) or a Company plan pursuant to which Participant participates, in each case, in accordance with the terms therein.
5.17Section 409A. This Option is not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, “Section 409A”). However, notwithstanding any other provision of the Plan, the Grant Notice or this Agreement, if at any time the Administrator determines that the Option (or any portion thereof) may be subject to Section 409A, the Administrator shall have the right in its sole discretion (without any obligation to do so or to indemnify Participant or any other person for failure to do so) to adopt such amendments to the Plan, the Grant Notice or this Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate either for the Option to be exempt from the application of Section 409A or to comply with the requirements of Section 409A.
5.18Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the rights of a general unsecured creditor of the Company and its Subsidiaries with respect to amounts credited and benefits payable, if any, with respect to the Option, and rights no greater than the right to receive the Shares as a general unsecured creditor with respect to the Option, as and when exercised pursuant to the terms hereof.
* * * * *
REDDIT, INC.
2024 INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT AWARD GRANT NOTICE
Reddit, Inc., a Delaware corporation, (the “Company”), pursuant to its 2024 Incentive Award Plan, as may be amended from time to time (the “Plan”), hereby grants to the holder listed below (“Participant”), an award of restricted stock units (“Restricted Stock Units” or “RSUs”). Each vested RSU represents the right to receive, in accordance with the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Agreement”), one share of Common Stock (“Share”). This award of RSUs is subject to all of the terms and conditions set forth herein and in the Agreement and the Plan, each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Stock Unit Award Grant Notice (the “Grant Notice”) and the Agreement.
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Participant: | [_____________] |
Grant Date: | [_____________] |
Total Number of RSUs: | [_____________] |
Vesting Commencement Date: | [_____________] |
Vesting Schedule: | [_____________] |
Termination of Service: | Except as otherwise provided by the Administrator, if Participant experiences a Termination of Service, all RSUs that have not become vested on or prior to the date of such Termination of Service will thereupon be automatically forfeited by Participant without payment of any consideration therefor. |
Participant understands that the terms of this award of RSUs explicitly include the following (a “Sell to Cover”):
Upon vesting of the RSUs and issuance of the resulting Shares, the Company, on Participant’s behalf, will instruct the Company’s transfer agent (together with any other party the Company determines necessary to execute the Sell to Cover, the “Agent”) to sell that number of Shares determined in accordance with Section 2.5 of the Agreement as may be necessary to satisfy any resulting withholding tax obligations on the Company, and the Agent will remit the cash proceeds of such sale to the Company. The Company shall then make a cash payment equal to the required tax withholding from the cash proceeds of such sale directly to the appropriate taxing authorities.
If the Company uses an electronic capitalization table system (such as Shareworks, Carta or Equity Edge) and the fields in this Grant Notice are blank or the information is otherwise provided in a different format electronically, the blank fields and other information will be deemed to come from the electronic capitalization system and is considered part of this Grant Notice. In addition, the Company’s signature below shall be deemed to have occurred by the Company’s input of the RSUs in such electronic capitalization table system and Participant’s signature below shall be deemed to have occurred by Participant’s online acceptance of the RSUs through such electronic capitalization table system.
By Participant’s acceptance of the RSUs through the online acceptance procedure established by the Company or by signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and this Grant Notice. Participant has reviewed the Plan, the Agreement and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this
Grant Notice and fully understands all provisions of the Plan, the Agreement and this Grant Notice. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Agreement or this Grant Notice.
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REDDIT, | | PARTICIPANT: |
| INC.: | | | | |
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| PARTICIPANT: | | | |
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By: | | | By: | |
Print Name: | | | Print Name: | |
Title: | | | | |
Address: | | | Address: | |
EXHIBIT A
TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE
RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Restricted Stock Unit Award Agreement (this “Agreement”) is attached, Reddit, Inc., a Delaware corporation (the “Company”), has granted to Participant the number of restricted stock units (“Restricted Stock Units” or “RSUs”) set forth in the Grant Notice under the Company’s 2024 Incentive Award Plan, as may be amended from time to time (the “Plan”). Each RSU represents the right to receive one share of Common Stock (a “Share”) upon vesting.
ARTICLE 1.
GENERAL
1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.
1.2 Incorporation of Terms of Plan. The RSUs are subject to the terms and conditions of the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
ARTICLE 2.
GRANT OF RESTRICTED STOCK UNITS
2.1 Grant of RSUs. Pursuant to the Grant Notice and upon the terms and conditions set forth in the Plan and this Agreement, effective as of the Grant Date set forth in the Grant Notice, the Company hereby grants to Participant an award of RSUs under the Plan in consideration of Participant’s past and/or continued employment with or service to the Company or any Subsidiary and for other good and valuable consideration.
2.2 Unsecured Obligation to RSUs. Unless and until the RSUs have vested in the manner set forth in Article 2 hereof, Participant will have no right to receive Common Stock under any such RSUs. Prior to actual payment of any vested RSUs, such RSUs will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.
2.3 Vesting Schedule. Subject to Section 2.4 hereof, the RSUs shall vest and become nonforfeitable with respect to the applicable portion thereof according to the vesting schedule set forth in the Grant Notice (rounding down to the nearest whole Share). Notwithstanding the foregoing and the Grant Notice, but subject to Section 2.4 hereof, in the event of a Change in Control, the RSUs shall be treated pursuant to Sections 9.2 and 9.3 of the Plan.
2.4 Forfeiture, Termination and Cancellation upon Termination of Service. Notwithstanding any contrary provision of this Agreement or the Plan, except as otherwise provided by the Administrator, upon Participant’s Termination of Service for any or no reason, all RSUs which have not vested prior to or in connection with such Termination of Service shall thereupon automatically be forfeited, terminated and cancelled as of the applicable termination date without payment of any consideration by the Company, and Participant, or Participant’s beneficiary or personal representative, as the case may be,
shall have no further rights hereunder. No portion of the RSUs which has not become vested as of the date on which Participant incurs a Termination of Service shall thereafter become vested, except as may otherwise be provided by the Administrator or as set forth in a written agreement between the Company (or any Subsidiary that is the employer of Participant) and Participant.
2.5 Issuance of Common Stock upon Vesting.
(a) As soon as administratively practicable following the vesting of any RSUs pursuant to Section 2.3 hereof, but in no event later than March 15 of the year after the year of vesting (for the avoidance of doubt, this deadline is intended to comply with the “short term deferral” exemption from Section 409A of the Code), the Company shall deliver to Participant (or any transferee permitted under Section 3.2 hereof) a number of Shares equal to the number of RSUs subject to this Award that vest on the applicable vesting date. Notwithstanding the foregoing, in the event Shares are not issued pursuant to Section 10.7 of the Plan, the Shares shall be issued pursuant to the preceding sentence as soon as administratively practicable after the Administrator determines that Shares can again be issued in accordance with such Section.
(b) As set forth in Section 10.5 of the Plan, the Company shall have the authority and the right to deduct or withhold, or to require Participant to remit to the Company, an amount sufficient to satisfy all applicable Tax-Related Items required by law to be withheld with respect to any taxable event arising in connection with the RSUs. Such Tax-Related Items shall be satisfied by using a Sell to Cover pursuant to the Grant Notice. The Company shall not be obligated to deliver any Shares to Participant or Participant’s legal representative unless and until Participant or Participant’s legal representative shall have paid or otherwise satisfied in full the amount of all Tax-Related Items applicable to the taxable income of Participant resulting from the grant or vesting of the RSUs or the issuance of Shares. By accepting this award of RSUs, Participant has agreed to a Sell to Cover to satisfy any Tax-Related Items calculated at up to the maximum statutory tax rate, as determined by the Company, and Participant hereby acknowledges and agrees:
(i) Participant hereby appoints the Agent as Participant’s agent and authorizes the Agent to (1) sell on the open market at the then prevailing market price(s), on Participant’s behalf, as soon as practicable on or after the date the Shares are issued upon vesting of the RSUs, that number (rounded up to the next whole number) of the Shares so issued necessary to generate proceeds to cover (x) any Tax-Related Items incurred with respect to such vesting or issuance based on up to the maximum statutory tax rates, as determined by the Company, and (y) all applicable fees and commissions due to, or required to be collected by, the Agent with respect thereto and (2) in the Company’s discretion, apply any remaining funds to Participant’s federal tax withholding or remit such remaining funds to Participant.
(ii) Participant hereby authorizes the Company and the Agent to cooperate and communicate with one another to determine the number of Shares that must be sold pursuant to subsection (i) above.
(iii) Participant understands that the Agent may effect sales as provided in subsection (i) above in one or more sales and that the average price for executions resulting from bunched orders will be assigned to Participant’s account. In addition, Participant acknowledges that it may not be possible to sell Shares as provided in subsection (i) above due to (1) a legal or contractual restriction applicable to Participant or the Agent, (2) a market disruption or (3) rules governing order execution priority on the national exchange where the Shares may be traded. In the event of the Agent’s inability to sell Shares, Participant will continue to be responsible for the timely payment to the Company and/or its affiliates of all Tax-Related Items that are required by applicable laws and regulations to be withheld.
(iv) Participant acknowledges that regardless of any other term or condition of this Section 2.5(b), the Agent will not be liable to Participant for (1) special, indirect, punitive, exemplary or consequential damages, or incidental losses or damages of any kind or (2) any failure to perform or for any delay in performance that results from a cause or circumstance that is beyond its reasonable control.
(v) Participant hereby agrees to execute and deliver to the Agent any other agreements or documents as the Agent reasonably deems necessary or appropriate to carry out the purposes and intent of this Section 2.5(b). The Agent is a third-party beneficiary of this Section 2.5(b).
This Section 2.5(b) shall terminate not later than the date on which all tax withholding and obligations arising in connection with the vesting and issuance of the RSUs have been satisfied.
