UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-K
____________________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
Delaware
(State or other jurisdiction of
incorporation or organization)
Commission File Number: 001-38897
____________________________
FASTLY, INC.
(Exact name of registrant as specified in its charter)
____________________________
475 Brannan Street, Suite 300
San Francisco, CA 94107
(Address of principal executive offices) (Zip code)
(844) 432-7859
(Registrant's telephone number, including area code)
27-5411834
(I.R.S. Employer
Identification Number)
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
(Former name, former address, or former fiscal year, if changed since last report)
____________________________
Title of each class
Class A Common Stock, $0.00002 par value
Trading Symbol(s)
FSLY
Name of each exchange on which registered
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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.
Large accelerated filer
Non-accelerated filer
☒
☐
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 13(a) of the Exchange Act. ☐
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price of $85.13 for a share of the Registrant’s Class A
common stock on June 30, 2020 (the last business day of the registrant's most recently completed second quarter), as reported by the New York Stock Exchange on such date, was approximately
$6.7 billion.
As of February 12, 2021, 104.3 million shares of the registrants’ Class A common stock were outstanding and 10.3 million shares of registrant's Class B common stock were outstanding.
Portions of the registrant’s Definitive Proxy Statement relating to the 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K
where indicated. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31,
2020.
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Item 1B.
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Item 7A.
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Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
Part I
Part II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Consolidated Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Part III
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Part IV
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about us and our industry that involve substantial
risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of
operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases,
forward-looking statements may be identified by words such as "anticipate," "believe," "continue," "could," "design," "estimate," "expect," "intend," "may," "plan,"
"potentially," "predict," "project," "should," "will," or the negative of these terms or other similar expressions.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking
statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and
elsewhere in this Annual Report on Form 10-K, regarding, amongst other things:
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our ability to attract and retain customers;
our ability to increase the usage of our platform by existing customers;
defects, interruptions, security breaches, delays in performance, or similar problems with our platform;
the potential impact of the ongoing COVID-19 pandemic on our business, operations, and the markets and communities in which we, our partners,
and our customers operate;
our financial performance, including our revenue, cost of revenue, operating expenses, and our ability to attain and sustain profitability;
our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing
customer needs, requirements, or preferences;
the growth of our relevant markets;
our platform’s functionality, scalability, performance, ease of use, reliability, and cost effectiveness relative to that of our competitors’ products and
services;
our ability to compete effectively with existing competitors and new market entrants;
our ability to attract and retain qualified employees and key personnel;
our ability to maintain, protect, and enhance our intellectual property;
our ability to comply with existing laws and regulations that currently apply or may become applicable to our business both in the United States and
internationally; and
challenges that we may face as we integrate the business and operations of Signal Sciences Corporation ("Signal Sciences"), a security technology
company that we acquired on October 1, 2020.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
Other sections of this Annual Report on Form 10-K may include additional factors that could harm our business and financial performance. Moreover, we
operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict
all risk factors nor can we assess the impact of all factors
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on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-
looking statements.
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in
the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should
read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed as exhibits to this report with the
understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of
our forward-looking statements by these cautionary statements.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website
(www.investors.fastly.com), our filings with the Securities and Exchange Commission, webcasts, press releases, and conference calls. We use these mediums,
including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information
that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to
review the information that we make available on our website.
Overview
PART I
Developers are reinventing the way we live, work, and play online. Yet they repeatedly encounter innovation barriers when delivering modern digital
experiences. Expectations for digital experiences are at an all-time high; they must be fast, secure, and highly personalized. If they aren’t reliable, end-users simply
take their business elsewhere. The challenge today is enabling developers to deliver a modern digital experience while simultaneously providing scale, security,
and performance. We built our edge cloud platform to solve this problem.
The edge cloud is an emerging category of Infrastructure as a Service ("IaaS") that enables developers to build, secure, and deliver digital experiences, at the
edge of the internet. This service represents the convergence of the Content Delivery Network ("CDN") with functionality that has been traditionally delivered by
hardware-centric appliances such as Application Delivery Controllers ("ADC"), Web Application Firewalls ("WAF"), Bot Detection, and Distributed Denial of
Service ("DDoS") solutions. It also includes the emergence of a new, but growing, edge computing market which aims to move compute power and logic as close
to the end-user as possible. The edge cloud uses the emerging cloud computing, serverless paradigm in which the cloud provider runs the server and dynamically
manages the allocation of machine resources. When milliseconds matter, processing at the edge is an ideal way to handle highly dynamic and time-sensitive data.
The edge cloud complements data center, central cloud, and hybrid solutions.
Our mission is to fuel the next modern digital experience by providing developers with a programmable and reliable edge cloud platform that they adopt as
their own.
Organizations must keep up with complex and ever-evolving end-user requirements. We help them surpass their end-users’ expectations by powering fast,
secure, and scalable digital experiences. We built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software
development. We believe our platform gives our customers a significant competitive advantage, whether they were born into the digital age or are just embarking
on their digital transformation journey. Our platform consists of four key components: a programmable edge, a software-defined modern network, safety in depth,
and a philosophy of customer empowerment. Our programmable edge provides developers with real-time visibility and control, where they can write and deploy
code in a serverless environment and to push application logic to the edge. It supports modern application delivery processes, freeing developers to innovate
without constraints. Our software-defined modern network is built for the software-defined future. It is powerful, efficient, and flexible, designed to enable us to
rapidly scale to meet the needs of the most demanding customers and never be a barrier to their growth. Our 117 terabit software-centric network is located across
56 markets as of December 31, 2020. We define markets as unique metropolitan
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areas where we have one or more Points of Presence ("POPs"). Our safety in depth approach integrates security into multiple layers of development: architecture,
engineering, and operations. That's why we invest in building security into the fabric of our platform, alongside performance. We provide developers and security
operations teams with a fast, safe environment to create, build, and run modern applications.
Our platform provides developers and security operations teams with solutions that foster innovation without impacting performance. Finally, being
developers ourselves, we empower customers to build great things while supporting their efforts through frictionless tools and a deeply technical support team that
facilitates ongoing collaboration.
We serve both established enterprises, mid-market companies and technology-savvy organizations. Our customers represent a diverse set of organizations
across many industries with one thing in common: they are competing by using the power of software to build differentiation at the edge. With our edge cloud
platform, our customers are disrupting existing industries and creating new ones. For example, several of our customers have reinvented digital publishing by
connecting readers through subscription models to indispensable content, helping people understand the world through deeply reported independent journalism.
Our customers’ software applications use our edge cloud platform to deliver consistently excellent online shopping experiences, fast and more secure financial
transactions, and broadcast quality live streaming on any device. The range of applications that developers build with our edge cloud platform continues to expand
rapidly.
So where do we go from here? Our vision is to create a trustworthy internet, where good thrives. We want all developers to have the ability to deliver the
next transformative digital experience on a global scale. And because big ideas often start small, we love it when developers experiment and iterate on our edge
cloud platform, coming up with exciting new ways to solve today’s complex problems.
Our usage-based revenue grows as our customers’ websites and applications deliver, process, and protect more traffic, as they adopt more features of our
edge platform and as they more broadly adopt our platform across their organizations. A meaningful indicator of the increased activity from our existing customers
is our Dollar-Based Net Expansion Rate ("DBNER"), Net Retention Rate ("NRR") and Last-Twelve Months Net Retention Rate ("LTM NRR"), metrics used in
measuring the revenue growth from existing customers attributed to increased usage of our platform and purchase of additional services. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics" for further discussion of DBNER, NRR and LTM NRR.
The financial results of Signal Sciences have been consolidated into our financial results for the year ended and the quarter ended December 31, 2020. We
have excluded Signal Sciences from certain key metrics this quarter, including DBNER, NRR and LTM NRR. We intend to begin reporting these key metrics on a
consolidated basis later on in 2021. Excluding Signal Sciences, our DBNER was 142.9% and 135.5% for the years ended December 31, 2020 and December 31,
2019, respectively. Excluding Signal Sciences, our NRR was 114.5% and 143.7% for the years ended December 31, 2020 and December 31, 2019, respectively.
Excluding Signal Sciences, our LTM NRR was 136.5% and 131.6% for the years ended December 31, 2020 and December 31, 2019, respectively. We believe the
LTM NRR is supplemental as it removes some of the volatility inherent in a usage-based business model from the measurement of the NRR metric.
We have achieved significant growth in recent periods. For the years ended December 31, 2020, December 31, 2019, and December 31, 2018, our revenue
was $290.9 million, $200.5 million, and $144.6 million, respectively. We incurred a net loss of $95.9 million, $51.6 million, and $30.9 million for the years ended
December 31, 2020, December 31, 2019, and December 31, 2018, respectively.
Our Solution: Fastly's Edge Cloud Platform
We have built a powerful, serverless edge cloud platform, designed from the ground up to be programmable and support agile software development. We
process, serve, and secure our customers’ applications as close to their end-users as possible, at the edge of the internet for enhanced performance and protection.
We believe our platform gives our customers a significant competitive advantage whether they are just embarking on their digital transformation journey or
natively born into the new digital age.
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Our edge cloud platform is based on several core tenets:
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Developers must be empowered to innovate;
Platforms must innovate ahead of market demands while still being reliable, scalable, and secure;
Security should be developer-friendly, easy-to-use and available wherever you need it; and
Vendors must provide exceptional flexibility and support.
With this in mind, our platform, consists of four key components: a programmable edge, a software-defined modern network, safety in depth, and a
philosophy of customer empowerment.
Programmable Edge
Our programmable edge sits in an extremely privileged position, between our customers’ applications and their end-users, placing our services closer to
those users. It is composed of our highly configurable cache layer, our Varnish-based development environment, and our new serverless compute environment. It is
designed to create a space for developers to innovate at their own pace, by providing:
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Full programmability. Our powerful platform allows developers to write and deploy their custom code to push application logic to the edge.
We believe that logic like A/B testing, URL redirects, paywall authentication, and location/language customization can all be delivered
faster and more efficiently at the edge;
Reusable modules. Our platform includes reusable modules based on commonly deployed custom code examples. We package and add
these reusable modules to our platform, which requires less developer experience to implement;
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Real-time visibility and control. Our edge cloud platform is designed with instant visibility and control as a core tenet. We stream log data
from our network edge in real time so developers can instantly see the impact of new code in production, troubleshoot issues as they occur
and rapidly identify suspicious traffic. We also empower developers to make and roll back their own configuration or code changes on the
fly;
Agile development. Developers can build Fastly into their technology stack to power continuous integration and continuous deployment
(“CI/CD”) efforts. They can use our edge cloud platform to help push new code to production multiple times a day as they test new features,
fix bugs, or enhance existing offerings. Fastly also supports DevSecOps efforts, allowing developers to introduce automated security
controls early in the application development cycle, thus minimizing vulnerabilities and eliminating costly rework further down the line; and
Serverless compute environment. With our new serverless compute environment, developers can build even more complex use cases on our
edge cloud platform, without having to worry about the underlying infrastructure. Built on WebAssembly, a new type of code that can be
run in modern web browsers and extends the web platform to support complied languages like C, C++, Rust Go and more, rather than
existing technologies like re-usable containers, it empowers developers to write code in their preferred language and run it anywhere at
near-native speeds.
Edge Use Cases
Below are some examples of use cases our customers have solved for using Fastly’s programmable edge:
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API acceleration. Accelerate and secure critical application programming interface (“API") responses at the edge for delightful application
experiences, such as instant hotel lookup based on location and real-time inventory updates between retail stores and their online storefronts;
Internet of things ("IoT"). Process and secure data from connected devices at the edge for instant results for time-sensitive applications;
Cloud migration. Seamlessly migrate from data center to cloud, hybrid or multi-cloud environments, enabling customers to take advantage
of the functionality and cost savings of one or more cloud providers; and
Enabling blockchain. Cache and accelerate individual transactions on the blockchain in real time.
Software-Defined Modern Network
Our edge cloud platform is designed to take advantage of the modern internet. Our philosophy has been to differentiate through software by building one
powerful software-centric network composed of unique and proprietary components. Our approach is designed to give us the flexibility to innovate and build so we
will never be a barrier to our customers’ growth, and consists of the following key elements:
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Software-centric approach at global scale. From the start, we realized that single purpose hardware-based solutions that rely on custom-
designed chips are inflexible. Custom hardware, like routers, load balancers, and security appliances, do not have the flexibility to support
the dynamic needs of the modern internet. We started with open source software like Varnish and Linux, then rewrote it to support the use
cases of a multi-tenant, high-performance edge cloud. We created our own proprietary software-defined networking stack with built-in
routing and load balancing, a storage system for optimal storage usage and performance, a massive data pipeline to send customer logs, a
cache invalidation system that purges content around the world in an average of 150 milliseconds or less, and a proprietary control panel
that allows our customers to update their edge application logic and configurations in seconds around the world. We architected the software
to run on custom-designed servers built upon commodity components and network hardware so that we can control every aspect of the
network, from request to response and drive as much utilization and scale as possible. Our software-centric approach is designed for better
network efficiency and greater flexibility to scale as we add more services;
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POP design. We built Fastly for the internet of today—meaning fewer POPs, each with massive scale and located at the key interconnection
points of the internet. Our POPs are connected directly to the core internet, each connecting directly to core Internet Service Provider
("ISPs") and 87 Internet Exchange Points as of December 31, 2020 to offer high performance in long-tail content caching. We run fewer
clusters of more powerful servers that provide superior performance for customers who expect updates to be pushed out to their global end-
users nearly instantaneously. Legacy Content Delivery Networks (“Legacy CDNs”) do not offer this benefit, as it is extremely difficult to
update hundreds of thousands of servers around the world;
Server efficiency. We have a highly efficient global server footprint because we combine advanced server and network hardware with our
world class software at each of our POPs. Our servers are optimized to handle the complex workloads of compute at the edge by using high-
end Central Processing Units and significant amount of Random Access Memory to process Varnish Configuration Language ("VCL"). We
use solid-state drives, for fast and constant lookup times, and modern 100 Gigabit Ethernet for robust bandwidth. This, combined with our
algorithms and custom software, gives us the flexibility to scale while dramatically reducing operating burden;
One network. We have built a single powerful, compliant network to support customers’ security and delivery needs:
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Our single network is designed to provide the massive scale needed to defend against today’s growing DDoS threats without
sacrificing performance. The servers in our platform provide all of the features of our product suite, allowing rapid and predictable
scaling;
We help meet customers’ Payment Card Industry ("PCI"), Health Insurance Portability and Accountability Act ("HIPAA"), and
Service Organization Control ("SOC") needs without impacting performance. Because of our flexible routing and server
architecture, we do not need to send PCI traffic off to a separate sub-optimal network;
Our network is self-healing, with cutting-edge discovery and failover techniques that allow us to select the best performing path for
customer’s traffic in order to avoid “internet weather disruptions”, which are temporary, short-lived connectivity or performance
degradation issues which are typically experienced by internet transit providers on a daily basis.
Common Use Cases. Our powerful network along with our operational efficiency can easily handle use cases that are traditionally solved by CDNs. Some of
these examples include:
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Infrastructure-agnostic traffic distribution. Support enterprise hybrid and multi-cloud strategies by intelligently routing traffic across
different cloud providers, or between cloud and on-premise data centers, regardless of location;
Efficient traffic spike management. Allow enterprises to accommodate traffic spikes by intelligently and rapidly distributing content requests
across their network;
Live streaming at scale. Deliver highly-reliable live streaming experiences with minimal interruptions, even when concurrently streaming to
large global audiences;
Responsive mobile applications. Serve rapidly-changing mobile content from the edge, enabling end-users to instantly access the very latest
news updates, weather forecast, hotel availability, or store inventory from their mobile applications;
Safety in Depth
We believe that security should be integrated seamlessly into every layer of development: architecture, programming, and operations. That’s why we built
security into the fabric of our platform, alongside performance. We provide developers and security operations teams with a fast, safe environment to create, build,
and run modern applications with:
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Operational agility. Our edge cloud platform minimizes risk through instant visibility and control. Security operation teams can use our real-time
data feeds to see threats and exposures to vulnerabilities as they emerge. Our products are designed to make rule changes on the fly and update
policies around the globe in seconds based on real-time traffic insights, without having to engage professional services. These features allow our
security offerings to integrate into enterprise security software development cycles, thereby supporting modern DevSecOps practices;
Performance centric. Fastly’s security offerings allow developers to iterate and test code quickly, while providing security teams with tools that
reduce risk without impeding performance. Our high-bandwidth, globally distributed network naturally scales to absorb disruptive DDoS
attacks. Our WAF and bot detection solutions are built into our edge cloud platform, allowing us to protect web-based applications with minimal
latency;
Serverless security. Fastly’s platform provides a secure, serverless development platform at the edge. It is designed to deploy custom
applications, without impacting production traffic or having to worry about patching servers for the latest operating system vulnerabilities.
Sandbox environments are instantly created to automatically execute code for customers for a limited period of time and rapidly decommission
it, significantly reducing the attack surface; and
Comprehensive app and API security. With our recent acquisition of Signal Sciences, we now offer application and API protection wherever it’s
needed, not just at the network edge. Our next-generation WAF protects customer’s apps and APIs whether they are on-premises, in the cloud, in
containers, or in hybrid environments. Customers get protection against advanced threats, including account takeover (ATO), malicious bots,
API abuse and more—all in one integrated solution. With a more modern approach to detecting and blocking attacks, customers don’t need to
worry about false positives or dedicate full-time staff to WAF maintenance.
Customer Empowerment Philosophy
Fastly believes in empowering our customers to build great things, while collaborating with them to promote their success. We have a unique understanding
of what it takes to deliver a frictionless customer experience by providing:
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Freedom to try. Our free trial allows developers to sign up and start experimenting with our edge cloud platform in a frictionless, self-
service manner;
Flexible support model. Developers are free to program on our edge cloud platform, taking advantage of our rich documentation and
expertise of our developer community. For customers who require more guidance, we provide a range of support packages and access to
deep technical expertise from front-of-line support staff to technical account managers; and
Partner friendly. Just as we expose the ability to program at the edge to our customer base, we extend that power and functionality to our
partners as well. This allows our partners to build out applications that run at the edge, and provide a feature or service that is
complementary to our platform. We enable these integrations with a focus on API-support and a large number of code libraries.
Growth Strategy
Key elements of our growth strategy include the following:
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Invest in our technology platform. We intend to continue to invest in our large-scale, enterprise-grade edge cloud platform which is both
developer-friendly and fully programmable. We will increase our investment in research and development so that we can add new and
differentiated products on top of our edge cloud platform. For instance, since the end of 2015, we have grown our research and development
team by a factor of seven, from 41 to 302 people as of December 31, 2020, deepening our talent across multiple functional groups;
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Increase emphasis on security. In October 2020, we completed our acquisition of Signal Sciences to further bolster our security offerings at
a time when data protection has become increasingly critical. We will focus on integrating the application security capabilities from Signal
Sciences into a unified new product offering called Secure@ Edge. This will allow us to fulfill our mission of giving developers more power
over the security of their applications and APIs, at the edge of the network.
Expansion into additional vertical markets. Our platform offers a broad range of capabilities, and our customers have diverse needs. To best
serve these needs we have successfully adopted a vertical approach to our sales and marketing efforts. We intend to build upon our initial
success in digital publishing, media and entertainment, technology, online retail, travel and hospitality, and financial technology services,
while expanding into new markets over time, such as gaming, healthcare and education technology;
Further enable solution partners. Our edge cloud platform is the backend of choice for many of the largest Platform as a Service ("PaaS")
vendors serving the developer community. These PaaS vendors aggregate millions of unique web properties under one brand, using Fastly
as their edge cloud. We believe that more and more web applications will be built on convenient and powerful out-of-the-box solutions
offered by large PaaS vendors. Many of our solution partners are PaaS providers who built us into their platform to offer faster, more secure
and scalable experience. Current examples include Brightcove, Shopify, Drupal, Magento, WIX, and Adobe Portfolio. As our partners
expand their customer base, we will grow alongside them, providing us with exposure to millions of developers who will become familiar
with us, and potentially become customers themselves;
Further enable channel partners. With our acquisition of Signal Sciences, we also plan on strengthening the reach and breadth of our
enterprise resellers to include cross-selling both Fastly and security products while also helping drive international expansion;
Expand existing customer relationships. Over time, our customers have expanded their use of our platform. In more technically savvy
organizations, developers have championed our solution, paving the way for us to engage with business decision makers. For more
traditional organizations, we are often brought in to initially help facilitate a move to the cloud and from there we extend our product to
support many other use cases. We plan to continually increase wallet-share over time for existing customers as we build out new products
and features, and as customers continue to fully recognize the value of our platform. Excluding Signal Sciences, for the years ended
December 31, 2020 and December 31, 2019, our DBNER was 142.9% and 135.5%, respectively, highlighting the strength of our platform.
Additionally, for the years ended December 31, 2020 and December 31, 2019, excluding Signal Sciences, our NRR was 114.5% and
143.7%, respectively; and our LTM NRR was 136.5% and 131.6%, respectively. We believe the LTM NRR is supplemental as it removes
some of the volatility inherent in a usage-based business model from the measurement of the NRR metric. Many of our largest customers
have grown through a "land and expand" strategy. On average, excluding Signal Sciences, our customers have increased their annual spend
by more than 20% year over year since 2015, growing from an average last 12-months revenue of $50,000 to over $136,000 as of
December 31, 2020;
Grow our technology ecosystem. We operate between the "big 3" origin cloud platforms, Amazon Web Services ("AWS"), Microsoft Azure,
and Google Cloud Platform, and a growing community of companies that provide big data, machine learning, and security solutions. In this
sense, we act as the unifying layer for a growing number of cloud services. As customers consume more cloud and software as a service
(“SaaS") offerings, we can create additional value and grow with our partners; and
Extend our global footprint. As our customer base grows, we plan to scale our network accordingly. For the years ended December 31, 2020
and December 31, 2019, 32% and 29%, respectively, of our revenue was generated from customers headquartered outside of the United
States. As of December 31, 2020, we are strategically located in 56 markets, with more additions planned. We believe significant
opportunity exists for further international growth.
Our Products
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Our edge cloud is a globally distributed, programmable platform designed for highly performant and secure web and application delivery. Our platform
supports modern software development processes and empowers developers to innovate without constraints, as they lead the charge for their organizations’ digital
transformation. We operate a single, software-centric network. Our POPs reside between a customer’s end-users and computing and data storage solutions,
whether on-premise, in the cloud or a mixture of both. Our position on the network allows us to move functionality closer to end-users at the network edge for
faster, more secure experiences. This includes edge compute, edge delivery, edge security, edge applications like load balancing and image optimization, video on
demand, and managed edge delivery.
Edge Compute
We enable developers to write their own custom logic to solve complex business problems at the network edge.
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Compute@Edge. This next generation serverless offering is intended to provide developers with a powerful new language-agnostic compute
environment. Like all our offerings, Compute@Edge is built to be secure, performant and scalable; at 35.4 microseconds it offers a 100x
faster startup times than other solutions on the market.
Fastly Developer Hub. This is a central place for developers to easily access all the tools they need to build fast, scalable and secure modern
applications on our edge cloud platform. The Developer Hub includes:
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Solution Library patterns and recipes: Ready-to-deploy code snippets and deployment instructions to teach developers how to do
basically anything on Fastly, with everything they need to implement in their own configurations;
API and language references and change logs: Robust reference documentation and release notes provide complete access to all of
the features available through the Fastly web interface and VCL; and
Fastly Fiddle: A testing sandbox to experiment with Fastly configurations and debug custom code without impacting developers’
production services.
Many of the use cases we are now seeing in our Compute@Edge offering were originally built in our Varnish-based development environment. We also
offer a number of reusable modules based on commonly deployed Varnish custom code, including:
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Device Detection and Geolocation. Gives developers the ability to rapidly adjust the content served to end-users based on location, device
type, and language detection;
Edge Dictionaries. Empower developers to make real-time decisions from every server in our network. Edge dictionaries act as a distributed
database at the edge, made up of key-value pairs. For example, Edge Dictionaries allow customers to redirect end-users to a specific country
site or update large referrer spam blacklists in real time;
Edge Access Control Lists ("ACLs"). Help mitigate evolving threats from attackers by letting developers make changes at scale. ACLs block
bad internet protocol ("IP") addresses from visiting customer sites, and for added security, they can create their own allow-lists; and
Edge authentication. Developers can add custom Varnish-based code to their app to generate tokens and authenticate users at the edge,
avoiding the extra cost and latency associated with going back to origin to verify a user’s identity.
Edge Delivery
Our edge delivery offerings include full site delivery and streaming for high value media.
Full Site Delivery
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Dynamic Site Acceleration. Speeds up requests and responses between cache nodes in our POPs and customers’ origin servers, so their web
and mobile content is served faster;
Origin Shield. Allows us to designate a specific POP to serve as a shield for a customer’s origin servers. When web content is refreshed, and
multiple end-users request the new content simultaneously, it can lead to a deluge of requests hitting a customer’s origin server. This can
result in poor web or application performance. With Origin Shield, we collapse all these content requests into a single request and hold it in
queue at the Origin Shield POP. That allows us to go back to the customer’s origin server only once to retrieve the new content, then serve it
to all end-users who requested it. This approach reduces costs for our customers, while improving performance for their end-users;
Instant Purge. Lets customers clear the cached copy of their content in an average of 150 milliseconds or less. We allow customers to send a
command to our platform that invalidates an old version of their content throughout our global edge infrastructure. This causes a new
version of content be retrieved from the application server the next time it is requested. This feature enables our customers to serve highly
dynamic content at the edge more quickly and allows for delightful application experiences. Rapidly changing content like shopping cart
items, flight search results, sports scores, or current weather conditions in any given location can all be served faster from the network edge;
Surrogate Keys. Allow customers to fine-tune purging by tagging related objects across their site with a key name and description, then
purging by that key. They can purge their entire site of a given object or objects at once, without impacting performance. For example, they
could purge any images and content related to discontinued sale items, discounted products, or outdated news across their site all in one go;
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Real-time Logging and Stats. Provide metrics and full visibility into end-user requests in real time from the network edge. Log traffic is
encrypted using Transport Layer Security ("TLS") and logs can be streamed to most major logging endpoint solutions.
Cloud Optimizer. Cloud Optimizer targets eCommerce and high tech organizations who commonly work with multi-cloud or multi-CDN
architectures. Cloud Optimizer sits between a customer’s CDNs and cloud providers, delivering intelligent routing capabilities without the
need to rearchitect their infrastructure. Like Media Shield, it also features request collapsing, to reduce origin traffic and costs and
empowers customers with greater visibility and control over their network traffic.
Streaming
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Edge Security
Live Streaming. Our platform is designed to concurrently deliver millions of near real-time, high-quality live streams to our customers’
viewers. Our edge cloud supports the delivery of all major HTTP video streaming formats, and we partner with multiple online video
platform vendors to improve the flexibility and scale of live streaming workflows, while also reducing total cost of ownership;
Media Shield. Large streaming customers often route traffic across multiple CDNs for redundancy. Our Media Shield solution supports
these efforts, while reducing total cost of ownership and improving visibility and performance. It does so by collapsing requests for the
same video streaming content across all CDNs into one single request to the customer’s origin server. This reduces requests to origin and
allows us to serve streaming content faster; and
Origin Connect. Ideal for companies moving more than one gigabyte of data, such as media, video, and streaming companies, Origin
Connect provides a direct private network connection between an organization’s origin server and an Origin Shield POP. It is an effective
way to lower transit costs, reduce engineering complexity, and improve reliability for high-volume streaming content.
DDoS Protection. Our high-bandwidth, globally distributed network is built to absorb DDoS attacks without impacting performance.
Customers can respond to attacks in real time, filtering malicious requests at the network edge, before they reach their origin.
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Edge WAF. Our edge WAF is designed to protect applications from malicious attacks that would otherwise compromise web servers. It is
integrated into our edge cloud platform, minimizing the impact on performance, since we only inspect requests going to a customer’s origin.
Customers get real-time access to security events and notifications from the edge and can make instant changes to their WAF rules via our
API.
TLS. As part of our standard product, our platform terminates HTTPS connections at our network edge, offloading encrypted traffic from
customer’s web servers for better performance. We provide a number of different certificate procurement and hosting options.
Platform TLS. Our Platform TLS offering is designed to allow customers with multiple web properties to manage TLS certificates at scale,
while enabling a fast, secure experience for their end-users. It supports delivery and management of hundreds of thousands of certificates,
supported by our worldwide TLS termination and acceleration solution.
Compliance. We speed up the caching and delivery of sensitive content at the edge, helping customers meet data compliance and privacy
regulations such as HIPAA and the General Data Protection Regulation ("GDPR"), in addition to industry standards such as PCI Data
Security Standard and SOC. Our Assurance Services offering includes support for additional documentation and audit procedures for
customers with these needs.
Application and API Security
Through our acquisition of Signal Sciences, we added a unified web application and API protection solution that includes Runtime Self-Application
protection (RASP), advanced rate limiting, API protection, bot management and next generation WAF.
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Next-gen WAF. Our next-generation Web Application Firewall protects applications from malicious attacks that seek to compromise apps
and APIs. Our solution requires no tuning, and is more accurate than the traditional rule or signature-based approaches. Our WAF can be
installed in any infrastructure; cloud, container, on-premise data center or hybrid environments.
Runtime Application Self-Protection (RASP). RASP protects from real-time attacks by embedding directly into application source code.
Bot Protection. Bad bots can perform content scraping, tie up system resources, perform account brute forcing and other harmful actions.
Our solution monitors web application and API traffic for automated bot activity, allowing customers to automatically block malicious bot-
generated web requests.
API Protection. Attackers often target sensitive APIs, attempting to validate stolen credit cards, perform e-commerce gift card fraud or
obtain patient healthcare records. We help customers stop API abuse by enabling them to monitor for unexpected values and parameters
submitted to API endpoints, and block unauthorized requests.
ATO Protection. Account takeover occurs ("ATO") when attackers use authentication credentials to take over legitimate user accounts.
Attackers test stolen credentials in an automated manner called “credential stuffing.” Our Account Takeover Protection empowers
customers to automatically block and alert on credential stuffing attacks.
Cloud DDoS. Our Cloud DDoS protection is an always-on service that provides immediate protection from network and application layer
attacks, so web apps and APIs are always available and performant.
Advanced Rate Limiting. Advanced Rate Limiting enables customers to stop malicious and anomalous high volume web requests and reduce
resource consumption while allowing legitimate traffic through to application and API endpoints—doing so means companies can provide a
superior customer experience that scales to meet increasing demand.
Edge Applications
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Load Balancer. Our Layer 7 load balancer manages HTTP/HTTPS requests to a customer’s origin using granular content-aware routing
decisions. We allow customers to manage traffic across multiple IaaS providers, data centers, and hybrid clouds. We also provide improved
performance and cost savings over ADCs, especially during a spike or surge in traffic.
Image Optimizer. We offer a real-time image manipulation and delivery service and store transformations at the edge. When an image is
requested, we resize it, adjust quality, crop/trim, change orientations, convert formats, and more, all on demand. Transforming images at the
edge eliminates latency and reduces traffic to a customer’s origin servers, allowing them to save on infrastructure and egress costs.
Video on Demand
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Our edge cloud platform is designed to cache and rapidly deliver both frequently and infrequently requested on-demand videos. We
significantly reduce the load on a customer’s origin servers while accelerating time to first frame. Our on-the-fly-packaging feature
facilitates immediate playback, enhancing viewer experiences across multiple devices and platforms.
Managed Edge Delivery
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Our managed delivery service provides customers with maximum flexibility and control. We deploy our edge cloud platform on dedicated
POPs within a customer’s private network, at locations of their choosing. This service can be used exclusively, or as part of a hybrid, multi-
CDN strategy.
Partner Ecosystem
Our partner ecosystem consists of a wide range of companies who sell, service, package and build edge applications to integrate with our platform. Our
program provides partners with the flexibility to accommodate different go-to-market models and allows each partner to customize their offerings to provide their
own differentiated value. This ecosystem consists of companies who build edge applications to integrate with our platform, enterprise resellers and security
integration providers, cloud service providers, logging and analytics providers, and PaaS providers. Our partners are all looking to extend the power of our edge
cloud platform to their customers.
Edge Application Partners
Our edge cloud platform exposes blocks of code that allow trusted partners to develop real-time analysis and enforcement applications. Building out a
massive edge presence is beyond the financial and technical capabilities of all but a handful of companies. By opening our platform to third parties, we allow these
partners to focus on building new and innovative edge applications, without the capital outlay and complexity of doing it themselves. It opens up new markets and
business models for them.
Enterprise Resellers & Security Integration Partners
Our acquisition of Signal Sciences welcomed new enterprise resellers and integration partners into our partner ecosystem. Enterprise resellers work with our
sales and presales teams to scale sales cycle support. This helps expand our worldwide network of partners dedicated to protecting customer's business initiatives
like DevOps and cloud adoption. We will be expanding the reach and breadth of these partners to include cross-selling Fastly and security products and will
increase our program's global expansion. Signal Sciences also seamlessly integrates with a number of technology partners to help customers enhance their
workflows, empower DevOps processes, increase their security visibility, and drive operational efficiencies. Examples of these integration partnerships include
VMware (Tanzu), Palo Alto Networks, Cisco, Datadog, Citrix, PagerDuty and more.
Cloud Service Provider Partners
We integrate with major cloud providers to enhance their services and create solutions that are powerful, scalable, and secure. We have exclusive Private
Network Interconnects (PNIs) and peering arrangements with key cloud providers, such as Google Cloud Platform, Microsoft Azure, Amazon Web Services and
others, to eliminate or minimize egress fees, enhance security, and improve overall performance. We can help customers on their digital transformation journeys
with seamless cloud migrations, meaning zero downtime for their business, or provide a seamless user experience for customers deploying a multi-
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cloud strategy. Recently, we announced our availability on the Google Cloud Marketplace, which can help eliminate the need for customers to have separate billing
arrangements and makes Fastly services eligible for Google Cloud Platform committed spend.
Logging and Analytics Partners
Logging and analytics partners integrate with our edge cloud platform to deliver enhanced functionality to our joint customers. Our logging feature provides
insights into web and mobile requests and response, such as slow or missing URLs, most requested URLs, site performance by region, and much more. Our
statistics provide insights into things like percentage of requests per second, request misses, errors, latency, traffic spikes, and global traffic profiles. Both logs and
statistics can be streamed in real time to our logging and analytics partners. This empowers our joint customers to monitor performance, troubleshoot issues as they
occur, and view this data alongside other metrics in consolidated dashboards. Logging and analytics partners include the following:
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Google. A tight integration with Google Cloud Platform allows real-time logs to be streamed to any Google Cloud Platform big data service,
including Google Cloud Storage, BigQuery, and Bigtable;
Microsoft. Our integration with Microsoft Azure allows real-time logs to be streamed to both Azure Blob Storage and Kusto;
Datadog. Datadog uses our API to pull in real-time stats and analytics for display in their dashboard;
Looker. Looker combines log data with other data sources in BigQuery, such as Google Analytics, Google Ads data, or security and firewall
data. Customers can then run multiple queries against these data sets and present findings in Looker dashboards;
Sumo Logic. Sumo Logic integrates with our platform to offer more granular logging data for customers with large-scale analytics.
Customers gain real-time insights into slow URLs, missing or most requested URLs, site performance by region, and more; and
Logentries. Logentries provides a one-click integration with our platform, making it easy for customers to quickly set up real-time logs.
PaaS Partners
PaaS partners integrate with our edge cloud platform to make it easier for their developers to scale and secure websites.
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Heroku. Heroku empowers companies to build, deliver, monitor, and scale applications. Our Heroku add-on lets developers seamlessly
integrate their Heroku hosted applications with our edge cloud platform through the click of a button;
Magento Commerce. Magento Commerce, an Adobe company, provides a platform that enables merchants to integrate digital and physical
shopping experiences. Our Magento extension lets developers manage their entire content caching strategy from the Magento control panel
while maintaining fast, reliable performance; and
Drupal and Wordpress. Drupal and Wordpress are Content Management Systems ("CMS") partners. They provide self-hosted solutions for
customers to create and manage all the content on their websites. Our Drupal and Wordpress extensions allow developers to easily configure
and manage their content caching strategy from within these CMS dashboards.
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Our Culture and Human Capital Resources
Our Values
Technology has the potential to make a radically positive impact on the world, and we aspire to improve human lives through our work. We were founded
on strong ethical principles, and have intentionally grown values-first, scaling our workforce, services, customer portfolio, and investment partners purposefully.
We are only as good as the company we keep, and this guides our hiring practices as well as the ethics we are committed to upholding as we scale. We believe that
as a result of our values, we have been able to identify, attract, engage and retain great people. We want to serve the very best of the internet. We choose to work
with customers that we believe have integrity, are trustworthy, and do not promote violence or hate. Our eight core values define who we are and how we choose to
grow, hire, train, work, communicate, make decisions, support each other, and serve our customers.
Our Strategy
We are dedicated to building a diverse workforce and leadership team that reflects our values and the unique needs of our global customer base. We strive to
be a company full of talented, highly effective, kind, honest, passionate, and high-integrity people. We are dependent on our highly qualified employees and
executives, and it is crucial that we continue to attract, engage and retain valuable employees. We believe in investing in our people and motivating talented
individuals with a strong career path and competitive compensation program. Our U.S. support engineers are often hired from code schools, and many code school
graduates transition from support into other organizations within the company, championing the customer voice and infusing our teams with a strong, service-
focused mindset. Our engineering staff recruits world-class experts in every part of the technology stack that makes up the internet, which inspires great developers
to join us. Our compensation program is designed to attract, retain, and motivate highly qualified employees and executives. We use a mix of competitive base
salary, equity compensation awards, and other employee benefits.
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We are building a global, healthy, safe, and diverse workforce and an inclusive culture that empowers and supports our employees and customers. We
onboard all new employees with training programs on our values, certain aspects of our business, and important policies, including our Safe, Welcoming, and
Productive Work Environment Policy. Annually thereafter we provide employees with code of conduct and security awareness training, a learning reimbursement
program and performance evaluations. Our employee engagement efforts currently include company-wide newsletters, all-hands meetings, and AMA (“ask me
anything”) sessions, through which we aim to keep our employees well-informed and to increase transparency. We also use employee engagement surveys to
collect employee feedback and assess the effectiveness of our culture, our strategy, and various health and well-being programs.
During the COVID-19 pandemic, we have taken significant steps to protect the health and safety of our workforce. We temporarily closed our offices on
March 1, 2020 and took other precautionary measures, such as eliminating all non-essential travel, intended to facilitate social distancing and help minimize the
risk of the virus to our employees, our customers, and the communities in which we participate. Early in the pandemic we launched an employee emergency
response survey and conducted periodic employee pulse surveys in order to get a deeper understanding of what our employees were experiencing and to inform our
policies and priorities. We also instituted monthly employee wellness days, provided a monthly internet stipend, and held virtual workshops on topics such as
mental health and leading and supporting remote teams.
Employees
As of December 31, 2020, we had a total of 939 employees worldwide, which includes our recently acquired Signal Sciences organization, and 156
employees located outside of the United States. Fastly has a reputation as an early adopter of the distributed workforce model and this approach has enabled us to
recruit and retain highly skilled professionals around the world. Prior to the COVID-19 pandemic, as of December 31, 2019, nearly 40% of our employees were
working in a remote-capacity. As of December 31, 2020, over 50% of our employees worldwide were considered remote, which means they reside in locations that
do not have a Fastly office presence. While we have not re-opened our offices, given our early experience building a distributed workplace culture, we were able to
quickly transition to working remotely in response to COVID-19.
Organization
Sales & Marketing
Our go-to-market model initially focused on reaching and serving the needs of developers. We reach developers through working groups, community
events, conferences, and word-of-mouth. Our platform was built to empower developers to innovate at their own pace, so our platform is accessible, transparent,
and self-service.
The majority of our customers enter into negotiated contracts with us. These contracts typically include specific pricing and a minimum monthly
commitment. As developers have expanded their usage of our platform, our relationships have often evolved to include business leaders within their organizations.
Customers who sign up online can access our self-service pricing matrix which is publicly available.
Our sales and marketing organizations work together closely to cultivate customer relationships with developers and business leaders at enterprises and
technology-savvy organizations to drive revenue growth. We have vertically-based sales teams that continue to enhance our value-based selling methodology. Our
land and expand sales strategy for enterprise customers has successfully demonstrated our platform’s capabilities, and our customer support enables broad adoption
of our technology within an organization.
We also offer a trial to developers who sign up for testing and experimentation. We do this in order to strengthen our relationship and reputation within the
developer community by providing these developers with the ability to familiarize themselves with our platform without first becoming a paying customer. Once
signed up, developers can easily access our programmable interface, extensive self-service documentation, and customer support team. Our low-friction trial
experience allows developers to validate that our edge platform works for them at no cost or risk.
Research & Development
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Our research and development team members are responsible for the design, development, and reliability of all aspects of our edge cloud platform.
Continuous improvement and innovation are core to our DNA, and these efforts are baked directly into our service life cycle. Scale, performance, security, and
reliability are core functional requirements of everything we build into our platform to serve our customers.
Our philosophy of customer empowerment guides our research processes. Our product managers regularly engage with customers and the developer,
DevOps and site reliability engineering communities, as well as our internal stakeholders and subject matter experts, in order to understand customer needs. Our
engineering team is comprised of experts with deep experience, who intimately understand customers’ technical challenges and build solutions accordingly.
Throughout the strategic, design, and build phases of our product life cycle, our development organization works closely with our product, infrastructure,
operations, and compliance teams to design, develop, test, and launch any given solution. We strive for a balance of rapid iteration without compromise on the core
functional requirements that our customers expect: scale, performance, security, and reliability.
As of December 31, 2020, we had 302 employees in our research and development group. Our research and development expenses were $74.8 million in the
year ended December 31, 2020. Approximately 18% of our research and development group were based in our headquarters in San Francisco, California as of
December 31, 2020.
Infrastructure
Our infrastructure team is responsible for the design, deployment, and maintenance of the servers and network hardware that form the foundation of our
mission critical environment in 56 markets as of December 31, 2020. We invest in research into global internet geography to identify optimal colocation site
selection, network partner identification, and network-to-network interconnection opportunities. These activities allow us to connect in close proximity to core
internet backbones and ISPs, thereby enhancing network performance. We carefully evaluate and test hardware from leading server, network, and component
manufacturers to ensure they comply with our workload performance, system efficiency, and mean time-to-repair standards. In our process, we evaluate
commodity server and network platforms to avoid vendor lock-in, while optimizing the mix of components in an effort to improve efficiency and optimize our
capital expenditures. We intend to grow the number of data center colocation sites as traffic on our network grows and as demands for new markets justify
investment.
Trust
We uphold transparency and trustworthiness as company values. Our security, compliance and data governance teams, as well as other departments across
the company, continually iterate on our trust programs to better meet growing customer needs, updated regulatory requirements, and the evolving security threat
landscape. To help validate the controls that safeguard our platform and the data moving through it, we have expanded our portfolio of security and compliance-
related assessments and certifications over time.
Customer Support
We have designed our products and platform to be self-service and require minimal customer support. Customers are automatically covered by our standard
support plan as soon as they sign up with us. They can file a ticket with the support team, access documentation including online FAQs, API references, and
configuration guidelines. Our support approach is unique as we have built it with developers in mind. Our first-line support employee typically has an engineering
background and is highly technical.
We also provide several options for premier, hands-on support from a team of highly-technical senior support engineers and technical account managers.
They act as a single point of contact for our support, product and engineering teams. Our support model is global, with 24/7 coverage and support offices located
throughout the United States, the United Kingdom, and Japan.
Partnerships & Strategic Relationships
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We believe that building a strong partner ecosystem helps amplify our reach and time-to-market, while providing our customers with enhanced value from
our joint offerings. By investing in these partnerships, we hope to improve customer satisfaction and retention rates. Our partners and strategic alliances include:
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Integration Partners
Solutions Partners
Referral and Reseller Partners
Central Cloud Partners
Competition
Our platform spans several markets from cloud computing and cloud security to CDNs. We segment the competitive landscape into five key categories:
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Legacy CDNs like Akamai, Limelight, EdgeCast (part of Verizon Digital Media), Level3, and Imperva (for security);
Small business focused CDNs like InStart, Cloudflare, StackPath, and Section.io;
Application and API security vendors like Akamai, Cloudflare, Imperva, Amazon Web Services and F5 (Shape)
Cloud providers who are starting to offer compute functionality at the edge like Amazon’s CloudFront, AWS Lambda, and Google Cloud
Platform; and
Traditional data center and appliance vendors like F5, Citrix, A10 Networks, Cisco, Imperva, Radware, and Arbor, as well as networks that
offer a range of on-premise solutions for load balancing, WAF, and DDoS.
The principle competitive factors in our market include:
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Platform scalability and performance;
Global network coverage;
Platform reliability and security;
Ease of integration and programmability;
Credibility with developers;
Ability to support modern application development processes;
Brand awareness, reputation, and trust;
Strength of our sales and marketing efforts;
Quality of customer support; and
Price and network cost savings.
We believe we generally compete favorably with our competitors on the basis of these factors. Our edge cloud platform integrates many of the point
products offered by our competitors which is a key differentiator. However, many of our competitors have substantially greater financial and technical resources in
addition to larger sales and marketing budgets, broader market distribution, and more mature intellectual property portfolios.
Intellectual Property
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We rely on a combination of patent, copyright, trademark, and trade secret laws in the United States and other jurisdictions, as well as license agreements
and other contractual protections, to protect our proprietary technology. We also rely on a number of registered and unregistered trademarks to protect our brand.
As of December 31, 2020, in the United States, we had 60 issued patents, which expire between September 2033 and May 2038, 41 patent applications
pending for examination, as well as 13 pending provisional applications. As of such date, we also had 15 issued patents and 26 patent applications pending for
examination in foreign jurisdictions and 28 Patent Cooperation Treaty patent applications pending for examination, all of which are related to U.S. patents and
patent applications. In addition, as of December 31, 2020, we had 15 registered trademarks in the United States.
In addition, we seek to protect our intellectual property rights by requiring our employees and independent contractors involved in development of
intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived by them on our
behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to
the extent allowable under applicable law.
Despite our efforts to protect our technology and proprietary rights through intellectual property rights, licenses, and other contractual protections,
unauthorized parties may still copy or otherwise obtain and use our software and other technology. In addition, we intend to continue to expand our international
operations, and effective intellectual property, copyright, trademark, and trade secret protection may be unavailable or limited in foreign countries. Any significant
impairment of our intellectual property rights could harm our business or our ability to compete. Further, companies in the communications and technology
industries own large numbers of patents, copyrights, and trademarks and frequently threaten litigation, or file suit based on allegations of infringement or other
violations of intellectual property rights. We are currently subject to, and expect to face in the future, allegations that we have infringed the intellectual property
rights of third parties. From time to time, we also receive demands for indemnification from our customers under the terms of our contracts with them for
infringement of a third-party’s intellectual property rights.
Legal Proceedings
From time to time, we have been and will continue to be subject to legal proceedings and claims. We are not presently a party to any legal proceedings that,
if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition, or cash
flows. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual
property rights. Future litigation may be necessary to defend ourselves, our partners, and our customers by determining the scope, enforceability, and validity of
third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless
of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Please refer to Note 10—Commitments and Contingencies for discussion around our legal proceedings.
Corporate Information
We were initially incorporated under the laws of the State of Delaware in March 2011 under the name SkyCache, Inc. We changed our name to Fastly, Inc.
in May 2012. Our principal executive offices are located at 475 Brannan Street, Suite 300, San Francisco, California 94107. Our telephone number is 1-844-432-
7859. Our website address is www.fastly.com. The information contained on, or that can be accessed through, our website does not constitute part of this Annual
Report on Form 10-K.
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to reports filed or furnished pursuant
to Sections 13(a), 14 and 15(d) of the Exchange Act. The SEC maintains a website at https://www.sec.gov that contains reports, and other information regarding us
and other companies that file materials with the SEC electronically. Copies of our reports on Forms 10-K, Forms 10-Q, and Forms 8-K, may be obtained, free of
charge, electronically through our investor relations website at https://fastly.com/investors as soon as reasonably practicable after we file such material with, or
furnish such material to, the SEC.
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Item 1A. Risk Factors
Investing in our Class A common stock involves a high degree of risk. Investors should carefully consider the risks and uncertainties described below,
together with all of the other information contained in this Annual Report on Form 10-K, including the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial statements and related notes, before deciding to invest in our Class A common
stock. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, customer growth,
results of operations, financial condition, or prospects. Any of these events could cause the trading price of our Class A common stock to decline, which would
cause our stockholders to lose all or part of their investment. Our business, results of operations, financial condition, or prospects could also be harmed by risks
and uncertainties not currently known to us or that we currently do not believe are material.
Select Risk Factors Affecting Our Business
Our business is subject to a number of risks and uncertainties, including those risks discussed at-length below. These risks include, among others, the following:
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If our platform fails to perform properly due to defects, interruptions, delays in performance, or similar problems, and if we fail to develop enhancements
to resolve any defect, interruption, delay, or other problems, we could lose customers, become subject to service performance or warranty claims or incur
significant costs.
If we are unable to attract new customers, in particular, enterprise customers, and to have existing enterprise customers continue and increase their use of
our platform, our business will likely be harmed.
If we fail to forecast our revenue accurately, or if we fail to manage our expenditures, our operating results could be adversely affected.
• We receive a substantial portion of our revenues from a limited number of customers, and the loss of, or a significant reduction in usage by, one or more
of our major customers would result in lower revenues and could harm our business.
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Our limited operating history and our history of operating losses makes it difficult to evaluate our current business and prospects and may increase the
risks associated with your investment.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer
needs, requirements, or preferences, our products may become less competitive.
Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader
market acceptance of our platform.
The markets in which we participate are competitive, and if we do not compete effectively, our business will be harmed.
If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, results of operations and financial
condition may suffer.
Acquisitions, strategic investments, partnerships, or alliances, including our recent acquisition of Signal Sciences, could be difficult to identify and
integrate, divert the attention of management, disrupt our business, and dilute stockholder value.
• We are, and in the future may be, involved in class-action lawsuits and other litigation matters that are expensive and time-consuming. If resolved
adversely, lawsuits and other litigation matters could seriously harm our business.
•
Health epidemics, including the ongoing COVID-19 pandemic, have had, and could in the future have, an adverse impact on our business, operations, and
the markets and communities in which we, our partners and customers operate.
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• We have identified a material weakness in our internal control over financial reporting, and if we are unable to remediate and maintain effective internal
control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports, and the market
price of our Class A common stock may be seriously harmed.
•
Our stock price may be volatile, and the value of our Class A common stock may decline.
Risks Related to Our Business, Industry and Technology
If our platform fails to perform properly due to defects, interruptions, delays in performance, or similar problems, and if we fail to develop enhancements to
resolve any defect, interruption, delay, or other problems, we could lose customers, become subject to service performance or warranty claims or incur
significant costs.
Our operations are dependent upon our ability to prevent system interruption. The applications underlying our edge cloud computing platform are inherently
complex and may contain material defects or errors, which may cause disruptions in availability or other performance problems. We have from time to time found
defects and errors in our platform and may discover additional defects or errors in the future that could result in data unavailability, unauthorized access to, loss,
corruption, or other harm to our customers’ data. These defects or errors could also be found in third-party applications or open source software on which we rely.
We may not be able to detect and correct defects or errors before implementing our products. Consequently, we or our customers may discover defects or errors
after our products have been deployed.
We currently serve our customers from our POPs located around the world. Our customers need to be able to access our platform at any time, without
interruption or degradation of performance. However, we have not developed redundancies for all aspects of our platform. We depend, in part, on our third-party
facility providers’ ability to protect these facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts,
public health issues, such as the COVID-19 pandemic, and similar events. In some cases, third-party cloud providers run their own platforms that we access, and
we are, therefore, vulnerable to their service interruptions. In the event that there are any defects or errors in software, failures of hardware, damages to a facility,
or misconfigurations of any of our services, we may have to divert resources away from other planned work, could experience lengthy interruptions in our
platform, and also incur delays and additional expenses in arranging new facilities and services. Our customers may choose to divert their traffic away from our
platform as a result of interruptions or delays. Disaster recovery arrangements, including the existence of redundant data centers that are designed to become active
during certain lapses of service, may not function as intended, and any disruptions to our service could harm our business.
We design our system infrastructure and procure and own or lease the computer hardware used for our platform. Design and mechanical errors, spikes in
usage volume, and failure to follow system protocols and procedures could cause our systems to fail, resulting in interruptions on our platform. Moreover, we have
experienced and may in the future experience system failures or interruptions in our platform as a result of human error. For example, in January 2021, we
experienced a platform interruption that affected certain of our customers. Any interruptions or delays in our platform, whether caused by our products or our data
centers, third-party error, our own error, natural disasters, or security breaches, or whether accidental or willful, could harm our relationships with customers,
reduce customers’ usage of our platform, cause our revenue to decrease and/or our expenses to increase, and divert resources away from product development.
Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could
further reduce our revenue, subject us to liability and cause us to issue service credits or cause customers to fail to renew their customer contracts, any of which
could harm our business.
The occurrence of any defects, errors, disruptions in service, failures involving redundant data centers, or other performance problems, interruptions, or
delays with our platform, whether in connection with the day-to-day operations or otherwise, could result in:
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loss of customers;
reduced customer usage of our platforms;
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lost or delayed market acceptance and sales of our products, or the failure to launch products or features on anticipated timelines;
delays in payment to us by customers;
injury to our reputation and brand;
legal claims, including warranty and service level agreement claims, against us; or
diversion of our resources, including through increased service and warranty expenses or financial concessions, and increased insurance
costs.
The costs incurred in correcting any material defects, errors, or other performance problems in our platform may be substantial and could harm our
business.
If we are unable to attract new customers, in particular, enterprise customers, and to have existing enterprise customers continue and increase their use of our
platform, our business will likely be harmed.
To grow our business, we must continue to attract new customers, in particular, enterprise customers. To do so, we must successfully convince potential
customers of the benefits and the value of our platform. This may require significant and costly sales efforts that are targeted at larger enterprises and senior
management of these potential customers. Sales to enterprise customers may involve longer sales cycles as a result of customers requiring considerable time to
evaluate our platform, requiring participation in a competitive purchasing process, having more formal processes for approval of purchases, and more complex
requirements. These factors significantly impact our ability to add new customers and increase the time, resources, and sophistication required to do so. In addition,
numerous other factors, some of which are out of our control, may now or in the future impact our ability to acquire new customers, including potential customers’
commitments to other providers, real or perceived costs of switching to our platform, our failure to expand, retain, and motivate our sales and marketing personnel,
our failure to develop or expand relationships with potential customers and channel partners, failure by us to help our customers to successfully deploy our
platform, negative media or industry or financial analyst commentary regarding us or our solutions, litigation, and deteriorating general economic conditions. If we
fail to attract new customers, particularly enterprise customers, as a result of these and other factors, our business will likely be harmed.
In addition, our ability to grow and generate incremental revenue depends on our ability to maintain and grow our relationships with our existing enterprise
customers so that they continue and increase their usage of our platform. If these customers do not maintain and increase their usage of our platform, our revenue
may decline and our results of operations will likely be harmed. For example, our largest customer in the year ended December 31, 2020 significantly decreased its
usage in the second half of the year, which negatively impacted our revenue for the year.
We charge our customers based on the usage of our platform. Most of our customers, including some of our largest enterprise customers, do not have long-
term contractual financial commitments to us. And a majority of our current customer contracts are only one year in duration. In order for us to maintain or
improve our results of operations, it is important that our customers, in particular, our enterprise customers, use our platform in excess of their commitment levels,
if any, and continue to use our platform on the same or more favorable terms. Our ability to retain our largest customers and expand their usage could be impaired
for a variety of reasons, including customer budget constraints, customer satisfaction, changes in our customers’ underlying businesses, changes in the type and
size of our customers, pricing changes, competitive conditions, the acquisition of our customers by other companies, governmental actions, or the possibility
thereof, and general economic conditions. Because many of our largest customers’ minimum usage commitments for our platform are relatively low compared to
their expected usage, it can be easy for certain customers to quickly reallocate usage or switch from our platform to an alternative platform altogether. And they
may reduce or cease their use of our products at any time without penalty or termination charges, even after prior period of usage expansion.
We base our decisions about expense levels and investments on estimates of our future revenue and future anticipated rate of growth. Many of our expenses
are fixed cost in nature for some minimum amount of time, such as with colocation and bandwidth providers, so if we do experience slower usage growth on our
platform it may not be possible to reduce costs in a timely manner or without the payment of fees to exit certain obligations early. If any of these events were to
occur, our business may be harmed.
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In addition, many of our customers have negotiated and may continue to negotiate lower rates for their usage in exchange for an agreement to renew,
expand their usage in the future, or adopt new products. As a result, in certain cases, even though customers have not reduced their usage of our platform, the
revenue we derive from that usage has decreased. If our usage or revenue fall significantly below the expectations of the public market, securities analysts, or
investors, our business would be harmed, which could cause our stock price to decline.
Our future success also depends in part on our ability to expand our existing customer relationships, in particular, with enterprise customers, by increasing
their usage of our platform and selling them additional products. The rate at which our customers increase their usage of our platform and purchase products from
us depends on a number of factors, including our ability to grow our platform and maintain the security and availability of it, develop and deliver new features and
products, maintain customer satisfaction, general economic conditions and pricing and services offered by our competitors. If our efforts to increase usage of our
platform by, or sell additional products to, our enterprise customers are not successful, our business would be harmed. In addition, even if our largest customers
increase their usage of our platform, we cannot guarantee that they will maintain those usage levels for any meaningful period of time. In addition, because many
of our products endeavor to deliver increased efficiency and functionality, the successful sale of an additional product to an existing customer could result in a
reduction of the customer's overall usage of our platform.
If we fail to forecast our revenue accurately, or if we fail to manage our expenditures, our operating results could be adversely affected.
Because our recent growth has resulted in the rapid expansion of our business and revenues, we do not have a long history upon which to base forecasts of
future revenue and operating results. We cannot accurately predict customers’ usage or renewal rates given the diversity of our customer base across industries,
geographies and size, and ability of customers to allocate usage, among other factors. If we do not realize returns on these investments in our growth, our results of
operations could differ materially from our forecasts, which would adversely affect our results of operations and could disappoint analysts and investors, causing
our stock price to decline.
We receive a substantial portion of our revenues from a limited number of customers, and the loss of, or a significant reduction in usage by, one or more of
our major customers would result in lower revenues and could harm our business.
Our future success is dependent on establishing and maintaining successful relationships with a diverse set of customers. We currently receive a substantial
portion of our revenues from a limited number of customers. For year ended December 31, 2020, our top ten customers accounted for approximately 38% of our
revenue and our top five customers accounted for approximately 27% of our revenue. It is likely that we will continue to be dependent upon a limited number of
customers for a significant portion of our revenues for the foreseeable future and, in some cases, the portion of our revenues attributable to individual customers
may increase in the future. The loss of one or more key customers or a reduction in usage by any major customers would reduce our revenues. If we fail to
maintain existing customers or develop relationships with new customers, our business would be harmed.
Our limited operating history and our history of operating losses makes it difficult to evaluate our current business and prospects and may increase the risks
associated with your investment.
We were founded in 2011 and have experienced net losses and negative cash flows from operations since inception. Our limited operating history makes it
difficult to evaluate our current business and our future prospects, including our ability to plan for and model future growth. We have encountered and will
continue to encounter risks and difficulties frequently experienced by rapidly growing companies in constantly evolving industries, including the risks described in
this report. If we do not address these risks successfully, our business may be harmed.
We generated a net loss of $95.9 million for the year ended December 31, 2020, and as of December 31, 2020, we had an accumulated deficit of $288.2
million. We will need to generate and sustain increased revenue levels and manage costs in future periods in order to become profitable; even if we achieve
profitability, we may not be able to maintain or increase our level of profitability. We intend to continue to expend significant funds to support further growth and
further develop our platform, including expanding the functionality of our platform, expanding our technology infrastructure and business systems to meet the
needs of our customers, expanding our direct sales force and partner ecosystem, increasing our marketing activities, and growing our international operations. We
will also face increased compliance costs associated with growth, expansion of our customer base, and the costs of being a public company. Our efforts to grow our
business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses. We may incur
significant losses
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in the future for a number of reasons, including the other risks described herein, and unforeseen expenses, difficulties, complications and delays, and other
unknown events. If we are unable to achieve and sustain profitability, our business may be harmed.
Further, we have limited historical financial data and operate in a rapidly evolving market. As such, any predictions about our future revenue and expenses
may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs,
requirements, or preferences, our products may become less competitive.
The market in which we compete is relatively new and subject to rapid technological change, evolving industry standards and regulatory changes, as well as
changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these
changes on a timely basis. If we are unable to develop and sell new products that satisfy our customers and provide enhancements, new features, and capabilities to
our platform that keep pace with rapid technological and industry change, our revenue and operating results could be adversely affected. If new technologies
emerge that enable large internet platform companies to utilize their own data centers and implement delivery approaches that limit or eliminate reliance on third-
party providers like us, or that enable our competitors to deliver competitive products and applications at lower prices, more efficiently, more conveniently, or
more securely, such technologies could adversely impact our ability to compete. If our platform does not allow us or our customers to comply with the latest
regulatory requirements, our existing customers may decrease their usage on our platform and new customers will be less likely to adopt our platform.
Our platform must also integrate with a variety of network, hardware, mobile, and software platforms and technologies, and we need to continuously modify
and enhance our products and platform capabilities to adapt to changes and innovation in these technologies. If developers widely adopt new software platforms,
we would have to attempt to develop new versions of our products and enhance our platform’s capabilities to work with those new platforms. These development
efforts may require significant engineering, marketing, and sales resources, all of which would affect our business and operating results. Any failure of our
platform’s capabilities to operate effectively with future infrastructure platforms, technologies, and software platforms could reduce the demand for our platform. If
we are unable to respond to these changes in a cost-effective manner, our products may become less marketable and less competitive or obsolete, and our business
may be harmed.
Moreover, our platform is highly technical and complex and, for example, our delivery products rely on knowledge of the Varnish Configuration Language
("VCL") to utilize many features of this platform. Potential developers may be unfamiliar or opposed to working with VCL and therefore decide to not adopt our
platform, which may harm our business.
Failure to effectively develop and expand our marketing and sales capabilities could harm our ability to increase our customer base and achieve broader
market acceptance of our platform.
We have historically benefited from word-of-mouth and other organic marketing to attract new customers. Through this word-of-mouth marketing, we have
been able to build our brand with relatively low marketing and sales costs. This strategy has allowed us to build a substantial customer base and community of
users who use our products and act as advocates for our brand and our platform, often within their own corporate organizations. However, our ability to further
increase our customer base and achieve broader market acceptance of our edge cloud platform will significantly depend on our ability to expand our marketing and
sales operations. We plan to continue expanding our sales force and strategic partners, both domestically and internationally. We also plan to continue to dedicate
significant resources to sales, marketing, and demand-generation programs, including various online marketing activities as well as targeted account-based
advertising. The effectiveness of our targeted account-based advertising has varied over time and may vary in the future. All of these efforts will require us to
invest significant financial and other resources and if they fail to attract additional customers our business will be harmed. We have also used a strategy of offering
free trial versions of our platform in order to strengthen our relationship and reputation within the developer community by providing these developers with the
ability to familiarize themselves with our platform without first becoming a paying customer. However, most trial accounts do not convert to paid versions of our
platform, and to date, only a few users who have converted to paying customers have gone on to generate meaningful revenue. If our other lead generation methods
do not result in broader market acceptance of our platform and the users of trial versions of our platform do not become, or are unable to convince their
organizations to become, paying customers, we will not realize the intended benefits of this strategy, and our business will be harmed.
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We believe that there is significant competition for sales personnel, including sales representatives, sales managers, and sales engineers, with the skills and
technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and
retaining sufficient numbers of sales personnel to support our growth. New hires require significant training and may take significant time before they achieve full
productivity. Our recent hires may not become productive as quickly as we expect, if at all, and we may be unable to hire or retain sufficient numbers of qualified
individuals in the markets where we do business or plan to do business. In addition, particularly if we continue to grow rapidly, new members of our sales force
will have relatively little experience working with us, our platform, and our business model. If we are unable to hire and train sufficient numbers of effective sales
personnel, our sales personnel do not reach significant levels of productivity in a timely manner, or our sales personnel are not successful in acquiring new
customers or expanding usage by existing customers, our business will be harmed.
The markets in which we participate are competitive, and if we do not compete effectively, our business will be harmed.
The market for cloud computing platforms, particularly enterprise grade products, is highly fragmented, competitive, and constantly evolving. With the
introduction of new technologies and market entrants, we expect that the competitive environment in which we compete will remain intense going forward. Legacy
CDNs, such as Akamai, Limelight, EdgeCast (part of Verizon Digital Media), Level3, and Imperva, and small business-focused CDNs, such as Cloudflare, InStart,
StackPath, and Section.io, offer products that compete with ours. We also compete with application and API security vendors like Akamai, Cloudflare, Imperva,
Amazon Web Services and F5 (Shape), with cloud providers who are starting to offer compute functionality at the edge like Amazon’s CloudFront, AWS Lambda,
and Google Cloud Platform, as well as traditional data center and appliance vendors like F5, Citrix, A10 Networks, Cisco, Imperva, Radware, and Arbor Networks,
who offer a range of on-premise solutions for load balancing, WAF, and DDoS. Some of our competitors have made or may make acquisitions or may enter into
partnerships or other strategic relationships that may provide more comprehensive offerings than they individually had offered. Such acquisitions or partnerships
may help competitors achieve greater economies of scale than us. In addition, new entrants not currently considered to be competitors may enter the market
through acquisitions, partnerships, or strategic relationships. We compete on the basis of a number of factors, including:
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our platform’s functionality, scalability, performance, ease of use, reliability, security availability, and cost effectiveness relative to that of
our competitors’ products and services;
our global network coverage;
our ability to utilize new and proprietary technologies to offer services and features previously not available in the marketplace;
our ability to identify new markets, applications, and technologies;
our ability to attract and retain customers;
our brand, reputation, and trustworthiness;
our credibility with developers;
the quality of our customer support;
our ability to recruit software engineers and sales and marketing personnel;
our ability to protect our intellectual property; and
our ability to identify opportunities for acquisitions and strategic relationships and successfully execute on them, including our acquisition
of Signal Sciences.
We face substantial competition from legacy CDNs, small business-focused CDNs, cloud providers, traditional data center, and appliance vendors. In
addition, existing and potential customers may not use our platform, or may limit their use, because they pursue a “do-it-yourself” approach by putting in place
equipment, software, and other technology products for content and application delivery within their internal systems; enter into relationships directly with network
providers instead of relying on an overlay network like ours; or implement multi-vendor policies to reduce reliance on external providers like us.
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Our competitors vary in size and in the breadth and scope of the products and services offered. Many of our competitors and potential competitors have
greater name recognition, longer operating histories, more established customer relationships and installed customer bases, larger marketing budgets, and greater
resources than we do. While some of our competitors provide a platform with applications to support one or more use cases, many others provide point-solutions
that address a single use case. Other potential competitors not currently offering competitive applications may expand their product offerings, and our current
customers may develop their own products or features, to compete with our offerings. Our competitors may be able to respond more quickly and effectively than
we can to new or changing opportunities, technologies, standards, and customer requirements. An existing competitor or new entrant could introduce new
technology that reduces demand for our platform. In addition to application and technology competition, we face pricing competition. Some of our competitors
offer their applications or services at a lower price, which has resulted in pricing pressures. Some of our larger competitors have the operating flexibility to bundle
competing applications and services with other offerings, including offering them at a lower price or for no additional cost to customers as part of a larger sale of
other products. For all of these reasons, we may not be able to compete successfully and competition could result in the failure of our platform to achieve or
maintain market acceptance, the market for our edge cloud platform may grow more slowly than we anticipate, any of which could harm our business.
If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, results of operations and financial
condition may suffer.
We believe that maintaining and enhancing our brand is important to continued market acceptance of our existing and future products, attracting new
customers, and retaining existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases.
Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to provide reliable products that
continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality
and products, and our ability to successfully differentiate our platform from competitive products and services. Additionally, our brand and reputation may be
affected if customers do not have a positive experience with our partners’ services. Our brand promotion activities may not generate customer awareness or yield
increased revenue, and even if they do, any increased revenue may not offset the expenses we incurred in building our brand. If we fail to successfully promote and
maintain our brand, our business may be harmed.
Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our
business, and dilute stockholder value.
On October 1, 2020, we completed the acquisition of Signal Sciences. We may in the future seek to acquire or invest in businesses, products, or
technologies that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities. The pursuit of
potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing acquisitions,
whether or not such acquisitions are completed. In addition, we have limited experience in acquiring other businesses and we may not successfully identify
desirable acquisition targets or, when we acquire additional businesses, such as Signal Sciences, we may not be able to integrate them effectively following the
acquisition. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results,
may cause unfavorable accounting treatment, may expose us to claims and disputes by third parties, including intellectual property claims, and may not generate
sufficient financial returns to offset additional costs and expenses related to the acquisitions. We may also incur significant, and sometimes unanticipated, costs in
connection with these acquisitions or in integration with our business. In addition, if an acquired business, such as Signal Sciences, fails to meet our expectations,
our business may be harmed.
Further, it is possible that there could be a loss of our or any acquired company's key employees and customers, disruption of either company’s or both
companies’ ongoing businesses or unexpected issues, higher than expected costs and an overall post-completion process that takes longer than originally
anticipated. Specifically, the following issues, among others, must be addressed in combining any company’s, including Signal Sciences’, operations with ours in
order to realize the anticipated benefits of the acquisition so the combined company performs as the parties hope:
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combining the companies’ corporate functions;
combining their business with our business in a manner that permits us to achieve the synergies anticipated to result from the acquisition, the failure of
which would result in the anticipated benefits of the acquisition not being realized in the time frame currently anticipated or at all;
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• maintaining existing and new agreements with customers, service providers, and vendors;
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determining whether and how to address possible differences in corporate cultures, management philosophies and strategies relating to channels, resellers,
and partners;
integrating the companies’ administrative and information technology infrastructure;
developing products and technology that allow value to be unlocked in the future; and
evaluating and forecasting the financial impact of the acquisition transaction, including accounting charges.
In addition, at times the attention of certain members of our management and resources may be focused on completion of the acquisition and integration planning
of the businesses of the two companies and diverted from day to day business operations, which may disrupt our ongoing business and the business of the
combined company. For example, certain members of our management team and other personnel have spent significant time on the acquisition and integration of
Signal Sciences.
We are, and in the future may be, involved in class-action lawsuits and other litigation matters that are expensive and time-consuming. If resolved adversely,
lawsuits and other litigation matters could seriously harm our business.
We are, and in the future may be, subject to litigation such as putative class action and shareholder derivative lawsuits brought by stockholders. We
anticipate that we will continue to be a target for lawsuits in the future. For example, on August 27, 2020 and September 15, 2020, we and certain of our officers
were named as defendants in putative securities class action purportedly brought on behalf of holders of our Class A common stock. On December 28, 2020 and
February 2, 2021, certain of our officers and directors were named as defendants in shareholder derivative actions. Any litigation to which we are a party may
result in an onerous or unfavorable judgment that may not be reversed on appeal, or we may decide to settle lawsuits on similarly unfavorable terms. Any such
negative outcome could result in payments of substantial monetary damages and accordingly our business could be seriously harmed. The results of lawsuits and
claims cannot be predicted with certainty. Regardless of the final outcome, defending these claims, and associated indemnification obligations, are costly and can
impose a significant burden on management and employees, and we may receive unfavorable preliminary, interim, or final rulings in the course of litigation, which
could seriously harm our business.
Health epidemics, including the ongoing COVID-19 pandemic, have had, and could in the future have, an adverse impact on our business, operations, and the
markets and communities in which we, our partners and customers operate.
Our business and operations could be adversely affected by health epidemics, including the ongoing COVID-19 pandemic, impacting the markets and
communities in which we, our partners and customers operate. In December 2019, a disease referred to as COVID-19 was first reported and has spread to many
countries worldwide, including the United States, and was declared a pandemic.
The ongoing global COVID-19 pandemic has adversely impacted, and may continue to adversely impact, many aspects of our business. As certain of our
customers or potential customers experience downturns or uncertainty in their own business operations and revenue resulting from the spread of COVID-19, they
have and may continue to decrease or delay their technology spending, request pricing concessions or payment extensions, or seek renegotiation of their contracts.
In addition, a portion of our revenue is related to usage of our platform in connection with live events, such as sporting events that have been or may be postponed
or cancelled. While we initially saw an increase in usage of our platform following the implementation of preventative measures to contain or mitigate the outbreak
of COVID-19, we cannot predict how usage levels will continue to be impacted by these preventative measures. There is no assurance that customers will continue
to use our platform, or to the same extent, after the COVID-19 pandemic begins to taper or has ended. As a result, it has been difficult to accurately forecast our
revenues or financial results, especially given that the near and long term impact of the pandemic remains uncertain. Our results of operations could be materially
below our forecasts, which could adversely affect our results of operations, disappoint analysts and investors, or cause our stock price to decline.
In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place restrictions in order to control the spread of the
disease. Such restrictions, or the perception that such restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-
from-home policies, travel restrictions, and cancellation or postponement of events, among other effects that impacted productivity and disrupted our operations
and those of our partners and customers. For example, we experienced delays in the ramping of new traffic due to travel and data center restrictions in
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South Asia that delayed network build outs and the timing of customer code freezes, each affected in part due to COVID-19-related issues. In March 2020, we
closed all of our offices, suspended non-essential travel, cancelled or postponed Fastly-sponsored in-person events, and we are not permitting in-person employee
attendance at industry events or work-related meetings. We have instead shifted to hosting virtual events, including Altitude, our signature Fastly event. We may
take further actions that alter our operations as may be required by federal, state, or local authorities, or which we determine are in our best interests. While much
of our operations can be performed remotely, certain activities such as expanding and maintaining our network of POPs around the world often require personnel
to be on-site, and our ability to carry out these activities have been, and may continue to be negatively impacted if our employees or local data center personnel are
not able to travel. In addition, travel restrictions have affected our ability to conduct audits of our data centers and facilities, requiring us to use alternative
procedures to the standard on-site visit. Any inability to complete these audits could affect our compliance certifications and cause customers to reduce or cease
using our services. In addition, for activities that may be conducted remotely, there is no guarantee that we will be as effective while working remotely because our
team is dispersed and many employees and their families have been negatively affected, mentally or physically, by the COVID-19 pandemic. Decreased
effectiveness and availability of our team could harm our business. Moreover, our finance organization’s ability to ensure that we comply with the requirements of
Section 404 may be impaired in the future, including the ability of our registered public accounting firm to issue an attestation report on management’s assessment
of our internal control over financial reporting. Furthermore, we may decide to postpone or cancel planned investments in our business in response to changes in
our business as a result of the spread of COVID-19, which may impact our ability to attract and retain customers and our rate of innovation, either of which could
harm our business.
In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to
assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to
access capital, which could negatively affect our liquidity in the future.
We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While the spread of
COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that
the global economy will recover, either of which could harm our business.
We may not be able to scale our business quickly enough to meet our customers’ growing needs. If we are not able to grow efficiently, our business could be
harmed.
As usage of our edge cloud computing platform grows and as the breadth of use cases for our platform expands, we will need to devote additional resources
to improving our platform architecture, integrating with third-party applications and maintaining infrastructure performance. In addition, we will need to
appropriately scale our processes and procedures that support our growing customer base, including increasing our number of POPs around the world and
investments in systems, training, and customer support.
Any failure of or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues could reduce the
attractiveness of our platform to customers, resulting in decreased sales to new customers, lower renewal rates by existing customers, the issuance of service
credits, or requested refunds, which would hurt our revenue growth and our reputation. Even if we are able to upgrade our systems and expand our staff, any such
expansion will be expensive and complex, and require the dedication of significant management time and attention. We could also face inefficiencies or
operational failures as a result of our efforts to scale our cloud infrastructure. We cannot be sure that the expansion and improvements to our cloud infrastructure
will be effectively implemented on a timely basis, if at all, and such failures would harm our business.
We may have insufficient transmission bandwidth and colocation space, which could result in disruptions to our platform and loss of revenue.
Our operations are dependent in part upon transmission bandwidth provided by third-party telecommunications network providers and access to colocation
facilities to house our servers. There can be no assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers,
particularly when customers experience cyber-attacks. The bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including
service outages, payment disputes, network providers going out of business, natural disasters, networks imposing traffic limits, or governments adopting
regulations that impact network operations. In some regions, bandwidth providers have their own services that compete with us,
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or they may choose to develop their own services that will compete with us. These bandwidth providers may become unwilling to sell us adequate transmission
bandwidth at fair market prices, if at all. This risk is heightened where market power is concentrated with one or a few major networks. We also may be unable to
move quickly enough to augment capacity to reflect growing traffic or security demands. Failure to put in place the capacity we require could result in a reduction
in, or disruption of, service to our customers and ultimately a loss of those customers. Such a failure could result in our inability to acquire new customers
demanding capacity not available on our platform.
Security incidents and attacks on our platform could lead to significant costs and disruptions that could harm our business, financial results, and reputation.
Our business is dependent on providing our customers with fast, efficient, and reliable distribution of applications and content over the internet. We transmit
and store our customers’ information, data, and encryption keys as well as our own; customer information and data may include personally identifiable data of and
about their end-users. Maintaining the security and availability of our platform, network, and internal IT systems and the security of information we hold on behalf
of our customers is a critical issue for us and our customers. Attacks on our customers and our own network are frequent and take a variety of forms, including
DDoS attacks, infrastructure attacks, botnets, malicious file attacks, cross-site scripting, credential abuse, ransomware, bugs, viruses, worms, and malicious
software programs. Malicious actors can attempt to fraudulently induce employees or suppliers to disclose sensitive information through spamming, phishing, or
other tactics. In addition, unauthorized parties may attempt to gain physical access to our facilities in order to infiltrate our information systems. We have in the
past been subject to cyber-attacks from third parties, including parties who we believe are sponsored by government actors. Since our customers share our multi-
tenant architecture, an attack on any one of our customers could have a negative effect on other customers. These attacks have significantly increased the
bandwidth used on our platform and have strained our network. If attacks like these were to occur in the future and if we do not have the systems and processes in
place to respond to them, our business could be harmed.
Security incidents, whether as a result of third-party action, employee or customer error, technology impairment or failure, malfeasance or criminal activity,
or hostile state actors, could result in unauthorized access to, or loss or unauthorized disclosure of, this information, litigation, indemnity obligations, and other
possible liabilities. Incidents involving customer information have in the past resulted in pricing and other concessions, decreased customer usage and terminations
by affected customers, and similar security incidents could occur in the future that result in pricing concessions, indemnity obligations, and other possible liabilities
related to such unauthorized access, loss or disclosure, including litigation. Further, certain of our insurance policies and the laws of some states may limit or
prohibit insurance coverage for punitive or certain other types of damages or liability arising from gross negligence or intentional misconduct of us and our
suppliers and we cannot assure you that we are adequately insured against the risks that we face.