2.6 Conditions to Delivery of Shares. The Shares deliverable hereunder may be either previously authorized but unissued Shares, treasury Shares or issued Shares which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue Shares deliverable hereunder prior to fulfillment of the conditions set forth in Section 10.7 of the Plan.
2.7 Rights as Stockholder. The holder of the RSUs shall not be, nor have any of the rights or privileges of, a stockholder of the Company, including, without limitation, voting rights and rights to dividends, in respect of the RSUs and any Shares underlying the RSUs and deliverable hereunder unless and until such Shares shall have been issued by the Company and held of record by such holder (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article IX of the Plan.
ARTICLE 3.
OTHER PROVISIONS
3.1 Administration. The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon Participant, the Company and all other interested persons. No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the RSUs.
3.2 Transferability. The RSUs shall be subject to the restrictions on transferability set forth in Section 10.1 of the Plan.
3.3 Tax Consultation. Participant understands that Participant may suffer adverse tax consequences in connection with the RSUs granted pursuant to this Agreement (and the Shares issuable with respect thereto). Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the RSUs and the issuance of Shares with respect thereto and that Participant is not relying on the Company for any tax advice.
3.4 Binding Agreement. Subject to the limitation on the transferability of the RSUs contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
3.5 Adjustments Upon Specified Events. The Administrator may accelerate the vesting of the RSUs in such circumstances as it, in its sole discretion, may determine. Participant acknowledges that the RSUs are subject to adjustment, modification and termination in certain events as provided in this Agreement and Article IX of the Plan.
3.6 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Participant shall be addressed to Participant at Participant’s last address reflected on the Company’s records. By a notice given pursuant to this Section 3.6, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
3.7 Participant’s Representations. If the Shares issuable hereunder have not been registered under the Securities Act or any applicable state laws on an effective registration statement at the time of such issuance, Participant shall, if required by the Company, concurrently with such issuance, make such written representations as are deemed necessary or appropriate by the Company or its counsel.
3.8 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
3.9 Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
3.10 Conformity to Applicable Law. Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any other Applicable Law. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted, only in such a manner as to conform to Applicable Law. To the extent permitted by Applicable Law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such Applicable Law.
3.11 Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the RSUs in any material way without the prior written consent of Participant, unless such action is necessary to ensure or facilitate compliance with Applicable Law, as determined by the Administrator.
3.12 Successors and Assigns. The Company may assign any of its rights and delegate any of its obligations under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth in Section 3.2 hereof, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
3.13 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, then the Plan, the RSUs and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that
are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
3.14 Not a Contract of Service Relationship. Nothing in this Agreement or in the Plan shall confer upon Participant any right to commence or continue to serve as an Employee or other Service Provider or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise by Applicable Law or in a written agreement between the Company or a Subsidiary (as applicable) and Participant.
3.15 Entire Agreement. The Plan, the Grant Notice and this Agreement (including all Exhibits thereto, if any) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, provided that the RSUs shall be subject to any accelerated vesting provisions in any written agreement between Participant and the Company (or any Subsidiary that is the employer of Participant) or a Company plan pursuant to which Participant participates, in each case, in accordance with the terms therein.
3.16 Section 409A. This Award is not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, “Section 409A”). However, notwithstanding any other provision of the Plan, the Grant Notice or this Agreement, if at any time the Administrator determines that this Award (or any portion thereof) may be subject to Section 409A, the Administrator shall have the right in its sole discretion (without any obligation to do so or to indemnify Participant or any other person for failure to do so) to adopt such amendments to the Plan, the Grant Notice or this Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate for this Award either to be exempt from the application of Section 409A or to comply with the requirements of Section 409A.
3.17 Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the rights of a general unsecured creditor of the Company and its Subsidiaries with respect to amounts credited and benefits payable, if any, with respect to the RSUs, and rights no greater than the right to receive the Shares as a general unsecured creditor with respect to RSUs, as and when payable hereunder.
* * * * *
REDDIT, INC.
2024 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE 1
PURPOSE
The Plan’s purpose is to assist employees of the Company and its Designated Subsidiaries in acquiring a stock ownership interest in the Company, and to help such employees provide for their future security and to encourage them to remain in the employment of the Company and its Subsidiaries.
The Plan consists of two components: the Section 423 Component and the Non-Section 423 Component. The Section 423 Component is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code and shall be administered, interpreted and construed in a manner consistent with the requirements of Section 423 of the Code. In addition, this Plan authorizes the grant of Options under the Non-Section 423 Component, which need not qualify as Options granted pursuant to an “employee stock purchase plan” under Section 423 of the Code; such Options granted under the Non-Section 423 Component shall be granted pursuant to separate Offerings containing such sub-plans, appendices, rules or procedures as may be adopted by the Administrator and designed to achieve tax, securities laws or other objectives for Eligible Employees and the Designated Subsidiaries in locations outside of the United States. Except as otherwise provided herein, the Non-Section 423 Component will operate and be administered in the same manner as the Section 423 Component. Offerings intended to be made under the Non-Section 423 Component will be designated as such by the Administrator at or prior to the time of such Offering.
For purposes of this Plan, the Administrator may designate separate Offerings under the Plan, the terms of which need not be identical, in which Eligible Employees will participate, even if the dates of the applicable Offering Period(s) in each such Offering is identical, provided that the terms of participation are the same within each separate Offering under the Section 423 Component as determined under Section 423 of the Code. Solely by way of example and without limiting the foregoing, the Company could, but shall not be required to, provide for simultaneous Offerings under the Section 423 Component and the Non-Section 423 Component of the Plan.
ARTICLE 2
DEFINITIONS
As used in the Plan, the following words and phrases have the meanings specified below, unless the context clearly indicates otherwise:
2.1“Administrator” means the Committee, or such individuals to which authority to administer the Plan has been delegated under Section 7.1 hereof.
2.2“Agent” means the brokerage firm, bank or other financial institution, entity or person(s), if any, engaged, retained, appointed or authorized to act as the agent of the Company or an Employee with regard to the Plan.
2.3“Board” means the Board of Directors of the Company.
2.4“Code” means the U.S. Internal Revenue Code of 1986, as amended, and all regulations, guidance, compliance programs and other interpretative authority issued thereunder.
2.5“Committee” means the Compensation Committee of the Board.
2.6“Common Stock” means the Class A common stock of the Company.
2.7“Company” means Reddit, Inc., a Delaware corporation, or any successor.
2.8“Compensation” of an Employee means the regular earnings or base salary paid to the Employee from the Company on each Payday as compensation for services to the Company or any Designated Subsidiary, before deduction for any salary deferral contributions made by the Employee to any tax-qualified or nonqualified deferred compensation plan, including overtime, shift differentials, vacation pay, salaried production schedule premiums, holiday pay, jury duty pay, funeral leave pay, paid time off, military pay and prior week adjustments, but excluding bonuses and commissions, meal and rest break premiums under California state law or similar amounts paid in accordance with applicable law of any other jurisdiction, education or tuition reimbursements, imputed income arising under any group insurance or benefit program, travel expenses, business and moving reimbursements, including tax gross ups and taxable mileage allowance, income received in connection with any stock options, restricted stock, restricted stock units or other compensatory equity awards and all contributions made by the Company or any Designated Subsidiary for the Employee’s benefit under any employee benefit plan now or hereafter established. For any Participants in non-U.S. jurisdictions, the Administrator will have discretion to determine the application of this definition. Compensation shall be calculated before deduction of any income or employment tax withholdings, but such amounts shall be withheld from the Employee’s net income.
2.9“Designated Subsidiary” means each Subsidiary, including any Subsidiary in existence on the Effective Date and any Subsidiary formed or acquired following the Effective Date, that has been designated by the Board or Committee from time to time in its sole discretion as eligible to participate in the Plan, in accordance with Section 7.2 hereof, such designation to specify whether such participation is in the Section 423 Component or Non-Section 423 Component. A Designated Subsidiary may participate in either the Section 423 Component or Non-Section 423 Component, but not both; provided that a Subsidiary that, for U.S. tax purposes, is disregarded from the Company or any Subsidiary that participates in the Section 423 Component shall automatically constitute a Designated Subsidiary that participates in the Section 423 Component. The designation by the Administrator of Designated Subsidiaries and changes in such designations by the Administrator shall not require stockholder approval. Only Subsidiary Corporations may be designated as Designated Subsidiaries for purposes of the Section 423 Component, and if an entity does not so qualify, it shall automatically be deemed to constitute a Designated Subsidiary that participates in the Non-Section 423 Component.
2.10“Effective Date” means the date immediately prior to the date upon which Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
2.11“Eligible Employee” means, except as otherwise provided by the Administrator or in an Offering Document, an Employee:
(a)who is customarily scheduled to work at least 20 hours per week;
(b)whose customary employment is more than five months in a calendar year; and
(c)who, after the granting of the Option, would not be deemed for purposes of Section 423(b)(3) of the Code to possess 5% or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary.
For purposes of clause (c), the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock which an Employee may purchase under outstanding options shall be treated as stock owned by the Employee.
Notwithstanding the foregoing, the Administrator may exclude from participation in the Section 423 Component as an Eligible Employee:
(x) any Employee that is a “highly compensated employee” of the Company or any Designated Subsidiary (within the meaning of Section 414(q) of the Code), or that is such a “highly compensated employee” (A) with compensation above a specified level, (B) who is an officer or (C) who is subject to the disclosure requirements of Section 16(a) of the Exchange Act; or
(y) any Employee who is a citizen or resident of a foreign jurisdiction (without regard to whether they are also a citizen of the United States or a resident alien (within the meaning of Section 7701(b)(1)(A) of the Code)) if either (A) the grant of the Option is prohibited under the laws of the jurisdiction governing such Employee, or (B) compliance with the laws of the foreign jurisdiction would cause the Section 423 Component, any Offering thereunder or an Option granted thereunder to violate the requirements of Section 423 of the Code;
provided that any exclusion in clauses (x) or (y) shall be applied in an identical manner under each Offering to all Employees of the Company and all Designated Subsidiaries, in accordance with Treas. Reg. § 1.423-2(e).