In recent years, cyber-attacks have increased in size, sophistication, and complexity, increasing exposure for our customers and us. In addition, as we
expand our emphasis on selling security-related products, we may become a more attractive target for attacks on our infrastructure intended to destabilize,
overwhelm, or shut down our platform. For example, we have had security incidents in the past that have tested the limits of our infrastructure and impacted the
performance of our platform. The costs to us to avoid or alleviate cyber or other security problems and vulnerabilities are significant. However, our efforts to
address these problems and vulnerabilities may not be successful. Any significant breach of our security measures could:
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including personally identifiable information of individuals involved with our customers and their end-users;
lead to interruptions or degradation of performance in our platform;
threaten our ability to provide our customers with access to our platform;
generate negative publicity about us;
result in litigation and increased legal liability or fines; or
lead to governmental inquiry or oversight.
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The occurrence of any of these events could harm our business or damage our brand and reputation, lead to customer credits, loss of customers, higher
expenses, and possibly impede our present and future success in retaining and attracting new customers. A successful security breach or attack on our infrastructure
would be damaging to our reputation and could harm our business.
Similar security risks exist with respect to our business partners and the third-party vendors that we rely on for aspects of our information technology
support services and administrative functions. As a result, we are subject to the risk that cyber-attacks on our business partners and third-party vendors may
adversely affect our business even if an attack or breach does not directly impact our systems. It is also possible that security breaches sustained by our competitors
could result in negative publicity for our entire industry that indirectly harms our reputation and diminishes demand for our platform.
The nature of our business exposes us to inherent liability risks.
Our platform and related applications, including our security solutions, are designed to provide rapid protection against web application vulnerabilities and
cyber-attacks. However, no security product can provide absolute protection against all vulnerabilities and cyber-attacks. Our platform is subject to cyber-attacks,
and the failure of our platform and related applications to adequately protect against these cyber-attacks may allow our customers to be attacked. Any adverse
consequences of these attacks, and our failure to meet our customers’ expectations as they relate to such attacks, could harm our business.
Due to the nature of our applications, we are potentially exposed to greater risks of liability for product or system failures than may be inherent in other
businesses. Although substantially all of our customer agreements contain provisions that limit our liability to our customers, these limitations may not be
sufficient, and we cannot assure you that these limitations will be enforced or the costs of any litigation related to actual or alleged omissions or failures would not
have a material adverse effect on us even if we prevail.
Our dedication to our values may negatively influence our financial results.
We have taken, and may continue to take, actions that we believe are in the best interests of our customers, our employees, and our business, even if those
actions do not maximize financial results in the short term. For instance, we do not knowingly allow our platform to be used to deliver content from groups that
promote violence or hate, and that conflict with our values like strong ethical principles of integrity and trustworthiness, among others. However, this approach
may not result in the benefits that we expect, and our employees or third parties may disagree with our interpretation of our values, or take issue with how we
execute on our values, which may result in us becoming a target for negative publicity, increased scrutiny, lawsuits, or network attacks, in which case our business
could be harmed.
Our growth depends in large part on the success of our partner relationships.
We maintain a partner ecosystem of companies who build edge applications to integrate with our platform. We are dependent on these partner relationships
to amplify our reach and provide our customers with enhanced value from our platform. Our future growth will be increasingly dependent on the success of our
partner relationships, including their development of useful applications for our platform. If those partnerships do not provide these benefits or if our partners are
unable to serve our customers effectively, we may need to allocate resources internally to provide these services or our customers may not realize the full value of
our platform, which could harm our business.
Moreover, our partners’ business partners may not completely align with our core values and therefore may do business with companies that we otherwise
would not. Our association with these companies could damage our brand and reputation and potentially harm our business.
We operate in an emerging and evolving market, which may develop more slowly or differently than we expect. If our market does not grow as we expect, or if
we cannot expand our services to meet the demands of this market, our revenue may decline, or fail to grow, and we may incur operating losses.
The market for edge computing is in an early stage of development. There is considerable uncertainty over the size and rate at which this market will grow,
as well as whether our platform will be widely adopted. Our success will depend, to a substantial extent, on the widespread adoption of our platform as an
alternative to other solutions, such as legacy CDNs,
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enterprise data centers, central cloud, and small business-focused CDNs. Some organizations may be reluctant or unwilling to use our platform for a number of
reasons, including concerns about additional costs, uncertainty regarding the reliability, and security of cloud-based offerings or lack of awareness of the benefits
of our platform. Moreover, many organizations have invested substantial personnel and financial resources to integrate traditional on-premise services into their
businesses, and therefore may be reluctant or unwilling to migrate to cloud-based services. Our ability to expand sales of our product into new and existing markets
depends on several factors, including potential customer awareness of our platform; the timely completion of data centers in those markets; introduction and
market acceptance of enhancements to our platform or new applications that we may introduce; our ability to attract, retain and effectively train sales and
marketing personnel; our ability to develop relationships with partners; the effectiveness of our marketing programs; the pricing of our services; and the success of
our competitors. If we are unsuccessful in developing and marketing our product into new and existing markets, or if organizations do not perceive or value the
benefits of our platform, the market for our product might not continue to develop or might develop more slowly than we expect, either of which may harm our
business.
The estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and any real or perceived inaccuracies may harm our
reputation and negatively affect our business. Even if the market in which we compete achieves the forecasted growth, our business could fail to grow at
similar rates, if at all.
Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to
be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular
number or percentage of addressable companies or end-users covered by our market opportunity estimates will purchase our products at all or generate any
particular level of revenues for us. Even if the market in which we compete meets the size estimates and growth forecasted, our business could fail to grow for a
variety of reasons, including reasons outside of our control, such as competition in our industry.
Usage of our platform accounts for substantially all of our revenue.
We expect that we will be substantially dependent on our edge cloud platform to generate revenue for the foreseeable future. As a result, our operating
results could suffer due to:
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any decline in demand for our edge cloud platform;
the failure of our edge cloud platform to achieve continued market acceptance;
the market for edge cloud computing services not continuing to grow, or growing more slowly than we expect;
the introduction of products and technologies that serve as a replacement or substitute for, or represent an improvement over, our edge cloud
platform;
technological innovations or new standards that our edge cloud platform does not address;
sensitivity to current or future prices offered by us or our competitors;
our customers’ development of their own edge cloud platform; and
our inability to release enhanced versions of our edge cloud platform on a timely basis.
If the market for our edge cloud platform grows more slowly than anticipated or if demand for our edge cloud platform does not grow as quickly as
anticipated, whether as a result of competition, pricing sensitivities, product obsolescence, technological change, unfavorable economic conditions, uncertain
geopolitical environment, budgetary constraints of our customers, or other factors, our business would be harmed.
We expect fluctuations in our financial results and key metrics, making it difficult to project future results, and if we fail to meet the expectations of securities
analysts or investors, our stock price and the value of your investment could decline.
Our operating results, as well as our key metrics, including our DBNER, NRR and LTM NRR, have fluctuated in the past and are expected to fluctuate in
the future due to a variety of factors, many of which are outside of our control. We also present certain key metrics for Signal Sciences separately. As a result, our
past results may not be indicative of our future
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performance and period-to-period comparisons of our operating results and key metrics may not be meaningful. In addition to the other risks described herein,
factors that may affect our operating results include the following:
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fluctuations in demand for or pricing of our platform;
our ability to attract new customers;
our ability to retain our existing customers;
fluctuations in the usage of our platform by our customers, which is directly related to the amount of revenue that we recognize from our
customers;
fluctuations in customer delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors;
changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions;
the timing of customer payments and any difficulty in collecting accounts receivable from customers;
timing of new functionality of our existing platform;
our ability to control costs, including our operating expenses;
the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses,
including commissions;
the amount and timing of costs associated with recruiting, training, and integrating new employees;
the effects of acquisitions or other strategic transactions;
expenses in connection with acquisitions or other strategic transactions;
our ability to successfully deploy POPs in new regions;
general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in
which our customers participate;
the ability to maintain our partnerships;
the impact of new accounting pronouncements;
changes in the competitive dynamics of our market, including consolidation among competitors or customers;
significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform; and
awareness of our brand and our reputation in our target markets.
Additionally, certain large scale events, such as major elections and sporting events, can significantly impact usage of our platform, which could cause
fluctuations in our results of operations. While increased usage of our platform during these events could result in increased revenue, these seasonal and one-
time events could also impact the performance of our platform during those events and lead to a sub-optimal experience for some customers. Such annual and one-
time events may cause fluctuations in our results of operations as they would impact both our revenue and our operating expenses.
Any of the foregoing and other factors may cause our results of operations to vary significantly. If our quarterly results of operations fall below the
expectations of investors and securities analysts who follow our stock, the price of our Class A common stock could decline substantially, and our business could
be harmed.
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Our pricing models subject us to various challenges that could make it difficult for us to derive sufficient value from our customers, and we do not have
sufficient history with our pricing models to accurately predict the optimal pricing necessary to attract new customers and retain existing customers.
We generally charge our customers for their usage of our platform based on the combined total usage, as well as the features and functionality enabled.
Additionally, once our product is purchased, customers can also buy a combination of our add-on products. We do not know whether our current or potential
customers or the market in general will continue to accept this pricing model going forward and, if it fails to gain acceptance, our business could be harmed. We
also generally purchase bandwidth from internet service providers and server colocation space from third parties based on expected usage from our customers.
Moreover, if our customers use our platform in a manner that is inconsistent with how we have purchased bandwidth, servers, and colocation space, our business
could be harmed.
We have limited experience with respect to determining the optimal prices for our products and, as a result, we have in the past changed our pricing model
and expect that we may need to do so in the future. As the market for our products matures, or as new competitors introduce new products or services that compete
with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. Pricing decisions may
also impact the mix of adoption among our customers and negatively impact our overall revenue. Moreover, larger organizations may demand substantial price
concessions. As a result, in the future we may be required to reduce our prices or develop new pricing models, which could adversely affect our revenue, gross
margin, profitability, financial position, and cash flow.
Our sales and onboarding cycles with customers can be long and unpredictable, and our sales and onboarding efforts require considerable time and expense.
The timing of our sales with our enterprise customers and related revenue recognition is difficult to predict because of the length and unpredictability of the
sales cycle for these customers. In addition, for our enterprise customers, the lengthy sales cycle for the evaluation and implementation of our products may also
cause us to experience a delay between expenses for such sales efforts and the generation of corresponding revenue. The length of our sales cycle for these
customers, from initial evaluation to payment, can range from several months to well over a year and can vary substantially from customer to customer. Similarly,
the onboarding and ramping process with new enterprise customers, or with existing customers that are moving additional traffic onto our platform, can take
several months. As the purchase of our products can be dependent upon customer initiatives, our sales cycle can extend to even longer periods of time. Customers
often view a switch to our platform as a strategic decision requiring significant investment and, as a result, frequently require considerable time to evaluate, test,
and qualify our product offering prior to entering into or expanding a contract commitment. During the sales cycle, we expend significant time and money on sales
and marketing and contract negotiation activities, which may not result in a completed sale. Additional factors that may influence the length and variability of our
sales cycle include:
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the effectiveness of our sales force, particularly new salespeople, as we increase the size of our sales force and train our new salespeople to
sell to enterprise customers;
the discretionary nature of customers’ purchasing decisions and budget cycles;
customers’ procurement processes, including their evaluation of competing products;
economic conditions and other factors affecting customer budgets;
the regulatory environment in which our customers operate;
integration complexity for a customer deployment;
the customer’s familiarity with edge cloud computing platforms;
evolving customer demands;
selling new products to enterprise customers; and
competitive conditions.
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Given these factors, it is difficult to predict whether and when a customer will switch to our platform.
Given that it can take several months for our customers to ramp up their usage of our platform, during that time, we may not be able to generate enough
revenue from a particular customer or that customer may not increase their usage in a meaningful way. Moreover, because the switching costs are fairly low, our
customers are able to switch from our platform to alternative services relatively easily. As a result, actual usage could be materially above or below our forecasts,
which could adversely affect our results of operations, disappoint analysts and investors, or cause our stock price to decline.
If our platform does not achieve sufficient market acceptance, our financial results and competitive position will suffer.
To meet our customers’ rapidly evolving demands, we invest substantial resources in research and development of enhanced products to incorporate
additional functionality or expand the use cases that our platform addresses. Maintaining adequate research and development resources, such as the appropriate
personnel and development technology, to meet the demands of the market is essential. If we are unable to develop products internally due to inadequate or
ineffective research and development resources, we may not be able to address our customers’ needs on a timely basis or at all. In addition, if we seek to
supplement our research and development capabilities or the breadth of our products through acquisitions, such acquisitions could be expensive and we may not
successfully integrate acquired technologies or businesses into our business. When we develop or acquire new or enhanced products, we typically incur expenses
and expend resources upfront to develop, market, promote, and sell the new offering. Therefore, when we develop or acquire and introduce new or enhanced
products, they must achieve high levels of market acceptance in order to justify the amount of our investment in developing or acquiring and bringing them to
market. Our new products or enhancements and changes to our existing products could fail to attain sufficient market acceptance for many reasons, including:
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failure to predict market demand accurately in terms of functionality and a failure to supply products that meet this demand in a timely
fashion;
defects, errors, or failures;
negative publicity about our platform’s performance or effectiveness;
changes in the legal or regulatory requirements, or increased legal or regulatory scrutiny, adversely affecting our platform;
emergence of a competitor that achieves market acceptance before we do;
delays in releasing enhancements to our platform to the market; and
introduction or anticipated introduction of competing products by our competitors.
If our platform and any future enhancements do not achieve adequate acceptance in the market, or if products and technologies developed by others achieve
greater acceptance in the market, our business could be harmed.
Beyond overall acceptance of our platform by our customers, it is important that we maintain and grow acceptance of our platform among the developers
that work for our customers. We rely on developers to choose our platform over other options they may have, and to continue to use and promote our platform as
they move between companies. These developers often make design decisions and influence the product and vendor processes within our customers. If we fail to
gain or maintain their acceptance of our platform, our business would be harmed.
We rely on third-party hosting providers that may be difficult to replace.
We rely on third-party hosting services such as Amazon Web Services ("AWS"), Google, Softlayer (acquired by IBM), and other cloud providers that
facilitate the offering of our platform. Some of these third-party hosting services offer competing products to ours and therefore may not continue to be available
on commercially reasonable terms, or at all. These providers may be unwilling to do business with us if they view our platform as a threat. Any loss of the right to
use any of the hosting providers could impair our ability to offer our platform until we are able to obtain alternative hosting providers.
If we do not or cannot maintain the compatibility of our platform with third-party applications that our customers use in their businesses, our business will be
harmed.
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Because our customers choose to integrate our products with certain capabilities provided by third-party providers, the functionality and popularity of our
platform depends, in part, on our ability to integrate our platform and applications with third-party applications. These third parties may change the features of their
technologies, restrict our access to their applications, or alter the terms governing use of their applications in a manner that is adverse to our business. Such changes
could functionally limit or prevent our ability to use these third-party technologies in conjunction with our platform, which would negatively affect adoption of our
platform and harm our business. If we fail to integrate our platform with new third-party applications that our customers use, we may not be able to offer the
functionality that our customers need, which would harm our business.
We provide service level commitments under our customer agreements. If we fail to meet these contractual commitments, we could be obligated to provide
credits for future service, or face contract termination with refunds of prepaid amounts, which could harm our business.
Most of our customer agreements contain service level commitments. If we are unable to meet the stated service level commitments, including failure to
meet the uptime and delivery requirements under our customer agreements, we have in the past and may in the future be contractually obligated to provide the
affected customers with service credits which could significantly affect our revenues in the periods in which the uptime and/or delivery failure occurs and the
credits are applied. For example, as a result of a platform interruption in January 2021, certain of our affected customers with whom we have service level
commitments are entitled to receive service credits. We could also face customer terminations with refunds of prepaid amounts, which could significantly affect
both our current and future revenues. Any service level failures could harm our business.
If we fail to offer high quality support, our business may be harmed.
Our customers rely on our support team to assist them in deploying our products effectively and resolve technical and operational issues. High-quality
support is important for the renewal and expansion of our agreements with existing customers. The importance of maintaining high quality support will increase as
we expand our business and pursue new customers. If we do not help our customers quickly resolve issues and provide effective ongoing support, our ability to
maintain and expand our relationships with existing and new customers could suffer and our business could be harmed. Further, increased demand for customer
support, without corresponding revenue, could increase costs and adversely affect our business. In addition, as we continue to grow our operations and expand
internationally, we will need to be able to provide efficient customer support that meets our customers’ needs globally at scale and our customer support team will
face additional challenges, including those associated with delivering support and documentation in multiple languages. Our failure to do so could harm our
business.
Risks Related to Employees and Managing Our Growth
We rely on the performance of highly skilled personnel, including our management and other key employees, and the loss of one or more of such personnel, or
of a significant number of our team members, could harm our business.
We believe our success has depended, and continues to depend, on the efforts and talents of senior management and key personnel, including Artur
Bergman, our Chief Architect and Executive Chairman and Joshua Bixby, our Chief Executive Officer. From time to time, there may be changes in our
management team resulting from the hiring or departure of executives and key employees, or the transition of executives within our business, such as with respect
to Mr. Bergman and Mr. Bixby, which could disrupt our business. We also are dependent on the continued service of our existing software engineers because of
the complexity of our platform. Our senior management and key employees are employed on an at-will basis. We cannot ensure that we will be able to retain the
services of any member of our senior management or other key employees or that we would be able to timely replace members of our senior management or other
key employees should any of them depart. The loss of one or more of our senior management or other key employees could harm our business.
The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.
To execute our business strategy, we must attract and retain highly qualified personnel. Competition for executive officers, software developers, sales
personnel, and other key employees in our industry is intense. In particular, we compete with many other companies for software developers with high levels of
experience in designing, developing, and managing cloud-based software, as well as for skilled sales and operations professionals. In addition, we believe that the
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business and corporate culture depends on employing people with a variety of backgrounds and experiences, and the competition for such diverse personnel is
significant. The market for such talented personnel is competitive. Many of the companies with which we compete for experienced personnel have greater
resources than we do and can frequently offer such personnel substantially greater compensation than we can offer. If we fail to attract new personnel or fail to
retain and motivate our current personnel, our business would be harmed.
Our recent rapid growth may not be indicative of our future growth and, if we continue to grow rapidly, we may not be able to manage our growth
effectively.
We have experienced substantial growth in our business since inception. For example, our headcount has grown from 630 employees as of December 31,
2019 to 939 employees as of December 31, 2020, and grew by approximately 149 employees on October 1, 2020 in connection with our acquisition of Signal
Sciences. In addition, we are rapidly expanding, and expect to continue to expand in the future, our international operations. We have also experienced significant
growth in the number of customers, usage, and amount of data delivered across our platform. This growth has placed and may continue to place significant
demands on our corporate culture, operational infrastructure, and management. We may not continue to grow as rapidly in the future. Overall growth of our
revenue depends on a number of factors, including our ability to:
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address new and developing markets, such as large enterprise customers outside the United States;
control expenses;
recruit, hire, train, and manage additional qualified engineers;
recruit, hire, train, and manage additional sales and marketing personnel;
maintain our corporate culture;
expand our international operations;
implement and improve our administrative, financial and operational systems, procedures, and controls;
attract new customers and increase our existing customers’ usage on our platform;
expand the functionality and use cases for the products we offer on our platform;
provide our customers with customer support that meets their needs; and
successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our
products, such as our acquisition of Signal Sciences.
We may not successfully accomplish any of the above objectives. We expect to continue to expend substantial financial and other resources on:
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sales and marketing, including a significant expansion of our sales organization;
our infrastructure, including POP deployments, systems architecture, management tools, scalability, availability, performance, and security,
as well as disaster recovery measures;
product development, including investments in our product development team and the development of new products and new functionality
for our existing products;
acquisitions or strategic investments;
international expansion; and
general administration, including increased legal and accounting expenses associated with being a public company.
If we cannot maintain our company culture as we grow, our success and our business may be harmed.
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We believe our culture has been a key contributor to our success to date and that the critical nature of the products that we provide promotes a sense of
greater purpose and fulfillment in our employees. We have invested in building a strong corporate culture and believe it is one of our most important and
sustainable sources of competitive advantage. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel and to
effectively focus on and pursue our corporate objectives. As we grow and develop the systems and processes associated with being a public company, we may find
it difficult to maintain these important aspects of our culture. In addition, while we have historically benefited from having a dispersed workforce, as we grow and
our resources become more globally dispersed and our organizational management structures become more complex, we may find it increasingly difficult to
maintain these beneficial aspects of our corporate culture. If we fail to maintain our company culture, our business may be harmed.
Risks Related to Our Financial Position and Need for Additional Capital
Because substantially all of our revenue from usage on our platform is recognized over the term of the relevant contract, downturns or upturns in sales
contracts are not immediately reflected in full in our operating results.
Revenue for usage on our platform accounts for substantially all of our total revenue. We recognize revenue over the term of each of our customer contracts,
which are typically one year in length but may be longer in length. As a result, much of our revenue is generated from contracts entered into during previous
periods. Consequently, a decline in new or renewed contracts in any one quarter may not significantly reduce our revenue for that quarter but could negatively
affect our revenue in future quarters. Our revenue recognition model also makes it difficult for us to rapidly increase our revenue through new contracts in any
period, as revenue from customers is recognized over the applicable term of their contracts.
Seasonality may cause fluctuations in our sales and operating results.
We have experienced, and expect to continue to experience in the future, seasonality in our business, and our operating results and financial condition may
be affected by such trends in the future. We generally experience seasonal fluctuations in demand for our platform. For example, we have some customers who
increase their usage and requests when they need more capacity during busy periods, especially in the fourth quarter of the year, and then subsequently scale back.
Since we have built our network to handle seasonal capacity fluctuations, we may not be able to reduce our capacity in a timely manner, and as such sustain more
costs. We believe that the seasonal trends that we have experienced in the past may continue for the foreseeable future, particularly as we expand our sales to larger
enterprises. To the extent we experience this seasonality, it may cause fluctuations in our operating results and financial metrics, and make forecasting our future
operating results and financial metrics difficult. Additionally, we do not have sufficient experience in selling certain of our products to determine if demand for
these products are or will be subject to material seasonality.
Our current operations are international in scope and we plan on further geographic expansion, creating a variety of operational challenges.
A component of our growth strategy involves the further expansion of our operations and customer base internationally. For the year ended December 31,
2020, the percentage of revenue generated from customers outside the United States was 32% of our total revenue. We currently have offices in Japan, the United
Kingdom, and the United States, as well as employees located throughout the world. We are continuing to adapt to and develop strategies to address international
markets but there is no guarantee that such efforts will have the desired effect. As of December 31, 2020, approximately 17% of our full-time employees were
located outside of the United States. We expect that our international activities will continue to grow over the foreseeable future as we continue to pursue
opportunities in existing and new international markets, which will require significant management attention and financial resources. In connection with such
expansion, we may face difficulties including costs associated with, varying seasonality patterns, potential adverse movement of currency exchange rates, longer
payment cycle difficulties in collecting accounts receivable in some countries, tariffs and trade barriers, a variety of regulatory or contractual limitations on our
ability to operate, adverse tax events, reduced protection of intellectual property rights in some countries, and a geographically and culturally diverse workforce
and customer base. Failure to overcome any of these difficulties could harm our business.
Our current and future international business and operations involve a variety of risks, including:
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changes in a specific country’s or region’s political or economic conditions;
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greater difficulty collecting accounts receivable and longer payment cycles;
potential or unexpected changes in trade relations, regulations, or laws;
more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal
information, particularly in Europe;
differing labor regulations, especially in Europe and Japan, where labor laws are generally more advantageous to employees as compared to
the United States, including deemed hourly wage and overtime regulations in these locations;
challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to
implement appropriate systems, policies, benefits, and compliance programs;
challenges to our corporate culture resulting from a dispersed workforce;
difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and
regulatory systems;
increased travel, real estate, infrastructure, and legal compliance costs associated with international operations;
currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging
transactions if we chose to do so in the future;
challenges related to providing support and developing products in foreign languages;
limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;
laws and business practices favoring local competitors or general market preferences for local vendors;
potential tariffs and trade barriers;
limited or insufficient intellectual property protection or difficulties enforcing our intellectual property;
political instability or terrorist activities;
exposure to liabilities under anti-corruption and anti-money laundering laws, and similar laws and regulations in other jurisdictions; and
adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash.
Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not
be successful. If we invest substantial time and resources to further expand our international operations and are unable to do so successfully and in a timely
manner, our business may be harmed.
Our business is dependent upon the timely supply of certain parts and components manufactured in China to construct our servers. To the extent that our
suppliers are impacted by the COVID-19 pandemic, it likely will reduce the availability, or result in delays, of parts and components to us, which in turn could
interrupt our ability to complete the construction of our servers to meet the usage needs of our customers.
Our ability to timely raise capital in the future may be limited, or may be unavailable on acceptable terms, if at all, and our failure to raise capital when needed
could harm our business, and debt or equity issued to raise additional capital may reduce the value of our Class A common stock.
We have funded our operations since inception primarily through payments received from our customers, sales of equity securities, and borrowings under
our credit facilities. We cannot be certain when or if our operations will generate sufficient
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cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business and may require
additional funds. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our growth rate,
market acceptance of our platform, the expansion of sales and marketing activities, strategic transactions, as well as overall economic conditions. For example, on
October 1, 2020 we
acquired Signal Sciences for an aggregate purchase price of $759.4 million, consisting of approximately $223.0 million in cash and 6,367,709 shares of our Class
A common stock, including 896,499 shares which are restricted as they are subject to revesting conditions. The aggregate purchase price reflects the value of the
net shares issued, which excludes the above mentioned shares that are restricted.
We may need to engage in equity or debt financings to secure additional funds. Additional financing may not be available on favorable terms, if at all and
any additional financing will need to be in compliance with the terms of our Senior Secured Credit Facilities Credit Agreement ("Credit Agreement"), dated as of
February 16, 2021, with the lenders party thereto and Silicon Valley Bank ("SVB") as a lender and as the administrative agent, issuing bank and swingline lender.
If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating
results, and financial condition. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could
have rights senior to those of our common stock. Any debt financing we secure could involve additional restrictive covenants relating to our capital raising
activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities,
including potential acquisitions. If we were to violate such restrictive covenants, we could incur penalties, increased expenses and an acceleration of the payment
terms of our outstanding debt, which could in turn harm our business. Because our decision to issue securities in future offerings will depend on numerous
considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity
securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our Class A common stock and diluting
their interests.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that
we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Critical Accounting Policies.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities,
and equity and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our
consolidated financial statements include those related to allowance for doubtful accounts, fair value of financial instruments, valuation of stock-based
compensation, valuation of warrant liabilities, and the valuation allowance for deferred income taxes. Our results of operations may be adversely affected if our
assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of
securities analysts and investors, resulting in a decline in the trading price of our Class A common stock.
Current and future indebtedness could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions.
Our Credit Agreement with SVB contains, and any future indebtedness would likely contain, a number of restrictive covenants that impose significant
operating and financial restrictions on us, including restrictions on our ability to incur additional indebtedness, grant liens, pay dividends and make distributions,
transfer property, make investments, and take other actions that may otherwise be in our best interests. In addition, our Credit Agreement contains a financial
covenant that requires us to maintain a consolidated adjusted quick ratio of at least 1:25 to 1:00 tested on a quarterly basis as well as a springing revenue growth
covenant for certain periods if our consolidated adjusted quick ratio falls below 1.75 to 1:00 on the last day of any fiscal quarter. Our ability to meet these financial
covenants can be affected by events beyond our control, and we may not be able to continue to meet those covenants. In addition, a breach of a covenant under our
Credit Agreement or any other current or future credit facility of ours may result cross-default under a separate credit facility. If we seek to enter into one or more
additional credit facilities in the future we may not be able to obtain debt financing on terms that are favorable to us, if at all. Holders of our existing debt have, and
holders of any future debt we may incur would have, rights senior to holders of common stock to make claims on our assets. In addition, the terms of our existing
debt do, and the terms of any future debt could, restrict our operations, including our ability to pay dividends on our common stock. If we are unable to obtain
adequate
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financing or financing on terms that are satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business
challenges could be significantly impaired, and our business may be harmed.
We have identified a material weakness in our internal control over financial reporting, and if we are unable to remediate and maintain effective internal
control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of
our Class A common stock may be seriously harmed.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in those internal controls.
For example, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report
on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act 9 ("Section 404"). Our independent
registered public accounting firm also needs to attest to the effectiveness of our internal control over financial reporting. We designed, implemented, and tested
internal control over financial reporting required to comply with this obligation. That process is time-consuming, costly, and complicated.
We and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting for the years ended
December 31, 2019 and 2018, which remains partially unremediated for the year ended December 31, 2020. The material weakness related to the lack of sufficient
qualified accounting resources, including those with the appropriate level of technical accounting knowledge, to timely identify and assess accounting implications
of complex transactions which resulted in the incorrect application of generally accepted accounting principles. We reported this material weakness in our Annual
Report on Form 10-K for the years ended December 31, 2020 and December 31, 2019.
The process of implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business
and the economic and regulatory environments and to expand significant resources to maintain a financial reporting system that is adequate to satisfy our reporting
obligations. We continue to evaluate and take actions to improve our internal control over financial reporting, which includes but is not limited to hiring additional
resources, to address control deficiencies.
If we fail to remediate our existing material weakness or identify future material weaknesses in our internal control over financial reporting, or if we are
unable to comply with the requirements of Section 404 or assert that our internal control over financial reporting is effective, or if our independent registered
public accounting firm is unable to express an unqualified opinion or expresses a qualified or adverse opinion about the effectiveness of our internal control over
financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock
could be negatively affected. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, and other
regulatory authorities, which could require additional financial and management resources.
We may not be able to successfully manage the growth of our business if we are unable to improve our internal systems, processes and controls.
We need to continue to improve our internal systems, processes, and controls to effectively manage our operations and growth. We may not be able to
successfully implement and scale improvements to our systems and processes in a timely or efficient manner or in a manner that does not negatively affect our
operating results. For example, we may not be able to effectively monitor certain extraordinary contract requirements or provisions that are individually negotiated
by our sales force as the number of transactions continues to grow. In addition, our systems and processes may not prevent or detect all errors, omissions, or fraud.
We may experience difficulties in managing improvements to our systems, processes, and controls or in connection with third-party software, which could impair
our ability to offer our platform to our customers in a timely manner, causing us to lose customers, limit us to smaller deployments of our products, or increase our
technical support costs.
Our financial results may be adversely affected by changes in accounting principles applicable to us.
Generally accepted accounting principles in the United States ("U.S. GAAP") are subject to interpretation by the Financial Accounting Standards Board
("FASB"), the SEC and other various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations
could have a significant effect on our reported financial results for periods prior to and subsequent to such change, and could affect the reporting of transactions
completed before the announcement of a change.
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In February 2016, the FASB issued new guidance, Accounting Standard Update No. 2016-02, Leases (Topic 842), which supersedes nearly all existing lease
disclosures under U.S. GAAP. As we ceased to be an emerging growth company as of December 31, 2020, we adopted the standard on December 31, 2020,
presenting the initial application of ASC 842 beginning on January 1, 2020, in our annual financial statements included in our Form 10-K for year ended December
31, 2020. Its impact is reflected in our consolidated financial statements, which includes several newly required disclosures. Market practices with respect to these
new disclosures are continuously evolving, and securities analysts and investors may not fully understand the implications of our disclosures or how or why they
may differ from similar disclosures by other companies. Any additional new accounting standards could have a significant effect on our reported results. If our
reported results fall below analyst or investor expectations, our stock price could decline.
Risks Related to Laws, Regulations, and the Global Economy
Failure to comply with U.S. and foreign governmental laws and regulations could harm our business.
Our business is subject to regulation by various federal, state, local, and foreign governments. If we do not comply with these laws or regulations or if we
become liable under these laws or regulations due to the failure of our customers to comply with these laws, we could face direct liability or delivery of content by
our platform may be blocked by certain governments. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States.
For example, in June 2020, China passed a national security law for Hong Kong that imposes criminal liability for the violation of content regulations, it is
currently not clear how broadly such legislation will be interpreted or applied in relation to our customers or our business, and additional developments in our
understanding of the application of this law could cause us to remove our POP from Hong Kong. Noncompliance with applicable regulations or requirements could
subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties, injunctions, or other collateral
consequences. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business could be harmed. In
addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees.
Enforcement actions and sanctions could harm our business.
If the U.S. government prohibits our current or potential customers from doing business with us, whether through policy, regulations or laws, we could face
direct liability or our delivery of content by our platform may be blocked. For example, in the current environment of economic trade negotiations and tensions
between the Chinese and U.S. governments, the U.S. government has expressed concerns about the ability of companies operating in China to do business in the
U.S. or with U.S. companies. As a result, we could lose the ability to contract with current or potential customers or usage of our platform may decrease by
affected customers, including our largest customer during the year ended December 31, 2020, which could harm our business and reputation. For example, our
largest customer during the year ended December 31, 2020 has strong business ties to China and significantly reduced its usage of our platform in the later part of
2020. We believe this was in response to various actions taken by the U.S. and other governments against them. Even in the absence of new restrictions or trade
actions imposed by the U.S. or other governments, our customers that operate in China, target China as a market, or that have strong business ties to China, may
take actions to reduce dependence on our platform, which could harm our business.
We are subject to governmental regulation and other legal obligations, particularly those related to privacy, data protection, and information security, and our
actual or perceived failure to comply with such obligations could harm our business, by resulting in litigation, fines, penalties, or adverse publicity and
reputational damage that may negatively affect the value of our business and decrease the price of our common stock. Compliance with such laws could also
result in additional costs and liabilities to us or inhibit sales of our products.
We receive, store, and process personal information and other data from and about actual and prospective customers and users, in addition to our employees
and service providers. In addition, our customers use our platform to collect personally identifiable information, personal health information, and personal financial
information from their end-users. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, such as
the U.S. Federal Trade Commission ("FTC"), and various state, local, and foreign agencies. Our data handling also is subject to contractual obligations and
industry standards.
The U.S. federal and various state and foreign governments have adopted or proposed limitations on the collection, distribution, use, and storage of data
relating to individuals and businesses, including the use of contact information and other data for marketing, advertising, and other communications with
individuals and businesses. In the United States, various laws and regulations apply to the collection, processing, disclosure, and security of certain types of data,
including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of
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1996, the Gramm Leach Bliley Act, and state laws relating to privacy and data security, including the California Consumer Privacy Act (the “CCPA”), which
became effective on January 1, 2020. The CCPA requires companies that process information on California residents to make new disclosures to consumers about
their data collection, use and sharing practices, allows consumers to opt out of certain data sharing with third parties and provides a new cause of action for data
breaches. It remains unclear how the CCPA will be interpreted and the extent of its impact on our business. Additionally, the FTC and many state attorneys general
are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. The laws and
regulations relating to privacy and data security are evolving, can be subject to significant change and may result in ever-increasing regulatory and public scrutiny
and escalating levels of enforcement and sanctions.
In addition, several foreign countries and governmental bodies, including the EU, have laws and regulations dealing with the handling and processing of
personal information obtained from their residents, which in certain cases are more restrictive than those in the United States. Laws and regulations in these
jurisdictions apply broadly to the collection, use, storage, disclosure, and security of various types of data, including data that identifies or may be used to identify
an individual, such as names, email addresses, and in some jurisdictions, Internet Protocol ("IP") addresses. Such laws and regulations may be modified or subject
to new or different interpretations, and new laws and regulations may be enacted in the future.
Within the EU, the General Data Protection Regulation ("GDPR") significantly increases the level of sanctions for non-compliance from those in existing
EU data protection law and imposes direct obligations on data processors in addition to data controllers and may require us to make further changes to our policies
and procedures in the future, beyond what we have already done. EU data protection authorities will have the power to impose administrative fines for violations of
the GDPR of up to a maximum of €20 million or 4% of the data controller’s or data processor’s total worldwide global revenue for the preceding fiscal year,
whichever is higher, and violations of the GDPR may also lead to damages claims by data controllers and data subjects. Such penalties are in addition to any civil
litigation claims by data controllers, customers, and data subjects. Since we act as a data processor for our customers, we are taking steps to cause our processes to
be compliant with applicable portions of the GDPR, but we cannot assure you that such steps will be effective. In particular, although the UK enacted a Data
Protection Act in May 2018 that is designed to be consistent with the GDPR, uncertainty remains regarding how data transfers to and from the UK will be
regulated.
The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly laws outside the United
States, as a result of the rapidly evolving regulatory framework for privacy issues worldwide. For example, laws relating to the liability of providers of online
services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and
other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted,
or the content provided by users. We are also following developments in 2020 regarding the frameworks that address the transfer of personal information outside
of the EU, including the Privacy Shield framework and the standard contractual clauses. Specifically, in July 2020, the Court of Justice of the EU invalidated the
EU-US Privacy Shield framework. If local authorities block transfers of data between the EU and the US, for example, by stating that the Standard Contractual
Clauses are not an adequate data transfer mechanism to the US under the GDPR, our vendor and customer relationships may be impacted. We have encountered
and may continue to encounter heightened concerns relating to privacy from customers and potential customers conducting business in Europe since the
invalidation of the US-EU Privacy Shield framework. Specifically, we have received more requests relating to EU privacy requirements, impacting the sales
negotiation process, and have also had potential customers decline to do business with us due to privacy concerns related to updated interpretations of the laws
applicable to transfers of personal data to the United States. As a result of the laws that are or may be applicable to us, and due to the sensitive nature of the
information we collect, we have implemented policies and procedures to preserve and protect our data and our customers’ data against loss, misuse, corruption,
misappropriation caused by systems failures, unauthorized access, or misuse. If our policies, procedures, or measures relating to privacy, data protection,
marketing, or customer communications fail to comply with laws, regulations, policies, legal obligations, or industry standards, we may be subject to governmental
enforcement actions, litigation, regulatory investigations, fines, penalties, and negative publicity and could cause our application providers, customers, and partners
to lose trust in us, and have an adverse effect on our business, operating results, and financial condition.
In addition to government regulation, privacy advocates, and industry groups may propose new and different self-regulatory standards that may apply to us.
Because the interpretation and application of privacy and data protection laws, regulations, rules, and other standards are still uncertain, it is possible that these
laws, rules, regulations, and other actual or alleged legal obligations, such as contractual or self-regulatory obligations, may be interpreted and applied in a manner
that is inconsistent with our existing data management practices or the functionality of our platform. If so, in addition to the possibility
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of fines, lawsuits, and other claims, we could be required to fundamentally change our business activities and practices or modify our software, which could have
an adverse effect on our business.
Any failure or perceived failure by us to comply with laws, regulations, policies, legal, or contractual obligations, industry standards, or regulatory guidance
relating to privacy or data security, may result in governmental investigations and enforcement actions (including, for example, a ban by EU Supervisory
Authorities on the processing of EU personal data under the GDPR), litigation, fines and penalties, or adverse publicity, and could cause our customers and
partners to lose trust in us, which could have an adverse effect on our reputation and business. Our obligation to assist our customers in their compliance with laws,
regulations, and policies, like data processing and data protection requirements under the GDPR may also result in government enforcement actions litigation, fines
and penalties, or adverse publicity. We expect that there will continue to be new proposed laws, regulations, and industry standards relating to privacy, data
protection, marketing, consumer communications, and information security in the United States, the EU, and other jurisdictions, and we cannot determine the
impact such future laws, regulations, and standards may have on our business. Future laws, regulations, standards, and other obligations or any changed
interpretation of existing laws or regulations could impair our ability to develop and market new functionality and maintain and grow our customer base and
increase revenue. Future restrictions on the collection, use, sharing, or disclosure of data or additional requirements for express or implied consent of our
customers, partners, or end-users for the use and disclosure of such information could require us to incur additional costs or modify our platform, possibly in a
material manner, and could limit our ability to develop new functionality.
If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may
be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain
products, which would negatively affect our business, financial condition, and results of operations. In addition, the increased attention focused upon liability
issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise adversely affect the growth of our business. Furthermore, any costs
incurred as a result of this potential liability could harm our operating results.
Our sales to highly regulated organizations and government entities are subject to a number of challenges and risks.
We sell to customers in highly regulated industries such as financial services, insurance, and healthcare, as well as to various governmental agency
customers, including state and local agency customers, and foreign governmental agency customers. Sales to such entities are subject to a number of challenges
and risks. Selling to such entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any
assurance that these efforts will generate a sale. Government contracting requirements may change and in doing so restrict our ability to sell into the government
sector until we comply with the revised requirements. Government demand and payment for our offerings are affected by public sector budgetary cycles and
funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings.
Further, highly regulated and governmental entities may demand shorter contract terms or other contractual provisions that differ from our standard
arrangements, including terms that can lead those customers to obtain broader rights in our offerings than would be standard. Such entities may have statutory,
contractual, or other legal rights to terminate contracts with us or our partners due to a default or for other reasons, and any such termination may harm our
business. In addition, these governmental agencies may be required to publish the rates we negotiate with them, which could harm our negotiating leverage with
other potential customers and in turn harm our business.
The success of our business depends on customers’ continued and unimpeded access to our platform on the internet.
Our customers must have internet access in order to use our platform. Some internet providers may take measures that affect their customers’ ability to use
our platform, such as degrading the quality of the content we transmit over their lines, giving that content lower priority, giving other content higher priority than
ours, blocking our content entirely, or attempting to charge their customers more for using our platform.
In December 2010, the Federal Communications Commission ("FCC") adopted net neutrality rules barring internet providers from blocking or slowing
down access to online content, protecting services like ours from such interference. The FCC has repealed the net neutrality rules, and it is currently uncertain how
the U.S. Congress will respond to this decision. To the extent network operators attempt to interfere with our platform, extract fees from us to deliver our platform,
or otherwise engage in discriminatory practices, our business could be adversely impacted. Within such a regulatory environment, we could
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experience discriminatory or anti-competitive practices that could impede our domestic and international growth, cause us to incur additional expense, or otherwise
harm our business.
We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws, and non-compliance with such laws can subject us to criminal and/or
civil liability and harm our business.
We are subject to the U.S. Foreign Corrupt Practices Act, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the UK
Bribery Act, and other anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption and anti-bribery laws have
been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies and their employees and third-party intermediaries from
authorizing, offering or providing, directly or indirectly, improper payments, or benefits to recipients in the public or private sector. As we increase our
international sales and business and sales to the public sector, we may engage with business partners and third-party intermediaries to market our platform and to
obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with
officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-
party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.
While we have policies and procedures to address compliance with such laws, we cannot assure you that all of our employees and agents will not take
actions in violation of our policies and applicable laws, for which we may be ultimately held responsible. As we increase our international sales and business, our
risks under these laws may increase.
Detecting, investigating, and resolving actual or alleged violations can require a significant diversion of time, resources, and attention from senior
management. In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints,
investigations, sanctions, settlements, prosecution or other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal
penalties or injunctions, suspension or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage,
and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed or if we do not prevail in any
possible civil or criminal litigation, our business could be harmed. In addition, responding to any action will likely result in a materially significant diversion of
management’s attention and resources and significant defense costs and other professional fees. Enforcement actions and sanctions could further harm our
business.
Changes in our effective tax rate or tax liability may harm our business.
Our effective tax rate could be adversely impacted by several factors, including:
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Changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax
rates;
Changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Act;
Changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence
and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
The outcome of current and future tax audits, examinations, or administrative appeals; and
Limitations or adverse findings regarding our ability to do business in some jurisdictions.
Should our effective tax rate rise, our business could be harmed.
We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our clients would have to pay for our
offering and harm our business.
An increasing number of states have considered or adopted laws that attempt to impose tax collection obligations on out-of-state companies. Additionally,
the Supreme Court of the United States recently ruled in South Dakota v. Wayfair, Inc. et
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al ("Wayfair") that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or
otherwise, states or local governments may adopt, or begin to enforce, laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. A
successful assertion by one or more states requiring us to collect taxes where we presently do not do so, or to collect more taxes in a jurisdiction in which we
currently do collect some taxes, could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state
governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a
competitive disadvantage if they do not impose similar obligations on our competitors and decrease our future sales, which could harm our business.
Adverse tax laws or regulations could be enacted or existing laws could be applied to us, which could adversely affect our business and financial condition.
We operate and are subject to taxes in the United States and numerous other jurisdictions throughout the world. Changes to federal, state, local, or
international tax laws on income, sales, use, indirect, or other tax laws, statutes, rules, regulations, or ordinances on multinational corporations are currently being
considered by the United States and other countries where we do business. These contemplated legislative initiatives include, but are not limited to, changes to
transfer pricing policies and definitional changes to permanent establishment that could be applied solely or disproportionately to services provided over the
internet. These contemplated tax initiatives, if finalized and adopted by countries, may ultimately impact our effective tax rate and could adversely affect our sales
activity resulting in a negative impact on our operating results and cash flows.
In addition, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us (possibly with
retroactive effect), which could require us to pay additional tax amounts, fines or penalties, and interest for past amounts. The additional tax obligations could
relate to our taxes or obligations to report or withhold on customer taxes. We could take steps to collect customer related taxes, but if we are unsuccessful in
collecting such taxes from our customers, we could be held liable for such costs, thereby adversely impacting our operating results and cash flows. Further, if our
customers must pay additional fines or penalties, it could adversely affect demand for our services.
On December 22, 2017, President Trump signed into law H.R. 1, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent
resolution on the budget for fiscal year 2018,” informally titled the Tax Act, which significantly revises the Code. The Tax Act, among other things, reduces the
corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limits the tax deduction for interest expense to 30% of adjusted taxable income (except for
certain small businesses), limits the deduction for net operating losses carried forward from taxable years beginning after December 31, 2017 to 80% of current
year taxable income, eliminates net operating loss carrybacks, imposes a one-time tax on offshore earnings at reduced rates regardless of whether they are
repatriated, eliminates U.S. tax on foreign earnings (subject to certain important exceptions), allows immediate deductions for certain new investments instead of
deductions for depreciation expense over time, and modifies or repeals many business deductions and credits. Notwithstanding the reduction in the corporate
income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if
and to what extent various states will conform to the Tax Act. The impact of the Tax Act on holders of our Class A common stock is also uncertain and could be
adverse. More recently, on March 18, 2020, the Families First Coronavirus Response Act ("FFCR Act"), and on March 27, 2020, the Coronavirus Aid, Relief, and
Economic Security Act ("CARES Act") were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income
tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31,
2017. In December 2020, the Consolidated Appropriations Act, 2021 ("CAA") was signed into law. The CAA included additional funding through tax credits as
part of its economic package for 2021. The Company evaluated these items in its tax computation and determined that the items do not have a material impact on
the Company’s financial statements as of and for the period ended December 31, 2020. Future regulatory guidance under the FFCR Act and the CARES Act (as
well as under the TCJA) remains forthcoming, and such guidance could ultimately increase or lessen their impact on our business and financial condition. It is also
possible that Congress will enact additional legislation in connection with the COVID-19 pandemic, some of which could have an impact on us. We urge our
stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our Class A
common stock.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Our net operating loss ("NOL") carryforwards could expire unused and be unavailable to offset future income tax liabilities because of their limited duration
or because of restrictions under U.S. tax law. Our NOLs generated in tax years ending on or prior to December 31, 2017 are only permitted to be carried forward
for 20 years under applicable U.S. tax law.
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Under the Tax Act, our federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of such
federal NOLs is limited. It is uncertain if and to what extent various states will conform to the Tax Act.
In addition, under Section 382 of the United States Internal Revenue Code of 1986, as amended (the "Code"), a corporation that undergoes an "ownership
change" is generally subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. 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). Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to limitations. For these
reasons, we may not be able to utilize a material portion of the NOLs, even if we were to achieve profitability.
Our international operations may subject us to potential adverse tax consequences.
We are expanding our international operations and staff to better support our growth into international markets. Our corporate structure and associated
transfer pricing policies contemplate future growth into the international markets, and consider the functions, risks, and assets of the various entities involved in the
intercompany transactions. The amount of taxes we pay in different jurisdictions may depend on: the application of the tax laws of the various jurisdictions,
including the United States, to our international business activities; changes in tax rates; new or revised tax laws or interpretations of existing tax laws and policies;
and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the
jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree
with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or 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 tax charges, higher effective tax rates, reduced
cash flows, and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we
violate such controls.
Our products are subject to U.S. export controls, including the Export Administration Regulations administered by the U.S. Commerce Department, and
economic sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department ("OFAC"), and we incorporate encryption technology
into certain of our products. These encryption products and the underlying technology may be exported outside of the United States only with the required export
authorizations.
Furthermore, our activities are subject to U.S. economic sanctions laws and regulations that generally prohibit the direct or indirect exportation or provision
of products and services without the required export authorizations to countries, governments, and individuals and entities targeted by U.S. embargoes or sanctions,
except to the extent authorized by OFAC or exempt from sanctions. Obtaining the necessary export license or other authorization for a particular sale may not
always be possible, and, even if the export license is ultimately granted, the process may be time-consuming and may result in the delay or loss of sales
opportunities. Violations of U.S. sanctions or export control laws can result in significant fines or penalties, and possible incarceration for responsible employees
and managers could be imposed for criminal violations of these laws.
Other countries also regulate the import and export of certain encryption products and technology through import and export licensing requirements, and
have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries. Changes
in our products or future changes in export and import regulations may create delays in the introduction of our products in international markets, prevent our
customers with international operations from deploying our products globally, or, in some cases, prevent the export or import of our products to certain countries,
governments, or persons altogether. From time to time, various governmental agencies have proposed additional regulation of encryption products and technology,
including the escrow and government recovery of private encryption keys. Any change in export or import regulations, economic sanctions or related legislation,
increased export and import controls, or change in the countries, governments, persons, or technologies targeted by such regulations could result in decreased use
of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased use of
our products or limitation on our ability to export or sell our products would harm our business.
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We are exposed to fluctuations in currency exchange rates.
Our sales contracts are primarily denominated in U.S. dollars, and therefore a majority of our revenue is not subject to foreign currency revaluation.
However, a strengthening of the U.S. dollar could increase the real cost of our platform to our customers outside of the United States, which could adversely affect
our operating results. In addition, an increasing portion of our operating expenses is incurred outside the United States. These operating expenses are denominated
in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. While we do not currently engage in hedging efforts, if we
do not successfully hedge against the risks associated with currency fluctuations, our business may be harmed.
The phase-out of the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with a different reference rate, may adversely affect interest
rates.
On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021. It is
unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be
adopted. The interest rate under our Credit Agreement with Silicon Valley Bank dated February 16, 2021 (the “Credit Agreement”) is calculated based on LIBOR.
While the Credit Agreement contains limited “fallback” provisions providing for the adoption of a successor rate that has been broadly accepted by the syndicated
loan market in the United States in lieu of LIBOR in the event LIBOR is unavailable, these provisions may not adequately address the actual changes to LIBOR or
its successor rates. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest
rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flows and liquidity. We cannot predict the
effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks.
Unfavorable conditions in our industry or the global economy or reductions in information technology spending could harm our business.
Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers and potential customers.
Current or future economic uncertainties or downturns could adversely affect our business and results of operations. Negative conditions in the general economy
both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations,
political turmoil, natural catastrophes, warfare, public health issues, such as the COVID-19 pandemic, and terrorist attacks on the United States, Europe, the Asia
Pacific region, or elsewhere, could cause a decrease in business investments, including spending on information technology, which would harm our business. To
the extent that our platform and our products are perceived by customers and potential customers as too costly, or difficult to deploy or migrate to, our revenue may
be disproportionately affected by delays or reductions in general information technology spending. Also, our competitors, many of whom are larger and have
greater financial resources than we do, may respond to market conditions by lowering prices and attempting to lure away our customers. In addition, the increased
pace of consolidation in certain industries may result in reduced overall spending on our products. We cannot predict the timing, strength, or duration of any
economic slowdown, instability, or recovery, generally or within any particular industry.
Risks Related to Intellectual Property
We could incur substantial costs in protecting or defending our proprietary rights, and any failure to adequately protect our rights could impair our
competitive position and we may lose valuable assets, experience reduced revenue, and incur costly litigation to protect our rights.
Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks,
trade secret laws, and contractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to protect our intellectual
property may be inadequate. While we have issued patents in the United States and other countries and have additional pending patent applications, we may be
unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with
competitive advantages, or may be successfully challenged by third parties. Any of our patents, trademarks, or other intellectual property rights may be challenged
or circumvented by others or invalidated through administrative process or litigation. There can be no guarantee that others will not independently develop similar
products, duplicate any of our products, or design around our patents. Furthermore, legal standards relating to the validity, enforceability, and scope of protection
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intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that
we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer, and
disclosure of our products may be unenforceable under the laws of jurisdictions outside the United States. To the extent we expand our international activities, our
exposure to unauthorized copying and use of our products and proprietary information may increase.
We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the
parties with whom we have strategic relationships and business alliances. No assurance can be given that these agreements will be effective in controlling access to
and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing
technologies that are substantially equivalent or superior to our platform.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be
necessary in the future to enforce our intellectual property rights and to protect our trade secrets. 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, 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. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly
litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our platform, impair the functionality of our
platform, delay introductions of new products, result in our substituting inferior or more costly technologies into our products, or injure our reputation. We will not
be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Moreover,
policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming, particularly in foreign
countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual
property rights may be weak. If we fail to meaningfully protect our intellectual property and proprietary rights, our business may be harmed.
We may in the future be subject to legal proceedings and litigation relating to intellectual property disputes, which are costly and may subject us to significant
liability and increased costs of doing business. Our business may suffer if it is alleged or determined that our technology infringes the intellectual property
rights of others.
The software industry is characterized by the existence of a large number of patents, copyrights, trademarks, trade secrets, and other intellectual property
rights. Companies in the software industry are often required to defend against litigation claims based on allegations of infringement or other violations of
intellectual property rights. Our technologies may not be able to withstand any third-party claims or rights against their use. In addition, many of these companies
have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them.
Any litigation may also involve patent holding companies or other adverse patent owners that have no relevant product revenue and against which our patents may
therefore provide little or no deterrence. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or
if we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop selling products impacted by the claim or
injunction or cease business activities covered by such intellectual property, and may be unable to compete effectively. Any inability to license third party
technology in the future would have an adverse effect on our business or operating results, and would adversely affect our ability to compete. We may also be
contractually obligated to indemnify our customers in the event of infringement of a third party’s intellectual property rights. We receive demands for such
indemnification from time to time and expect to continue to do so. Responding to such claims, including those currently pending, regardless of their merit, can be
time consuming, costly to defend in litigation, and damage our reputation and brand.
Lawsuits are time-consuming and expensive to resolve and they divert management’s time and attention. Although we carry insurance, our insurance may
not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits, and
the results of any such actions may harm our business.
Elements of our platform and our products use open source software, which may restrict the functionality of our platform and our products, or require that we
release the source code of certain products subject to those licenses.
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Our platform incorporates software licensed under open source licenses. Such open source licenses typically require that source code subject to the license
be made available to the public and that any modifications or derivative works to open source software continue to be licensed under open source licenses. Few
courts have interpreted open source licenses, and the manner in which these licenses may be interpreted and enforced is therefore subject to some uncertainty. We
rely on multiple software programmers to design our proprietary technologies, and we do not exercise complete control over the development efforts of our
programmers and we cannot be certain that our programmers have not incorporated open source software into our proprietary products and technologies or that
they will not do so in the future. In the event that portions of our proprietary technology are determined to be subject to an open source license, we could be
required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our
technologies, each of which could reduce or eliminate the value of our platform and technologies and materially and adversely affect our ability to sustain and
grow our business.
Provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data protection, and other losses.
Our agreements with customers and other third parties generally include provisions under which we are liable or agree to indemnify them for losses suffered
or incurred as a result of claims of intellectual property infringement, data protection, damages caused by us to property or persons, or other liabilities relating to or
arising from our platform, services, or other contractual obligations. Some of these agreements provide for uncapped liability for which we would be responsible,
and some provisions survive termination or expiration of the applicable agreement. Large liability payments could harm our business, results of operations, and
financial condition. Although we normally contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them,
and in case of an intellectual property infringement indemnification claim, we may be required to cease use of certain functions of our platform as a result of any
such claims. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing
customers and new customers and harm our business. Even when we have contractual protections against such customer claims, we may choose to honor a
customer’s request for indemnification or otherwise seek to maintain customer satisfaction by issuing customer credits, assisting our customer in defending against
claims, or in other ways.
Risks Related to Ownership of Our Class A Common Stock
Our stock price may be volatile, and the value of our Class A common stock may decline.
Historically, our stock price has been volatile. During the year ended December 31, 2020, our stock traded as high as $136.50 per share and as low as $10.63
per share, and from January 1, 2021 to February 26, 2021, our stock price has ranged from $122.75 per share to $68.75 per share. The market price of our Class A
common stock may continue to be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our
control or are related in complex ways, including:
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actual or anticipated fluctuations in our financial condition and operating results;
decreased usage by one or more of our customers;
variance in our financial performance from expectations of securities analysts or investors;
changes in the pricing we offer our customers;
changes in our projected operating and financial results;
changes in laws or regulations applicable to our platform or related products;
announcements by us or our competitors of significant business developments, acquisitions, or new offerings;
publicity associated with network downtime and problems;
our involvement in litigation;
changes in senior management or key personnel;
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the trading volume of our Class A common stock;
changes in the anticipated future size and growth rate of our market; and
general economic, regulatory, and market conditions.
Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, may impact the market price of our Class
A common stock. For example, in connection with the COVID-19 pandemic, we initially experienced an increase in the usage of our platform, and as a result, the
trading price of our Class A common stock significantly increased, and has since experienced significant volatility, along with the broader market. Following the
announcement of our results for our third quarter ended September 30, 2020, which included a significant reduction in revenue from our largest customer in that
quarter, volatility increased and the trading price of our Class A common stock decreased. There are no assurances that the trading price of our Class A common
stock will continue at its current level for any period of time. Moreover, the trading price of our Class A common stock could experience a significant decrease
once the scope and impact of the ongoing COVID-19 pandemic is better understood. These fluctuations could cause you to lose all or part of your investment in
our Class A common stock.
In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many
technology companies’ stock prices. Often, their stock prices have fluctuated in ways unrelated or disproportionate to the
companies’ operating performance. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities
class action litigation. We may be the target of this type of litigation in the future, which could result in substantial costs and divert our management’s attention.
The dual class structure of our common stock has the effect of concentrating voting control with the holders of our Class B common stock, including our
executive officers, employees, and directors and their affiliates, and limiting your ability to influence corporate matters.
Our Class B common stock has 10 votes per share, and our Class A common stock has one vote per share. As of December 31, 2020, our Class B common
stock held by stockholders, including our executive officers and directors and their affiliates, represents approximately 49.8% of the voting power of our
outstanding capital stock, and our Chief Architect and Executive Chairman, Artur Bergman, holds approximately 8.1% of our outstanding classes of common stock
as a whole, but controls approximately 44.11% of the voting power of our outstanding common stock. As a result, our executive officers, directors, and other
affiliates and our Chief Architect and Executive Chairman on his own currently have and will continue to have significant influence over our management and
affairs and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of
the company or our assets, for the foreseeable future. If Mr. Bergman’s employment with us is terminated, he will continue to have the same influence over matters
requiring stockholder approval.
In addition, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even
if their stock holdings represent less than 50% of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our Class B and Class A
common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even
when the shares of Class B common stock represent as little as 10% of the combined voting power of all outstanding shares of our Class A and Class B common
stock. This concentrated control limits the ability for holders of Class A common stock to influence corporate matters for the foreseeable future, and, as a result,
the market price of our Class A common stock could be adversely affected.
Transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, which will have the effect, over
time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, Mr. Bergman
retains a significant portion of his holdings of Class B common stock for an extended period of time, he could, in the future, control a majority of the combined
voting power of our Class A and Class B common stock. As a board member, Mr. Bergman owes a fiduciary duty to our stockholders and must act in good faith in
a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Bergman is entitled to vote his
shares in his own interests, which may not always be in the interests of our stockholders generally.
On October 12, 2020 (the “Sunset Trigger Date”), the outstanding shares of our Class B common stock represented less than 10% of the aggregate number
of shares of the then outstanding Class A common stock and Class B common stock. As a result, all our outstanding shares of Class B common stock will
automatically convert into the same number of shares of Class
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A common stock under the terms of our amended and restated certificate of incorporation on July 12, 2021, the trading day falling nine months after the Sunset
Trigger Date (the “Conversion”). No additional Class B shares may be issued following the Conversion.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in dilution of the percentage ownership of our stockholders and
could cause the price of our Class A common stock to decline.
Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We
may sell Class A common stock, convertible securities, and other equity securities in one or more transactions at prices and in a manner as we may determine from
time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could
gain rights, preferences, and privileges senior to those of holders of our Class A common stock.
Future sales of our Class A common stock in the public market could cause the market price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that these sales might occur, could depress the
market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the
effect that such sales may have on the prevailing market price of our Class A common stock.
As of December 31, 2020, we have outstanding a total of 104,178,933 shares of Class A common stock and 10,319,677 shares of Class B common stock.
All of our outstanding shares are eligible for sale in the public market, other than shares and options held by directors, executive officers, and other affiliates that
are subject to volume limitations under Rule 144 of the Securities Act, various vesting agreements, and shares that must be sold under an effective registration
statement. Additionally, the shares of Class A and Class B common stock subject to outstanding options and restricted stock unit awards under our equity incentive
plans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market upon issuance, subject to
applicable insider trading policies.
Future sales also could cause the trading price of our Class A common stock to decline and make it more difficult for investors to sell shares of our Class A
common stock.
If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our Class A common stock price
and trading volume could decline.
Our stock price and trading volume are heavily influenced by the way analysts and investors interpret our financial information and other disclosures. If
securities or industry analysts do not publish research or reports about our business, delay publishing reports about our business, or publish negative reports about
our business, regardless of accuracy, our Class A common stock price and trading volume could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our
business. We do not have any control over these analysts. We expect that only a limited number of analysts will cover our company following our initial public
offering. If the number of analysts that cover us declines, demand for our Class A common stock could decrease and our Class A common stock price and trading
volume may decline.
Even if our Class A common stock is actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely
upon to forecast our future results. Over-reliance by analysts or investors on any particular metric to forecast our future results may result in forecasts that differ
significantly from our own.
Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a negative impact on our stock
price. If our financial performance fails to meet analyst estimates, for any of the reasons discussed above or otherwise, or one or more of the analysts who cover us
downgrade our Class A common stock or change their opinion of our Class A common stock, our stock price would likely decline.
We do not intend to pay dividends for the foreseeable future.
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We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any
determination to pay cash dividends in the future will be at the discretion of our board of directors and are restricted by the terms of our Credit Agreement. The
Credit Agreement permits the payment of cash dividends so long as, after giving effect to any such dividend, we maintain a consolidated adjusted quick ratio of at
least 1.50 to 1.00 and are otherwise in pro forma compliance with all covenants under the Credit Agreement. In addition, the Credit Agreement permits us to pay
up to $10.0 million in cash dividends per fiscal year so long as, after giving effect to any such dividend, we are in pro forma compliance with all covenants under
the Credit Agreement, including a consolidated adjusted quick ratio of at least 1.25 to 1.00. Accordingly, investors must rely on sales of their Class A common
stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
We incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance with our
public company responsibilities and corporate governance practices.
As a public company, we incur significant legal, accounting, and other expenses that we did not incur as a private company. We expect such expenses to
further increase now that we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the listing requirements of the NYSE, and other applicable securities rules and regulations impose various requirements on public companies.
Furthermore, the senior members of our management team do not have significant experience with operating a public company. As a result, our management and
other personnel have to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations increase our legal and
financial compliance costs and make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur
as a public company or the timing of such costs.
As a result of being a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting and any failure
to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our Class A common
stock.
We are required, pursuant to Section 404 to furnish a report by management on, among other things, the effectiveness of our internal control over financial
reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In
addition, our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting in our first
annual report required to be filed with the SEC following the date we are no longer an “emerging growth company.” Based on the market value of our common
stock held by non-affiliates as of June 30, 2020, we ceased to be an emerging growth company as of December 31, 2020, which expedited our obligation for our
independent registered public accounting firm to issue an attestation report on management's assessment of our internal control over financial reporting and
accelerated our adoption of accounting standards. Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant
management efforts. We currently have an internal audit group and have hired additional accounting and financial staff. We may need to hire additional accounting
and financial staff with appropriate public company experience and technical accounting knowledge and update the system and process documentation necessary to
perform the evaluation needed to comply with Section 404.
During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal controls over financial
reporting, we will be unable to certify that our internal controls over financial reporting is effective. We and our independent registered public accounting firm
identified a material weakness in our internal controls over financial reporting for the years ended December 31, 2019 and 2018, which remains partially
unremediated for the year ended December 31, 2020. The material weakness related to the lack of sufficient qualified accounting resources, including those with
the appropriate level of technical accounting knowledge, to timely identify and assess accounting implications of complex transactions which resulted in the
incorrect application of generally accepted accounting principles. While we are actively working on remediating this identified weakness, we may discover
additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over
financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our
internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant
deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market
price of our Class A common stock could decline and we could be subject to sanctions or investigations by the exchange on which our shares of Class A common
stock are listed, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement
or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our
stockholders to replace or remove our current management and limit the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change
of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
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authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms,
rights, and preferences determined by our board of directors that may be senior to our common stock;
require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or
our chief executive officer;
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of
persons for election to our board of directors;
establish that our board of directors is divided into three classes, with each class serving three-year staggered terms;
prohibit cumulative voting in the election of directors;
provide that our directors may be removed for cause only upon the vote of the holders of a majority of our outstanding shares of common
stock;
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
and
reflect our two classes of common stock as described above.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of
three years following the date on which the stockholder became an “interested” stockholder. Any delay or prevention of a change of control transaction or changes
in our management could cause the market price of our Class A common stock to decline.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal
district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following
types of actions or proceedings under Delaware statutory or common law for:
•
•
•
•
any derivative action or proceeding brought on our behalf;
any action asserting a breach of fiduciary duty;
any action asserting a claim against us arising under the Delaware General Corporation Law,
our amended and restated certificate of incorporation, or our amended and restated bylaws; and
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•
any action asserting a claim against us that is governed by the internal-affairs doctrine.
This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act
creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to
entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among
other considerations, our amended and restated certificate of incorporation provides that the federal district courts of the United States of America will be the
exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such
choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against us, our directors,
officers, or other employees in a venue other than in the federal district courts of the United States of America. In such instance, we would expect to vigorously
assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant
additional costs associated with resolving the dispute in other jurisdictions, and there can be no assurance that the provisions will be enforced by a court in those
other jurisdictions.
These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our
directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find either
exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further
significant additional costs associated with resolving the dispute in other jurisdictions, all of which could harm our business.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in San Francisco, California and consists of approximately 71,343 square feet of space under a lease that expires on
July 31, 2027. We also maintain offices in Portland, Culver City, Denver, New York, London, and Tokyo. We lease all of our facilities and do not own any real
property. We expect to add facilities as we grow our employee base and expand geographically. We believe that our facilities are sufficient to meet our needs for
the immediate future, and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations.
Item 3. Legal Proceedings
Please refer to Note 10—Commitments and Contingencies for discussion around our legal proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Market Information
Our Class A common stock has traded on The New York Stock Exchange ("NYSE") under the symbol "FSLY" since May 17, 2019.
Holders of Record
As of December 31, 2020, there were 50 holders of record of our Class A and 62 holders of our Class B common stock. The number of beneficial
stockholders is substantially greater than the number of holders of record because a large portion of our common stock is held through brokerage firms.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any
dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our Board of Directors, subject to
applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions,
general business conditions, and other factors that our Board of Directors may deem relevant. In addition, the terms of our revolving credit facility place certain
limitations on the amount of cash dividends we can pay, even if no amounts are currently outstanding.
Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be
deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act.
We have presented below the cumulative total return to our stockholders between May 17, 2019 (the date our Class A common stock commenced trading on
the NYSE) through December 31, 2020 in comparison to the S&P 500 Index and S&P 500 Information Technology Index. The graph assumes a $100 initial
investment at the market close on May 17, 2019 which was the initial trading day of our Class A common stock, and the reinvestment of dividends. The
comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock.
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Unregistered Sales of Equity Securities
As previously disclosed in our Form S-3ASR filed with the SEC on August 15, 2020, as partial consideration for our acquisition of Signal Sciences on
October 1, 2020, we issued 6,367,709 shares of our Class A common stock to certain former
holders of capital stock and employees of Signal Sciences (together, the “Holders”), including 896,499 shares which are restricted as they are subject to revesting
conditions. The aggregate consideration to acquire Signal Sciences’ outstanding stock was $759.4 million, consisting of approximately $223.0 million in cash and
the balance in shares of our Class A Common Stock. The aggregate purchase price reflects the value of the net shares issued, which excludes the above mentioned
shares that are restricted.
The shares of Class A common stock were issued in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as
amended, on the basis of representations of eligibility and suitability made to the Company by the Holders.
Use of Proceeds from Public Offering of Class A Common Stock
On May 21, 2019, we closed our initial public offering ("IPO"), in which we sold 12,937,500 shares of Class A common stock at a price to the public of
$16.00 per share, including 1,687,500 shares sold in connection with the exercise of the underwriters’ option to purchase additional shares, and raised $192.5
million in net proceeds after deducting underwriting discounts and commissions. The offer and sale of all of the shares in the IPO were registered under the
Securities Act pursuant to a registration statement on Form S-1 (File No. 333-230953), which was declared effective by the SEC on May 16, 2019. There has been
no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on May 17, 2019 pursuant to
Rule 424(b). As of December 31, 2020, we have used the entirety of the net proceeds from the IPO.
Issuer Purchases of Equity Securities
None.
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Item 6. Selected Consolidated Financial Data
The Company has elected to early-adopt, as permitted under the applicable SEC rules, certain amendments to ‘Management’s Discussion and Analysis’
and the elimination of ‘Selected Financial Data’ and ‘Supplementary Financial Information’ adopted by the SEC on November 19, 2020, contained in SEC Release
No. 33-10890. The final rule became effective on February 10, 2021 and must be applied in a registrant’s first fiscal year ending on or after August 9, 2021,
however, early adoption is permitted following the effective date on an item-by-item basis. Based on this final rule, we have excluded Item 6 Selected
Consolidated Financial Data from this Annual Report on Form 10-K.
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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial
statements and related notes that are included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon
current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-
looking statements as a result of various factors, including those set forth under “Risk Factors” and in other parts of this Annual Report on Form 10-K. Our fiscal
year ends on December 31.
As used herein, "Fastly," "we," "our," "the Company" and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise.
Overview
Developers are reinventing the way we live, work, and play online. Yet they repeatedly encounter innovation barriers when delivering modern digital
experiences. Expectations for digital experiences are at an all-time high; they must be fast, secure, and highly personalized. If they aren’t reliable, end-users simply
take their business elsewhere. The challenge today is enabling developers to deliver a modern digital experience while simultaneously providing scale, security,
and performance. We built our edge cloud platform to solve this problem.
The edge cloud is an emerging category of Infrastructure as a Service ("IaaS") that enables developers to build, secure, and deliver digital experiences, at the
edge of the internet. This service represents the convergence of the Content Delivery Network ("CDN") with functionality that has been traditionally delivered by
hardware-centric appliances such as Application Delivery Controllers ("ADC"), Web Application Firewalls ("WAF"), Bot Detection, and Distributed Denial of
Service ("DDoS") solutions. It also includes the emergence of a new, but growing, edge computing market which aims to move compute power and logic as close
to the end-user as possible. The edge cloud uses the emerging cloud computing, serverless paradigm in which the cloud provider runs the server and dynamically
manages the allocation of machine resources. When milliseconds matter, processing at the edge is an ideal way to handle highly dynamic and time-sensitive data.
The edge cloud complements data center, central cloud, and hybrid solutions.
Our mission is to fuel the next modern digital experience by providing developers with a programmable and reliable edge cloud platform that they adopt as
their own.
Organizations must keep up with complex and ever-evolving end-user requirements. We help them surpass their end-users’ expectations by powering fast,
secure, and scalable digital experiences. We built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software
development. We believe our platform gives our customers a significant competitive advantage, whether they were born into the digital age or are just embarking
on their digital transformation journey. Our platform consists of four key components: a programmable edge, a software-defined modern network, safety in depth,
and a philosophy of customer empowerment. Our programmable edge provides developers with real-time visibility and control, where they can write and deploy
code in a serverless environment and to push application logic to the edge. It supports modern application delivery processes, freeing developers to innovate
without constraints. Our software-defined modern network is built for the software-defined future. It is powerful, efficient, and flexible, designed to enable us to
rapidly scale to meet the needs of the most demanding customers and never be a barrier to their growth. Our 117 terabit software-centric network is located across
56 markets as of December 31, 2020. We define markets as unique metropolitan areas where we have one or more Points of Presence ("POPs"). Our safety in
depth approach integrates security into multiple layers of development: architecture, engineering, and operations. That's why we invest in building security into the
fabric of our platform, alongside performance. We provide developers and security operations teams with a fast, safe environment to create, build, and run modern
applications.
Our platform provides developers and security operations teams with solutions that foster innovation without impacting performance. Finally, being
developers ourselves, we empower customers to build great things while supporting their efforts through frictionless tools and a deeply technical support team that
facilitates ongoing collaboration.
We serve both established enterprises, mid-market companies and technology-savvy organizations. Our customers represent a diverse set of organizations
across many industries with one thing in common: they are competing by using the
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power of software to build differentiation at the edge. With our edge cloud platform, our customers are disrupting existing industries and creating new ones. For
example, several of our customers have reinvented digital publishing by connecting readers through subscription models to indispensable content, helping people
understand the world through deeply reported independent journalism. Our customers’ software applications use our edge cloud platform to deliver consistently
excellent online shopping experiences, fast and more secure financial transactions, and broadcast quality live streaming on any device. The range of applications
that developers build with our edge cloud platform continues to expand rapidly.
So where do we go from here? Our vision is to create a trustworthy internet, where good thrives. We want all developers to have the ability to deliver the
next transformative digital experience on a global scale. And because big ideas often start small, we love it when developers experiment and iterate on our edge
cloud platform, coming up with exciting new ways to solve today’s complex problems.
We generate substantially all of our revenue from charging our customers based on their usage of our platform. Initially, customers typically choose to
become platform customers, for which we charge fees based on their committed or actual use of our platform, as measured in gigabytes and requests. Many of our
customers generate billings in excess of their minimum commitment. We also generate revenue from additional products as well as professional and other services,
such as implementation. We charge a flat one-time or recurring fee for these additional products and services. Beginning in the fourth quarter of 2020, we also
began offering subscriptions to access a unified security web application and application programming interface at a fixed rate.
We focus our direct selling efforts on medium to large organizations as well as smaller companies that are exhibiting significant growth. We engage with
and support these customers with our field sales representatives, account managers, and technical account managers who focus on customer satisfaction and drive
expansion of their usage of our platform and products. These teams work with technical and business leaders to help our customers’ end-users receive the best
possible digital experience, while also lowering our customers’ total cost of ownership.
We are continuing to bring new innovations to our edge cloud platform and software-defined modern network architecture, and are seeing an increased
interest from customers in our programmable edge computing solution. The success of these direct selling efforts is reflected by our 324 enterprise customers,
which excludes Signal Sciences enterprise customers, as of December 31, 2020 that generated 89% of our total revenue for the trailing 12 months ended
December 31, 2020.
Our usage-based revenue grows as our customers’ websites and applications deliver, process, and protect more traffic, as they adopt more features of our
edge platform and as they more broadly adopt our platform across their organizations. A meaningful indicator of the increased activity from our existing customers
is our Dollar-Based Net Expansion Rate ("DBNER"), Net Retention Rate ("NRR") and Last-Twelve Months Net Retention Rate ("LTM NRR"), metrics used in
measuring the revenue growth from existing customers attributed to increased usage of our platform and purchase of additional services. Beginning in the fourth
quarter of 2020, we also offer subscriptions to access a unified security web application and application programming interface at a fixed rate.
The financial results of Signal Sciences from the acquisition date on October 1, 2020 have been consolidated into our financial results for 2020 and the
quarter ended December 31, 2020. We have excluded Signal Sciences from certain key metrics this quarter, including DBNER, NRR and LTM NRR. We intend to
begin reporting these key metrics on a consolidated basis later on in 2021. Excluding Signal Sciences, our DBNER was 142.9% and 135.5% for the trailing 12
months ended December 31, 2020, and 2019, respectively. Excluding Signal Sciences, our NRR was 115% and 143.7% for the trailing twelve months ended
December 31, 2020 and 2019, respectively. Excluding Signal Sciences, our LTM NRR was 137% and 131.6% for the trailing 12 months ended December 31, 2020
and 2019, respectively. We believe the LTM NRR is supplemental as it removes some of the volatility inherent in a usage-based business model from the
measurement of the NRR metric.
We believe that an annual cohort analysis of Fastly's customers as depicted in the chart below, demonstrates our success in customer expansion. Once a
customer begins to generate revenue for us, they tend to increase their usage of our platform, in particular in their second year. Customer accounts acquired in
2016, 2017, 2018, 2019 and 2020 are referred to as the 2016 Cohort, 2017 Cohort, 2018 Cohort, 2019 Cohort and 2020 Cohort, respectively. Our 2016 Cohort
increased its revenue 2.3 times after its first year and has grown at approximately a 70% CAGR over the last four years. We have excluded Signal Sciences'
customers from this cohort analysis.
In 2016, we generated $6.6 million of revenue from the 2016 Cohort. Revenue from the 2016 Cohort grew to $22.0 million in 2017, representing 233%
year-over-year growth. In 2017, we generated $5.6 million of revenue from the 2017
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Cohort. Revenue from the 2017 Cohort grew to $16.8 million in 2018, representing 200% year-over-year growth. In 2018, we generated $11.2 million of revenue
from the 2018 Cohort. Revenue from the 2018 Cohort grew to $34.4 million in 2019, representing 207% year-over-year growth. In 2019, we generated
$9.1 million of revenue from the 2019 Cohort. Revenue from the 2019 Cohort grew to $47.7 million in 2020, representing 424% year-over-year growth.
Summary of Revenue Generated by Customer Cohorts Over Time (in millions) (excludes Signal Sciences):
Customers that have negotiated contracts with us generate a substantial majority of our revenue. These customers typically purchase one or more products,
for which we charge a monthly recurring or one-time fee depending on the products selected. Some of these customers also choose to purchase various levels of
account management and enhanced customer support for a monthly fee. Typically, the term of these contracts is 12 months and includes a minimum monthly
billing commitment in exchange for more favorable pricing terms. Many of these customers generate billings in excess of their minimum commitment. In addition,
customers can sign up online by providing their credit card information and agreeing to a minimum monthly fee. Beginning in the fourth quarter of 2020, we also
offer subscriptions to access a unified security web application and application programming interface at a fixed rate.
The timing of new revenue from our sales efforts is difficult to predict. The length of our sales cycle, from initial evaluation to payment, can range from
several months to well over a year and can vary substantially from customer to customer. Similarly, the onboarding and ramping process with new enterprise
customers can take several months, as well as existing enterprise customers with new business, can take several months and can be subject to delays for
unanticipated reasons. For example, we experienced delays in the ramping of new traffic due to travel and data center restrictions in South Asia that delayed
network build outs and the timing of customer code freezes, each affected in part by COVID-19-related issues.