Notwithstanding the foregoing, the first sentence in this definition shall apply in determining who is an “Eligible Employee,” except (a) the Administrator may limit eligibility further within the Company or a Designated Subsidiary so as to only designate some Employees of the Company or a Designated Subsidiary as Eligible Employees, and (b) to the extent the restrictions in the first sentence in this definition are not consistent with applicable local laws, the applicable local laws shall control, in each case, in accordance with the requirements of Section 423 of the Code with respect to the Section 423 Component.
2.12“Employee” means an individual who renders services to a Designated Subsidiary in the status of an employee, and, with respect to the Section 423 Component, a person who is an officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Designated Subsidiary. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual’s attainment or termination of such status. For purposes of an individual’s participation in, or other rights under the Plan, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that any court of law or governmental agency subsequently makes a contrary determination. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company or a Designated Subsidiary (which, for purposes of the Section 423 Component, must meet the requirements of Treas. Reg. § 1.421-1(h)(2)). For purposes of the Section 423 Component, where the period of an approved leave of absence exceeds three months, or such other period specified in Treas. Reg. § 1.421-1(h)(2), and the individual’s right to reemployment is not provided either by statute or contract, the employment relationship shall be deemed to have terminated for purposes of the Plan on the first day immediately following such three-month period, or such other period specified in Treas. Reg. § 1.421-1(h)(2).
2.13“Enrollment Date” means the first date of each Offering Period.
2.14“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.
2.15“Exercise Date” means the last day of each Purchase Period, except as provided in Section 5.2 hereof.
2.16 “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(a)If the Common Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange or Nasdaq Stock Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a share of Common Stock as quoted on such exchange or system for such date or, if there is no closing sales price for a share of Common Stock on the date in question, the closing sales price for a share of Common Stock on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(b)If the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a share of Common Stock on such date, the high bid and low asked prices for a share of Common Stock on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(c)If the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in good faith (and, with respect to the initial Offering Period of the Plan, as set forth in the Offering Document for the initial Offering Period).
2.17“Grant Date” means the first day of an Offering Period (or, with respect to the initial Offering Period of the Plan, such date set forth in the Offering Document approved by the Administrator with respect to the initial Offering Period).
2.18“New Exercise Date” has the meaning set forth in Section 5.2(b) hereof.
2.19“Non-Section 423 Component” means those Offerings under the Plan, together with the sub-plans, appendices, rules or procedures, if any, adopted by the Administrator as a part of this Plan, in each case, pursuant to which Options may be granted to Eligible Employees that need not satisfy the requirements for Options granted pursuant to an “employee stock purchase plan” that are set forth under Section 423 of the Code.
2.20“Offering” means an offer under the Plan of an Option that may be exercised during an Offering Period as further described in Article 4 hereof. Unless otherwise specified by the Administrator, each Offering to the Eligible Employees of the Company or a Designated Subsidiary shall be deemed a separate Offering, even if the dates and other terms of the applicable Offering Periods of each such Offering are identical and the provisions of the Plan will separately apply to each Offering. To the extent permitted by Treas. Reg. § 1.423-2(a)(1), the terms of each separate Offering under the Section 423 Component need not be identical, provided that the terms of the Section 423 Component and an Offering thereunder together satisfy Treas. Reg. § 1.423-2(a)(2) and (a)(3).
2.21“Offering Period” means such period of time commencing on such date(s) as determined by the Board or Committee, in its discretion, and with respect to which Options shall be granted to Participants. The duration and timing of Offering Periods may be established or changed by the Board or
Committee at any time, in its sole discretion. Notwithstanding the foregoing, in no event may an Offering Period exceed 27 months.
2.22“Option” means the right to purchase shares of Common Stock pursuant to the Plan during each Offering Period.
2.23“Option Price” means the purchase price of a share of Common Stock hereunder as provided in Section 4.2 hereof.
2.24“Parent” means any entity that is a parent corporation of the Company within the meaning of Section 424 of the Code.
2.25“Participant” means any Eligible Employee who elects to participate in the Plan.
2.26“Payday” means the regular and recurring established day for payment of Compensation to an Employee of the Company or any Designated Subsidiary.
2.27“Plan” means this 2024 Employee Stock Purchase Plan, including both the Section 423 Component and Non-Section 423 Component and any other sub-plans or appendices hereto, as amended from time to time.
2.28“Plan Account” means a bookkeeping account established and maintained by the Company in the name of each Participant.
2.29“Pricing Date” means the date upon which the Company’s Registration Statement on Form S-1 filed with the U.S. Securities and Exchange Commission relating to the underwritten public offering of shares of Common Stock becomes effective.
2.30“Purchase Period” means such period of time commencing on such dates as determined by the Board or Committee, in its discretion, within each Offering Period. The duration and timing of Purchase Periods may be established or changed by the Board or Committee at any time, in its sole discretion. Notwithstanding the foregoing, in no event may a Purchase Period exceed the duration of the Offering Period under which it is established.
2.31“Section 409A” means Section 409A of the Code and the regulations promulgated thereunder by the United States Treasury Department, as amended or as may be amended from time to time.
2.32“Section 423 Component” means those Offerings under the Plan that are intended to meet the requirements under Section 423(b) of the Code.
2.33“Subsidiary” means (a) any Subsidiary Corporation, and (b) with respect to any Offering pursuant to the Non-Section 423 Component only, Subsidiary may also include any corporate or noncorporate entity in which the Company has a direct or indirect equity interest or significant business relationship.
2.34“Subsidiary Corporation” shall mean any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, or any other entity that is a subsidiary corporation of the Company within the meaning of Section 424 of the Code.
2.35“Treas. Reg.” means U.S. Department of the Treasury regulations.
2.36“Withdrawal Election” has the meaning set forth in Section 6.1(a) hereof.
ARTICLE 3
PARTICIPATION
3.1Eligibility.
(a)Any Eligible Employee who is employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of Articles 4 and 5 hereof, and, for the Section 423 Component, the limitations imposed by Section 423(b) of the Code.
(b)No Eligible Employee shall be granted an Option under the Section 423 Component which permits the Participant’s rights to purchase shares of Common Stock under the Plan, and to purchase stock under all other employee stock purchase plans of the Company, any Parent or any Subsidiary subject to Section 423 of the Code, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time such Option is granted) for each calendar year in which such Option is outstanding at any time. The limitation under this Section 3.1(b) shall be applied in accordance with Section 423(b)(8) of the Code.
3.2Election to Participate; Payroll Deductions.
(a)Except as provided in Sections 3.2(e) and 3.3 hereof or in an applicable Offering Document, an Eligible Employee may become a Participant in the Plan only by means of payroll deduction. Each individual who is an Eligible Employee as of an Offering Period’s Enrollment Date may elect to participate in such Offering Period and the Plan by delivering to the Company a payroll deduction authorization no later than the period of time prior to the applicable Enrollment Date that is determined by the Administrator, in its sole discretion.
(b)Subject to Section 3.1(b) hereof and except as may otherwise be determined by the Administrator and/or as set forth in the Offering Document, payroll deductions (i) shall equal at least 1% of the Participant’s Compensation as of each Payday of the Offering Period following the Enrollment Date, but not more than 15% of the Participant’s Compensation as of each Payday of the Offering Period following the Enrollment Date; and (ii) will be expressed as a whole number percentage. Amounts deducted from a Participant’s Compensation with respect to an Offering Period pursuant to this Section 3.2 shall be deducted each Payday through payroll deduction and credited to the Participant’s Plan Account; provided that for the first Offering Period, payroll deductions shall not begin until such date determined by the Administrator, in its sole discretion.
(c)Unless otherwise determined by the Administrator and/or as set forth in the Offering Document, following at least one payroll deduction, a Participant may decrease (to as low as 1%) the amount deducted from such Participant’s Compensation only once during an Offering Period by delivering written notice of such decrease in such form as may be established by the Administrator to be effective no later than ten calendar days after the Company’s receipt of such notice (or such shorter or longer period of time determined by the Administrator and/or as set forth in the Offering Document). Unless otherwise determined by the Administrator and/or as set forth in the Offering Document, a Participant may not increase the amount deducted from such Participant’s Compensation during an Offering Period.
(d)Upon the completion of an Offering Period, each Participant in such Offering Period shall automatically participate in the immediately following Offering Period at the same payroll deduction percentage as in effect at the termination of such Offering Period, unless such Participant delivers to the Company a different election with respect to the successive Offering Period in accordance with Section 3.2(a) hereof, or unless such Participant becomes ineligible for participation in the Plan. Such Participant will be deemed to have accepted the terms and conditions of the Plan, the applicable Offering Document, any sub-plan, enrollment form, subscription agreement and/or any other terms and conditions of participation in effect at the time each subsequent Offering Period begins.
(e)Notwithstanding any other provisions of the Plan to the contrary, in non-U.S. jurisdictions where participation in the Plan through payroll deductions is prohibited, the Administrator may provide that an Eligible Employee may elect to participate through contributions to the Participant’s account under the Plan in a form acceptable to the Administrator in lieu of or in addition to payroll deductions; provided, however, that, for any Offering under the Section 423 Component, the Administrator must determine that any alternative method of contribution is applied on an equal and uniform basis to all Eligible Employees in the Offering.
ARTICLE 4
PURCHASE OF SHARES
4.1Grant of Option. The Company may make one or more Offerings under the Plan, which may be successive or overlapping with one another, until the earlier of: (i) the date on which the shares of Common Stock available under the Plan have been sold or (ii) the date on which the Plan is suspended or terminates. The Administrator shall designate the terms and conditions of each Offering in writing, including without limitation, the Offering Period and the Purchase Periods, as set forth in an offering document (the “Offering Document”). Each Participant shall be granted an Option with respect to an Offering Period on the applicable Grant Date. Subject to the limitations of Section 3.1(b) hereof, the number of shares of Common Stock subject to a Participant’s Option shall be determined by dividing (a) such Participant’s payroll deductions accumulated prior to an Exercise Date and retained in the Participant’s Plan Account on such Exercise Date by (b) the applicable Option Price; provided that, unless otherwise set forth in the Offering Document, in no event shall a Participant be permitted to purchase during each Offering Period more than 100,000 shares of Common Stock (subject to any adjustment pursuant to Section 5.2 hereof). The Administrator and/or the Offering Document may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that a Participant may purchase during such future Offering Periods. Each Option shall expire on the last Exercise Date for the applicable Offering Period immediately after the automatic exercise of the Option in accordance with Section 4.3 hereof, unless such Option terminates earlier in accordance with Article 6 hereof.
4.2Option Price. The “Option Price” per share of Common Stock to be paid by a Participant upon exercise of the Participant’s Option on an Exercise Date for an Offering Period shall equal 85% of the lesser of the Fair Market Value of a share of Common Stock on (a) the applicable Grant Date and (b) the applicable Exercise Date, or such other price designated by the Administrator; provided that in no event shall the Option Price per share of Common Stock be less than the par value per share of the Common Stock; provided further, that no Option Price shall be designated by the Administrator that would cause the Section 423 Component to fail to meet the requirements under Section 423(b) of the Code.
4.3Purchase of Shares.
(a)On each Exercise Date for an Offering Period, each Participant shall automatically and without any action on such Participant’s part be deemed to have exercised the Participant’s Option to purchase at the applicable per share Option Price the largest number of whole shares of Common Stock which can be purchased with the amount in the Participant’s Plan Account. Except as may otherwise be provided by the Administrator with respect to any Offering and/or as set forth in the Offering Document, any balance less than the per share Option Price that is remaining in the Participant’s Plan Account (after exercise of such Participant’s Option) as of the Exercise Date shall be carried forward to the next Purchase Period or Offering Period, unless the Participant has elected to withdraw from the Plan pursuant to Section 6.1 hereof or, pursuant to Section 6.2 hereof, such Participant has ceased to be an Eligible Employee. Any balance not carried forward to the next Purchase Period or Offering Period in accordance with the prior sentence shall be promptly refunded to the applicable Participant. In no event shall an amount greater than or equal to the per share Option Price as of an Exercise Date be carried forward to the next Purchase Period or Offering Period.
(b)As soon as practicable following each Exercise Date, the number of shares of Common Stock purchased by such Participant pursuant to Section 4.3(a) hereof shall be delivered (either in share certificate or book entry form), in the Company’s sole discretion, to either (i) the Participant or (ii) an account established in the Participant’s name at a stock brokerage or other financial services firm designated by the Company. If the Company is required to obtain from any commission or agency authority to issue any such shares of Common Stock, the Company shall seek to obtain such authority. Inability of the Company to obtain from any such commission or agency authority which counsel for the Company deems necessary for the lawful issuance of any such shares shall relieve the Company from liability to any Participant except to refund to the Participant such Participant’s Plan Account balance, without interest thereon. The Company may require that such shares of Common Stock be retained with a particular Agent for a designated period of time, including until such shares are sold and/or may establish other procedures to permit tracking of qualifying and disqualifying dispositions of such shares of Common Stock or to otherwise facilitate compliance with applicable law or administration of the Plan.
4.4Automatic Termination of Offering Period. If the Fair Market Value of a share of Common Stock on any Exercise Date (except the final scheduled Exercise Date of any Offering Period) is lower than the Fair Market Value of a share of Common Stock on the Grant Date for an Offering Period, then such Offering Period shall terminate on such Exercise Date after the automatic exercise of the Option in accordance with Section 4.3 hereof, and each Participant shall automatically be enrolled in the Offering Period that commences immediately following such Exercise Date and such Participant’s payroll deduction authorization shall remain in effect for such Offering Period.
4.5Transferability of Rights. An Option granted under the Plan shall not be transferable, other than by will or the applicable laws of descent and distribution, and is exercisable during the Participant’s lifetime only by the Participant. No option or interest or right to the Option shall be available to pay off any debts, contracts or engagements of the Participant or the Participant’s successors in interest or shall be subject to disposition by pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempt at disposition of the Option shall have no effect.
ARTICLE 5
PROVISIONS RELATING TO COMMON STOCK
5.1Common Stock Reserved. Subject to adjustment as provided in Section 5.2 hereof, the maximum number of shares of Common Stock that shall be made available for sale under the Plan shall be the sum of (a) [____]1 shares of Common Stock and (b) an increase commencing on January 1, 2025 and continuing annually on the anniversary thereof through (and including) January 1, 2034, equal to the lesser of (A) 1% of the aggregate number of shares of all classes of the Company’s common stock outstanding on the last day of the immediately preceding calendar year and (B) such smaller number of shares of Common Stock as determined by the Board or the Committee; provided, however, no more than [____]2 shares of Common Stock may be issued under the Plan. Shares made available for sale under the Plan may be authorized but unissued shares, treasury shares of Common Stock, or reacquired shares reserved for issuance under the Plan. All or any portion of such maximum number of shares may be issued under the Section 423 Component.
5.2Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale.
(a)Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under Option, as well as the price per share and the number of shares of Common Stock covered by each Option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of 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 the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.
(b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Offering Periods then in progress shall be shortened by setting a new Exercise Date (the “New Exercise Date”), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date shall be before the date of the Company’s proposed dissolution or liquidation. The Administrator shall notify each Participant in writing prior to the New Exercise Date, that the Exercise Date for the Participant’s Option has been changed to the New Exercise Date and that the Participant’s Option shall be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 6.1 hereof or the Participant has ceased to be an Eligible Employee as provided in Section 6.2 hereof.
1 Note to Draft: To equal [___]% of fully diluted shares outstanding as of the IPO (after giving effect to the number of shares being sold in the IPO, on an as converted basis, and including shares subject to outstanding equity awards and the reserve under this Plan and the 2024 Plan).
2 Note to Draft: To equal 15% of fully diluted shares outstanding as of the IPO (after giving effect to the number of shares being sold in the IPO, on an as converted basis, and including shares subject to outstanding equity awards and the reserve under this Plan and 2024 Plan).
(c)Merger or Asset Sale. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option shall be assumed or an equivalent Option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. If the successor corporation refuses to assume or substitute for the Option, any Offering Periods then in progress shall be shortened by setting a New Exercise Date and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company’s proposed sale or merger. The Administrator shall notify each Participant in writing prior to the New Exercise Date, that the Exercise Date for the Participant’s Option has been changed to the New Exercise Date and that the Participant’s Option shall be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 6.1 hereof or the Participant has ceased to be an Eligible Employee as provided in Section 6.2 hereof.
5.3Insufficient Shares. If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which Options are to be exercised may exceed the number of shares of Common Stock remaining available for sale under the Plan on such Exercise Date, the Administrator shall make a pro rata allocation of the shares of Common Stock available for issuance on such Exercise Date in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants exercising Options to purchase Common Stock on such Exercise Date, and unless additional shares are authorized for issuance under the Plan, no further Offering Periods shall take place and the Plan shall terminate pursuant to Section 7.5 hereof. If an Offering Period is so terminated, then the balance of the amount credited to the Participant’s Plan Account which has not been applied to the purchase of shares of Common Stock shall be paid to such Participant in one lump sum in cash within 30 days after such Exercise Date, without any interest thereon.
5.4Rights as Stockholders. With respect to shares of Common Stock subject to an Option, a Participant shall not be deemed to be a stockholder of the Company and shall not have any of the rights or privileges of a stockholder. A Participant shall have the rights and privileges of a stockholder of the Company when, but not until, shares of Common Stock have been deposited in the designated brokerage account following exercise of the Participant’s Option.
ARTICLE 6
TERMINATION OF PARTICIPATION
6.1Cessation of Contributions; Voluntary Withdrawal.
(a)A Participant may cease payroll deductions during an Offering Period and elect to withdraw from the Plan by delivering written notice of such election to the Company in such form and at such time prior to the Exercise Date for such Offering Period as may be established by the Administrator (a “Withdrawal Election”). A Participant electing to cease payroll deductions and withdraw from the Plan may elect to (i) exercise the Participant’s Option in accordance with Section 4.3 with the funds credited to the Participant’s Plan Account prior to the date on which the Withdrawal Election is given effect (in accordance with the withdrawal procedures established by the Administrator pursuant to this Section 6.1(a)) and after such exercise, shall cease to participate in the Plan and/or (ii) withdraw all of the funds then credited to the Participant’s Plan Account as of the date on which the Withdrawal Election is given effect (in accordance with the withdrawal procedures established by the Administrator pursuant to this Section 6.1(a)), in which case, amounts credited to such Plan Account shall be returned to the Participant in one lump-sum payment in cash within 30 days after such election is received by the Company, without any interest thereon, and the Participant shall cease to participate in the Plan and the Participant’s Option for such Offering Period shall terminate. For clarity, during an Offering
Period, a Participant may elect to withdraw from the Plan pursuant to clause (i) and then subsequently elect to withdraw from the Plan pursuant to clause (ii), but a withdrawal pursuant to clause (ii) shall be final for such Offering Period. Upon receipt of a Withdrawal Election, the Participant’s payroll deduction authorization shall terminate.