We have achieved significant growth in recent periods. For the years ended December 31, 2020 and 2019, our revenue was $290.9 million and $200.5
million, respectively. Our 10 largest customers generated an aggregate of 38% and 29% of our
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revenue in the trailing 12 months ended December 31, 2020 and 2019, respectively. We incurred a net loss of $95.9 million and $51.6 million in the years ended
December 31, 2020 and 2019, respectively.
Acquisition of Signal Sciences Corp.
In October 2020, we acquired Signal Sciences, for an aggregate purchase price of $759.4 million, consisting of approximately $223.0 million in cash and
6,367,709 shares of our Class A common stock, including 896,499 shares which are restricted as they are subject to revesting conditions. The aggregate purchase
price reflects the value of the net shares issued, which excludes the above mentioned shares that are restricted. We also assumed all unvested and outstanding
equity awards of Signal Sciences’ continuing employees as converted into our equity awards at the conversion ratio provided in the Agreement and Plan of
Reorganization (the "Merger Agreement"), which became options to purchase 251,754 shares of our Class A common stock, with a value of $20.7 million related
to the assumed unvested equity awards that are subject to future service conditions.
We have included Signal Sciences in our results of operations as of the acquisition date, October 1, 2020. Because the acquisition of Signal Sciences
occurred during the year ended December 31, 2020, the information presented in this section with respect to the year ended December 31, 2020 includes the
contribution of Signal Sciences starting from October 1, 2020. The information with respect to the prior-year comparable periods relates to Fastly on a standalone
basis. As a result, comparisons to the prior-year period may not be indicative of future results or future rates of growth.
Please refer to Note 5—Business Combination for further details on the acquisition of Signal Sciences.
Adjustments subsequent to the release of earnings on February 17, 2021
Subsequent to our announcement of earnings and issuance of our shareholder letter, furnished in a Form 8-K on February 17, 2021, as of December 31,
2020, we recorded an adjustment to our Goodwill and additional-paid in capital balances. Our determination to record the adjustment following our earnings
announcement was the result of identifying an adjustment needed to the share value of awards issued on the Signal Sciences acquisition. The amounts reflected in
our consolidated balance sheet as of December 31, 2020, reflect an increase in goodwill of $57.4 million and a corresponding increase in additional paid-in capital
of $57.4 million to what was previously disclosed in our earnings announcement and shareholder letter.
Subsequent to our announcement of earnings and issuance of our shareholder letter, furnished in a Form 8-K on February 17, 2021, for the year ended
December 31, 2020, we reclassified $1.7 million of finance lease payments from investing cash flows to financing cash flows. Our determination to record the
reclassification following our earnings announcement was the result of identifying certain payments made relating to our network equipment leases should that be
classified as financing cash outflows. The amounts reflected in our consolidated statement of cash flows reflect a decrease in cash used in investing activities of
$1.7 million and an increase in cash used in financing activities of $1.7 million to what was previously disclosed in our shareholder letter for the year ended
December 31, 2020. Separately, in our consolidated statement of cash flows, we also updated our supplemental disclosures around value of common stock issued
and stock awards assumed in a business combination, which increased by $57.4 million to reflect the impact of the adjustment outlined in the paragraph above.
Factors Affecting Our Performance
Winning New Customers
We are focused on continuing to attract new customers. Our customer base includes both large, established enterprises that are undergoing digital
transformation and emerging companies spanning a wide array of industries and verticals. In both instances, developers within these companies often use and
advocate the adoption of our platform by their companies. We also benefit from word-of-mouth promotion across the broader developer community. We will
continue to invest in our developer outreach, leveraging it as a cost-efficient approach to attracting new customers. With our newly expanded security portfolio
from the acquisition of Signal Sciences and our edge computing capabilities we will increase our focus on brand awareness, public relations and analyst relations in
efforts to help generate awareness and demand for these offerings. We also plan to dedicate significant resources to sales and marketing programs, including
various online marketing activities as well as targeted account-based advertising.
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This will require us to dedicate significant resources to further develop the market for our platform and differentiate our platform from competitive products
and services. We will also need to expand, retain, and motivate our sales and marketing personnel in order to target our sales efforts at larger enterprises and senior
management of these potential customers.
Uncertainty surrounding the EU-US Privacy Shield framework, which was invalidated by the Court of Justice of the EU in July 2020, could impact
customer growth and acquisition for customers and potential customers conducting business in Europe. We have encountered and may continue to encounter
heightened concerns relating to privacy from customers and potential customers conducting business in Europe since the invalidation of the EU-US Privacy Shield
framework. Specifically, we have received more requests relating to EU privacy requirements, impacting the sales negotiation process, and had potential customers
decline to do business with us due to privacy concerns related to updated interpretations of the laws applicable to transfers of personal data to the United States. For
additional details, refer to "Item 1A.—Risk Factors".
Expanding within our Existing Customer Base
We emphasize retaining our customers and expanding their usage of our platform and adoption of our other products. Customers often begin with smaller
deployments of our programmable edge platform and then expand their usage over time. In addition, our programmable edge platform includes a variety of other
offerings, such as load balancing, shielding, web security, and WAF. As our customers mature, we assist them in expanding their use of our platform, including the
use of additional offerings beyond edge cloud delivery. As enterprises grow and experience increased traffic, their needs evolve, leading them to find additional use
cases for our platform and expand their usage accordingly. In addition, given that customer acquisition costs are incurred largely for acquiring and initial
onboarding, we gain operating leverage to the extent that existing customers expand their use of our platform and products.
Our ability to retain our customers and expand their usage could be impaired for a variety of reasons, including a customer moving to another provider or
reducing usage within the term of their contract to their minimum usage commitment. Even if our customers expand their usage of our platform, we cannot
guarantee that they will maintain those usage levels for any meaningful period of time or that they will renew their commitments.
In addition, we cannot be certain what actions the U.S. or another country's government may take with respect to certain of our customers that may
adversely affect our ability to do business with our customers that operate in China, target China as a market or that have strong business ties to China. For
example, our largest customer during the year ended December 31, 2020 has strong business ties to China and significantly reduced its usage of our platform in the
later part of 2020. We believe this was in response to various actions taken by the U.S. and other governments against them. Further reductions in this customer's
traffic levels could have an additional negative impact on our business.
For additional details, refer to "Item 1A.—Risk Factors".
International Customer Growth
We intend to continue expanding our efforts to attract customers outside of the United States by augmenting our sales teams and strategically increasing our
presence in the number of markets in select international locations. Excluding Signal Sciences, as of December 31, 2020 and 2019, we had 1,068 and 852
customers headquartered outside of the United States, respectively, representing 51% and 49% of our total customers as of December 31, 2020 and 2019,
respectively.
Our international expansion, including our global sales efforts, will add increased complexity and cost to our business. This will require us to significantly
expand our sales and marketing capabilities outside of the United States, as well as increase the number of markets we have a presence in around the world to
support our customers. We have limited experience managing the administrative aspects of a global organization, and we have only recently begun to establish and
operate offices in foreign countries, which could place a strain on our business and culture.
Investing in Sales and Marketing
Our customers have been pivotal in driving brand awareness and broadening our reach. While we continue to leverage our self-service approach to drive
adoption by developers, we intend to continue to expand our sales and marketing efforts, with an increased focus on sales to enterprises globally. Utilizing our
direct sales force, we have multiple selling points within organizations to acquire new customers and increase usage from our existing customers. We intend to
increase our discretionary
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marketing spend, including account based and brand spend, to drive the effectiveness of our sales teams. As a result, we expect our total operating expenses to
increase as we continue to expand. Our investments in our sales and marketing teams are intended to help accelerate our sales, onboarding, and ramp cycles.
These efforts will require us to invest significantly in financial and other resources. Furthermore, we believe that there is significant competition for sales
personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in
recruiting, training, and retaining sufficient numbers of sales personnel to support our growth.
Continued Investment in Our Platform and Network Infrastructure
We must continue to invest in our platform and network infrastructure to maintain our position in the market. We expect our revenue growth to be
dependent on an expanding customer base and continued adoption of our edge cloud platform. In anticipation of winning new customers and staying ahead of our
customers’ needs, we plan to continue to invest in order to expand the scale and capacity of our software-defined modern network, resulting in increased network
service provider fees, which could adversely affect our gross margins if we are unable to offset these costs with revenue from new customers and increase revenue
from existing customers. Our customers require constant innovation within their own organizations and expect the same from us. Therefore, we will continue to
invest in resources to enhance our development capabilities and introduce new products and features on our platform. We believe that investment in research and
development will contribute to our long-term growth but may also negatively impact our short-term profitability. For the years ended December 31, 2020 and
2019, our research and development expenses as a percentage of revenue was 26% and 23%, respectively. We may also seek to acquire or invest in businesses,
products, or technologies that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities.
For example, on October 1, 2020, we acquired Signal Sciences, a security software company that provides protection from web, API, and mobile security threats.
Developers use our platform to build custom applications and require a state-of-the-art infrastructure to test and run these applications. We will continue to
invest in our network infrastructure by strategically increasing our POPs. We also anticipate making investments in upgrading our technology and hardware to
continue providing our customers a fast and secure platform. Our total investment in property and equipment for the years ended December 31, 2020 and 2019
were $49.0 million and $30.3 million, respectively, representing 17% and 15% of our revenue in such periods. We expect our investment in property and
equipment to increase on an absolute basis and may increase as a percentage of revenue in future periods. Our gross margins and operating results are impacted by
these investments. As of December 31, 2020, our network is located in 56 markets across 26 countries.
In the event that there are errors in software, failures of hardware, damages to a facility or misconfigurations of any of our services—whether caused by our
products, third-party error, our own error, natural disasters, or security breaches—we could experience lengthy interruptions in our platform as well as delays and
additional expenses in arranging new facilities and services. In addition, there can be no assurance that we are adequately prepared for unexpected increases in
bandwidth demands by our customers, particularly when customers experience cyber-attacks. The bandwidth we have contracted to purchase may become
unavailable for a variety of reasons, including service outages, payment disputes, network providers going out of business, natural disasters, networks imposing
traffic limits, or governments adopting regulations that impact network operations.
Uncertainty of the Coronavirus (COVID-19) Pandemic
Our business and operations could be adversely affected by health epidemics, including the ongoing COVID-19 pandemic, impacting the markets and
communities in which we, our partners and customers operate. In December 2019, a disease referred to as COVID-19 was first reported and has spread to many
countries worldwide, including the United States, and was declared a pandemic.
The ongoing global COVID-19 pandemic has adversely impacted, and may continue to adversely impact, many aspects of our business. As certain of our
customers or potential customers experience downturns or uncertainty in their own business operations and revenue resulting from the spread of COVID-19, they
have and may continue to decrease or delay their technology spending, request pricing concessions or payment extensions, or seek renegotiation of their contracts.
In addition, a portion of our revenue is related to usage of our platform in connection with live events, such as sporting events that have been or may be postponed
or cancelled. While we initially saw an increase in usage of our platform following the implementation of preventative measures to contain or mitigate the outbreak
of COVID-19, we cannot predict how usage levels will continue to be
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impacted by these preventative measures. There is no assurance that customers will continue to use our platform, or to the same extent, after the COVID-19
pandemic begins to taper or has ended. As a result, it has been difficult to accurately forecast our revenues or financial results, especially given that the near and
long term impact of the pandemic remains uncertain. Our results of operations could be materially below our forecasts, which could adversely affect our results of
operations, disappoint analysts and investors, or cause our stock price to decline.
In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place restrictions in order to control the spread of the
disease. Such restrictions, or the perception that such restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-
from-home policies, travel restrictions, and cancellation or postponement of events, among other effects that impacted productivity and disrupted our operations
and those of our partners and customers. For example, we experienced delays in the ramping of new traffic due to travel and data center restrictions in South Asia
that delayed network build outs and the timing of customer code freezes, each affected in part due to COVID-19-related issues. In March 2020, we closed all of our
offices, suspended non-essential travel, cancelled or postponed Fastly-sponsored in-person events, and we are not permitting in-person employee attendance at
industry events or work-related meetings. We have instead shifted to hosting virtual events, including Altitude, our signature Fastly event. We may take further
actions that alter our operations as may be required by federal, state, or local authorities, or which we determine are in our best interests. While much of our
operations can be performed remotely, certain activities such as expanding and maintaining our network of POPs around the world often require personnel to be
on-site, and our ability to carry out these activities have been, and may continue to be negatively impacted if our employees or local data center personnel are not
able to travel. In addition, travel restrictions have affected our ability to conduct audits of our data centers and facilities, requiring us to use alternative procedures
to the standard on-site visit. Any inability to complete these audits could affect our compliance certifications and cause customers to reduce or cease using our
services. In addition, for activities that may be conducted remotely, there is no guarantee that we will be as effective while working remotely because our team is
dispersed and many employees and their families have been negatively affected, mentally or physically, by the COVID-19 pandemic. Decreased effectiveness and
availability of our team could harm our business. Moreover, our finance organization’s ability to ensure that we comply with the requirements of Section 404 may
be impaired in the future, including the ability of our registered public accounting firm to issue an attestation report on management’s assessment of our internal
control over financial reporting. Furthermore, we may decide to postpone or cancel planned investments in our business in response to changes in our business as a
result of the spread of COVID-19, which may impact our ability to attract and retain customers and our rate of innovation, either of which could harm our business.
In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to
assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to
access capital, which could negatively affect our liquidity in the future.
We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While the spread of
COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that
the global economy will recover, either of which could harm our business.
For additional details, refer to our risk factors included in Part I. Item 1A. of this Annual Report on Form 10-K.
Key Business Metrics
We regularly review a number of metrics, including the key metrics presented in the table below, to evaluate our business, measure our performance,
identify trends affecting our business, prepare financial projections, and make strategic decisions. The calculation of the key metrics and other measures discussed
below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.
We recently completed the acquisition of Signal Sciences and are currently integrating our business operations. The financial results of Signal Sciences from
the acquisition date on October 1, 2020 have been consolidated into our financial results for 2020 and the quarter ended December 31, 2020. We have provided
separate Fastly (excluding Signal Sciences) and Signal Sciences customer count metrics, such as the total customer count and total enterprise customer count.
Separately, we
67
have excluded Signal Sciences from certain key metrics this quarter, including DBNER, NRR and LTM NRR. We intend to begin reporting consolidated customer
metrics later in 2021.
Number of customers (as of end of period) (excludes Signal Sciences)
Number of enterprise customers (as of end of period) (excludes Signal Sciences)
Number of customers (as of end of period) (Signal Sciences)
Number of enterprise customers (as of end of period) (Signal Sciences)
Dollar-Based Net Expansion Rate ("DBNER") (trailing 12 months) (excludes Signal Sciences)
NRR (as of end of period) (excludes Signal Sciences)
LTM NRR (trailing 12 months) (excludes Signal Sciences)
Number of Customers
As of December 31,
2020
2019
2,084
324
280
78
142.9 %
114.5 %
136.5 %
1,743
288
—
—
135.5 %
143.7 %
131.6 %
We believe that the number of customers is an important indicator of the adoption of our platform. Our definition of a customer consists of identifiable
operating entities with which we have a billing relationship in good standing, from which we recognized revenue during the period, and are active as of the end of
the period. In addition to our paying customers, we also have trial, developer, nonprofit and open source program, and other non-paying accounts that are excluded
from our customer count metric. Excluding Signal Sciences, as of December 31, 2020 and 2019, we had 2,084 and 1,743 customers, respectively. As of December
31, 2020, Signal Sciences had 280 total customers, some of which overlap with existing Fastly customers.
Number of Enterprise Customers
Historically our revenue has been driven primarily by a subset of customers who have leveraged our platform substantially from a usage standpoint. These
enterprise customers are defined as customers with revenue in excess of $100,000 over the previous 12-month period. Excluding Signal Sciences, as of
December 31, 2020, we had 324 enterprise customers which generated 89% of our revenue for the trailing 12 months ended December 31, 2020. As of
December 31, 2019, we had 288 enterprise customers which generated 87% of our revenue for the trailing 12 months ended December 31, 2019. We believe the
recruitment and cultivation of enterprise customers is critical to our long-term success. As of December 31, 2020, Signal Sciences had 78 enterprise customers,
some of which overlap with existing Fastly enterprise customers. Signal Sciences enterprise customers are defined as customers that spend $100,000 or more on an
annualized basis, in other words, spending $8,333.34 or more per month as of December 31, 2020.
Dollar-Based Net Expansion Rate ("DBNER") (Excludes Signal Sciences)
Our ability to generate and increase our revenue is dependent upon our ability to increase the number of new customers and usage of our platform and
increase the purchase of additional products by our existing customers. We track our growth, in part, by measuring DBNER. Our DBNER increases when
customers increase their usage of our platform or purchase additional products, and declines when they reduce their usage, benefit from lower pricing on their
existing usage, or curtail their purchases of additional products. We believe DBNER is a key metric in measuring the long-term value of our customer relationships
and our ability to grow our revenue through increased usage of our platform and purchase of additional products by our existing customers. However, our
calculation of DBNER indicates only expansion among continuing customers and does not indicate any decrease in revenue attributable to former customers,
which may differ from similar metrics of other companies.
We calculate DBNER by dividing the revenue for a given period from customers who remained customers as of the last day of the given period ("current
period") by the revenue from the same customers for the same period measured one year prior ("base period"). The revenue included in the current period excludes
revenue from (i) customers that churned after the end of the base period and (ii) new customers that entered into a customer agreement after the end of the base
period. For example, to calculate our DBNER for the trailing 12 months ended December 31, 2020, we divide (i) revenue for the trailing 12 months ended
December 31, 2020, from customers that entered into a customer agreement prior to January 1, 2020, and that remained customers as of December 31, 2020, by
(ii) revenue for the trailing 12 months ended December 31, 2019 from the same set of customers.
68
For the trailing 12 months ended December 31, 2020 and 2019 our DBNER was 142.9% and 135.5%, respectively. We believe that an annual cohort
analysis of our customers demonstrates our success in customer expansion. Once a customer begins to generate revenue for us, they tend to increase their usage of
our platform, in particular in their second year. Customer accounts acquired in 2018, 2019, and 2020 are referred to as the 2018 Cohort, 2019 Cohort, and 2020
Cohort, respectively. As described above, our customers tend to increase their usage of our platform in their second year, which is typically followed by more
modest increases in usage, if any, in ensuing years. For example, the DBNER for the 2018 Cohort was 310.6% for the year ended December 31, 2019. However,
the DBNER for the 2018 Cohort was 163.2% for the year ended December 31, 2020, which generally represents their third year as a customer, depending on when
they entered into a customer agreement. While DBNER may fluctuate from quarter to quarter based on, among other things, the timing associated with new
customer accounts, we expect our DBNER to decrease as customers that have used our platform for more than two years become a larger portion of both our
overall customer base and the revenue that we use to calculate DBNER.
We separately monitor customer retention and churn on an annual basis by measuring our annual revenue retention rate, which we calculate by multiplying
the final full month of revenue from a customer that terminated its contract with us (a "Churned Customer") by the number of months remaining in the same
calendar year ("Annual Revenue Churn"). The quotient of the Annual Revenue Churn from all of our Churned Customers divided by our annual revenue of the
same calendar year is then subtracted from 100% to determine our annual revenue retention rate. We believe this calculation is helpful in that it is based on the
amount of revenue that we would expect to have received in the remaining portion of a particular period had a customer not terminated its contract with us. It is not
indicative of the actual revenue contribution from churned customers in past periods. By comparing this amount to actual revenue for the period, we are able to
assess our ability to replace terminated revenue by generating revenue from new and continuing customers. Excluding Signal Sciences, our annual revenue
retention rate for the years ended December 31, 2020 and 2019 was 99.0% and 99.3%, respectively.
Net Retention Rate ("NRR") and Last-Twelve Months Net Retention Rate ("LTM NRR") (Excludes Signal Sciences)
Our ability to generate and increase our revenue is also dependent upon our ability to retain our existing customers. In addition to measuring expansion
using DBNER, NRR and LTM NRR also allow us to track customer retention which demonstrates the stickiness of our edge cloud platform.
Our NRR measures the net change in monthly revenue from existing customers in the last month of the period (the “current" period month) compared to the
last month of the same period one year prior (the “prior" period month), and includes revenue contraction due to billing decreases or customer churn, revenue
expansion due to billing increases, but excludes revenue from new customers. We believe the LTM NRR is supplemental as it removes some of the volatility
inherent in a usage-based business model from the measurement of the NRR metric. We calculate Net Retention Rate by dividing the revenue from the current
period month by the revenue in the prior period month. For the last month of the years ended December 31, 2020 and 2019 our NRR was 114.5% and 143.7%,
respectively.
Our LTM NRR is intended to be supplemental to our NRR as we believe that it removes some of the volatility that is inherent in a usage-based business
model. We calculate LTM NRR by dividing the total customer revenue for the prior twelve-month period (“prior 12-month period”) ending at the beginning of the
last twelve-month period (“LTM period”) minus revenue contraction due to billing decreases or customer churn, plus revenue expansion due to billing increases
during the LTM period from the same customers by the total prior 12-month period revenue. For the last month of the years ended December 31, 2020 and 2019
our LTM NRR was 136.5% and 131.6%, respectively.
Key Components of Statement of Operations
Revenue
We derive our revenue primarily from usage-based fees earned from customers using our platform. We also earn fixed-rate recurring revenue from certain
products, services and subscriptions.
Our usage-based fees earned from customers using our platform are generally billed in arrears. Our security products are primarily annual subscriptions that
are billed in advance. Many customers have tiered usage pricing which reflects discounted rates as usage increases. For most contracts, usage charges are
determined on a monthly basis based on actual usage within the
69
month and do not impact usage charges within any other month. Our larger customers often enter into contracts that contain minimum billing commitments and
reflect discounted pricing associated with such usage levels.
We define U.S. revenue as revenue from customers that have a billing address in the United States, and we define international revenue as revenue from
customers that have a billing address outside of the United States. Our revenue has been and will continue to be impacted by new and existing customers’ usage of
our products, international expansion, and the success of our sales efforts.
Cost of Revenue and Gross Margin
Cost of revenue consists primarily of fees paid for bandwidth, peering, and colocation. Cost of revenue also includes personnel costs, such as salaries,
benefits, bonuses, and stock-based compensation for our customer support and infrastructure employees, and non-personnel costs, such as amortization of
capitalized internal-use software development costs, depreciation of our network equipment and amortization of our intangible assets. Our arrangements with
network service providers require us to pay fees based on bandwidth use, in some cases subject to minimum commitments, which may be underutilized. We expect
our cost of revenue to continue to increase on an absolute basis and may increase as a percentage of revenue.
Our gross margin has been and will continue to be affected by a number of factors, including the timing and extent of our investments in our operations, our
ability to manage our network service providers and cloud infrastructure-related fees, the timing of amortization of capitalized software development costs,
depreciation of our network equipment, and the extent to which we periodically choose to pass on our cost savings from network optimization efforts to our
customers in the form of lower usage rates.
Research and Development
Research and development expenses consist primarily of personnel costs, including salaries, benefits, bonuses, and stock-based compensation. Research and
development expenses also include cloud infrastructure fees for development and testing, amortization of capitalized internal-use software development costs, and
an allocation of our general overhead expenses. We capitalize the portion of our software development costs that meet the criteria for capitalization.
We continue to focus our research and development efforts on adding new features and products including new use cases, improving the efficiency and
performance of our network, and increasing the functionality of our existing products. Over the long term we expect our research and development expenses to
decrease as a percentage of our revenue. However, our research and development expenses may fluctuate as a percentage of our revenue from period to period due
to the timing and extent of these expenses.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs, including commissions for our sales employees, salaries, benefits, bonuses, and stock-
based compensation. Sales and marketing expenses also include expenditures related to advertising, marketing, our brand awareness activities, costs related to our
Altitude conferences, professional services fees, amortization of our intangible assets and an allocation of our general overhead expenses.
We focus our sales and marketing efforts on generating awareness of our company, platform and products, creating sales leads, and establishing and
promoting our brand, both domestically and internationally. We plan to increase our investment in sales and marketing by hiring additional sales and marketing
personnel, expanding our sales channels, driving our go-to-market strategies, building our brand awareness, and sponsoring additional marketing events. Over the
long term, we expect our sales and marketing expenses to decrease as a percentage of our revenue. However, our sales and marketing expenses may fluctuate as a
percentage of our revenue from period to period due to the timing and extent of these expenses.
General and Administrative
General and administrative expenses consist primarily of personnel costs, including salaries, benefits, bonuses, and stock-based compensation for our
accounting, finance, legal, trust, human resources and administrative support personnel, and executives. General and administrative expenses also include costs
related to legal and other professional services fees, sales and other taxes, depreciation and amortization, an allocation of our general overhead expenses, bad debt
expense and
70
acquisition-related costs. We expect that we will incur costs associated with supporting the growth of our business, our operation as a public company, and to meet
the increased compliance requirements associated with our international expansion.
Our general and administrative expenses include a significant amount of sales and other taxes to which we are subject based on the manner we sell and
deliver our products. Historically, we have not collected such taxes from our customers and have therefore recorded such taxes as general and administrative
expenses. We expect that these expenses will decline in future years as we continue to implement our sales tax collection mechanisms and start collecting these
taxes from our customers.
Overall, we expect our general and administrative expenses to continue to increase on an absolute basis and may increase as a percentage of revenue in
future periods. Over the long term, we expect our general and administrative expenses to decrease as a percentage of our revenue.
Income Taxes
Our income tax benefit is primarily the result of a reduction in the valuation allowance recorded against our net deferred tax assets. In connection with the
acquisition of Signal Science, the Company recorded a net deferred tax liability which provides an additional source of taxable income to support the realization of
the pre-existing deferred tax assets. Our income tax benefit is partially offset by income taxes from certain foreign jurisdictions where we conduct business and
state minimum income taxes in the United States. We have a valuation allowance for deferred tax assets, including net operating loss carryforwards. We expect to
maintain this valuation allowance for the foreseeable future.
Results of Operations
The following tables set forth our results of operations for the period presented and as a percentage of our revenue for that period.
2020
Year ended
December 31,
2019
(in thousands)
2018
$
$
290,874 $
120,007
170,867
74,814
101,181
102,084
278,079
(107,212)
1,628
(1,549)
(279)
(107,412)
(11,480)
(95,932) $
200,462 $
88,322
112,140
46,492
71,097
41,099
158,688
(46,548)
3,287
(5,236)
(2,561)
(51,058)
492
(51,550) $
144,563
65,499
79,064
34,618
50,134
23,450
108,202
(29,138)
939
(1,810)
(741)
(30,750)
185
(30,935)
Consolidated Statement of Operations:
Revenue
Cost of revenue
Gross profit
Operating expenses:
(1)
Research and development
Sales and marketing
General and administrative
(1)
(1)
(1)
Total operating expenses
Loss from operations
Interest income
Interest expense
Other expenses, net
Loss before income tax expense (benefit)
Income tax expense (benefit)
Net loss attributable to common stockholders
__________
(1) Includes stock-based compensation expense as follows:
71
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total
Consolidated Statements of Operations, as a percentage of revenue:*
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Other expenses, net
Loss before income taxes
Income taxes
Net loss attributable to common stockholders
__________
* Columns may not add up to 100% due to rounding.
Revenue
2020
Year ended December 31,
2019
(in thousands)
2018
$
$
3,889 $
17,112
17,028
26,404
64,433 $
1,410 $
2,920
3,497
4,318
12,145 $
2020
Year ended December 31,
2019
2018
100 %
41
59
26
35
35
96
(37)
1
(1)
—
(37)
(4)
(41)%
100 %
44
56
23
35
21
79
(23)
2
(3)
(1)
(25)
—
(25)%
265
1,332
1,023
1,459
4,079
100 %
45
55
24
35
16
75
(20)
1
(1)
(1)
(21)
—
(21)%
Revenue
$
290,874 $
200,462 $
144,563
45 %
39 %
2020
Year ended December 31,
2019
(in thousands)
2018
2019 to 2020 Change
2018 to 2019 Change
2020 compared to 2019
Revenue was $290.9 million for the year ended December 31, 2020 compared to $200.5 million for the year ended December 31, 2019, an increase of $90.4
million, or 45%.
We recently completed the acquisition of Signal Sciences and are currently in the midst of integrating our business operations. The financial results of
Signal Sciences have been consolidated into our financial results for 2020 and the quarter ended December 31, 2020. We have not included Signal Sciences in
most of our key metrics this quarter and intend to report consolidated key metrics later in 2021. Excluding Signal Sciences, we had 2,084 customers and 324
enterprise customers as of December 31, 2020. We had 1,743 customers and 288 enterprise customers as of December 31, 2019. This represents an increase of 341,
or 20%, in customers and 36, or 13%, in enterprise customers from December 31, 2019. As of December 31,
72
2020, Signal Sciences had 280 customers and 78 enterprise customers, some of which overlap with existing Fastly customers and enterprise customers.
Approximately 94% of our revenue in the year ended December 31, 2020 was driven by usage on our platform, primarily from existing customers, as
revenue from new customers contributed less than 10% of our revenue, and includes revenue from Signal Sciences after the acquisition date. The proportion of the
revenue contribution between new and existing customers is consistent with typical customer behavior as customers tend to contribute more revenue over time as
their use of the platform increases. The remainder of our revenue was generated by our other products and services, including support and professional services.
U.S. revenue was $196.5 million and 68% of revenue for the year ended December 31, 2020, and $142.8 million and 71% of revenue for the year ended
December 31, 2019. This represents an increase of $53.7 million, or 38%. International revenue was $94.3 million and 32% of revenue for the year ended
December 31, 2020, and $57.6 million and 29% of revenue for the year ended December 31, 2019. This represents an increase of $36.7 million, or 64%.
Excluding Signal Sciences, we had 1,016 domestic customers and 1,068 international customers as of December 31, 2020. This is an increase in domestic
customers of 125, or 14%, and an increase in international customers of 216, or 25%, compared to December 31, 2019.
2019 compared to 2018
Revenue was $200.5 million for the year ended December 31, 2019 compared to $144.6 million for the year ended December 31, 2018, an increase of $55.9
million, or 39%.
We had 1,743 customers and 288 enterprise customers as of December 31, 2019. We had 1,582 customers and 227 enterprise customers as of December 31,
2018. This was an increase of 161, or 10%, in customers and 61, or 27%, in enterprise customers from December 31, 2018.
Approximately 93% of our revenue in 2019 was driven by usage on our platform, primarily from existing customers, as revenue from new customers
contributed less than 10% of our revenue. The proportion of the revenue contribution between new and existing customers is consistent with typical customer
behavior as customers tend to contribute more revenue over time as their use of the platform increases. The remainder of our revenue was generated by our other
products and services, including support and professional services.
U.S. revenue was $142.8 million and 71% of revenue for the year ended December 31, 2019. U.S. revenue was $110.8 million and 77% of revenue for the
year ended December 31, 2018. This was an increase of $32.0 million, or 29%, from U.S. revenue for the year ended December 31, 2018. International revenue
was $57.6 million and 29% of revenue for the year ended December 31, 2019. International revenue was $33.8 million and 23% of revenue for the year ended
December 31, 2018. This was an increase of $23.9 million, or 71%, from international revenue for the year ended December 31, 2018.
We had 891 domestic customers and 852 international customers as of December 31, 2019. This was an increase in domestic customers of 30, or 3%,
compared to December 31, 2018, and an increase in international customers of 131, or 18%, compared to December 31, 2018.
Cost of Revenue
Cost of revenue
$
120,007 $
88,322
65,499
36 %
35 %
2020
Year ended December 31,
2019
(in thousands)
2018
2019 to 2020 Change
2018 to 2019 Change
2020 compared to 2019
73
Cost of revenue was $120.0 million for the year ended December 31, 2020 compared to $88.3 million for the year ended December 31, 2019, an increase of
$31.7 million, or 36%. The increase in cost of revenue was primarily due to an increase in bandwidth costs of $12.5 million, an increase in colocation costs of
$3.8 million, and an increase in other network costs of $2.4 million due to increased traffic on our platform. There was an increase in depreciation and amortization
expense of $6.9 million as we continue to invest in our platform, which includes $2.5 million of amortization of intangible assets acquired from the Signal Sciences
acquisition. There was also a $6.1 million increase in personnel costs, such as salaries, benefits, and stock-based compensation, due to the increased headcount to
support the growth of our business, including an $0.8 million increase related to the increased headcount and personnel costs associated with the Signal Sciences
acquisition. There was also an increase of $1.3 million in software costs. The increases were partially offset by a $1.3 million decrease due to an overall reduction
in travel costs due to COVID-19.
2019 compared to 2018
Cost of revenue was $88.3 million for the year ended December 31, 2019 compared to $65.5 million for the year ended December 31, 2018, an increase of
$22.8 million, or 35%. The increase in cost of revenue was due to an increase in bandwidth costs of $6.2 million, an increase of colocation costs of $3.9 million,
and an increase in other network costs of $2.5 million due to increased traffic on our platform. Personnel costs, such a salaries, benefits, and stock-based
compensation increased by $5.5 million due to an increase in headcount to support the growth of our business. Depreciation and amortization expense increased by
$2.9 million due to increased investments in our platform. Travel costs increased by $0.7 million due to travel associated with the deployment of new POPs.
Software license costs increased by $0.5 million.
Gross Profit and Gross Margin
Gross profit
Gross margin
$
170,867
$
112,140
$
59 %
56 %
79,064
55 %
52 %
3 %
42 %
1 %
2020
Year ended December 31,
2019
(in thousands)
2018
2019 to 2020 Change
2018 to 2019 Change
2020 compared to 2019
Gross profit was $170.9 million for the year ended December 31, 2020 compared to $112.1 million for the year ended December 31, 2019, an increase of
$58.7 million, or 52%. Gross margin was 59% for the year ended December 31, 2020 compared to 56% for the year ended December 31, 2019, an increase of 3%.
The improvements to our gross profit and gross margin were due to the better optimization of our platform, such that our revenue from usage of our platform was
outpacing the increase in associated costs of revenue. This improvement was offset by lower gross margins related to Signal Sciences, related to the impact of
purchase accounting adjustments including a reduction of deferred revenue and amortization of intangible assets.
2019 compared to 2018
Gross profit was $112.1 million for the year ended December 31, 2019 compared to $79.1 million for the year ended December 31, 2018, an increase of
$33.1 million, or 42%. The increase in gross profit is due to an increase in revenue from usage of our platform.
Gross margin was 56% for the year ended December 31, 2019 compared to 55% for the year ended December 31, 2018, an increase of 1%. The increase is
due to better utilization of our platform.
74
Operating Expenses
Research and development
Sales and marketing
General and administrative
Total operating expenses
Percentage of revenue:
Research and development
Sales and marketing
General and administrative
2020
Year ended December 31,
2019
(in thousands)
2018
2019 to 2020 Change
2018 to 2019 Change
$
$
74,814
101,181
102,084
278,079
$
$
46,492
71,097
41,099
158,688
$
$
34,618
50,134
23,450
108,202
26 %
35 %
35 %
23 %
35 %
21 %
24 %
35 %
16 %
61 %
42 %
148 %
75 %
(3) %
— %
(14) %
34 %
42 %
75 %
47 %
1 %
— %
(5) %
Research and development—2020 compared to 2019
Research and development expenses were $74.8 million for the year ended December 31, 2020 compared to $46.5 million for the year ended December 31,
2019, an increase of $28.3 million, or 61%. This is primarily due to an increase of $31.0 million of personnel related costs due to an increase in headcount and an
increase in stock-based compensation expense. The increase in personnel costs includes $3.9 million related to the increased headcount and personnel costs
associated with the Signal Sciences acquisition. There was also a $0.7 million increase in data center costs, which was offset by an increase in the capitalization for
internal-use software of $3.3 million. The increase is also partially offset by a $2.5 million decrease due to an overall reduction in travel costs due to COVID-19.
Research and development—2019 compared to 2018
Research and development expenses were $46.5 million for the year ended December 31, 2019 compared to $34.6 million for the year ended December 31,
2018, an increase of $11.9 million, or 34%. This is primarily due to an increase of $8.1 million of personnel related costs, such as salaries, benefits, and stock-
based compensation, due to an increase in headcount and stock-based compensation expense. Software license costs increased by $1.6 million. Travel costs
increased by $1.2 million. Facilities and information system costs increased by $0.9 million. These increases were offset by an increase in the capitalization for
internal-use software of $1.2 million.
Sales and marketing—2020 compared to 2019
Sales and marketing expenses were $101.2 million for the year ended December 31, 2020 compared to $71.1 million for the year ended December 31, 2019,
an increase of $30.1 million, or 42%. This is primarily due to an increase of $21.3 million of personnel related costs, such as salaries, sales commissions, benefits,
and stock-based compensation, due to an increase in headcount and stock-based compensation expense. The increase in personnel costs includes $6.0 million
related to the increased headcount and personnel costs associated with the Signal Sciences acquisition. We also recorded $4.8 million of stock-based compensation
and $0.6 million of severance relating to an employee termination in the second quarter of 2020. The increase is also driven by $2.6 million of amortization of
certain intangible assets acquired from the Signal Science acquisition, in addition to a $1.1 million increase in professional fees, a $0.8 million increase in software
costs, and a $0.6 million increase in marketing costs. The increase is partially offset by a $2.7 million decrease due to an overall reduction in travel costs due to
COVID-19.
Sales and marketing—2019 compared to 2018
Sales and marketing expenses were $71.1 million for the year ended December 31, 2019 compared to $50.1 million for the year ended December 31, 2018,
an increase of $21.0 million, or 42%. This is primarily due to a $13.2 million increase in personnel related costs, such as salaries, sales commissions, benefits, and
stock-based compensation, due to an increase in headcount, and an increase in stock-based compensation expense. Facilities and information costs increased by
$2.4 million.
75
Marketing costs increased by $1.6 million. Professional services increased by $1.5 million. Travel costs increased by $1.3 million. Software licenses increased by
$0.8 million.
General and administrative—2020 compared to 2019
General and administrative costs were $102.1 million for the year ended December 31, 2020 compared to $41.1 million for the year ended December 31,
2019, an increase of $61.0 million, or 148%. This is primarily due to an increase of $31.4 million of personnel related costs, such as salaries, benefits and stock-
based compensation, due to an increase in headcount and stock-based compensation. The increase in personnel costs includes $12.7 million related to the increased
headcount and personnel costs associated with the Signal Sciences acquisition. We also incurred $19.5 million of acquisition-related expenses. The increase is also
driven by a $6.3 million increase in external professional services such as legal, accounting, and enterprise systems, and a $1.2 million increase in business
insurance costs to support the growth of our business as a public company including our efforts to comply with the regulations of SOX. We also had a $1.4 million
increase in bad debt expenses due to an increase in revenue and due to impacts of COVID-19 on certain customers. We also recorded a $1.2 million increase in
uncollected sales tax reserve due to an increase in revenue, as well as a $1.0 million increase in software licenses. The increase is partially offset by a $1.0 million
decrease due to an overall reduction in travel costs due to COVID-19, and a $0.9 million decrease in corporate and overhead costs.
General and administrative—2019 compared to 2018
General and administrative costs were $41.1 million for the year ended December 31, 2019 compared to $23.5 million for the year ended December 31,
2018, an increase of $17.6 million, or 75%. This is primarily due to an increase of $8.5 million of personnel related costs, such as salaries, benefits and stock-based
compensation, due to an increase in headcount and an increase in stock-based compensation expense. The increase is also due to an increase of $2.6 million in
external professional services such as legal, accounting, and enterprise systems, an increase of $2.1 million business insurance costs associated with becoming a
public company, an increase of $1.9 million in transaction taxes as in the period the taxes were lower as they were net of a release of a reserve, and an increase of
$1.2 million costs for software licenses, and an increase of $1.1 million in travel costs.