(b)A Participant’s withdrawal from the Plan shall not have any effect upon the Participant’s eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the Participant withdraws.
(c)Except as otherwise permitted by the Administrator and/or as set forth in the Offering Document, a Participant who ceases contributions to the Plan during any Offering Period shall not be permitted to resume contributions to the Plan during that Offering Period.
6.2Termination of Eligibility. Subject to Section 7.17, upon a Participant’s ceasing to be an Eligible Employee, for any reason, such Participant’s Option for the applicable Offering Period shall automatically terminate, the Participant shall be deemed to have elected to withdraw from the Plan, and such Participant’s Plan Account shall be paid to such Participant or, in the case of the Participant’s death, to the person or persons entitled thereto pursuant to applicable law, within 30 days after such cessation of being an Eligible Employee, without any interest thereon. If a Participant transfers employment from the Company or any Designated Subsidiary participating in the Section 423 Component to any Designated Subsidiary participating in the Non-Section 423 Component, such transfer shall not be treated as a termination of employment, but the Participant shall immediately cease to participate in the Section 423 Component; however, any contributions made for the Offering Period in which such transfer occurs shall be transferred to the Non-Section 423 Component, and such Participant shall immediately join the then-current Offering under the Non-Section 423 Component upon the same terms and conditions in effect for the Participant’s participation in the Section 423 Component, except for such modifications otherwise applicable for Participants in such Offering. A Participant who transfers employment from any Designated Subsidiary participating in the Non-Section 423 Component to the Company or any Designated Subsidiary participating in the Section 423 Component shall not be treated as terminating the Participant’s employment and shall remain a Participant in the Non-Section 423 Component until the earlier of (i) the end of the current Offering Period under the Non-Section 423 Component, or (ii) the Enrollment Date of the first Offering Period in which the Participant is eligible to participate following such transfer. Notwithstanding the foregoing, the Administrator may establish different rules to govern transfers of employment between companies participating in the Section 423 Component and the Non-Section 423 Component, consistent with the applicable requirements of Section 423 of the Code.
ARTICLE 7
GENERAL PROVISIONS
7.1Administration.
(a)The Plan shall be administered by the Committee, which shall be composed of members of the Board. To the extent permitted under applicable law, the Committee may delegate administrative or other tasks under the Plan to the services of an Agent or Employees to assist in the administration of the Plan, including establishing and maintaining an individual securities account under the Plan for each Participant.
(b)It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with the provisions of the Plan. The Administrator shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i)To establish and terminate Offerings;
(ii)To determine when and how Options shall be granted and the provisions and terms of each Offering (which need not be identical);
(iii)To select Designated Subsidiaries in accordance with Section 7.2 hereof;
(iv)To impose a mandatory holding period pursuant to which Participants may not dispose of or transfer shares of Common Stock purchased under the Plan for a period of time determined by the Administrator in its discretion; and
(v)To construe and interpret the Plan, the terms of any Offering and the terms of the Options and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, any Offering or any Option, in a manner and to the extent it shall deem necessary or expedient to administer the Plan, subject to Section 423 of the Code for the Section 423 Component.
(c)The Administrator may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding handling of participation elections, payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local requirements. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan.
(d)The Administrator may adopt sub-plans applicable to particular Designated Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 5.1 hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.
(e)All expenses and liabilities incurred by the Administrator in connection with the administration of the Plan shall be borne by the Company. The Administrator may, with the approval of the Committee, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Administrator, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon all Participants, the Company and all other interested persons. No member of the Board or Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the options, and all members of the Board or Administrator shall be fully protected by the Company in respect to any such action, determination, or interpretation.
7.2Designation of Subsidiary Corporations. The Board or Administrator shall designate from time to time the Subsidiaries that shall constitute Designated Subsidiaries, and determine whether such Designated Subsidiaries shall participate in the Section 423 Component or Non-Section 423 Component.
The Board or Administrator may designate a Subsidiary, or terminate the designation of a Subsidiary, without the approval of the stockholders of the Company.
7.3Reports. Individual accounts shall be maintained for each Participant in the Plan. Statements of Plan Accounts shall be made available to Participants at least annually, which statements shall set forth the amounts of payroll deductions, the Option Price, the number of shares purchased and the remaining cash balance, if any.
7.4No Right to Employment. Nothing in the Plan shall be construed to give any person (including any Participant) the right to remain in the employ of the Company, a Parent or a Subsidiary or to affect the right of the Company, any Parent or any Subsidiary to terminate the employment of any person (including any Participant) at any time, with or without cause, which right is expressly reserved.
7.5Amendment and Termination of the Plan.
(a)The Board may, in its sole discretion, amend, suspend or terminate the Plan at any time and from time to time. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision), with respect to the Section 423 Component, or any other applicable law, regulation or stock exchange rule, the Company shall obtain stockholder approval of any such amendment to the Plan in such a manner and to such a degree as required by Section 423 of the Code or such other law, regulation or rule.
(b)If the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, to the extent permitted under Section 423 of the Code, for the Section 423 Component, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i)altering the Option Price for any Offering Period including an Offering Period underway at the time of the change in Option Price;
(ii)shortening any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Administrator action; and
(iii)allocating shares of Common Stock.
Such modifications or amendments shall not require stockholder approval or the consent of any Participant.
(c)Upon termination of the Plan, the balance in each Participant’s Plan Account shall be refunded as soon as practicable after such termination, without any interest thereon.
7.6Use of Funds; No Interest Paid. All funds received by the Company by reason of purchase of shares of Common Stock under the Plan shall be included in the general funds of the Company free of any trust or other restriction and may be used for any corporate purpose, except for funds contributed under Offerings in which the local law of a non-U.S. jurisdiction requires that contributions to the Plan by Participants be segregated from the Company’s general corporate funds and/or deposited with an independent third party for Participants in non-U.S. jurisdictions. No interest shall be paid to any Participant or credited under the Plan, except as may be required by local law in a non-U.S. jurisdiction. If the segregation of funds and/or payment of interest on any Participant’s account is so required, such provisions shall apply to all Participants in the relevant Offering except to the extent
otherwise permitted by Treas. Reg § 1.423-2(f). With respect to any Offering under the Non-Section 423 Component, the payment of interest shall apply as determined by the Administrator (but absent any such determination, no interest shall apply).
7.7Term; Approval by Stockholders. No Option may be granted during any period of suspension of the Plan or after termination of the Plan. The Plan shall be submitted for the approval of the Company’s stockholders within 12 months after the date of the Board’s initial adoption of the Plan. Options may be granted prior to such stockholder approval; provided, however, that such Options shall not be exercisable prior to the time when the Plan is approved by the stockholders; provided, further that if such approval has not been obtained by the end of the 12-month period, all Options previously granted under the Plan shall thereupon terminate and be canceled and become null and void without being exercised.
7.8Effect Upon Other Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company, any Parent or any Subsidiary. Nothing in the Plan shall be construed to limit the right of the Company, any Parent or any Subsidiary (a) to establish any other forms of incentives or compensation for Employees of the Company or any Parent or any Subsidiary, or (b) to grant or assume Options otherwise than under the Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association.
7.9Conformity to Securities Laws. Notwithstanding any other provision of the Plan, the Plan and the participation in the Plan by any individual who is then subject to Section 16 of the Exchange Act shall be subject to any additional limitations set forth in any applicable exemption rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
7.10Notice of Disposition of Shares. Each Participant in the Section 423 Component shall give the Company prompt notice of any disposition or other transfer of any shares of Common Stock, acquired pursuant to the exercise of an Option granted under the Section 423 Component, if such disposition or transfer is made (a) within two years after the applicable Grant Date or (b) within one year after the transfer of such shares of Common Stock to such Participant upon exercise of such Option. The Company may direct that any certificates evidencing shares acquired pursuant to the Plan refer to such requirement.
7.11Tax Withholding. The Company or any Parent or any Subsidiary shall be entitled to withhold any federal, state or local tax or other amounts required to be withheld by applicable law with respect to participation in the Plan by (a) withholding from wages or other cash compensation payable to each Participant, (b) withholding from the proceeds of the sale of shares of Common Stock purchased under the Plan, either through a Participant’s voluntary sale or through a mandatory sale arranged by the Company, (c) withholding shares of Common Stock otherwise issuable upon exercise of an Option under the Plan or (d) withholding by any other method determined by the Company and compliant with applicable law. If any withholding obligation described in the foregoing sentence will be satisfied under clause (b) thereof, each Participant’s enrollment in the Plan will constitute the Participant’s authorization to the Company and instruction and authorization to the Agent selected to effect the sale to complete the transactions described in clause (b).
7.12Governing Law. The Plan and all rights and obligations thereunder shall be construed and enforced in accordance with the laws of the State of Delaware, without regard to the conflict of law rules thereof or of any other jurisdiction.
7.13Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
7.14Conditions To Issuance of Shares.
(a)Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing shares of Common Stock pursuant to the exercise of an Option by a Participant, unless and until the Board or the Committee has determined, with advice of counsel, that the issuance of such shares of Common Stock is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any securities exchange or automated quotation system on which the shares of Common Stock are listed or traded, and the shares of Common Stock are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Board or the Committee may require that a Participant make such reasonable covenants, agreements, and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.
(b)All certificates for shares of Common Stock delivered pursuant to the Plan and all shares of Common Stock issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state, or foreign securities or other laws, rules and regulations and the rules of any securities exchange or automated quotation system on which the shares of Common Stock are listed, quoted, or traded. The Committee may place legends on any certificate or book entry evidencing shares of Common Stock to reference restrictions applicable to the shares of Common Stock.
(c)The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Option, including a window-period limitation, as may be imposed in the sole discretion of the Committee.
(d)Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, the Company may, in lieu of delivering to any Participant certificates evidencing shares of Common Stock issued in connection with any Option, record the issuance of shares of Common Stock in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).
7.15Equal Rights and Privileges. All Eligible Employees of the Company (or of any Designated Subsidiary) granted Options pursuant to an Offering under the Section 423 Component shall have equal rights and privileges under this Plan to the extent required under Section 423 of the Code so that the Section 423 Component qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Any provision of the Section 423 Component that is inconsistent with Section 423 of the Code shall, without further act or amendment by the Company or the Board, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code. Eligible Employees participating in the Non-Section 423 Component need not have the same rights and privileges as Eligible Employees participating in the Section 423 Component.
7.16Rules Particular to Specific Jurisdictions. Notwithstanding anything herein to the contrary, the terms and conditions of the Plan with respect to Participants who are tax residents of a particular non-U.S. country or who are foreign nationals or employed in non-U.S. jurisdictions may be subject to an addendum to the Plan in the form of an appendix or sub-plan (which appendix or sub-plan may be designed to govern Offerings under the Section 423 Component or the Non-Section 423 Component, as determined by the Administrator). To the extent that the terms and conditions set forth in an appendix or sub-plan conflict with any provisions of the Plan, the provisions of the appendix or sub-plan shall govern. The adoption of any such appendix or sub-plan shall be pursuant to Section 7.1 above. Without limiting the foregoing, the Administrator is specifically authorized to adopt rules and procedures, regarding the exclusion of particular Subsidiaries from participation in the Plan, eligibility to participate, the definition of Compensation, handling of payroll deductions or other contributions by Participants, payment of interest, conversion of local currency, data privacy security, payroll tax, withholding procedures, establishment of bank or trust accounts to hold payroll deductions or contributions, determination of beneficiary designation requirements, and handling of stock certificates, in each case, in accordance with the requirements of Section 423 of the Code with respect to the Section 423 Component. The Administrator also is authorized to determine that, to the extent permitted by Treas. Reg. § 1.423-2(f), the terms of an Option granted under the Plan or an Offering to citizens or residents of a non-U.S. jurisdiction will be less favorable than the terms of an Option granted under the Plan or the same Offering to Employees resident solely in the United States. To the extent any sub-plan or appendix or other changes approved by the Administrator are inconsistent with the requirements of Section 423 of the Code or would jeopardize the tax-qualified status of the Section 423 Component, the change shall cause the Designated Subsidiaries affected thereby to be considered Designated Subsidiaries in a separate Offering under the Non-Section 423 Component instead of the Section 423 Component. To the extent any Employee of a Designated Subsidiary in the Section 423 Component is a citizen or resident of a foreign jurisdiction (without regard to whether they are also a U.S. citizen or a resident alien (within the meaning of Section 7701(b)(1)(A) of the Code)) and compliance with the laws of the foreign jurisdiction would cause the Section 423 Component, any Offering or the option to violate the requirements of Section 423 of the Code, such Employee shall be considered a Participant in a separate Offering under the Non-Section 423 Component.
Notwithstanding any other provisions of the Plan to the contrary, in non-U.S. jurisdictions where participation in the Plan through payroll deductions is prohibited, the Administrator may provide that an Eligible Employee may elect to participate through contributions to his or her account under the Plan in a form acceptable to the Administrator in lieu of or in addition to payroll deductions; provided, however, that, for any Offering under the Section 423 Component, the Administrator must determine that any alternative method of contribution is applied on an equal and uniform basis to all Eligible Employees in the Offering.
7.17Section 409A. The Section 423 Component of the Plan and the Options granted pursuant to Offerings thereunder are intended to be exempt from the application of Section 409A. Neither the Non-Section 423 Component nor any Option granted pursuant to an Offering thereunder is intended to constitute or provide for “nonqualified deferred compensation” within the meaning of Section 409A. Notwithstanding any provision of the Plan to the contrary, if the Administrator determines that any Option granted under the Plan may be or become subject to Section 409A or that any provision of the Plan may cause an Option granted under the Plan to be or become subject to Section 409A, the Administrator may adopt such amendments to the Plan and/or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions as the Administrator determines are necessary or appropriate to avoid the imposition of taxes under
Section 409A, either through compliance with the requirements of Section 409A or with an available exemption therefrom.
* * * * *
INDEMNIFICATION AND ADVANCEMENT AGREEMENT
This Indemnification and Advancement Agreement (“Agreement”) is effective as of ________ __, 20__ by and between Reddit, Inc., a Delaware corporation (the “Company”), and ______________, [a member of the Board of Directors/an officer/an employee/an agent] of the Company (“Indemnitee”). This Agreement supersedes and replaces any and all previous agreements between the Company and Indemnitee covering indemnification and advancement of expenses.
RECITALS
WHEREAS, the Board of Directors of the Company (the “Board”) believes that 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 and advancement of expenses 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 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 Company’s Bylaws and the Certificate of Incorporation as now or hereafter in effect 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 (the “DGCL”). The Bylaws, the 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 its directors, officers, and other persons with respect to indemnification and advancement of expenses;
WHEREAS, the uncertainties relating to such insurance, to indemnification, and to advancement of expenses may increase 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 and its stockholders 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, the Certificate of Incorporation, and any resolutions adopted pursuant thereto, as well as any rights of Indemnitee under any directors’ and officers’ liability insurance policy, and is not a substitute therefor, and does not diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee does not regard the protection available under the Bylaws, the Certificate of Incorporation, and available insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as [a director/an officer/an employee/an agent] without adequate additional protection, and the Company desires Indemnitee to serve or continue 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 Indemnitee be so indemnified and be advanced expenses.
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1.Services to the Company. Indemnitee agrees to serve as [a director/an officer/an employee/an agent] of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law). This Agreement does not create any obligation on the Company to continue Indemnitee in such position and is not an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.
Section 2.Definitions. As used in this Agreement:
(a)“Agent” means any person who is authorized by the Company or an Enterprise to act for or represent the interests of the Company or an Enterprise, respectively.
(b)A “Change in Control” occurs upon the earliest to occur after the date of this Agreement of any of the following events:
i.Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then-outstanding securities unless the change in relative beneficial ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors;
ii.Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii), or 2(b)(iv) of this Agreement) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;
iii.Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;
iv.Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and
v.Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.
vi.For purposes of this Section 2(b), the following terms have the following meanings:
1)“Beneficial Owner” has the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner excludes any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
2)“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
3)“Person” has the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person excludes (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any entity owned, directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
(c) “Corporate Status” describes the status of a person who is or was acting as a director, officer, employee, or Agent of the Company or an Enterprise.
(d)“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.
(e)“Enterprise” means any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan, or other entity for which Indemnitee is or was serving at the request of the Company as a director, officer, employee, or Agent.
(f)“Expenses” includes all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees and other costs of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local, or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements, obligations, or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including, without limitation, the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 14(d) of this Agreement only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement, or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. The parties agree that for the purposes of any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable in the good faith judgment of such counsel will be presumed conclusively to be reasonable. Expenses, however, do not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(g)“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 the 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” does 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 and expenses of the Independent Counsel.
(h)“Potential Change in Control” means the occurrence of any of the following events: (i) the Company enters into any written or oral agreement, undertaking, or
arrangement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person or the Company publicly announces an intention to take or consider taking actions which if consummated would constitute a Change in Control; (iii) any Person who becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 5% or more of the combined voting power of the Company’s then-outstanding securities entitled to vote generally in the election of directors increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such Person on the date hereof; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(i) “Proceeding” includes any threatened, pending, or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, or any other actual, threatened, or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is, or will be involved as a party, potential party, non-party witness, or otherwise by reason of Indemnitee’s Corporate Status or by reason of any action taken by Indemnitee (or a failure to take action by Indemnitee) or of any action (or failure to act) on Indemnitee’s part while acting pursuant to Indemnitee’s Corporate Status, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement. A Proceeding also includes a situation the Indemnitee believes in good faith may lead to or culminate in the institution of a Proceeding.
Section 3.Indemnity in Third-Party Proceedings. The Company will indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, the Company will indemnify Indemnitee to the fullest extent permitted by applicable law against all Expenses, judgments, fines, and amounts paid in settlement (including all interest, assessments, and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue, or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that Indemnitee’s conduct was unlawful.
Section 4.Indemnity in Proceedings by or in the Right of the Company. The Company will indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, the Company will indemnify Indemnitee to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue, or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company. The Company will not indemnify Indemnitee for Expenses under this Section 4 related to any claim, issue, or matter in a Proceeding for which Indemnitee has been finally adjudged by a court to be liable to the Company, unless, and only to the extent that, the Court of Chancery of the State of Delaware (the “Delaware Court”) or any court in which the Proceeding was brought determines upon application by Indemnitee that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.
Section 5.Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the fullest extent permitted by applicable law, the Company will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee in connection with any Proceeding to the extent that Indemnitee is successful, on the merits or otherwise. 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 will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law. For purposes of this Section 5 and without limitation, the termination of any claim, issue, or matter in such a Proceeding by dismissal, with or without prejudice, will be deemed to be a successful result as to such claim, issue, or matter.
Section 6.Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law, the Company will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any Proceeding to which Indemnitee is not a party but to which Indemnitee is a witness, deponent, interviewee, or otherwise asked to participate or provide information.
Section 7.Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company will indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Section 8.Additional Indemnification. Notwithstanding any limitation in Sections 3, 4, or 5 of this Agreement, the Company will indemnify Indemnitee to the fullest extent permitted by applicable law (including, but not limited to, the DGCL and any amendments to or replacements of the DGCL adopted after the date of this Agreement that expand the Company’s ability to indemnify its directors, officers, employees, or Agents) if Indemnitee is a party to, or threatened to be made a party to, any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor).