Other Income and Expense
Interest Income
Interest income
$
1,628 $
3,287 $
939
(50) %
250 %
2020
Year ended December 31,
2019
(in thousands)
2018
2019 to 2020 Change
2018 to 2019 Change
2020 compared to 2019
Interest income was $1.6 million for the year ended December 31, 2020 compared to $3.3 million for the year ended December 31, 2019, a decrease of $1.7
million, or 50%. This decrease is due to a reduction in interest rates on our cash balances and investments portfolio.
2019 compared to 2018
Interest income was $3.3 million for the year ended December 31, 2019 compared to $0.9 million for the year ended December 31, 2018, an increase of $2.3
million, or 250%. This increase is due to interest income on the reinvestment of the proceeds raised from our initial public offering ("IPO") on May 17, 2019.
76
Interest Expense
Interest expense
$
1,549 $
5,236 $
1,810
(70) %
189 %
2020
Year ended December 31,
2019
(in thousands)
2018
2019 to 2020 Change
2018 to 2019 Change
2020 compared to 2019
Interest expense was $1.5 million for the year ended December 31, 2020 compared to $5.2 million for the year ended December 31, 2019, a decrease of $3.7
million, or 70%. This decrease is primarily due to the early payment of the $20.0 million outstanding loan on our Credit Facility in June 2019 that caused the
acceleration of the amortization of debt issuance costs, thereby increasing interest expense in the year ended December 31, 2019. This decrease is also due to a
decrease in average outstanding debt in 2020 compared to 2019.
2019 compared to 2018
Interest expense was $5.2 million for the year ended December 31, 2019 compared to $1.8 million for the year ended December 31, 2018, an increase of
$3.4 million, or 189%. This increase is primarily due to the acceleration of the amortization of debt issuance costs due to the early payment of the $20.0 million
outstanding loan on our Credit Facility as well as an increase in average outstanding debt.
Other income (expense), net
Other expense, net
$
279 $
2,561 $
741
(89) %
246 %
2020
Year ended December 31,
2019
(in thousands)
2018
2019 to 2020 Change
2018 to 2019 Change
2020 compared to 2019
Other expense, net was $0.3 million for the year ended December 31, 2020 compared to $2.6 million for the year ended December 31, 2019, a decrease in
other expense, net of $2.3 million, or (89)%. This decrease is primarily due to mark-to-market adjustments for warrant liabilities prior to the conversion to
additional paid in capital upon the IPO in 2019.
2019 compared to 2018
Other expense, net was $2.6 million for the year ended December 31, 2019 compared to $0.7 million for the year ended December 31, 2018, an increase of
$1.8 million, or 246%. This increase is primarily due to mark-to-market adjustments for warrant liabilities prior to the conversion to additional paid in capital upon
the IPO.
Income Tax Expense (Benefit)
Income tax expense (benefit)
$
(11,480) $
492 $
185
(2,433)%
166 %
2020
Year ended December 31,
2019
(in thousands)
2018
2019 to 2020 Change
2018 to 2019 Change
77
2020 compared to 2019
Income tax benefit was $11.5 million for the year ended December 31, 2020 compared to $0.5 million income tax expense for the year ended December 31,
2019, a decrease of $11.7 million or 2,433%. This decrease is primarily due to a tax benefit recognized related to the acquisition of Signal Sciences. Please refer to
Note 12 — Income Taxes for further details.
2019 compared to 2018
Income tax expense was $0.5 million for the year ended December 31, 2019 compared to $0.2 million for the year ended December 31, 2018, an increase of
$0.3 million or 166%. This increase is primarily due increase in taxes in our foreign jurisdictions.
Liquidity and Capital Resources
As of December 31, 2020, we had cash, cash equivalents, and marketable securities totaling $214.6 million. Our cash, cash equivalents, and marketable
securities primarily consisted of bank deposits and money market funds held at major financial institutions and investment-grade commercial paper and corporate
debt securities. As of December 31, 2020, our marketable securities balance includes $20.3 million of marketable securities classified as long term investments.
On May 21, 2019, upon the completion of our IPO, we received net proceeds of $192.5 million, after deducting underwriting discounts and commissions,
from sales of 12,937,500 shares of our Class A common stock in the IPO. The net proceeds include additional proceeds of $25.1 million, net of underwriters'
discounts and commissions, from the exercise of the underwriters' option to purchase an additional 1,687,500 shares of our Class A common stock.
On May 26, 2020, we completed a follow-on public offering in which we sold 6,900,000 shares of Class A common stock, which included 900,000 shares
sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at the public offering price of $41.50 per share. We received net
proceeds of $274.9 million, after deducting underwriting discounts and commissions, from sales of our shares in the public offering.
To date, we have financed our operations primarily through equity issuances, payments received from customers, the net proceeds we received through sales
of equity securities, and borrowings under our credit facilities. Our principal uses of cash in recent periods have been funding our operations and capital
expenditures. We also enter into finance leases to finance our infrastructure assets in co-location facilities that we directly lease and operate.
We believe that our cash and cash equivalents balances, our credit facilities, and the cash flows generated by our operations will be sufficient to satisfy our
anticipated cash needs for working capital and capital expenditures for at least the next 12 months. We have generated losses from operations in the past and expect
to continue to incur operating losses for the foreseeable future due to the investments we intend to make and may require additional capital resources to execute
strategic initiatives to grow our business.
Cash Collateralized Revolving Credit Agreement
In November 2019, we entered into a Revolving Credit Agreement for an aggregate commitment amount of $70.0 million with a maturity date of November
3, 2022 (the "Revolver"). The amount of borrowings available under the Revolving Credit Agreement at any time were collateralized by our cash. The interest rate
associated with each advance under the Revolving Credit Agreement was equal to the sum of LIBOR for the applicable interest period plus 1.50%, which was a per
annum rate based on outstanding borrowings. The commitment fee was 0.20% per annum based on the average daily unused amount of the commitment amount.
Interest payments on outstanding borrowings were due on the last day of each interest period and payments for the commitment fee were due at the end of each
calendar quarter.
In November 2020, we terminated the Revolving Credit Agreement. Please refer to Note 9 — Debt Instruments for details on the subsequent termination of
our Revolving Credit Agreement.
78
On January 28, 2021, we entered into an additional finance lease agreement with the equipment provider for $2.0 million in network equipment at an annual
interest rate of 4.89% over a term of three years. The agreement provides for a bargain purchase price at the end of the term. The amortization of leased assets is
included in depreciation and amortization expense.
On February 16, 2021, we entered into a Senior Secured Credit Facilities Agreement ("Credit Agreement") with Silicon Valley Bank for an aggregate
commitment amount of $100.0 million. The Credit Agreement bears interest at a rate per annum equal to the sum of LIBOR for the applicable interest period plus
1.75% - 2.00%, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. Interest payments on outstanding
borrowings are due on the last day of each interest period. The Credit Agreement has a commitment fee on the unused portion of the borrowing commitment,
which is payable on the last day of each calendar quarter at a rate per annum of 0.20% - 0.25% depending on the average daily outstanding balance of all loans and
letters of credit under the Credit Agreement. In addition, our Credit Agreement contains a financial covenant that requires us to maintain a consolidated adjusted
quick ratio of at least 1:25 to 1:00 tested on a quarterly basis as well as a springing revenue growth covenant for certain periods if our consolidated adjusted quick
ratio falls below 1.75 to 1:00 on the last day of any fiscal quarter.
Cash Flows
The following table summarizes our cash flows for the period indicated:
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Cash Flows from Operating Activities
2020
Year ended December 31,
2019
(in thousands)
2018
$
(19,916) $
(275,023)
272,739
(31,303) $
(87,678)
168,148
(16,985)
(47,107)
69,637
For the year ended December 31, 2020, cash used in operating activities consisted primarily of our net loss of $95.9 million adjusted for non-cash items,
including $20.0 million of depreciation and amortization, $5.1 million of amortization related to acquired intangibles, $64.4 million of stock-based compensation
expense, $21.8 million of lease amortization expense, amortization of deferred contract costs of $3.5 million and bad debt expense of $1.7 million. This was
partially offset by $13.0 million in tax benefits related to release of valuation allowance related to deferred taxes associated with the Signal Science acquisition.
With respect to changes in operating assets and liabilities, there was a decrease in accounts receivable of $9.3 million, primarily due to increased collections due to
the growth of our business and the timing of cash receipts from certain of our larger customers, and $22.7 million in prepaid expenses and other assets due to pre-
payments for SaaS licenses. We also had $18.3 million of operating lease payments. This was partially offset by an increase of $22.0 million in accounts payable,
accrued expenses, and other liabilities due to timing of payments.
For the year ended December 31, 2019, cash used in operating activities consisted primarily of our net loss of $51.6 million adjusted for non-cash items,
including $16.6 million of depreciation and amortization, $12.1 million of stock-based compensation expense, $2.3 million of amortization of deferred contract
costs, $0.7 million of amortization of deferred rent, an increase in the fair value of our common stock warrants of $2.4 million, and amortization of debt issuance
costs of $1.9 million. With respect to changes in operating assets and liabilities, there was an increase in accounts receivable of $12.8 million, primarily due to the
growth of our business and the timing of cash receipts from certain of our larger customers, an increase in other long-term assets of $3.9 million due to the
adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, and an increase of $2.7 million in prepaid expenses and other
assets due to pre-payments for SaaS licenses.
For the year ended December 31, 2018, cash used in operating activities consisted primarily of our net loss of $30.9 million adjusted for non-cash items,
including $13.4 million of depreciation and amortization, $4.1 million of stock-based
79
compensation expense, and an increase in our bad debt expense of $0.6 million. With respect to changes in operating assets and liabilities, accounts payable,
accrued expenses, and other liabilities increased $4.7 million. This was partially offset by an increase in accounts receivable of $6.2 million and prepaid expenses
and other assets of $2.3 million, primarily due to the growth of our business and the timing of cash receipts from certain of our larger customers, pre-payments for
insurance, rent, and software licenses, as well as an increase in VAT receivable.
Cash Flows from Investing Activities
For the year ended December 31, 2020, cash used in investing activities was $275.0 million, primarily consisting of $269.1 million in purchases of
marketable securities, $201.0 million of business acquisitions, net of cash acquired, $29.6 million of payments related to purchases of property and equipment to
expand our network, $6.1 million of additions to capitalized internal-use software, and $1.8 million of purchases of intangible assets. This was offset by $232.0
million of maturities and sales of marketable securities.
For the year ended December 31, 2019, cash used in investing activities was $87.7 million, primarily consisting of $191.0 million in purchases of
marketable securities, $14.6 million of payments related to purchases of property and equipment to expand our network, and $4.9 million of additions to
capitalized internal-use software. This was offset by $123.4 million of maturities of marketable securities.
For the year ended December 31, 2018, cash used in investing activities was $47.1 million, primarily consisting of $62.7 million in purchases of marketable
securities and $16.7 million of payments related to purchases of property and equipment to expand our network, offset by $35.2 million of maturities of marketable
securities.
Cash Flows from Financing Activities
For the year ended December 31, 2020, cash provided by financing activities was $272.7 million, primarily consisting of $274.9 million in proceeds from
our follow-on public offering, net of underwriting fees, $9.3 million in proceeds from the ESPP, and $15.3 million in proceeds from stock option exercises by our
employees and directors. This was partially offset by $20.3 million of debt repayments, $5.8 million of finance lease liabilities repayments, and $0.7 million of
payments of costs related to our follow-on public offering.
For the year ended December 31, 2019, cash provided by financing activities was $168.1 million, primarily consisting of $192.5 million in proceeds from
our IPO, net of underwriting fees, $5.4 million in proceeds from the ESPP, $6.1 million in proceeds from stock option exercises by our employees and directors.
This was partially offset by $29.1 million of net debt repayments, $5.5 million of payments of costs related to our IPO, and $1.4 million of finance lease liabilities
repayments.
For the year ended December 31, 2018, cash provided by financing activities was $69.6 million, primarily consisting of $39.9 million of proceeds from our
sales of Series F convertible preferred stock, net of issuance expenses, $28.3 million of net borrowings, $2.6 million in proceeds from stock option exercises by our
employees, and $1.2 million of finance lease liabilities repayments.
Contractual Obligations and Other Commitments
The following table summarizes our non-cancelable contractual obligations as of December 31, 2020:
Operating lease obligations
Purchase obligations
Finance lease obligations
(2)
(3)
(1)
Total
__________
Less than 1 Year
1-3 Years
3-5 Years
(in thousands)
More than 5 Years
Total
$
$
23,095 $
35,685
12,115
70,895 $
27,716 $
23,903
15,368
66,987 $
15,381 $
—
—
15,381 $
9,888 $
—
—
9,888 $
76,080
59,588
27,483
163,151
80
(1) Operating lease obligations represent total future minimum rent payments under non-cancelable operating lease agreements, such as our facilities and
colocation (i.e. data center) leases, net of sublease income of $1.2 million.
(2) Purchase obligations represent total future minimum payments under contracts with our cloud infrastructure provider, network service providers, and other
vendors. Purchase obligations exclude agreements that are cancellable without penalty. Our purchase obligations exclude our operating lease commitments
associated with our colocation arrangements which have been separately disclosed under our operating lease commitments.
(3) Finance lease obligations represents principal and interest payments under our networking equipment leases.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to
make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, expenses, and related disclosures. Actual results
and outcomes could differ significantly from our estimates, judgments, and assumptions. To the extent that there are material differences between these estimates
and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to
receive in exchange for those products or services. The processing and recording of certain revenue requires a manual process, and therefore we use a complex set
of procedures to generate complete and accurate data to record its revenue transactions. We enter into contracts that can include various combinations of products
and services, each of which are distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers,
which are subsequently remitted to governmental authorities.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. Our contracts with
customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct
performance obligations that should be accounted for separately versus together may require significant judgment. For contracts with multiple performance
obligations, we allocate the contract transaction price to each performance obligation using our estimate of the standalone selling price ("SSP") of each distinct
good or service in the contract.
Judgment is required to determine the SSP for each distinct performance obligation. We analyze separate sales of our products and services as a basis for
estimating the SSP of our products and services. We then use that SSP as the basis for allocating the transaction price when our product and services are sold
together in a contract with multiple performance obligations. In instances where SSP is not directly observable, such as when we do not sell the product or service
separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for
individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use
information, such as geographic region and distribution channel, in determining the SSP.
The transaction price in a contract for usage-based services is typically equal to the minimum commit price in the contract less any discounts provided. The
transaction price in a contract that does not contain usage-based services is equal to the total contract value. Because our typical contracts represent distinct
services delivered over time with the same pattern of transfer to the customer, usage-based consideration primarily related to actual consumption over the
minimum commit levels is allocated to the period to which it relates. The amount of consideration recognized for usage above the minimum commit price is
limited to the amount we expect to be entitled to receive in exchange for providing services. We have elected to apply the practical expedient for estimating and
disclosing the variable consideration when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied
promise to transfer a distinct good or service that forms part of a single performance obligation from our remaining performance obligations under these contracts.
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Performance obligations represent stand-ready obligations that are satisfied over time as the customer simultaneously receives and consumes the benefits
provided by us. These obligations can be content delivery, security, subscription services, professional services, support, edge cloud platform services, and others.
Accordingly, our revenue is recognized over time, consistent with the pattern of benefit provided to the customer over the term of the agreement.
At times, customers may request changes that either amend, replace, or cancel existing contracts. Judgment is required to determine whether the specific
facts and circumstances within the contracts should be accounted for as a separate contract or as a modification.
In contracts where there are timing differences between when we transfer a promised good or service to the customer and when the customer pays for that
good or service, we have determined our contracts do not include a significant financing component. We have also elected the practical expedient to not measure
financing components for any contract where the timing difference is less than one year.
Stock-Based Compensation
We account for stock-based employee compensation plans under the fair value recognition and measurement provisions, which require all stock-based
payments, including grants of stock options, restricted stock units ("RSUs"), restricted stock awards ("RSAs"), performance stock awards ("PSUs") and shares
issued under our Employee Stock Purchase Plan ("ESPP") to be measured based on the grant-date fair value of the award and recognized as expense over the
requisite service period, which is generally the vesting period of the respective award. We account for forfeitures as they occur.
The fair value of RSUs and RSAs granted to our employees and directors is based on the grant date fair value. The fair value of PSUs granted to our
employees is based on the fair value determined when the performance metrics were set. The fair value of stock options granted to our employees and directors,
and of the shares to be issued under our ESPP are based on the Black-Scholes option-pricing model. The determination of the fair value of a stock-based award is
affected by the deemed fair value of the underlying stock price on the grant date, as well as assumptions regarding a number of other complex and subjective
variables. These variables include the fair value of our common stock, the expected stock price volatility over the expected term of the options, stock option
exercise and cancellation behaviors, risk-free interest rates, and expected dividends:
These assumptions and estimates are as follows:
•
•
•
•
Fair Value of Common Stock. We use the market closing price of our Class A common stock, as reported on the New York Stock Exchange, for the fair
value. Prior to our IPO, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at
each meeting at which awards are approved. These factors included, but were not limited to (i) contemporaneous third-party valuations of Common
Stock; (ii) the rights and preferences of Series Preferred relative to Common Stock; (iii) the lack of marketability of Common Stock; (iv) developments in
the business; and (v) the likelihood of achieving a liquidity event, such as an IPO or sale of the Company, given prevailing market conditions.
Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions were
determined based on the vesting terms, exercise terms, and contractual lives of the options. The expected term was estimated using the simplified method
allowed under Securities and Exchange Commission (SEC) guidance.
Volatility. Since we do not have a long trading history of our common stock, the expected volatility is determined based on the historical stock volatilities
of its comparable companies. Comparable companies consist of public companies in our industry, which are similar in size, stage of life cycle, and
financial leverage. We intend to continue to apply this process using the same or similar public companies until a sufficient amount of historical
information regarding the volatility of its share price becomes available, or unless circumstances change such that the identified companies are no longer
similar to us, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.
Risk-free Interest Rate. The risk-free interest rate used in the Black-Scholes option pricing model is the implied yield available on U.S. Treasury zero-
coupon issues with a remaining term equivalent to that of the options for each expected term.
82
•
Dividend Yield. The expected dividend assumption is based on our current expectations of our anticipated dividend policy. We have no history of paying
any dividends and therefore used an expected dividend yield of zero.
Valuation of Goodwill and Other Acquired Intangible Assets in Business Combination
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible
and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible
assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in
valuing certain of the intangible assets and goodwill we have acquired include but are not limited to future expected cash flows from acquired developed
technologies; the acquired company’s trade name, existing customer relationships and backlog. These estimates are inherently uncertain and unpredictable, and if
different estimates were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we
have made. Additionally, unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual
results.
The authoritative guidance allows a measurement period of up to one year from the date of acquisition to make adjustments to the preliminary allocation of
the purchase price. As a result, during the measurement period we may record adjustments to the fair values of assets acquired and liabilities assumed, with the
corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement
period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the
Consolidated Statement of Operations.
Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill is the amount by which the cost of acquired net assets in a business combination exceeds the fair value of the net identifiable assets on the date of
purchase and is carried at its historical cost. We test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate
that the asset might be impaired. We determined that we operate as one reporting unit and we perform our annual impairment test of goodwill as of October 31 and
whenever events or circumstances indicate that the asset might be impaired.
Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances, such
as service discontinuance, technological obsolescence, significant decreases in our market capitalization, facility closures, or work-force reductions indicate that
the carrying amount of the long-lived asset or asset group may not be recoverable. When such events occur, we compare the carrying amount of the asset or asset
group to the undiscounted expected future cash flows related to the asset or asset group. If this comparison indicates that an impairment is present, the amount of
the impairment is calculated as the difference between the carrying amount and the fair value of the asset or asset group.
Leases
We lease office space and data centers ("Colocation leases") under non-cancelable operating leases with various expiration dates through 2027. We also
lease server equipment under non-cancelable operating finance leases with various expiration dates through 2024. We determine if an arrangement contains a lease
at inception.
Operating lease right-of-use assets and lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest
rate implicit in our operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future
payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic
environments. Operating lease right-of-use assets also include any prepaid lease payments and lease incentives.
Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation
provisions are considered in determining the single lease cost to be recorded over the lease term. Single lease cost is recognized on a straight-line basis over the
lease term commencing on the date we have the right to use the leased property. The lease terms may include options to extend or terminate the lease. We generally
use the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that the option will be exercised. Our lease
agreements may contain variable costs such as common area maintenance, operating expenses or other
83
costs. Variable lease costs are expensed as incurred on the consolidated statements of operations. Our lease agreements generally do not contain any residual value
guarantees or restrictive covenants.
We lease networking equipment from a third party, through equipment finance leases. These leases include a bargain purchase option, resulting in a full
transfer of ownership at the completion of the lease term.
Operating leases are reflected in operating lease right-of-use assets, operating lease liabilities, and operating lease liabilities, non-current on our consolidated
balance sheets. Finance leases are included in property and equipment, net, finance lease liabilities, and finance lease liabilities, non-current on our consolidated
balance sheets.
Internal-Use Software Development Costs
Labor and related costs associated with internal-use software during the application development stage are capitalized. Capitalization of costs begins when
the preliminary project stage is completed, management has committed to funding the project, and it is probable that the project will be completed and the software
will be used to perform the function intended. Capitalization ceases at the point when the project is fully tested and substantially complete and is ready for its
intended purpose. The capitalized amounts are included in property and equipment, net on the Consolidated Balance Sheets. We amortize such costs over the
estimated useful life of the software; completed internal-use software that is used on our network is amortized to cost of revenue over its estimated useful life.
Costs incurred during the planning, training, and post-implementation stages of the software development life-cycle are expensed as incurred.
Legal and Other Contingencies
From time to time, we have been and will continue to be subject to legal proceedings and claims. Periodically, we evaluate the status of each legal matter
and assess our potential financial exposure. If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably
estimated, we accrue a liability for the estimated loss. Significant judgment is required to determine the probability of a loss and whether the amount of the loss is
reasonably estimable. The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of accruals
recorded are based only on the information available to us at the time. As additional information becomes available, we reassess the potential liability related to the
legal proceeding or litigation, and may revise our estimates. Any revisions could have a material effect on our results of operations.
Please refer to Note 10—Commitments and Contingencies for discussion around our legal proceedings.
We conduct operations in many tax jurisdictions throughout the United States. In many of these jurisdictions, non-income-based taxes, such as sales and use
and telecommunications taxes are assessed on our operations. We are subject to indirect taxes, and may be subject to certain other taxes, in some of these
jurisdictions. Historically, we have not billed or collected these taxes and, in accordance with U.S. GAAP, we have recorded a provision for our tax exposure in
these jurisdictions when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated. As a result, we have
recorded a liability of $6.3 million as of December 31, 2020. These estimates are based on several key assumptions, including the taxability of our products, the
jurisdictions in which we believe we have nexus and the sourcing of revenues to those jurisdictions. In the event these jurisdictions challenge our assumptions and
analysis, our actual exposure could differ materially from our current estimates.
Recent Accounting Pronouncements
Please refer to Note 2—Summary of Significant Accounting Policies included in the Notes to Consolidated Financial Statements.
84
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks in the ordinary course of our business. Our market risk exposure is primarily the result of fluctuations in foreign
currency exchange and interest rates.
Interest Rate Risk
We had cash, cash equivalents, and marketable securities of $214.6 million, as of December 31, 2020, which consisted of bank deposits, money market
funds, corporate notes and bonds, commercial paper, U.S. Treasury securities, and asset-backed securities. The cash and cash equivalents are held for working
capital purposes. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. The
primary objective of our investment activities is to preserve principal while generating income without significantly increasing risk. We do not enter into
investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-
term nature of our investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical
10% change in interest rates during the period presented would not have had a material impact on our consolidated financial statements.
Currency Exchange Risks
The functional currency of our foreign subsidiaries is the U.S. dollar. Therefore, we are exposed to foreign exchange rate fluctuations as we convert the
financial statements of our foreign subsidiaries into U.S. dollars. The local currencies of our foreign subsidiaries are the British pound and Japanese Yen. Our
subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while non-monetary items are remeasured at historical rates. Revenue and
expense accounts are remeasured at the average exchange rate in effect during the period. If there is a change in foreign currency exchange rates, the conversion of
our foreign subsidiaries’ financial statements into U.S. dollars would result in a realized gain or loss which is recorded in our consolidated statements of operations.
We do not currently engage in any hedging activity to reduce our potential exposure to currency fluctuations, although we may choose to do so in the future. A
hypothetical 10% change in foreign exchange rates during the period presented would not have had a material impact on our consolidated financial statements.
85
Item 8. Financial Statements and Supplementary Data
FASTLY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements are filed as part of this Annual Report on form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
86
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Fastly, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fastly, Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related
consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders' equity (deficit), and cash flows, for each of the three
years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021, expressed an adverse opinion on the Company's
internal control over financial reporting because of a material weakness.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases effective January 1, 2020 due to adoption of
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required
to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Acquisition of Signal Science – Refer to Notes 2 and 5 to the Financial Statements.
Critical Audit Matter Description
87
On October 01, 2020, the Company completed the acquisition of Signal Sciences. The Company accounted for this acquisition under the acquisition method of
accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair
values, including developed technology of $49.5 million and customer relationships of $69.1 million related to Signal Sciences.
We identified the valuation of the developed technology and customer relationships acquired from Signal Sciences to be a critical audit matter due to the
significant judgments made by management to estimate its fair value, particularly the estimates and assumptions related to the forecast of future revenue and the
selection of the royalty rate and discount rate. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our
fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecast of future revenue and the selection of the royalty rate and discount rate for the valuation of the developed technology
and customer relationships included the following, among others:
• We tested the effectiveness of controls over the valuation of developed technology and customer relationships, including management’s controls over the
forecast of future revenue and the selection of the royalty rate and discount rate.
• We evaluated the reasonableness of the forecast of future revenue by comparing the Company’s forecast to (i) the acquired entity’s historical results, (ii)
actual results of competitors at similar stages of development, and (iii) certain industry data.
• We performed inquiries with appropriate individuals within the Company’s operations, engineering and finance departments regarding the forecast of future
revenue.
• We tested the mathematical accuracy of the calculation.
• We evaluated whether the forecasts of future revenue were consistent with evidence obtained in other areas of the audit.
• With the assistance of our fair value specialists, we evaluated the fair value estimates for developed technology and customer relationships, including
developing a range of independent royalty rate and discount rate estimates and comparing those to the royalty and discount rates selected by management,
and evaluating whether the fair value model being used is appropriate considering the Company’s circumstances and valuation premise identified.
Revenue – Refer to Note 3 to the financial statements
Critical Audit Matter Description
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to
receive in exchange for those products or services. The processing and recording of certain revenue requires a manual process, and therefore the Company uses a
complex set of procedures to generate complete and accurate data to record its revenue transactions. For the year ended December 31, 2020, total revenue was
$290.9 million, which includes the manually processed revenue.
We identified manually processed revenue as a critical audit matter as the Company has a significant volume of manually processed revenue and a complex set of
manual procedures to generate complete and accurate data to process and record revenue. This required an increased extent of effort to audit these manually
processed revenue transactions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to manually processed revenue included the following, among others:
• We tested the effectiveness of controls over the recognition of manually processed revenue.
88
• We obtained an understanding of the nature of the manually processed revenue through inquiry with the Company personnel responsible for the invoice as
well as review of the contract with the customer.
•
For a sample of manually processed revenue transactions, we recalculated the manually processed revenue and evaluated the accuracy of the data used in
our recalculation of manually processed revenue by comparing key attributes utilized in our recalculation to source information and documents, including
usage, bandwidth, and other services provided. We compared our recalculation of manually processed revenue transactions to the Company’s recorded
revenue and evaluated any differences.
/s/ Deloitte & Touche LLP
San Francisco, California
March 1, 2021
We have served as the Company's auditor since 2014.
89
FASTLY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
As of December 31,
2020
As of December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net of allowance for credit losses of $3,248 and allowance for doubtful accounts of $1,816 as of
December 31, 2020 and December 31, 2019, respectively
Restricted cash
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets, net
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Finance lease liabilities
Operating lease liabilities, current
Other current liabilities
Total current liabilities
Long-term debt, less current portion
Finance lease liabilities, noncurrent
Operating lease liabilities, noncurrent
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 10)
Stockholders’ equity:
Class A and Class B common stock, $0.00002 par value; 1,094,129,050 and 1,094,129,050 shares authorized as of
December 31, 2020 and 2019, respectively; 113,623,196 and 94,817,715 shares issued and outstanding at December 31, 2020
and 2019, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
62,900 $
131,283
50,258
87
16,728
261,256
95,979
60,019
635,590
121,742
45,365
1,219,951 $
9,150 $
34,334
11,033
19,895
19,677
94,089
—
14,707
44,890
4,400
158,086
2
1,350,050
6
(288,193)
1,061,865
1,219,951 $
16,142
114,967
37,136
70,087
10,991
249,323
60,037
—
372
1,125
10,112
320,969
4,602
19,878
4,472
—
8,169
37,121
20,081
5,077
—
1,038
63,317
2
449,463
196
(192,009)
257,652
320,969
The accompanying notes are an integral part of the consolidated financial statements.
90
FASTLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year ended
December 31,
2019
2020
2018
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Total operating expenses
Loss from operations
Interest income
Interest expense
Other income (expense), net
Loss before income tax expense (benefit)
Income tax expense (benefit)
Net loss
Net loss per share attributable to common stockholders, basic and diluted
$
$
$
290,874 $
120,007
170,867
74,814
101,181
102,084
278,079
(107,212)
1,628
(1,549)
(279)
(107,412)
(11,480)
(95,932) $
(0.93) $
200,462 $
88,322
112,140
46,492
71,097
41,099
158,688
(46,548)
3,287
(5,236)
(2,561)
(51,058)
492
(51,550) $
(0.75) $
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and
diluted
103,552
68,350
144,563
65,499
79,064
34,618
50,134
23,450
108,202
(29,138)
939
(1,810)
(741)
(30,750)
185
(30,935)
(1.27)
24,376
The accompanying notes are an integral part of the consolidated financial statements.
91
FASTLY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss
Other comprehensive (loss) income:
Foreign currency translation adjustment
Gain (loss) on investments in available-for-sale-securities
Total other comprehensive income (loss)
Comprehensive loss
Year ended
December 31,
2019
2020
2018
(95,932) $
(51,550) $
(30,935)
(135) $
(55)
(190) $
(96,122) $
111 $
121
232 $
(51,318) $
(1)
(11)
(12)
(30,947)
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
92
FASTLY, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
Additional
Paid-in
Capital
$
10,377
1,561
337
4,079
Treasury
Stock
$ (2,109)
—
—
—
$
—
50
—
—
—
—
—
—
$
16,403
—
$ (2,109)
—
$
219,583
5,665
—
186,912
5,579
—
620
4,150
12,586
74
(2,109)
—
—
—
—
—
—
—
—
—
—
—
—
2,109
—
—
$
449,463
$
—
$
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity (Deficit)
(24)
—
—
—
—
—
—
(12)
(36)
—
—
—
—
—
—
—
—
—
—
—
—
—
232
196
$
$
(115,251)
—
—
—
—
—
(30,935)
—
$
(146,186)
5,727
$
—
—
—
—
—
—
—
—
—
—
—
(51,550)
—
$
(192,009)
$
(107,006)
1,561
337
4,079
—
50
(30,935)
(12)
(131,927)
5,727
219,584
5,665
—
186,912
5,579
—
620
4,150
12,586
74
—
(51,550)
232
257,652
Convertible
Preferred Shares
Common Stock—Class A
Common Stock—Class B
Shares
Amount
Shares
Amount
Shares
Amount
Balance as of January 1, 2018
Exercise of stock options
Vesting of early exercised stock options
Stock-based compensation
Issuance of Series F Preferred Stock, net of
issuance costs of $121
Repayment of shareholder note
Net loss
Other comprehensive loss
Balance as of December 31, 2018
Impact of change in accounting policy
Conversion of convertible preferred stock to
Class B common stock
Conversion of convertible preferred stock
warrants to Class B common stock warrants
Conversion of Class B common stock to
Class A common stock
Issuance of Class A common stock in
connection with the IPO, net of underwriting
discounts
Exercise of stock options
Exercise of common stock warrants
Vesting of early exercised stock options
Issuance of common stock under ESPP
Stock-based compensation
Repayment of shareholder note
Retirement of treasury stock
Net loss
Other comprehensive income
Balance as of December 31, 2019
$
49,718,084
—
—
—
179,705
—
—
—
3,912,129
—
—
—
39,879
—
—
—
53,630,213
—
$
219,584
—
(53,630,213)
(219,584)
—
—
—
—
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
46,422,400
12,937,500
1,289,600
—
—
305,194
—
—
—
—
—
60,954,694 $
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
1
$
23,879,074
1,005,839
119,737
—
—
21,186
—
—
25,025,836
—
53,630,213
—
(46,422,400)
—
1,211,230
224,102
162,101
—
—
31,939
—
—
—
33,863,021
$
1
—
—
—
—
—
—
—
1
—
1
—
(1)
—
—
—
—
—
—
—
—
—
—
1
93
FASTLY, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Continued)
(in thousands, except share amounts)
Common Stock—Class A
Common Stock—Class B
Shares
Amount
Shares
Amount
Balance as of December 31, 2019
Change in accounting policy
Issuance of Class A common stock issued in connection with
the follow-on public offering, net of underwriting discounts
Shares issued related to a business combination (Note 5)
Value of equity awards assumed in a business combination
(Note 5)
Restriction of stock awards (Note 5)
Vesting of restricted stock awards
Exercise of stock options
Exercise of common stock warrants
Vesting of early exercised stock options
Vesting of restricted stock units
Issuance of common stock under ESPP
Stock-based compensation
Conversion of Class B common stock to Class A common
stock
Net loss
Other comprehensive loss
Balance as of December 31, 2020
60,954,694
—
$
6,900,000
6,367,709
—
(896,499)
112,062
4,360,205
—
—
1,377,239
331,212
—
23,887,874
—
—
103,394,496
$
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
33,863,021
—
$
—
—
—
—
—
—
144,635
108,918
—
—
—
(23,887,874)
—
—
10,228,700
$
94
Additional Paid-
In
Capital
$
449,463 $
—
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
$
196
—
(192,009)
(252)
$
—
—
—
—
—
—
—
—
—
—
—
—
—
(190)
—
—
—
—
—
—
—
—
—
—
—
—
(95,932)
—
257,652
(252)
274,177
622,595
1,129
(87,714)
—
15,273
—
467
—
8,193
66,467
—
(95,932)
(190)
274,177
622,595
1,129
(87,714)
—
15,273
—
467
—
8,193
66,467
—
—
—
$
$
1,350,050 $
6
$
(288,193)
$
1,061,865
FASTLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Amortization of acquired intangibles
Amortization of right-of-use assets and other
Amortization of deferred rent
Amortization of debt issuance costs
Amortization of deferred contract costs
Stock-based compensation
Provision for credit losses and doubtful accounts
Change in fair value of preferred stock warrant liabilities
Other adjustments
Interest paid on capital leases
Loss on disposals of property and equipment
Tax benefit related to release of valuation allowance
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses
Operating lease liabilities
Other liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of marketable securities
Sales of marketable securities
Maturities of marketable securities
Acquisition of business, net of cash acquired
Proceeds from sale of property and equipment
Purchases of property and equipment
Capitalized internal-use software
Purchases of intangible assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting fees
Payments of costs related to initial public offering
Proceeds from follow-on public offering, net of underwriting fees
Payments of costs related to follow-on public offering
Proceeds from borrowings under notes payable
Payments of debt issuance costs
Repayments of notes payable
Repayments of finance lease liabilities
Proceeds from Series F financing
Series F issuance costs
Proceeds from Employee Stock Purchase Plan
Proceeds from exercise of vested stock options
Proceeds from early exercise of stock options
Proceeds from payment of stockholder note
Repurchase of early exercised shares
Net cash provided by financing activities
Effects of exchange rate changes on cash, cash equivalents, and restricted cash
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
2020
Year ended
December 31,
2019
2018
$
(95,932)
$
(51,550)
$
(30,935)
19,979
5,078
21,765
—
219
3,516
64,433
1,719
—
624
(688)
653
(12,950)
(9,264)
(5,550)
(17,162)
4,059
12,992
(18,264)
4,857
(19,916)
(269,059)
143,241
88,719
(200,988)
575
(29,569)
(6,131)
(1,811)
(275,023)
—
—
274,896
(675)
—
—
(20,300)
(5,773)
—
—
9,318
15,273
—
—
—
272,739
(149)
(22,349)
86,229
16,553
—
—
(711)
1,909
2,294
12,145
360
2,404
(591)
(364)
108
—
(12,767)
(2,666)
(3,945)
2,391
4,401
—
(1,274)
(31,303)
(190,980)
52,589
70,813
—
—
(14,609)
(4,856)
(635)
(87,678)
192,510
(5,469)
—
—
20,300
(231)
(49,167)
(1,370)
—
—
5,402
5,579
520
74
—
168,148
99
49,266
36,963
$
63,880
$
86,229
$
13,400
—
—
(340)
—
—
4,079
599
606
(354)
(203)
—
—
(6,234)
(2,325)
10
(372)
3,902
—
1,182
(16,985)
(62,660)
—
35,210
—
—
(16,702)
(2,955)
—
(47,107)
—
—
—
—
29,411
(257)
(833)
(1,215)
40,000
(121)
—
1,561
1,054
50
(13)
69,637
22
5,567
31,396
36,963
The accompanying notes are an integral part of the consolidated financial statements.
95
FASTLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued
(in thousands)
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes, net of refunds received
Property and equipment additions not yet paid in cash
Vesting of early-exercised stock options
Capital lease outstanding from current year addition
Warrant issued in connection with debt
Change in other assets from change in accounting principle
Conversion of convertible preferred stock warrants to convertible common stock warrants
Cashless exercise of common stock warrants
Costs related to initial public offering, accrued but not yet paid
Stock-based compensation capitalized to internal-use software
Assets obtained in exchange for operating lease obligations
Assets obtained in exchange for finance lease obligations
Value of common stock issued and stock awards assumed in a business combination
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows
Cash and cash equivalents
Restricted cash
Restricted cash included in other assets
Total cash, cash equivalents, and restricted cash
Year ended
December 31,
2019
2020
2018
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,590
1,219
3,184
467
—
—
—
—
1,557
—
2,034
23,827
22,541
536,432
62,900
87
893
63,880
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,422 $
361 $
7,071 $
620 $
7,380 $
$
—
5,727 $
5,665 $
1,036 $
130 $
441 $
$
—
$
—
$
—
16,142 $
70,087
—
86,229 $
1,833
55
133
337
429
1,639
—
—
—
—
—
—
—
—
36,963
—
—
36,963
The accompanying notes are an integral part of the consolidated financial statements.
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FASTLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Fastly, Inc. has built an edge cloud platform that can process, serve, and secure its customer’s applications as close to their end users as possible. Our edge
network spans across 56 markets, as of December 31, 2020. We were incorporated in Delaware in 2011 and are headquartered in San Francisco, California.
As used herein, "Fastly," "we," "our," "the Company," and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise.
Stock Split
On May 3, 2019, we implemented a 1-for-2 reverse stock split of our stock. All shares of common stock, stock-based instruments, and per-share data
included in these financial statements give effect to the stock split and the changes in authorized shares have been adjusted retroactively for all periods presented.
Initial Public Offering ("IPO")
On May 21, 2019 we completed an IPO in which we sold 12,937,500 shares of our newly authorized Class A common stock, which included 1,687,500
shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at the public offering price of $16.00 per share. We received net
proceeds of $192.5 million, after deducting underwriting discounts and commissions, from sales of our shares in the IPO. The net proceeds include additional
proceeds of $25.1 million, net of underwriters' discounts and commissions, from the exercise of the underwriters' option to purchase an additional 1,687,500 shares
of our Class A common stock. Prior to the closing of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock.