Section 9.Exclusions. Notwithstanding any provision in this Agreement, the Company is not obligated under this Agreement to indemnify Indemnitee for:
(a) any amount actually paid to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except to the extent provided in Section 16(b) of
the Exchange Act and except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision;
(b)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 Exchange Act or similar provisions of state statutory law or common law;
(c)reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act);
(d)reimbursement of the Company by Indemnitee of any compensation pursuant to any compensation recoupment or clawback policy adopted by the Board or the compensation committee of the Board, including, but not limited to, any such policy adopted to comply with stock exchange listing requirements implementing Section 10D of the Exchange Act; or
(e)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 Proceeding or part of any Proceeding is to enforce Indemnitee’s rights to indemnification or advancement, of Expenses, including a Proceeding (or any part of any Proceeding) initiated pursuant to Section 14 of this Agreement, (ii) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, or (iii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.
Section 10.Advances of Expenses.
(a)The Company will advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding) not initiated by Indemnitee or any Proceeding (or any part of any Proceeding) initiated by Indemnitee if (i) the Proceeding or part of any Proceeding is to enforce Indemnitee’s rights to obtain indemnification or advancement of Expenses from the Company or Enterprise, including a proceeding initiated pursuant to Section 14 of this Agreement or (ii) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation.
(b)The Company will advance the Expenses within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding eligible for advancement of expenses.
(c)Advances will be unsecured and interest free. Indemnitee hereby undertakes to repay any amounts so advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, thus Indemnitee qualifies for advances upon the execution of this Agreement and delivery to the Company. No other form of undertaking is required other than the execution of this Agreement. The Company will make advances without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. The right to advances under this Section 10 shall in all events continue until final disposition of any Proceeding, including any appeal therein.
Section 11.Procedure for Notification of Claim for Indemnification or Advancement.
(a)Indemnitee will notify the Company in writing of any Proceeding with respect to which Indemnitee intends to seek indemnification or advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. Indemnitee will include in the written notification to the Company a description of the nature of the Proceeding and the facts underlying the Proceeding and provide 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 following the final disposition of such Proceeding. Indemnitee’s failure to notify the Company will not relieve the Company from any obligation it may have to Indemnitee under this Agreement, and any delay in so notifying the Company will not constitute a waiver by Indemnitee of any rights under this Agreement. The Secretary of the Company will, promptly upon receipt of such a request for indemnification or advancement, advise the Board in writing that Indemnitee has requested indemnification or advancement.
(b)The Company will be entitled to participate in the Proceeding at its own expense.
Section 12.Procedure Upon Application for Indemnification.
(a)Unless a Change of Control has occurred, the determination of Indemnitee’s entitlement to indemnification will be made:
i.by a majority vote of the Disinterested Directors, even though less than a quorum of the Board;
ii.by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board;
iii. if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by written opinion provided by Independent Counsel selected by the Board; or
iv.if so directed by the Board, by the stockholders of the Company.
(b)If a Change in Control has occurred, the determination of Indemnitee’s entitlement to indemnification will be made by written opinion provided by Independent Counsel selected by Indemnitee (unless Indemnitee requests such selection be made by the Board).
(c) The party selecting Independent Counsel pursuant to subsection (a)(iii) or (b) of this Section 12 will provide written notice of the selection to the other party. The notified party may, within ten (10) days after receiving written notice of the selection of Independent Counsel, deliver to the selecting party 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 2 of this Agreement, and the objection will set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected will act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within thirty (30) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) of this Agreement and (ii) the final disposition of the Proceeding, Independent Counsel has not been selected or, if selected, any objection to such selection has not been resolved, either the Company or Indemnitee may petition the Delaware Court for resolution of any objection made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such court designates. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel will be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(d)Indemnitee will cooperate with the person, persons, or entity making the 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. The Company will advance and pay any Expenses incurred by Indemnitee in so cooperating with the person, persons, or entity making the indemnification determination irrespective of the determination as to Indemnitee’s entitlement to indemnification and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company promptly will advise Indemnitee in writing of the determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied and providing a copy of any written opinion provided to the Board by Independent Counsel.
(e)If it is determined that Indemnitee is entitled to indemnification, the Company will make payment to Indemnitee within thirty (30) days after such determination.
Section 13.Presumptions and Effect of Certain Proceedings.
(a)In making a determination with respect to entitlement to indemnification under this Agreement, the person, persons, or entity making such determination will, to the fullest extent not prohibited by law, presume Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(a) of this Agreement, and the Company will, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper under the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, will be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b)If the determination of the Indemnitee’s entitlement to indemnification has not been made pursuant to Section 12 of this Agreement within sixty (60) days after the later of (i) receipt by the Company of Indemnitee’s request for indemnification pursuant to Section 11(a) of this Agreement and (ii) the final disposition of the Proceeding for which Indemnitee requested Indemnification (the “Determination Period”), the requisite determination of entitlement to indemnification will, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee will 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. The Determination Period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons, or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, the Determination Period will not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 12(a)(iv) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (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, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel.
(c)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, will 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 Indemnitee 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 Indemnitee’s conduct was unlawful.
(d)For purposes of any determination of good faith, Indemnitee will be deemed to have acted in good faith if Indemnitee acted based on (i) the records or books of account of the Company, its subsidiaries, or an Enterprise, including financial statements, (ii) information supplied to Indemnitee by the directors or officers of the Company, its subsidiaries, or an Enterprise in the course of their duties, (iii) the advice of legal counsel for the Company, its subsidiaries, or an Enterprise, or (iv) information or records given or reports made to the Company or an Enterprise by an independent certified public accountant or by an appraiser, financial advisor, or other expert selected with reasonable care by or on behalf of the Company, its subsidiaries, or an Enterprise. Further, Indemnitee will be deemed to have acted in a manner “not opposed to the best interests of the Company,” as referred to in this Agreement, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan. The provisions of this Section 13(d) are not exclusive and do not limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.
(e)The knowledge and/or actions, or failure to act, of any other person affiliated with the Company or an Enterprise (including, but not limited to, a director, officer, trustee, partner, managing member, fiduciary, agent, or employee) may not be imputed to Indemnitee for purposes of determining Indemnitee’s right to indemnification under this Agreement.
Section 14.Remedies of Indemnitee.
(a)Indemnitee may commence litigation against the Company in the Delaware Court to obtain indemnification or advancement of Expenses provided by this Agreement in the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) the Company does not advance Expenses pursuant to Section 10 of this Agreement, (iii) the determination of entitlement to indemnification is not made pursuant to Section 12 of this Agreement within the Determination Period, (iv) the Company does not indemnify Indemnitee pursuant to Section 5 or 6 or the second to last sentence of Section 12(d) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor, (v) the Company does not indemnify Indemnitee pursuant to Section 3, 4, 7, or 8 of this Agreement within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder. Alternatively, Indemnitee, at Indemnitee’s option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee must commence such Proceeding seeking an adjudication or an award in arbitration within one hundred eighty (180)
days following the date on which Indemnitee first has the right to commence such Proceeding pursuant to this Section 14(a); provided, however, that the foregoing clause does not apply in respect of a Proceeding brought by Indemnitee to enforce Indemnitee’s rights under Section 5 of this Agreement. The Company will not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b)If a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 will be conducted in all respects as a de novo trial or arbitration on the merits and Indemnitee may not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14, the Company will have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and will not introduce evidence of the determination made pursuant to Section 12 of this Agreement.
(c)If a determination is made pursuant to Section 12 of this Agreement that Indemnitee is entitled to indemnification, the Company will be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14 unless (i) Indemnitee made a misstatement of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with Indemnitee’s request for indemnification, or (ii) the Company is prohibited from indemnifying Indemnitee under applicable law.
(d)The Company is, to the fullest extent not prohibited by law, precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding, or enforceable and will stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(e)It is the intent of the Company that, to the fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement, or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise, because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee under this Agreement. The Company, to the fullest extent permitted by law, will (within thirty (30) days after receipt by the Company of a written request therefor) advance to Indemnitee such Expenses which are incurred by Indemnitee in connection with a Proceeding concerning this Agreement, Indemnitee’s other rights to indemnification or advancement of Expenses from the Company, or concerning any directors’ and officers’ liability insurance policies maintained by the Company, and will indemnify Indemnitee against any and all such Expenses unless the court determines that Indemnitee’s claims in such Proceeding were made in bad faith or frivolous, or that the Company is prohibited by law from indemnifying Indemnitee for such Expenses.
Section 15.Non-exclusivity; Survival of Rights; Insurance; Subrogation.
(a)The indemnification and advancement of Expenses provided by this Agreement are not exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Bylaws, the Certificate of Incorporation, any agreement, a vote of stockholders or a resolution of the Board, or otherwise. The indemnification and advancement of Expenses provided by this Agreement may not be limited or restricted by any amendment, alteration, or repeal of this Agreement in any way with respect to any action taken or omitted by Indemnitee in Indemnitee’s Corporate Status occurring prior to any amendment, alteration, or repeal of this Agreement. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Bylaws, the Certificate of Incorporation, or this Agreement, it is the intent of the parties hereto that Indemnitee 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 is 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, will not prevent the concurrent assertion or employment of any other right or remedy.