Immediately upon the closing of the IPO, all shares of convertible preferred stock then outstanding were converted into 53,630,213 shares of Class B
common stock on a one-to-one basis. Prior to the IPO, we had seven outstanding series of convertible preferred stock each with a par value of $0.00002 per share,
convertible at the option of the holder, that was classified as temporary equity on our consolidated balance sheet. On May 17, 2019, immediately upon closing of
the IPO, our convertible preferred stock was automatically converted to shares of our Class B common stock. As of both December 31, 2019 and 2020, we had
zero convertible preferred stock issued or outstanding.
Follow-on Public Offering
On May 26, 2020, we completed a follow-on public offering in which we sold 6,900,000 shares of Class A common stock, which included 900,000 shares
sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at the public offering price of $41.50 per share. We received net
proceeds of $274.9 million, after deducting underwriting discounts and commissions, from sales of our shares in the public offering.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP").
Certain changes in presentation have been made to conform the prior period presentation to the current period reporting. Such reclassifications did not affect
total revenues, operating income, or net income. We have made certain presentation changes to distinguish and disclose as a separate line item, the non-cash
amortization expense of our deferred contract costs balance from other assets within operating cash flows in the Consolidated Statements of Cash Flows. With the
adoption of the new leasing standard Accounting Standards Codification No. 842, Leases ("ASC 842"), we have also made certain presentation changes to
distinguish and disclose as separate line items, our current and noncurrent finance leases liabilities from our current and noncurrent debt amounts in the
Consolidated Balance Sheets.
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Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated in consolidation.
Use of Estimates
The preparation of our consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of
assets, liabilities, revenue, costs and expenses, and related disclosures. Actual results and outcomes could differ significantly from our estimates, judgments, and
assumptions. Significant estimates, judgments, and assumptions used in these financial statements include, but are not limited to, those related to revenue, accounts
receivable and related reserves, fair value of assets acquired and liabilities assumed for business combinations, useful lives and realizability of long-lived assets,
income tax reserves, and accounting for stock-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience.
The effects of material revisions in estimates are reflected in the consolidated financial statements in the period of change and prospectively from the date of the
change in estimate.
The ongoing global COVID-19 pandemic has impacted many operational aspects of our business and may continue to do so in the future. We assessed the
impact that COVID-19 had on our results of operations, including, but not limited to an assessment of our allowance for doubtful accounts, the carrying value of
short-term and long-term investments, the carrying value of goodwill and other long-lived assets, and the impact to revenue recognition and cost of revenues.
While the COVID-19 pandemic has not had a material adverse impact on our financial operations to date, the future impacts of the pandemic and any resulting
economic impact are largely unknown and rapidly evolving. We will continue to actively monitor the impact that COVID-19 has on the results of our business
operations, and may make decisions required by federal, state or local authorities, or that are determined to be in the best interests of our employees, customers,
partners, suppliers and stockholders. As a result, our estimates and judgments may change materially as new events occur or additional information becomes
available to us.
Cash, Cash Equivalents and Marketable Securities
We invest our excess cash primarily in short-term fixed income securities, including government and investment-grade debt securities and money market
funds. We classify all liquid investments with stated maturities of three months or less from date of purchase as cash equivalents. Marketable securities with
original maturities greater than three months from purchase date and remaining maturities less than one year are classified as short-term marketable securities.
Marketable securities with remaining maturities greater than one year as of the balance sheet date and which we intend to hold for greater than one year, are
classified as long-term marketable securities. The fair market value of cash equivalents at December 31, 2020 and 2019 approximated their carrying value. Cost of
securities sold is based on specific identification. We determine the appropriate classification of our investments in marketable securities at the time of purchase
and reevaluate such designation at each balance sheet date. We have classified and accounted for our marketable securities as available-for-sale. After considering
our capital preservation objectives, as well as our liquidity requirements, we may sell securities prior to their stated maturities. We carry our available-for-
sale securities at fair value, and report the unrealized gains and losses as a component of other comprehensive loss, except for unrealized losses determined to be
other-than-temporary which are recorded as other expense, net. We determine any realized gains or losses on the sale of marketable securities on a specific
identification method and record such gains and losses as a component of other expense, net. Interest earned on cash, cash equivalents, and marketable securities
was approximately $1.4 million and $3.1 million during the years ended December 31, 2020 and 2019, respectively. These balances are recorded in interest income
in the accompanying Consolidated Statement of Operations and Comprehensive Loss.
We evaluate the investments periodically for possible other-than-temporary impairment. A decline in fair value below the amortized costs of debt securities
is considered an other-than-temporary impairment if we have the intent to sell the security or it is more likely than not that we will be required to sell the security
before recovery of the entire amortized cost basis. In those instances, an impairment charge equal to the difference between the fair value and the amortized cost
basis is recognized in other expense. Regardless of our intent or requirement to sell a debt security, impairment is considered other-than-temporary if we do not
expect to recover the entire amortized cost basis.
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Restricted Cash
As of December 31, 2019, we had recorded a restricted cash balance of approximately $70.1 million on the accompanying Consolidated Balance Sheet. This
restricted cash balance primarily consisted of cash deposited and held in money market funds as collateral underlying the Cash Collateralized Revolving Credit
Agreement ("Revolving Credit Agreement") entered into on November 4, 2019. Interest income earned on restricted cash was approximately $0.2 million and $0.1
million during the years ended December 31, 2020 and 2019, respectively. These balances were recorded in interest income in the accompanying Consolidated
Statement of Operations and Comprehensive Loss. In November 2020, we terminated the Revolving Credit Agreement in accordance with its terms. In connection
with the termination of the Revolving Credit Agreement, we repaid the then outstanding aggregate principal amount and the associated restrictions on the
collateralized cash of $70.0 million was also released, accordingly.
As of December 31, 2020, our remaining restricted cash balance was $1.0 million, of which $0.9 million consists of letters of credit related to its lease
arrangements that is collateralized by restricted cash which is classified under other assets.
Accounts Receivable, net
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. We determine our
trade accounts receivable allowances in line with the current expected credit losses model, based upon the assessment of various factors, such as: historical
experience, credit quality of our customers, age of the accounts receivable balances, geographic related risks, economic conditions, and other factors that may
affect a customer's ability to pay. Increases and decreases in the allowance for doubtful accounts are included as a component of General and administrative
expense in the Consolidated Statements of Operations and Comprehensive Loss. We do not have any off-balance sheet credit exposure related to our customers.
Incremental Costs to Obtain a Contract with a Customer
We capitalize incremental costs associated with obtaining customer contracts, specifically certain commission payments. We pay commissions based on
contract value upon signing a new arrangement with a customer and upon renewal and upgrades of existing contracts with customers only if the renewal and
upgrades result in an incremental increase in contract value. To the extent that renewals and upgrades do not result in an increase in contract value, no additional
commissions are paid. These costs are deferred on our Consolidated Balance Sheets and amortized over the expected period of benefit on a straight-line basis. We
also incur commission expense on an ongoing basis based upon revenue recognized. In these cases, no incremental costs are deferred, as the commissions are
earned and expensed in the same period for which the associated revenue is recognized. Based on the nature of our unique technology and services, and the rate at
which we continually enhance and update our technology, the expected life of the customer arrangement is determined to be approximately five years.
Commissions for new arrangements and renewals are both amortized over five years. Amortization is primarily included in sales and marketing
expense in the consolidated statements of income. The current portion of deferred commission and incentive payments is included in prepaid expenses and other
current assets, and the long-term portion is included in other assets on our Consolidated Balance Sheets.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities,
and accounts receivable. The primary focus of our investment strategy is to preserve capital and meet liquidity requirements. Our investment policy addresses the
level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. To manage the risk
exposure, we invest cash equivalents and marketable securities in a variety of fixed income securities, including government and investment-grade debt securities
and money market funds. We place our cash primarily in checking and money market accounts with reputable financial institutions. Deposits held with these
financial institutions may exceed the amount of insurance provided on such deposits, if any.
Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which we make substantial sales. Our customer
base consists of a large number of geographically dispersed customers diversified across several industries. To reduce risk, we routinely assess the financial
strength of our customers. Based on such assessments, we believe that our accounts receivable credit risk exposure is limited. No customer accounted for more
than 10% of revenue for
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the years ended December 31, 2020 and 2019. One customer accounted for 10% of the total accounts receivable balance as of December 31, 2020. No customer
accounted for more than 10% of the total accounts receivable balance as of December 31, 2019.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable, accrued expenses and debt.
Cash equivalents and marketable securities, accounts receivable, accounts payable, and accrued expenses are stated at their carrying value, which approximates fair
value due to the short time to the expected receipt or payment date. The carrying amount of our debt approximates fair value as the stated interest rate approximates
market rates currently available to us.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line
basis over the estimated useful lives of the assets. The estimated useful life of each asset category is as follows:
Computer and networking equipment
Leasehold improvements
Furniture and fixtures
Office equipment
Internal-use software
3-5 years
Shorter of lease term or 5 years
3 years
3 years
3 years
We periodically review the estimated useful lives of property and equipment and any changes to the estimated useful lives are recorded prospectively from
the date of the change.
Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or
loss is included in other expense, net in the Consolidated Statements of Operations. Repairs and maintenance costs are expensed as incurred.
Internal-Use Software Development Costs
Labor and related costs associated with internal-use software during the application development stage are capitalized. Capitalization of costs begins when
the preliminary project stage is completed, management has committed to funding the project, and it is probable that the project will be completed and the software
will be used to perform the function intended. Capitalization ceases at the point when the project is fully tested and substantially complete and is ready for its
intended purpose. The capitalized amounts are included in property and equipment, net on the Consolidated Balance Sheets. We amortize such costs over the
estimated useful life of the software; completed internal-use software that is used on our network is amortized to cost of revenue over its estimated useful life.
Costs incurred during the planning, training, and post-implementation stages of the software development life-cycle are expensed as incurred.
Business Combinations
We account for our acquisitions using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase
consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair value
of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. Acquisition costs, such as legal and consulting fees, are
expensed as incurred.
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible
and intangible assets acquired and liabilities assumed. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible
assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in
valuing certain
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of the intangible assets and goodwill we have acquired include but are not limited to future expected cash flows from acquired developed technologies; the
acquired company’s trade name, existing customer relationships and backlog. These estimates are inherently uncertain and unpredictable, and if different estimates
were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made.
Additionally, unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results.
The authoritative guidance allows a measurement period of up to one year from the date of acquisition to make adjustments to the preliminary allocation of
the purchase price. As a result, during the measurement period we may record adjustments to the fair values of assets acquired and liabilities assumed, with the
corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement
period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the
Consolidated Statement of Operations.
Goodwill, Intangible Assets and Other Long-Lived Assets
Goodwill is the amount by which the cost of acquired net assets in a business combination exceeds the fair value of the net identifiable assets on the date of
purchase and is carried at its historical cost. We test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate
that the asset might be impaired. We determined that we operate as one reporting unit and we perform our annual impairment test of goodwill as of October 31 and
whenever events or circumstances indicate that the asset might be impaired. We did not record any impairment to goodwill during the years ended December 31,
2020, 2019, and 2018.
Intangible assets with determinable economic lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful
life of each asset on a straight-line basis. We determine the useful lives of identifiable intangible assets after considering the specific facts and circumstances
related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical
performance of the asset, our long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset and other
economic factors, including competition and specific market conditions. Intangible assets without determinable economic lives are carried at cost, not amortized,
and reviewed for impairment at least annually.
The useful lives of our intangible assets are as follows:
Customer relationships
Developed technology
Trade names
Backlog
Domain names
Internet protocol addresses
IPR&D
8 years
5 years
3 years
2 years
3 years
10 years
Indefinite
Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances, such
as service discontinuance, technological obsolescence, significant decreases in our market capitalization, facility closures, or work-force reductions indicate that
the carrying amount of the long-lived asset or asset group may not be recoverable. When such events occur, we compare the carrying amount of the asset or asset
group to the undiscounted expected future cash flows related to the asset or asset group. If this comparison indicates that an impairment is present, the amount of
the impairment is calculated as the difference between the carrying amount and the fair value of the asset or asset group.
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Leases
We lease office space and data centers ("Colocation leases") under non-cancelable operating leases with various expiration dates through 2027. We also
lease server equipment under non-cancelable operating finance leases with various expiration dates through 2024. We determine if an arrangement contains a lease
at inception.
Operating lease right-of-use assets and lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest
rate implicit in our operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future
payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic
environments. Operating lease right-of-use assets also include any prepaid lease payments and lease incentives.
Certain of the operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation
provisions are considered in determining the single lease cost to be recorded over the lease term. Single lease cost is recognized on a straight-line basis over the
lease term commencing on the date we have the right to use the leased property. The lease terms may include options to extend or terminate the lease. We generally
use the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that the option will be exercised. Our lease
agreements may contain variable costs such as common area maintenance, operating expenses or other costs. Variable lease costs are expensed as incurred on the
consolidated statements of operations. Our lease agreements generally do not contain any residual value guarantees or restrictive covenants.
We lease networking equipment from a third party, through equipment finance leases. These leases include a bargain purchase option, resulting in a full
transfer of ownership at the completion of the lease term.
Operating leases are reflected in operating lease right-of-use assets, operating lease liabilities, and operating lease liabilities, non-current on our consolidated
balance sheets. Finance leases are included in property and equipment, net, finance lease liabilities, and finance lease liabilities, non-current on our consolidated
balance sheets.
Convertible Preferred Stock Warrant Liabilities
Prior to our IPO, we recorded our warrants to purchase convertible preferred stock as a liability on the Consolidated Balance Sheets at fair value upon
issuance because the warrants were exercisable for contingently redeemable preferred stock which was classified outside of stockholders' deficit. The liability
associated with these warrants was subject to remeasurement at each balance sheet date, with changes in fair value recorded in the Consolidated Statement of
Operations and Comprehensive Loss as other expense, net. Immediately upon closing of the IPO, our warrants to purchase convertible preferred stock were
automatically converted to warrants to purchase an equal number of shares of our Class B common stock. As a result, the warrant was remeasured a final time,
immediately prior to the closing of the IPO, and reclassified to additional paid-in capital within stockholders' equity. Changes in the fair value were recorded
within other expense, net on the Consolidated Statement of Operations.
Revenue Recognition
Refer to Note 3, "Revenues" in the Notes to Consolidated Financial Statements for our Revenue Recognition policy.
Cost of Revenue
Cost of revenue consists primarily of fees paid to network providers for bandwidth and to third-party network data centers for housing servers, also known
as colocation costs. Cost of revenue also includes employee costs for network operation, build-out and support and services delivery, network storage costs, cost of
managed services and software-as-a-service, depreciation of network equipment used to deliver our services, and amortization of network-related internal-use
software. We enter into contracts for bandwidth with third-party network providers with terms of typically one year. These contracts generally commit us to pay
minimum monthly fees plus additional fees for bandwidth usage above the committed level. We enter into contracts for colocation services with third-party
providers with terms of typically three years.
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Research and Development Costs
Research and development costs consist of primarily payroll and related personnel costs for the design, development, deployment, testing, and enhancement
of our edge cloud platform. Costs incurred in the development of our edge cloud platform are expensed as incurred, excluding those expenses which met the
criteria for development of internal-use software.
Advertising Expense
We recognize advertising expense as incurred. We recognized total advertising expense of approximately $3.8 million, $1.4 million, and $0.5 million for the
years ended December 31, 2020, 2019, and 2018, respectively.
Accounting for Stock-Based Compensation
We account for stock-based employee compensation plans under the fair value recognition and measurement provisions, which require all stock-based
payments, including grants of stock options, restricted stock units ("RSUs"), restricted stock awards ("RSAs"), performance stock awards ("PSUs") and shares
issued under our Employee Stock Purchase Plan ("ESPP") to be measured based on the grant-date fair value of the award and recognized as expense over the
requisite service period, which is generally the vesting period of the respective award. We account for forfeitures as they occur.
The fair value of RSUs and RSAs granted to our employees and directors is based on the grant date fair value. The fair value of PSUs granted to our
employees is based on the fair value determined when the performance metrics were set. The fair value of stock options granted to our employees and directors,
and of the shares to be issued under our ESPP are based on the Black-Scholes option-pricing model. The determination of the fair value of a stock-based award is
affected by the deemed fair value of the underlying stock price on the grant date, as well as assumptions regarding a number of other complex and subjective
variables. These variables include the fair value of our common stock, the expected stock price volatility over the expected term of the options, stock option
exercise and cancellation behaviors, risk-free interest rates, and expected dividends:
These assumptions and estimates are as follows:
•
•
•
•
•
Fair Value of Common Stock. We use the market closing price of our Class A common stock, as reported on the New York Stock Exchange, for the fair
value. Prior to our IPO, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at
each meeting at which awards are approved. These factors included, but were not limited to (i) contemporaneous third-party valuations of Common
Stock; (ii) the rights and preferences of Series Preferred relative to Common Stock; (iii) the lack of marketability of Common Stock; (iv) developments in
the business; and (v) the likelihood of achieving a liquidity event, such as an IPO or sale of the Company, given prevailing market conditions.
Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions were
determined based on the vesting terms, exercise terms, and contractual lives of the options. The expected term was estimated using the simplified method
allowed under Securities and Exchange Commission (SEC) guidance.
Volatility. Since we do not have a long trading history of our common stock, the expected volatility is determined based on the historical stock volatilities
of its comparable companies. Comparable companies consist of public companies in our industry, which are similar in size, stage of life cycle, and
financial leverage. We intend to continue to apply this process using the same or similar public companies until a sufficient amount of historical
information regarding the volatility of its share price becomes available, or unless circumstances change such that the identified companies are no longer
similar to us, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.
Risk-free Interest Rate. The risk-free interest rate used in the Black-Scholes option pricing model is the implied yield available on U.S. Treasury zero-
coupon issues with a remaining term equivalent to that of the options for each expected term.
Dividend Yield. The expected dividend assumption is based on our current expectations of our anticipated dividend policy. We have no history of paying
any dividends and therefore used an expected dividend yield of zero.
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Foreign Currency Translation
Local currencies of foreign subsidiaries are the functional currencies for financial reporting purposes. Our non-U.S. subsidiaries have either the British
pound or the Japanese yen as the functional currency. For operations outside the United States that have functional currencies other than the U.S. dollar, the assets
and liabilities of our subsidiaries are translated at the applicable exchange rate as of the balance sheet date, and revenue and expenses are translated at an average
rate over the period. Resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss, a separate component of
stockholders’ equity. Gains and losses on intercompany and other non-functional currency transactions are recorded in other income (expense), net.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of
the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, we
consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-
planning strategies, and results of recent operations. If we determine that it would be able to realize its deferred tax assets in the future in excess of their net
recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it is more likely than
not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-
not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related
tax authority.
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statement of
Operations and Comprehensive Loss. Accrued interest and penalties are included in accrued expenses on the Consolidated Balance Sheet.
Comprehensive Loss
Comprehensive loss consists of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and
losses that are recorded as an element of stockholders' equity (deficit) and are excluded from net loss. Our other comprehensive income (loss) is comprised of
foreign currency translation adjustments and gain (loss) on investments in available-for-sale securities.
Net Loss Per Share Attributable to Common Stockholders
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for multiple classes
of common stock and participating securities. Under the two-class method, net income is attributed to common stockholders and participating securities based on
their participation rights. Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable
to common stockholders by the weighted-average number of shares of common stock outstanding during the period. We do not consider the restricted stock
awards, and common stock issued upon early exercise of stock options as participating securities. Prior to the IPO, our participating securities also included
convertible preferred stock. The holders of convertible preferred stock did not have a contractual obligation to share in our losses, as a result net losses were not
allocated to these participating securities. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially
dilutive impact of stock options and redeemable convertible preferred stock. As we have reported losses for the all period presented, all potentially dilutive
securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.
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Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued new guidance, Accounting Standard Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which establishes the
principles to report transparent and economically neutral information about the assets and liabilities that arise from leases. Accordingly, this new standard
introduces a lessee model that brings most operating leases on the balance sheet and also aligns certain of the underlying principles of the new lessor model with
those in the new revenue recognition standard.
We adopted the standard on December 31, 2020, presenting the initial application of ASC 842 beginning on January 1, 2020 (i.e. adoption effective date),
using the modified retrospective approach and has elected to use the optional transition method which allows us to apply the guidance of ASC 840, including
disclosure requirements, in the comparative periods presented. In addition, we elected the package of practical expedients permitted under the transition guidance
within the new standard, which among other things, allowed us to carry forward the historical lease classification related to agreements entered prior to adoption.
We have also elected the: (i) short-term lease recognition exemption for all leases that qualify, whereby we will not recognize right-of-use ("ROU" assets or lease
liabilities for existing short-term leases of those assets in transition; (ii) practical expedient to not separate lease and non-lease components for all of our leases; and
(iii) use hindsight in determining the lease term, assessing the likelihood that a lease purchase option will be exercised and in assessing the impairment of right-of-
use assets.
For operating leases, we recognized $54.7 million of ROU assets and $56.3 million of lease obligations, which represents the present value of the lease
payments discounted using our incremental borrowing rate ("IBR"). The accounting for finance leases remained unchanged as compared to ASC 840. The
cumulative impact of transition to retained earnings, recorded as of the adoption date, was not material. The cumulative effect adjustment recorded to accumulated
deficit as of the adoption date was not material. The adoption of ASC 842 did not materially impact our consolidated statements of operations or cash flows.
In June 2016, FASB issued new guidance, ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities. The
guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and
relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities.
We adopted the standard on December 31, 2020, presenting the initial application of ASC 842 beginning on January 1, 2020 (i.e. adoption effective date). The
adoption of this standard did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (ASC 350-
40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement ("ASU 2018-15"). This guidance provides that
implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense
being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. We adopted the
standard on December 31, 2020, presenting the initial application of ASC 842 beginning on January 1, 2020 (i.e. adoption effective date). The adoption of this
standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards
On December 18, 2019, the FASB released ASU 2019-12 which affects general principles within Topic 740, Income Taxes. The amendments of ASU
2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The FASB has stated that the ASU is being issued as part of its Simplification
Initiative, which is meant to reduce complexity in accounting standards by improving certain areas of generally accepted accounting principles (GAAP) without
compromising information provided to users of financial statements. The standard is effective for public companies on the first interim period within the annual
period beginning after December 15, 2020. We expect to adopt this standard on January 1, 2021 for our fiscal year 2021 audited financial statements. We are
currently evaluating the potential impact of this guidance on our consolidated financial statements and related disclosures and do not expect the adoption to have a
material impact on our consolidated financial statements.
105
3. Revenue
Revenue recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to
receive in exchange for those products or services. The processing and recording of certain revenue requires a manual process, and therefore we use a complex set
of procedures to generate complete and accurate data to record its revenue transactions. We enter into contracts that can include various combinations of products
and services, each of which are distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers,
which are subsequently remitted to governmental authorities.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. Our contracts with
customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct
performance obligations that should be accounted for separately versus together may require significant judgment. For contracts with multiple performance
obligations, we allocate the contract transaction price to each performance obligation using our estimate of the standalone selling price ("SSP") of each distinct
good or service in the contract.
Judgment is required to determine the SSP for each distinct performance obligation. We analyze separate sales of our products and services as a basis for
estimating the SSP of our products and services. We then use that SSP as the basis for allocating the transaction price when our product and services are sold
together in a contract with multiple performance obligations. In instances where SSP is not directly observable, such as when we do not sell the product or service
separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for
individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use
information, such as geographic region and distribution channel, in determining the SSP.
The transaction price in a contract for usage-based services is typically equal to the minimum commit price in the contract less any discounts provided. The
transaction price in a contract that does not contain usage-based services is equal to the total contract value. Because our typical contracts represent distinct
services delivered over time with the same pattern of transfer to the customer, usage-based consideration primarily related to actual consumption over the
minimum commit levels is allocated to the period to which it relates. The amount of consideration recognized for usage above the minimum commit price is
limited to the amount we expect to be entitled to receive in exchange for providing services. We have elected to apply the practical expedient for estimating and
disclosing the variable consideration when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied
promise to transfer a distinct good or service that forms part of a single performance obligation from our remaining performance obligations under these contracts.
Performance obligations represent stand-ready obligations that are satisfied over time as the customer simultaneously receives and consumes the benefits
provided by us. These obligations can be content delivery, security, subscription services, professional services, support, edge cloud platform services, and others.
Accordingly, our revenue is recognized over time, consistent with the pattern of benefit provided to the customer over the term of the agreement.
At times, customers may request changes that either amend, replace, or cancel existing contracts. Judgment is required to determine whether the specific
facts and circumstances within the contracts should be accounted for as a separate contract or as a modification.
In contracts where there are timing differences between when we transfer a promised good or service to the customer and when the customer pays for that
good or service, we have determined our contracts do not include a significant financing component. We have also elected the practical expedient to not measure
financing components for any contract where the timing difference is less than one year.
Nature of products and services
We primarily derive revenue from the sale of services to customers executing contracts in which the standard contract term is one year, although terms may
vary by contract. Most of our contracts are non-cancelable over the contractual term. The majority of our contracts commit the customer to a minimum monthly
level of usage and specify the rate at which the customer
106
must pay for actual usage above the monthly minimum. Beginning in the fourth quarter of 2020, we also offer subscriptions to access a unified security web
application and application programming interface at a fixed rate.
Revenue by geography is based on the billing address of the customer. Aside from the United States, no other single country accounted for more than 10%
of revenue for the years ended December 31, 2020, 2019 and 2018.
The following table presents our net revenue by geographic region:
United States
Asia Pacific
Europe
All other countries
Total revenue
2020
Year ended December 31,
2019
(in thousands)
2018
$
$
196,538 $
44,060
32,768
17,508
290,874 $
142,842 $
18,806
27,595
11,219
200,462 $
110,811
7,194
21,529
5,029
144,563
The majority of our revenue is derived from enterprise customers, which are defined as customers with revenue in excess of $100,000 over the previous 12-
month period. The following table presents our net revenue for enterprise and non-enterprise customers:
Enterprise customers
Non-enterprise customers
Total revenue
Contract balances
2020
Year ended December 31,
2019
(in thousands)
2018
$
$
256,483 $
34,391
290,874 $
174,926 $
25,536
200,462 $
121,639
22,924
144,563
The timing of revenue recognition may differ from the timing of invoicing to customers. We have an unconditional right to consideration when we invoice
our customers and record a receivable. We record a contract asset when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when
revenue is recognized subsequent to invoicing.
Deferred revenue includes amounts collected from customers for which revenue has not been recognized and consists of the unearned portions of security
subscriptions, professional services and edge cloud platform usage. Our payment terms and conditions vary by contract type. Payment terms on invoiced amounts
are typically 15 to 45 days.
The following tables present our contract assets, contract liabilities, and certain information related to these balances as of and for the year ended
December 31, 2020:
Contract assets
Contract liabilities
As of December 31, 2020
As of December 31, 2019
$
$
(in thousands)
387 $
18,020 $
271
317
The contract liabilities balance as of December 31, 2020, includes $14.6 million of deferred revenue assumed on October 1, 2020 related to the Signal
Sciences acquisition. Please refer to Note 5 — Business Combinations for further details regarding the acquisition.
The following table presents the revenue recognized during the years ended December 31, 2020 and 2019 from amounts included in the contract liability at
the beginning of the period:
107
Year ended December 31,
2020
Year ended December
31, 2019
(in thousands)
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period
$
310 $
1,539
Remaining performance obligations
As of December 31, 2020, we had $155.3 million of remaining performance obligations, which includes deferred revenue and amounts that will be invoiced
and recognized in future periods, respectively. We apply the practical expedient of ASC 606, which gives us the optional exemption from disclosing certain
information about our remaining performance obligations for our service contracts for which the original contract duration is one year or less, such as the aggregate
transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period. The typical contract
term is one year, although terms may vary by contract. We expect to recognize 71% of this balance over the next 12 months and the remainder within the following
year.
Costs to obtain a contract
As of December 31, 2020 and December 31, 2019, our costs to obtain contracts were as follows:
Deferred contract costs
As of December 31, 2020
As of December 31, 2019
$
(in thousands)
19,332 $
6,804
During the years ended December 31, 2020 and 2019, we recognized $3.5 million and $2.3 million of amortization related to deferred contract costs. These
costs are recorded within the sales and marketing line item on the accompanying Consolidated Statements of Operations.
108
4. Investments and Fair Value Measurements
Our total cash, cash equivalents and marketable securities consisted of the following:
Cash and cash equivalents:
Cash
Money market funds
U.S. Treasury securities
Commercial paper
Total cash and cash equivalents
Marketable securities:
Corporate notes and bonds
Commercial paper
U.S. Treasury securities
Asset-backed securities
Total short-term marketable securities
U.S. Treasury securities
Total long-term marketable securities
Total marketable securities
As of December 31,
2020
2019
(in thousands)
$
$
$
$
$
21,273 $
36,629
—
4,998
62,900 $
14,314 $
41,445
75,524
—
131,283 $
20,448
20,448 $
151,731 $
11,623
2,020
—
2,499
16,142
17,470
5,481
78,160
13,856
114,967
—
—
114,967
109
Our long-term marketable securities have remaining maturities that are greater than one year as of the balance sheet date and which we intend to hold for
more than one year. These amounts are included within the other assets line on our Consolidated Balance Sheet.
Available-for-Sale Investments
The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value related to available-for-sale securities classified as
marketable securities on the accompanying Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019:
Corporate notes and bonds
Commercial paper
U.S. Treasury securities
Asset-backed securities
Total available-for-sale investments
Corporate notes and bonds
Commercial paper
U.S. Treasury securities
Asset-backed securities
Total available-for-sale investments
$
$
$
$
Amortized
Cost
As of December 31, 2020
Gross
Unrealized
Gain
Gross
Unrealized
Loss
14,297 $
41,445
95,884
—
151,626 $
(in thousands)
$
17
—
93
—
110 $
Fair
Value
14,314
41,445
95,972
—
151,731
— $
—
(5)
—
(5)
$
Amortized
Cost
Gross Unrealized
Gain
Gross
Unrealized Loss
Fair
Value
As of December 31, 2019
17,462 $
5,481
78,075
13,852
114,870 $
(in thousands)
$
9
—
85
4
98
$
(1)
—
—
—
(1)
$
$
17,470
5,481
78,160
13,856
114,967
The majority of our securities classified as available-for-sale as of December 31, 2020 have contractual maturities of one year or less. Certain securities held
and classified as available-for-sale as of December 31, 2020, have contractual maturities that are greater than one year. Where we intend to hold the securities for
less than 12 months, we classify them as short-term. Where we intend to hold the securities for more than 12 months, we classify them as long-term. As of
December 31, 2019, all securities classified as available-for-sale had contractual maturities of one year or less. There were no securities in a continuous loss
position for 12 months or longer as of December 31, 2020 and December 31, 2019. Investments are reviewed periodically to identify possible other-than-temporary
impairments. No impairment loss has been recorded on the securities included in the tables above, as we believe that the decrease in fair value of these securities is
temporary and we expect to recover at least up to the initial cost of investment for these securities.
Fair Value of Financial Instruments
For certain of our financial instruments, including cash held in banks, accounts receivable, and accounts payable, the carrying amounts approximate fair
value due to their short maturities, and are therefore excluded from the fair value tables below.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities;
110
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in
markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.
We measure our cash equivalents, marketable securities, and convertible preferred stock warrant liabilities at fair value. We classify our cash equivalents
and marketable securities within Level 1 or Level 2 because we value these investments using quoted market prices or alternative pricing sources and models
utilizing market observable inputs. The fair value of our Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair
value of our Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily available pricing sources for the
identical underlying security that may not be actively traded.
Financial assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments:
111
Cash equivalents:
Money market funds
Commercial paper
Total cash equivalents
Marketable securities:
Corporate notes and bonds
Commercial paper
U.S. Treasury securities
Total marketable securities
Restricted cash:
Money market funds
Total restricted cash
Total financial assets
Level 1
Level 2
Level 3
Total
As of December 31, 2020
$
36,629 $
36,629
—
—
—
—
(in thousands)
— $
4,998
4,998
14,314
41,445
95,972
151,731
980
980
37,609 $
—
—
156,729 $
$
— $
—
—
—
—
—
—
—
—
— $
36,629
4,998
41,627
14,314
41,445
95,972
151,731
980
980
194,338
As of December 31, 2020, our remaining restricted cash balance was $1.0 million, of which $0.9 million consists of letters of credit related to its lease
arrangements that is collateralized by restricted cash which is classified under other assets.
Cash equivalents:
Money market funds
U.S. Treasury securities
Total cash equivalents
Marketable securities:
Corporate notes and bonds
Commercial paper
U.S. Treasury securities
Asset-backed securities
Total marketable securities
Restricted cash:
Money market funds
Total restricted cash
Total financial assets
Level 1
Level 2
Level 3
Total
As of December 31, 2019
2,020 $
—
2,020
—
—
—
—
—
(in thousands)
— $
2,499
2,499
17,470
5,481
78,160
13,856
114,967
70,087
70,087
72,107 $
—
—
117,466 $
$
$
— $
—
—
—
—
—
—
—
—
—
— $
2,020
2,499
4,519
17,470
5,481
78,160
13,856
114,967
70,087
70,087
189,573
There were no transfers of assets and liabilities measured at fair value between Level 1 and Level 2, or between Level 2 and Level 3, during the years ended
December 31, 2020 and 2019.
112
5. Business Combinations
Signal Sciences
On October 1, 2020, we completed the acquisition of Signal Sciences where we acquired 100% of the voting rights of Signal Sciences and it is now our
wholly-owned subsidiary. The acquisition is expected to expand our security portfolio and bolster our existing security offerings with our web application and API
protection solutions.
Under the terms of the Merger Agreement, we acquired Signal Sciences for an aggregate purchase price of $759.4 million, consisting of approximately
$223.0 million in cash and the balance in Class A Common Stock and equity consideration of $536.4 million. A total of 6,367,709 shares were issued of which the
fair value of 5,471,210 shares were attributed to purchase price and 896,499 shares, which are restricted as they are subject to revesting conditions, will be included
in stock-based compensation as required service is provided. All of these shares have a par value of $0.00002 per share.
As part of the acquisition, we also assumed the Signal Sciences Corp. 2014 Stock Option and Grant Plan, as amended (the “Signal Plan”) and the
outstanding unvested options to purchase shares of common stock of Signal Sciences Corp. thereunder, and such options became exercisable to purchase shares of
Fastly’s Class A common stock, subject to appropriate adjustments to the number of shares and the exercise price of each such option."). In connection with the
above, we registered 251,754 shares under the Signal Plan.
We assumed the aforementioned unvested options at the completion of the acquisition with an estimated fair value of $21.8 million. Of the total
consideration, $1.1 million was allocated to the purchase price and $20.7 million was allocated to future services and will be expensed over the remaining requisite
service periods of approximately 2.5 years on a straight-line basis. The estimated fair value of the stock options we assumed was determined using the Black-
Scholes option pricing model. The share conversion ratio of 0.1 was applied to convert Signal Sciences’s outstanding stock awards into shares of Fastly's common
stock.
Of the 6,367,709 shares issued in connection with the acquisition, a restriction was placed on 896,499 shares belonging to the three co-founders of Signal
Sciences to make them subject to revesting on a quarterly basis over a 2-year period. Since they are subject to service conditions, they will be accounted for as a
post-acquisition compensation expense over the requisite service period, which is also the vesting period of the award.
We accounted for the transaction as a business combination using the acquisition method of accounting. We allocated the purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. The fair values assigned to
tangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is
received. The determination of the fair value of the intangible assets acquired required management to make significant estimates and assumptions related to
forecasted future revenues and selection of the royalty rate and discount rate. We expect to finalize the valuation as soon as practicable, but not later than one year
from the acquisition date. Excess purchase price consideration was recorded as goodwill which includes value attributable to the assembled workforce.
113
The purchase consideration was preliminarily allocated to the tangible and intangible assets and liabilities acquired as of the acquisition date, with the
excess recorded to goodwill as shown below. The fair value of assets and liabilities acquired may change as additional information is received during the
measurement period. The measurement period will end no later than one-year from the acquisition date:
Assets acquired
Cash and cash equivalents
Other current assets
Intangible assets, net
Other non-current assets
Total assets acquired
Liabilities assumed
Current liabilities
Non-current liabilities
Total liabilities assumed
Net assets acquired
Total acquisition consideration
Goodwill Transferred
Amount
$
$
$
$
Identifiable finite-lived intangible assets were comprised of the following (in thousands):
Total
Estimated useful life (in years)
Customer relationships
Developed Technology
Trade name
Backlog
Total intangible assets acquired
$
$
$
$
$
69,100
49,500
3,300
2,200
124,100
21,501
6,419
124,100
8,094
160,114
(14,755)
(21,170)
(35,925)
124,189
759,393
635,204
8.0
5.0
3.0
2.0
The fair values of the acquired developed technology and trade name intangible assets were determined using the relief from royalty method. The fair values
of the acquired customer relationships and backlog intangible assets were determined using the multi-period excess earnings method. The acquired intangible
assets have a total weighted average amortization period of 6.6 years.
As part of the stock acquisition of Signal Sciences, we allocated a significant value of the acquisition to intangible assets. The deferred tax liability provided
an additional source of taxable income to support the realization of the pre-existing deferred tax assets. As a result a portion of our valuation allowance was
released and we recorded a $13.0 million tax benefit in the year ended December 31, 2020. Please refer to Note 12 — Income Taxes for further details.
During the year ended December 31, 2020, acquisition-related expenses of $20.8 million were expensed within general and administrative expenses as
incurred.
The amounts of revenue and net loss of Signal Sciences included in our consolidated statement of operations from the acquisition date of October 1, 2020 to
December 31, 2020 are $6.7 million and $23.0 million, respectively.
Pro Forma Financial Information
The following unaudited pro forma information presents the combined results of operations as if the acquisition of Signal Sciences had been completed as of
the beginning of our fiscal year 2019. The unaudited pro forma results include adjustments primarily related to the amortization of intangible assets, share-based
compensation expense for shares which are restricted as they are subject to revesting conditions, and the inclusion of acquisition costs as of the earliest period
presented. There were no material transactions between Fastly and Signal Sciences during the periods presented that would need to be eliminated.
114
The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies, or the effect of the incremental costs incurred from
integrating these companies. For pro forma purposes, 2020 earnings were adjusted to exclude acquisition-related costs, and 2019 earnings were adjusted to include
these costs. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual
results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of
future results of operations.
The unaudited pro forma financial information was as follows (in thousands):
Revenue
Net loss
6. Balance Sheet Information
Allowance for Doubtful Accounts
The activity in the accounts receivable reserves was as follows:
Beginning balance
Additions to the reserves
Write-offs and adjustments
Ending balance
Property and Equipment, Net
Property and equipment, net consisted of the following:
Computer and networking equipment
Leasehold improvements
Furniture and fixtures
Office equipment
Internal-use software
Property and equipment, gross
Accumulated depreciation and amortization
Property and equipment, net
(Unaudited)
As of December 31,
2020
2019
(in thousands)
313,665 $
(159,248) $
218,529
(178,124)
As of December 31,
2020
2019
(in thousands)
1,816 $
1,719
(287)
3,248 $
1,679
360
(223)
1,816
As of December 31,
2020
2019
(in thousands)
129,998 $
3,817
1,092
659
22,066
157,632
(61,653)
95,979 $
89,830
3,285
681
579
13,901
108,276
(48,239)
60,037
$
$
$
$
$
$
Depreciation and amortization expense on property and equipment for the years ended December 31, 2020 and 2019 was approximately $19.8 million and
$16.4 million, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of approximately $2.4 million and $2.2
million for the years ended December 31, 2020
115
and 2019, respectively. As of December 31, 2020 and December 31, 2019, the unamortized balance of capitalized internal-use software costs on our Consolidated
Balance Sheets was approximately $14.2 million and $8.5 million, respectively.