(b)The Company hereby acknowledges that Indemnitee may have certain rights to indemnification, advancement of Expenses, and/or insurance provided by one or more Persons with whom or which Indemnitee may be associated [(including, without limitation, [Fund] and certain of its affiliates, collectively, the “Fund Indemnitors”)]. The relationship between the Company and such other Persons, other than an Enterprise, with respect to Indemnitee’s rights to indemnification, advancement of Expenses, and insurance is described by this subsection, subject to the provisions of subsection (d) of this Section 16 with respect to a Proceeding concerning Indemnitee’s Corporate Status with an Enterprise.
i.The Company hereby acknowledges and agrees:
1)the Company’s obligations to Indemnitee are primary and any obligation of any other Persons, other than an Enterprise, are secondary (i.e., the Company is the indemnitor of first resort with respect to any request for indemnification or advancement of Expenses made pursuant to this Agreement concerning any Proceeding arising from or related to Indemnitee’s Corporate Status with the Company;
2) the Company is primarily liable for all indemnification or advancement of Expenses obligations for any Proceeding arising from or related to Indemnitee’s Corporate Status, whether created by law, the Bylaws, the Certificate of Incorporation, contract (including this Agreement), or otherwise;
3)any obligation of any other Persons with whom or which Indemnitee may be associated [(including, without limitation, any Fund Indemnitor)] to indemnify Indemnitee and/or advance Expenses to Indemnitee in respect of any proceeding are secondary to the Company’s obligations;
4)the Company will indemnify Indemnitee and advance Expenses to Indemnitee hereunder to the fullest extent provided herein without regard to any rights Indemnitee may have against any other Person with whom or which Indemnitee may be associated [(including any Fund Indemnitor)] or an insurer of any such Person; and
ii.the Company irrevocably waives, relinquishes, and releases [(A)] any other Person with whom or which Indemnitee may be associated (including, without limitation, any Fund Indemnitor) from any claim of contribution, subrogation, reimbursement, exoneration, or indemnification, or any other recovery of any kind in respect of amounts paid by the Company to Indemnitee pursuant to this Agreement[ and (B) any right to participate in any claim or remedy of Indemnitee against any Person (including, without limitation, any Fund Indemnitor (or former Fund Indemnitor)], whether or not such claim, remedy, or right arises in equity or under contract, statute, or common law[, including, without limitation, the right to take or receive from any Person (including, without limitation, any Fund Indemnitor (or former Fund Indemnitor), directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy, or right].
iii.In the event any other Person with whom or which Indemnitee may be associated [(including, without limitation, any Fund Indemnitor)] or their insurers advances or extinguishes any liability or loss for Indemnitee, the payor has a right of subrogation against the Company or its insurers for all amounts so paid which would otherwise be payable by the Company or its insurers under this Agreement. In no event will payment by any other Person with whom or which Indemnitee may be associated [(including, without limitation, any Fund Indemnitor)] or their insurers affect the obligations of the Company hereunder or shift primary liability for the Company’s obligation to indemnify or advance Expenses to any other Person with whom or which Indemnitee may be associated [(including, without limitation, any Fund Indemnitor)].
iv.Any indemnification or advancement of Expenses provided by any other Person with whom or which Indemnitee may be associated [(including, without limitation, any Fund Indemnitor)] is specifically in excess over the Company’s obligation to indemnify and advance Expenses or any valid and collectible insurance (including, but not limited to, any malpractice insurance or professional errors and omissions insurance) provided by the Company.
(c)To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or Agents of the Company, the Company will obtain a policy or policies covering Indemnitee to the maximum extent of the coverage available for any such director, officer, employee, or Agent under such policy or policies, including coverage in the event the Company does not or cannot, for any reason, indemnify or advance Expenses to Indemnitee as required by this Agreement. If, at the time of the receipt of a notice of a claim pursuant to this Agreement, the Company has directors’ and officers’ liability insurance in effect, the Company will give prompt notice of such claim or of the commencement of a Proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. The Company will thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a
result of such Proceeding in accordance with the terms of such policies. Indemnitee agrees to assist the Company’s efforts to cause the insurers to pay such amounts and will comply with the terms of such policies, including selection of approved panel counsel, if required.
(d)The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee for any Proceeding concerning Indemnitee’s Corporate Status with an Enterprise will be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from such Enterprise. The Company and Indemnitee intend that any such Enterprise (and its insurers) be the indemnitor of first resort with respect to indemnification and advancement of Expenses for any Proceeding related to or arising from Indemnitee’s Corporate Status with such Enterprise. The Company’s obligation to indemnify and advance Expenses to Indemnitee is secondary to the obligations the Enterprise or its insurers owe to Indemnitee. Indemnitee agrees to take all reasonably necessary and desirable action to obtain from an Enterprise indemnification and advancement of Expenses for any Proceeding related to or arising from Indemnitee’s Corporate Status with such Enterprise.
(e)In the event of any payment made by the Company under this Agreement, the Company will be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee from any Enterprise or its insurance carrier. Indemnitee will 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.
Section 16.Duration of Agreement. The indemnification and advancement of Expenses rights provided by or granted pursuant to this Agreement are (i) binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business or assets of the Company), (ii) continue as to an Indemnitee who has ceased to be a director, officer, employee, or Agent of the Company or of any other Enterprise, and (iii) inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors, and administrators, and other legal representatives.
Section 17.Severability. If any provision or provisions of this Agreement is held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality, and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal, or unenforceable, that is not itself invalid, illegal, or unenforceable) will not in any way be affected or impaired thereby and will remain enforceable to the fullest extent permitted by law; (b) such provision or provisions will be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal, or unenforceable, that is not itself invalid, illegal, or unenforceable) will be construed so as to give effect to the intent manifested thereby.
Section 18.Interpretation. Any ambiguity in the terms of this Agreement will be resolved in favor of Indemnitee and in a manner to provide the maximum indemnification and
advancement of Expenses permitted by law. The Company and Indemnitee intend that this Agreement provide to the fullest extent permitted by law for indemnification and advancement of Expenses in excess of that expressly provided, without limitation, by the Bylaws, the Certificate of Incorporation, vote of the Company’s stockholders or Disinterested Directors, or applicable law.
Section 19.Enforcement.
(a)The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director, officer, employee, or Agent of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director, officer, employee, or Agent 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; provided, however, that this Agreement is a supplement to and in furtherance of the Bylaws, the Certificate of Incorporation, any directors’ and officers’ liability insurance maintained by the Company, and applicable law, is not a substitute therefor, and does not diminish or abrogate any rights of Indemnitee thereunder.
Section 20.Modification and Waiver. No supplement, modification, or amendment of this Agreement is binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement will be deemed to constitute a waiver of any other provision of this Agreement nor will any waiver constitute a continuing waiver.
Section 21.Notice by Indemnitee. Indemnitee agrees to promptly notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information, or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company does not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.
Section 22.Notices. All notices, requests, demands, and other communications under this Agreement will be in writing and will be deemed to have been duly given if (a) delivered by hand to the other party, (b) sent by reputable overnight courier to the other party, or (c) sent by facsimile transmission or electronic mail, with receipt of oral confirmation that such communication has been received:
(a)If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee provides to the Company.
(b)If to the Company to:
| | | | | |
| Name: | Reddit, Inc. |
| Address: | 303 2nd Street, South Tower, 5th Floor |
| San Francisco, California 94107 |
| Attention: | Chief Legal Officer |
| Email: | ### |
or to any other address as may have been furnished to Indemnitee by the Company.
Section 23.Contribution. 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, will 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 (a) 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 (b) 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).
Section 24.Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties are governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (a) agree that any action, claim, or proceeding between the parties arising out of or in connection with this Agreement may be brought only in 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, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action, claim, or proceeding arising out of or in connection with this Agreement, (c) waive any objection to the laying of venue of any such action, claim, or proceeding in the Delaware Court, and (d) waive, and agree not to plead or to make, any claim that any such action, claim, or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 25.Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which will for all purposes be deemed to be an original but all of which together constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 26.Headings. The headings of this Agreement are inserted for convenience only and do not constitute part of this Agreement or affect the construction thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
| | | | | | | | | | | | | | | | | |
| REDDIT, INC. | | INDEMNITEE | |
| | | | | |
| By: | | | | |
| Name: | | Name: | |
| Office: | | Address: | |
[Signature Page to Indemnification Agreement]
Subsidiaries of Reddit, Inc.*
| | | | | |
| Name of Subsidiary | Jurisdiction of Incorporation or Organization |
| Reddit Australia Pty Ltd | Australia |
| Reddit Canada Limited | Canada |
| Reddit Ireland Limited | Ireland |
| Reddit Netherlands B.V. | Netherlands |
| Reddit UK Limited | United Kingdom |
| Dubsmash Inc. | Delaware |
| Reddit Germany GmbH | Germany |
| Reddit Iberia S.L. | Spain |
| Spell, LLC | Delaware |
| Reddit SG Pte. Ltd. | Singapore |
| Reddit Sub Holding Company, Inc. | Delaware |
| Reddit Portugal, Unipessoal LDA | Portugal |
| Reddit France SAS | France |
| Spiketrap Inc. | Delaware |
| Reddit Community Network Mexico, S. DE R.L. DE C.V. | Mexico |
| Reddit Rede de Comunidades do Brasil Ltda. | Brazil |
* Includes subsidiaries that do not fall under the definition of “significant subsidiary” as defined under Rule 1-02(w) of Regulation S-X.
Exhibit 23.1
| | | | | |
| |
| KPMG LLP Suite 1400 55 Second Street San Francisco, CA 94105 |
Consent of Independent Registered Public Accounting Firm
We consent to the use of our report dated February 5, 2024, with respect to the consolidated financial statements of Reddit, Inc., included herein, and to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
San Francisco, California
February 22, 2024
| | |
KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. |
CONSENT OF DIRECTOR NOMINEE
In connection with the filing by Reddit, Inc. (the “Company”) of the Registration Statement on Form S-1, and in all subsequent amendments and post-effective amendments or supplements thereto, with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of the Company in the Registration Statement and any and all amendments and supplements thereto. I also consent to the filing of this consent as an exhibit to the Registration Statement and any amendments thereto.
Dated: February 20, 2024
| | |
| /s/ Steven O. Newhouse |
Name: Steven O. Newhouse |