We lease certain networking equipment from various third parties, through equipment finance leases. Our networking equipment assets as of December 31,
2020 and 2019, included a total of $36.2 million and $13.7 million acquired under finance lease agreements, respectively. These leases are capitalized in property
and equipment, and the related amortization of assets under finance leases is included in depreciation and amortization expense. The accumulated depreciation of
the networking equipment assets under finance leases totaled $6.7 million and $3.8 million as of December 31, 2020 and 2019, respectively.
Accrued Expenses
Accrued expenses consisted of the following:
Accrued compensation and related benefits
Sales and use tax payable
Accrued colocation and bandwidth costs
Accrued acquisition-related costs
Other accrued liabilities
Total accrued expenses
Other Current Liabilities
Other current liabilities consisted of the following:
Deferred revenue
Accrued computer and networking equipment
Liability for early-exercised stock options (see Note 11)
Other current liabilities
Total other current liabilities
Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
Deferred revenue, non-current
CARES Act payroll tax deferral
Deferred rent
Other long-term liabilities
Total other long-term liabilities
Accumulated Other Comprehensive Income (Loss)
116
As of December 31,
2020
2019
(in thousands)
17,840 $
6,274
3,644
2,208
4,368
34,334 $
8,734
3,938
3,237
—
3,969
19,878
$
$
As of December 31,
2020
2019
(in thousands)
15,916 $
3,126
255
380
19,677 $
As of December 31,
2020
2019
(in thousands)
2,104 $
1,676
—
620
4,400 $
317
7,060
467
325
8,169
—
—
634
404
1,038
$
$
$
$
The following table summarizes the changes in accumulated other comprehensive loss, which is reported as a component of stockholders’ equity (deficit):
Balance at January 1, 2018
Other comprehensive income (loss)
Balance at December 31, 2018
Other comprehensive income (loss)
Balance at December 31, 2019
Other comprehensive income (loss)
Balance at December 31, 2020
7. Leases
Foreign Currency
Translation
Available-for-sale
investments
Accumulated Other
Comprehensive Income (Loss)
$
$
(11)
(1)
(12)
111
99
(135)
(36)
$
$
(in thousands)
(13)
(11)
(24)
121
97
(55)
42
$
$
(24)
(12)
(36)
232
196
(190)
6
We have operating leases for corporate offices and data centers ("Colocation leases"), and finance leases for networking equipment. Our leases have
remaining lease terms of 1 year to 7 years, some of which include options to extend the leases.
We also sublease a portion of our corporate office spaces. Subleases have remaining lease terms of 1 year. Sublease income, was $1.3 million, $1.2 million,
and $0.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.
As a result of our acquisition of Signal Sciences, we acquired $5.8 million of operating ROU assets and $6.2 million of operating lease liabilities,
determined as of the date of the acquisition.
The components of lease cost were as follows:
Operating lease cost:
Operating lease cost
Variable lease cost
Short-term lease cost
Total operating lease costs
Finance lease cost:
Amortization of assets under finance lease
Interest
Total finance lease cost
Other information related to leases was as follows:
117
Year ended December 31, 2020
21,765
4,363
—
26,128
2,858
688
3,546
$
$
$
$
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Payments for operating leases included in cash from operating activities
Payments for finance leases included in cash from financing activities
Payments for finance leases included in cash from operating activities
Assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Weighted Average Remaining Lease term (in years)
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
Year ended December 31, 2020
$
$
$
$
$
As of December 31, 2020
18,264
5,773
688
23,827
22,541
4.44
2.51
5.68 %
5.12 %
As of December 31, 2020, we had undiscounted commitments of $7.9 million for operating leases that have not yet commenced, and therefore are not
included in the right-of-use asset or operating lease liability. These operating leases will commence in 2021 with lease terms of 3 years to 6 years.
Future minimum lease payments under non-cancellable leases as of December 31, 2020 were as follows:
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease payments
Less: imputed interest
Total liability
Operating Leases
Finance Leases
23,095 $
17,010
10,706
7,965
7,416
9,888
76,080
(9,591)
66,489 $
12,115
9,447
5,921
—
—
—
27,483
(1,742)
25,741
$
$
Future minimum lease payments under our contracted facilities operating leases as of December 31, 2019 were as follows:
118
2020
2021
2022
2023
2024
Thereafter
Total
Gross Lease Commitments
Sublease Income
Net Lease Commitment
(in thousands)
$
$
4,856 $
6,143
5,463
5,627
5,796
15,794
43,679 $
(1,219) $
—
—
—
—
—
(1,219) $
3,637
6,143
5,463
5,627
5,796
15,794
42,460
Future minimum lease payments under our contracted colocation operating leases as of December 31, 2019 were as follows:
2020
2021
2022
2023
2024
Thereafter
Total
8. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 are as follows:
Balance, beginning of period
Goodwill acquired
Foreign currency translation
Balance, end of period
Lease Commitments
12,105
5,637
3,271
142
63
—
21,218
$
$
Year ended December 31,
2020
2019
$
$
(in thousands)
372 $
635,204
14
635,590 $
360
—
12
372
The goodwill acquired from Signal Sciences is carried in U.S. dollars, while goodwill from previous acquisitions is denominated in other foreign currencies.
Goodwill amounts are not amortized, but tested for impairment on an annual basis. There was no impairment of goodwill for the periods ended December 31,
2020, 2019 and 2018.
Intangible Assets, net
119
As of December 31, 2020 and December 31, 2019, our intangible assets consisted of the following:
Gross carrying
value
As of December 31, 2020
Accumulated
amortization
Net carrying value
Gross carrying
value
(in thousands)
As of December 31, 2019
Accumulated
amortization
Net carrying value
Intangible assets:
Customer relationships
Developed technology
Trade names
Internet protocol addresses
Backlog
In-process research and development
("IPR&D")
Domain name
Total intangible assets
$
$
69,100 $
49,500
3,300
2,891
2,200
368
39
127,398 $
(2,053) $
(2,475)
(275)
(578)
(275)
—
—
(5,656) $
67,047 $
47,025
3,025
2,313
1,925
368
39
121,742 $
— $
—
—
1,448
—
—
39
1,487 $
— $
—
—
(362)
—
—
—
(362)
$
—
—
—
1,086
—
—
39
1,125
During the year ended December 31, 2020, we added $69.1 million of customer relationships, $49.5 million of developed technology, $3.3 million of trade
names, and $2.2 million of backlog from the acquisition of Signal Sciences, which are subject to amortization. We also purchased additional internet protocol
addresses for a gross carrying value of $1.4 million. Internet protocol addresses and domain name intangible assets are subject to amortization. During the year
ended December 31, 2020, we acquired certain IPR&D assets for $0.4 million, which are not subject to amortization.
Amortization expense was $5.3 million, $0.1 million and $0.1 million, for the years ended December 31, 2020, 2019 and 2018, respectively. We did not
record any impairments during the years ended December 31, 2020, 2019 and 2018.
The estimated future amortization expense intangible assets as of December 31, 2020 is as follows:
2021
2022
2023
2024
2025
Thereafter
Total
9. Debt Instruments
Loan and Security Agreement
As of December 31, 2020
(in thousands)
21,143
20,765
19,665
18,830
16,352
24,619
121,374
$
$
In July 2013, we entered into a Loan and Security Agreement (the "Facility") with a bank related to an equipment facility providing us with an equipment
line for advances of up to $2.5 million. The Facility was amended in September 2013 to increase the equipment line for advances up to $5.0 million (as amended,
the "Prior Loan Agreement"), November 2014 to increase the equipment line for advances up to $15.0 million, and August 2016 to increase the equipment line for
advances up to $17.5 million and allowed for reborrowing of amounts repaid under the equipment loan (as amended, the "Senior Loan Agreement"). The Senior
Loan Agreement was additionally amended in February 2017 and March 2017, which extended the draw period to January 2018.
120
In November 2017, we entered into a Second Amended and Restated Loan and Security Agreement, which amended the Senior Loan Agreement and
increased the additional equipment line for advances up to an aggregate of $30.0 million through November 2018. As of December 31, 2018, $29.2 million had
been drawn on this Second Amended and Restated Loan and Security Agreement. The interest rate associated with each advance under the Senior Loan Agreement
was 1.75% above the floating prime rate. Beginning November 2018, we were obligated to make equal monthly payments of principal plus interest with repayment
no later than November 1, 2021.
On November 4, 2019, the outstanding loan of $20.0 million was paid in full, in accordance with the terms of the agreement.
Credit Facility
In December 2018, we entered into a Second Lien Credit Agreement under which were permitted to borrow up to $30.0 million ("Credit Facility"). As part
of this agreement, the Second Amendment to Amended and Restated Loan was amended to allow for this additional indebtedness. The advances under the Credit
Facility were subject to interest at a rate of prime plus 4.25%. As of December 31, 2018, $20.0 million had been drawn on this Credit Facility. On July 8, 2019, the
$20.0 million outstanding loan, which was due and payable on December 24, 2021, was paid in full, in accordance with the terms of the Credit Facility. Upon
payment, the Credit Facility arrangement was terminated.
Cash Collateralized Revolving Credit Agreement ("Revolving Credit Agreement")
In November 2019, we entered into a Revolving Credit Agreement with Citibank, N.A (the "Lender") for an aggregate commitment amount of $70.0 million
with a maturity date of November 3, 2022 (the "Revolver"). The amount of borrowings available under the Revolving Credit Agreement at any time was
collateralized by our cash, which was classified as restricted cash on our balance sheets.
The interest rate associated with each advance under the Revolving Credit Agreement was equal to the sum of LIBOR for the applicable interest period plus
1.50% which is a per annum rate based on outstanding borrowings. As such, for the initial interest period ending in November 2020, the interest rate was set at
3.46%. The commitment fee was 0.20% per annum based on the average daily unused amount of the commitment amount. Interest payments on outstanding
borrowings were due on the last day of each interest period and payments for the commitment fee are due at the end of each calendar quarter.
In November 2020, we terminated the Revolving Credit Agreement in accordance with its terms. In connection with the termination of the Revolving Credit
Agreement, we repaid the then outstanding aggregate principal amount of $20.3 million, as well as any accrued and unpaid interest, as of the termination date. The
associated restriction on the collateralized cash of $70.0 million was also released, accordingly. As of December 31, 2019, $20.3 million had been drawn on the
Revolving Credit Agreement. As of December 31, 2020, we have no amounts outstanding nor available for borrowing under the Revolving Credit Agreement.
Interest expense related to the Revolving Credit Agreement, Credit Facility and Loan and Security Agreement for the years ended December 31, 2020 was
$0.9 million. Total interest expense related to debt, excluding interest expense related to our finance leases now separately disclosed in Note 7—Leases, for the
year ended December 31, 2019 was $5.2 million, $4.7 million of which related to the Revolving Credit Agreement, Credit Facility and Loan and Security
Agreement, and $0.5 million of which related to finance lease agreements and other costs. Total interest expense related to debt, prior to the adoption of ASC 842,
for the year ended December 31, 2018 was $1.9 million, $1.7 million of which related to the Credit Facility and Loan and Security Agreement, and $0.2 million of
which related to finance lease agreements.
The following table reflects the carrying values of the debt agreements as of December 31, 2019:
121
Liability component:
Principal amount—Cash Collateralized Revolving Credit Agreement
Less: unamortized debt issuance costs
Less: current portion of long-term debt
Long-term debt, less current portion—Cash Collateralized Revolving Credit Agreement
10. Commitments and Contingencies
Finance and Operating Lease Commitments
As of December 31,
2019
$
$
20,300
(219)
—
20,081
Our commitments include commitments under our non-cancelable facilities and colocation operating leases (i.e. data center leases), as well as finance leases
for networking equipment. Refer to Note 7—Leases for further details and disclosures around their minimum future purchase commitments as of December 31,
2020.
Purchase Commitments
As of December 31, 2020, we had long-term commitments for cost of revenue related agreements (i.e., bandwidth usage, peering and other managed
services with various networks, internet service providers ("ISPs") and other third-party vendors). Additionally, as of December 31, 2020, we had entered into
purchase orders with various vendors.
Aside from our finance and operating lease commitments, including our colocation operating commitments, which have been disclosed in Note 7—Leases,
the minimum future purchase commitments relating to our other cost of revenue arrangements and SaaS commitments as of December 31, 2020 were as follows:
2021
2022
2023
2024
2025
Thereafter
Total
Cost of Revenue
Commitments
SaaS Agreements
(in thousands)
Total Purchase
Commitments
$
$
25,900 $
5,894
—
—
—
—
31,794 $
9,785 $
9,009
9,000
—
—
—
27,794 $
35,685
14,903
9,000
—
—
—
59,588
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Sales and Use Tax
We conduct operations in many tax jurisdictions throughout the United States. In many of these jurisdictions, non-income-based taxes, such as sales and use
and telecommunications taxes are assessed on our operations. We are subject to indirect taxes, and may be subject to certain other taxes, in some of these
jurisdictions. Historically, we have not billed or collected these taxes and, in accordance with U.S. GAAP, we have recorded a provision for our tax exposure in
these jurisdictions when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated. As a result, we have
recorded a liability of $6.3 million and $3.9 million as of December 31, 2020 and 2019, respectively. These estimates are based on several key assumptions,
including the taxability of our products, the jurisdictions in which we believe we have nexus and the sourcing of revenues to those jurisdictions. In the event these
jurisdictions challenge our assumptions and analysis, our actual exposure could differ materially from our current estimates.
Legal Matters
We are currently involved in, and may in the future be involved in, various legal proceedings and claims arising from the normal course of business, and an
unfavorable resolution of any of these matters could materially affect our future results of operations, cash flows or financial position. We are also party to various
disputes that management considers routine and incidental to its business. Management does not expect the results of any of these routine actions to have a material
effect on our business, results of operations, financial condition, or cash flows.
On August 27, 2020, a purported securities class action lawsuit was filed in the United States District Court for the Northern District of California,
captioned Marcos Betancourt v. Fastly, Inc., et al. (Case No. 4:20-cv-06024-PJH) naming as defendants us and certain of our officers. On September 15, 2020, a
substantively identical complaint was filed against the same defendants in the same court, captioned Rami Habib v. Fastly, Inc., et al. (Case No. 4:20-cv-06454-
JST). The complaints assert that all defendants violated Section 10(b) of the Exchange Act and SEC Rule 10b-5 by making materially false or misleading
statements between May 6, 2020 and August 5, 2020 regarding our business and financials, while not disclosing the identity of one of its largest customers. The
plaintiffs also allege that certain of our officers violated Section 20(a) of the Exchange Act. On September 27, 2020, the court consolidated the two cases into one
putative class action, captioned In re Fastly, Inc. Securities Litigation. Motions for the lead plaintiff were filed on October 26, 2020 and are currently pending
before the Court.
On December 28, 2020, certain of our officers and directors were named as defendants in a shareholder derivative action filed in the United States District
Court for the District of Delaware, captioned Wei v. Bixby, et al., Case No. 1:20-cv-01773-MN. On February 2, 2021, a substantially similar shareholder
derivative complaint was filed against the same defendants in the same court, captioned Kristen Gorenberg v. Bixby et al., Case No. 1:21-cv-00136. The derivative
complaints assert, inter alia, breach of fiduciary duty claims. It is possible that additional lawsuits will be filed, or allegations made by stockholders, regarding
these same or other matters and also naming as defendants the Company and our officers and directors.
The pending lawsuits and any other related lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon
many unknown factors. The outcome of the pending lawsuits and any other related lawsuits is necessarily uncertain. We could be forced to expend significant
resources in the defense of the pending lawsuits and any additional lawsuits, and we may not prevail. In addition, we may incur substantial legal fees and costs in
connection with such lawsuits. We currently are not able to estimate the possible cost to us from these matters, as the pending lawsuits are currently at an early
stage, and we cannot be certain how long it may take to resolve the pending lawsuits or the possible amount of any damages that we may be required to pay. Such
amounts could be material to our financial statements if we do not prevail in the defense against the pending lawsuits and any other related lawsuits, or even if we
do prevail.
As of December 31, 2020, we have not accrued for any loss contingencies on the above mentioned lawsuits as we do not believe an outcome resulting in a
loss is probable. We will accrue for loss contingencies if it becomes both probable that we will incur a loss and if we can reasonably estimate the amount or range
of the loss.
123
Indemnification
We enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we agree to indemnify, hold harmless,
and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners or customers, in connection with our
provision of its services. Generally, these obligations are limited to claims relating to infringement of a patent, copyright, or other intellectual property right, breach
of our security or data protection obligations, or our negligence, willful misconduct, or violation of law. Subject to applicable statutes of limitation, the term of
these indemnification agreements is generally for the duration of the agreement. The maximum potential amount of future payments we could be required to make
under these indemnification agreements is unlimited; however, we carry insurance that covers certain third-party claims relating to our services and could limit our
exposure in that respect.
We have agreed to indemnify each of our officers and directors during his or her lifetime for certain events or occurrences that happen by reason of the fact
that the officer or director is, was, or has agreed to serve as an officer or director of the Company. We have director and officer insurance policies that may limit
our exposure and may enable us to recover a portion of certain future amounts paid.
To date, we have not encountered material costs as a result of such indemnification obligations and have not accrued any related liabilities in our financial
statements. In assessing whether to establish an accrual, we consider such factors as the degree of probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of loss.
11. Stockholders' Equity
Common Stock
Our Amended and Restated Certificate of Incorporation, as amended and restated in May 2019, authorizes the issuance of 1.0 billion shares of Class A
common stock and 94.1 million shares of Class B common stock, each at a par value per share of $0.00002. Holders of Class A common stock are entitled
to one vote per share and holders of Class B common stock are entitled to 10 votes per share.
As of December 31, 2020 and December 31, 2019, 103.4 million and 61.0 million shares of Class A common stock were issued and outstanding,
respectively. As of December 31, 2020 and December 31, 2019, 10.2 million and 33.9 million shares of Class B common stock were issued and outstanding,
respectively.
Preferred Stock
Our Amended and Restated Certificate of Incorporation, as amended and restated in May 2019, also authorizes the issuance of 10.0 million shares of
preferred stock, at a par value per share of $0.00002, with rights and preferences, including voting rights, designated from time to time by the Board of Directors
(the "Board"). As of both December 31, 2019 and December 31, 2020, no shares of preferred stock were issued and outstanding.
Equity Incentive Plans
In March 2011, our stockholders approved our 2011 Equity Incentive Plan ("2011 Plan"), which allows for the issuance of incentive stock options,
nonstatutory stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards ("RSUs") to employees, directors, and consultants of
the Company. Options granted under our 2011 Plan are exercisable for shares of our Class B common stock.
As of both December 31, 2020 and December 31, 2019, there were 23.6 million shares of Class B common stock reserved for issuance pursuant to the
outstanding stock options under the 2011 Plan. As of December 31, 2020 and December 31, 2019, there were no shares of Class B common stock available for
issuance for future grants under the 2011 Plan. No further awards will be issued under the 2011 Plan.
In May 2019, in conjunction with our IPO, our Board and stockholders approved our 2019 Equity Incentive Plan (the "2019 Plan") which allows for the
issuance of incentive stock options, non-statutory stock options, stock appreciation rights, RSUs, performance-based stock awards, and other forms of equity
compensation, which are collectively referred to as stock
124
awards. Additionally, the 2019 Plan provides for the grant of performance cash awards. Options are exercisable for shares of our Class A common stock.
As of December 31, 2020 and December 31, 2019, there were 19.4 million shares and 14.4 million shares of Class A common stock reserved for issuance
under the 2019 Plan, respectively. As of December 31, 2020 and December 31, 2019, there were 12.8 million and 12.4 million Class A common stock available for
issuance under the 2019 Plan, respectively.
In October, 2020, as part of the acquisition of Signal Sciences, we also assumed the Signal Sciences Corp. 2014 Stock Option and Grant Plan, as amended
(the “Signal Plan”) and the outstanding unvested options to purchase shares of common stock of Signal Sciences Corp. thereunder, and such options became
exercisable to purchase shares of Fastly’s Class A common stock, subject to appropriate adjustments to the number of shares and the exercise price of each such
option. In connection with the above, we registered 251,754 shares under the Signal Plan.
In May 2019, in conjunction with our IPO, our Board and stockholders approved the Employee Stock Purchase Plan ("ESPP"). The ESPP allows eligible
employees to purchase shares of our Class A common stock through payroll deductions of up to 15% of their eligible compensation, subject to a maximum of
$25,000 per calendar year.
As of December 31, 2020 and December 31, 2019, there were 3.5 million shares and 2.5 million shares of Class A common stock reserved for issuance
under the ESPP, respectively. As of December 31, 2020 and December 31, 2019, there were 2.8 million shares and 2.2 million shares of Class A common stock
available for future issuance under the ESPP, respectively.
Stock Options
Options granted under the 2011 Plan are exercisable for Class B common stock and generally expire within 10 years from the date of grant and generally
vest over four years, at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter
based on continued service.
Options granted under the 2019 Plan are exercisable for Class A common stock and generally expire within 10 years from the date of grant and generally
vest over four years, at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter
based on continued service. Forfeitures are recognized as they occur.
Options granted under the Signal Sciences 2014 Equity Stock Options Plan that was assumed through the acquisition are included as part of the option
rollforward activity in year ended December 31, 2020. The vesting of these options follow their original grant date terms ("Original grant date") prior to the
acquisition of Signal Sciences and generally expire within 10 years from the original grant date and generally vest over four years, at the rate of 25% on the first
anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter. Subsequent to the acquisition, these options are
exercisable for Class A common stock and are recognized ratably over the remaining period based on continued service from the grant date. Forfeitures are
recognized as they occur.
125
The following table summarizes stock option activity during the years ended December 31, 2020, 2019 and 2018:
Outstanding at January 1, 2018
Granted
Exercised
Cancelled/forfeited
Outstanding at December 31, 2018
Granted
Exercised
Cancelled/forfeited
Outstanding at December 31, 2019
Granted
Exercised
Cancelled/forfeited
Outstanding at December 31, 2020
Vested and exercisable at December 31, 2020
Unvested and exercisable at December 31, 2020
Number of Shares
(in thousands)
Weighted-Average
Exercise Price
10,370
3,984
(1,264)
(880)
12,210
2,516
(2,650)
(807)
11,269
252
(4,360)
(198)
6,963
4,214
320
$
$
$
$
1.92
5.32
2.1
2.64
2.96
10.87
2.45
5.10
4.68
12.96
3.46
8.79
5.63
3.71
6.23
Weighted-Average
Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
8.0 $
16,901
7.8 $
64,590
7.3 $
173,471
6.7 $
5.8 $
7.7 $
569,094
352,535
25,973
The total pre-tax intrinsic value of options exercised during the years ended December 31, 2020, 2019, and 2018 was $200.9 million, $32.6 million, and
$3.0 million, respectively.
The total grant date fair value of employee options vested for the years ended December 31, 2020, 2019, 2018 was $10.3 million, $6.1 million, and $3.6
million, respectively.
The weighted-average grant date fair value for options granted to employees during the years ended December 31, 2020, 2019, and 2018 was $86.77, $5.77,
and $1.78, respectively.
We estimate the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. Each of the Black-Scholes inputs is
subjective and generally requires significant judgments to determine. We estimated the fair value of stock option awards during the years ended December 31,
2020, 2019, and 2018 on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
Fair value of common stock
Expected term (in years)
Risk-free interest rate
Expected volatility
Dividend yield
2020
$85.26 - $96.43
5.38 - 9.75
0.31% - 0.67%
43.92% - 46.49%
—%
Year ended December 31,
2019
$8.24 - $22.70
6.02
1.55% - 2.5%
39.1% - 42.7%
—%
2018
$3.86 - $8.16
6.02
2.62% - 3.0%
40.2% - 41.5%
— %
During the years ended December 31, 2020 and 2019, and 2018, we recognized stock-based compensation expense from stock options of approximately
$10.1 million, $7.9 million, and $4.1 million, respectively.
During the years ended December 31, 2020 and 2019, we modified the terms options awarded to certain employees to allow for the remaining unvested
awards to be fully vested upon their change in employment status. As a result, we recorded incremental stock-based compensation expense in relation to these
modifications of $0.9 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2018, there
were no option award modifications that resulted in incremental expense being recorded.
126
As of December 31, 2020, total unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was
$28.6 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 2.29 years.
Early Exercise of Stock Options
Certain stock options granted by us are exercisable at the date of grant, with unvested shares subject to repurchase by us in the event of voluntary or
involuntary termination of employment of the stockholder. Such exercises are recorded as a liability on the accompanying Consolidated Balance Sheets and
reclassified into equity as the options vest. As of December 31, 2020, December 31, 2019, a total of 90,977 and 199,895 shares of Class B Common Stock were
subject to repurchase by us at the lower of (i) the fair market value of such shares on the date of repurchase, or (ii) the original exercise price of such shares. The
corresponding exercise value of approximately $0.4 million and $0.9 million as of December 31, 2020 and December 31, 2019, respectively, is recorded in other
current liabilities and other liabilities on the accompanying Consolidated Balance Sheets.
The activity of non-vested shares as a result of early exercise of options granted to employees and non-employees, is as follows:
Beginning balance
Early exercise of options
Vested
Repurchased
Ending balance
RSUs
2020
Year ended December 31,
2019
(in thousands)
2018
200
—
(109)
—
91
245
117
(162)
—
200
138
238
(120)
(11)
245
We began granting RSUs under the 2019 Plan during the year ended December 31, 2019. The fair value of RSUs is based on the grant date fair value and is
expensed on a straight-line basis over the applicable vesting period. RSUs grant for new hires typically vest over four years, at the rate of 25% on the first
anniversary of the vest commencement date and ratably on a quarterly basis over the remaining 36-month period thereafter, based on continued service. Other RSU
awards typically vest quarterly over terms of 36 to 48 months. Forfeitures are recognized as they occur.
The following table summarizes RSU activity during the year ended December 31, 2020 and 2019:
Number of Shares
(in thousands)
Weighted-Average Grant Date Fair Value Per Share
Nonvested RSUs as of December 31, 2018
Granted
Cancelled/forfeited
Nonvested RSUs as of December 31, 2019
Granted
Vested
Cancelled/forfeited
Nonvested RSUs as of December 31, 2020
—
1,644
(3)
1,641
4,398
(1,377)
(142)
4,520
$
$
$
—
20.07
20.07
31.22
22.92
22.58
30.01
During the year ended December 31, 2020 and 2019, we recognized stock-based compensation expense related to RSUs of $40.5 million and $2.2 million,
respectively. There was no stock-based compensation expense recognized related to RSUs during the year ended December 31, 2018.
127
During the year ended December 31, 2020, we modified the terms of RSUs awarded to certain employees to allow for the remaining unvested awards to be
fully vested upon their change in employment status. As a result, we recorded incremental stock-based compensation expense in relation to these modifications of
$4.8 million for the year ended December 31, 2020. During the years ended December 31, 2019 and 2018, there were no RSU award modifications that resulted in
incremental expense being recorded.
As of December 31, 2020, total unrecognized stock-based compensation cost related to non-vested RSUs was $124.5 million. This unrecognized stock-
based compensation cost is expected to be recognized over a weighted-average period of approximately 3.02 years.
Stock subject to revest ("Revest shares")
In conjunction with the acquisition of Signal Sciences, a restriction was placed on 896,499 shares belonging to the three co-founders of Signal Sciences to
make them subject to revesting on a quarterly basis over a 2 year period. Refer to Note 5—Business Combinations for further details.
The activity of revest shares granted to these employees is as follows:
Nonvested revest shares as of December 31, 2019
Restricted
Vested
Cancelled/forfeited
Nonvested revest shares as of December 31, 2020
—
896
(112)
—
784
$
$
—
97.84
97.84
—
97.84
Number of Shares
(in thousands)
Weighted-Average Grant Date Fair Value Per Share
As of December 31, 2020, we recognized stock-based compensation expense related to revest shares of $11.1 million.
As of December 31, 2020, total unrecognized stock-based compensation cost related to revest shares was $76.6 million. This unrecognized stock-based
compensation cost is expected to be recognized over a weighted-average period of approximately 1.74 years.
Performance-Based Restricted Stock Units ("PSUs")
In March 2020, we granted a maximum total of 87,918 shares of PSUs to certain employees of the company, pursuant to our 2019 Equity Incentive Plan.
The PSUs granted reflect a maximum of 200% of target performance and represent the right of the employees to be issued on a future date, one (1) share of Class
A common stock for each RSU received that will vest on the applicable vesting date.
On November 2, 2020, the Compensation Committee of the Board set the performance conditions related to the previously granted PSUs. The performance
conditions are based on the level of achievement of certain Company and individual targets related to Fastly's operating plan for the fiscal year 2020 ("2020
operating plan"). The PSUs will vest at 50% of the target if the Company achieves 90% performance under the 2020 operating plan, 100% of the target if the
Company achieves 100% performance under the 2020 operating plan and 200% of the target if the Company achieves 110% performance or greater under the 2020
operating plan. These awards will be eligible to vest linearly within those parameters. Subject to employees’ continuous service with the Company through each
vesting date, 25% of the number of RSUs credited to them upon certification of achievement will vest on February 15, 2021, May 15, 2021, August 15, 2021, and
November 15, 2021, respectively.
128
The activity of PSUs granted to employees is as follows:
Nonvested PSUs as of December 31, 2019
Granted
Vested
Cancelled/forfeited
Nonvested PSUs as of December 31, 2020
—
88
—
—
88
$
$
—
65.11
—
—
65.11
Number of Shares
(in thousands)
Weighted-Average Grant Date Fair Value Per Share
As of December 31, 2020, the performance condition associated with the PSU was deemed probable of achievement and we recorded $1.6 million in stock-
based compensation expense. The amount of stock-based compensation expense recorded is based on the expected attainment of the performance targets.
As of December 31, 2020, total unrecognized stock-based compensation cost related to PSUs was $3.4 million. This unrecognized stock-based
compensation cost is expected to be recognized over a weighted-average period of approximately 0.56 years.
ESPP
The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions of up to 15% of their eligible compensation. The
ESPP provides for six-month offering periods, commencing in May and November of each year. At the end of each offering period employees are able to purchase
shares at 85% of the lower of the fair market value of our Class A common stock on the first trading day of the offering period or on the last day of the offering
period.
We estimate the fair value of shares to be issued under the ESPP on the first day of the offering period using the Black-Scholes valuation model. The inputs
to the Black-Scholes option pricing model are our stock price on the first date of the offering period, the risk-free interest rate, the estimated volatility of our stock
price over the term of the offering period, the expected term of the offering period and the expected dividend rate. Stock-based compensation expense related to the
ESPP is recognized on a straight-line basis over the offering period. Forfeitures are recognized as they occur.
We estimated the fair value of shares granted under the ESPP on the first date of the offering period using the Black-Scholes option pricing model with the
following assumptions:
Fair value of common stock
Expected term (in years)
Risk-free interest rate
Expected volatility
Dividend yield
Year ended December 31,
2020
$14.09 - $24.07
0.49-0.50
0.10% - 0.14%
50% - 60%
—%
2019
$6.02 - $6.92
0.47-0.50
1.59% - 2.35%
36% - 43%
—%
During the years ended December 31, 2020 and 2019, we withheld $9.6 million and $5.5 million in contributions from employees, respectively, and
recognized $3.2 million and $2.5 million in stock-based compensation expense related to the ESPP, respectively. As of December 31, 2020, total unrecognized
stock-based compensation cost related to ESPP was $1.9 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-
average period of approximately 0.4 years.
During the year ended December 31, 2020 and 2019, an aggregate of 0.3 million and 0.3 million shares of our Class A common stock was purchased under
the ESPP, respectively. No common stock was issued under the ESPP in the year ended December 31, 2018. No contributions were withheld, and no stock-based
compensation expense was recognized related to the ESPP in the year ended December 31, 2018.
129
Stock-based Compensation Expense
The following table summarizes the components of total stock-based compensation expense included in the accompanying Consolidated Statements of
Operations:
Stock-based compensation expense by caption:
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total
2020
Year ended December 31,
2019
(in thousands)
2018
$
$
3,889 $
17,112
17,028
26,404
64,433 $
1,410 $
2,920
3,497
4,318
12,145 $
265
1,332
1,023
1,459
4,079
For the years ended December 31, 2020 and 2019, we capitalized $2.0 million and $0.4 million of stock-based compensation expense, respectively. For
the year ended December 31, 2018, we did not capitalize any stock-based compensation expense.
Common Stock Warrant Liabilities
Prior to the IPO, we issued convertible preferred stock warrants in conjunction with the issuances of debt. We recorded these warrants to purchase
convertible preferred stock as a liability on the consolidated balance sheets at fair value upon issuance as the warrants were exercisable for contingently
redeemable preferred stock which was classified outside of stockholders' equity (deficit). The liability associated with these warrants were subject to
remeasurement at each balance sheet date, with changes in fair value recorded in the consolidated statement of operations and comprehensive loss as other
expense, net.
On May 17, 2019, immediately upon closing of the IPO, our warrants to purchase convertible preferred stock were automatically converted to warrants to
purchase an equal number of shares of our Class B common stock. As a result, the warrant was remeasured a final time, immediately prior to the closing of the
IPO, and reclassified to additional paid-in capital within stockholders' equity. Changes in the fair value were recorded within other expense, net on the consolidated
statement of operations. As of December 31, 2019, the warrants were classified and recorded as additional paid-in capital on the condensed consolidated balance
sheets.
In the year ended December 31, 2020, certain Class B common stock warrants related to the previously outstanding subordinated debt and loan agreements
were exercised under the cashless exercise method pursuant to the corresponding warrant agreements. As a result of such exercises, we issued 144,635 shares of
our Class B common stock. No Class B common stock warrants were exercised under the cashless exercise method pursuant to the corresponding warrant
agreements during the three months ended December 31, 2020. As of December 31, 2020, there were no outstanding Class B common stock warrants outstanding.
In the year ended December 31, 2019, certain Class B common stock warrants related to the Credit Facility, certain class B common stock warrants related
to the Facility, certain Class B common stock warrants related to the Prior Loan Agreement, the Class B common stock warrants related to a previously
outstanding term loan agreement, certain Class B common stock warrants related to the Mezzanine Loan and Security Agreement were exercised under the
cashless exercise method pursuant to the corresponding warrant agreements. As a result of such exercises, we issued 224,102 shares of our Class B common stock
in the year ended December 31, 2019.
130
12. Net Loss Per Share Attributable to Common Stockholders
We compute net loss per share using the two-class method required for multiple classes of common stock and participating securities. The rights of the
holders of the Class A common stock and Class B common stock are identical, except with respect to voting and conversion. Accordingly, the Class A common
stock and Class B common stock share equally in our net losses. Prior to the IPO, our participating securities also included convertible preferred stock. The holders
of convertible preferred stock did not have a contractual obligation to share in our losses, and as a result, net losses were not allocated to these participating
securities.
On October 12, 2020, the outstanding shares of our Class B common stock represented less than 10% of the aggregate number of shares of the then
outstanding Class A common stock and Class B common stock. As a result, all outstanding shares of Fastly’s Class B common stock, par value $0.00002 per share,
will automatically convert into the same number of shares of Class A common stock, par value $0.00002 per share, under the terms of Fastly’s amended and
restated certificate of incorporation, on July 12, 2021, the trading day falling nine months after the Conversion. No additional Class B shares may be issued
following such Conversion.
The following table sets forth the calculation of basic and diluted net loss per share attributable to common stockholders during the periods presented. The
shares issued in the IPO, the shares issued pursuant to the exercise by the underwriters of an option to purchase additional shares, and the shares of Class A and
Class B common stock issued upon conversion of the outstanding shares of convertible preferred stock in the IPO are included in the table below weighted for the
period outstanding:
Net loss attributable to common stockholders
Weighted-average shares used in computing net loss
per share attributable to common stockholders, basic
and diluted
Net loss per share attributable to common
stockholders, basic and diluted
2020
Year ended December 31,
2019
2018
Class A
(1), (3)
Class B
(2)
Class A
(1)
Class B
(2)
Class A
Class B
(2)
$
(78,114) $
(17,818) $
(12,084) $
(39,466)
N/A $
(30,935)
(in thousands, except per share amounts)
84,319
19,233
16,022
52,328
N/A
24,376
$
(0.93) $
(0.93) $
(0.75) $
(0.75)
N/A $
(1.27)
__________
(1) Class A common stock includes the issuance of 12.9 million shares of Class A common stock issued by us in connection with our IPO and shares issued upon
the exercise of options subsequent to our IPO.
(2) Class B common stock includes, for all periods presented, the conversion of all of our preferred stock into an aggregate of 53.6 million shares of our Class B
common stock upon closing of the IPO.
(3) Class A common stock includes the issuance of 6.9 million shares of Class A common stock issued by us in connection with our follow-on offering.
131
Since we were in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share, as the inclusion of all potential
common shares outstanding would have been anti-dilutive. The potential shares of common stock that were excluded from the computation of diluted net loss per
share attributable to common stockholders for the period presented because including them would have been antidilutive are as follows:
Stock options
RSUs
Early exercised stock options
Convertible common stock warrants
RSAs
Shares issuable pursuant to the ESPP
PSUs
Total
13. Income Taxes
Loss before income taxes includes the following components:
United States
Foreign
Loss before income taxes
The income tax expense (benefit) consists of the following:
Current tax provision (benefit):
Federal
State
Foreign
Deferred tax provision (benefit):
Federal
State
Foreign
Total tax expense (benefit)
Number of Shares
As of December 31,
2020
2019
(in thousands)
6,963
4,520
91
—
784
25
88
12,471
11,269
1,641
200
183
—
247
13,540
2020
Year ended December 31,
2019
2018
(in thousands)
$
$
(86,842) $
(20,570)
(107,412) $
(30,970) $
(20,088)
(51,058) $
(20,644)
(10,291)
(30,935)
2020
Year ended December 31,
2019
2018
(in thousands)
$
$
— $
420
1,050
(10,631)
(2,319)
—
(11,480) $
— $
106
386
—
—
—
492 $
—
81
104
—
—
—
185
Reconciliation between our effective tax rate on income from continuing operations and the U.S. federal statutory rate is as follows:
132
Provision at federal statutory tax rate
State taxes, net of federal tax impact
Change in valuation allowance
Foreign tax rate differential
Acquisition related expenses
Stock-based compensation
Other
Effective tax rate
2020
Year ended December 31,
2019
2018
21 %
2
(35)
(5)
(2)
30
—
11 %
21 %
—
(12)
(8)
—
—
(2)
(1)%
21 %
—
(11)
(7)
—
—
(4)
(1)%
We recorded tax benefit of $11.5 million for the year ended December 31, 2020. Our income tax benefit is primarily the result of a reduction in the
valuation allowance recorded against our net deferred tax assets. In connection with the acquisition of Signal Science, we recorded a net deferred tax liability
which provides an additional source of taxable income to support the realization of the pre-existing deferred tax assets. As a result a portion of our valuation
allowance was released and we recorded a $13.0 million tax benefit in the year ended December 31, 2020. Our income tax benefit is partially offset by income
taxes from certain foreign jurisdictions where we conduct business and state minimum income taxes in the United States.
Our deferred tax assets and liabilities were as follows:
Year ended December 31,
2020
2019
Reserves and accruals
Lease liability
Stock-based compensation
Net operating losses
Depreciation of property, plant and equipment
Amortization of intangible assets
Other
Deferred tax assets
Deferred Revenue
Right-of-use Asset
Depreciation of property, plant and equipment
Amortization of intangible assets
State Taxes
Other
Deferred tax liabilities
Valuation allowance
Net deferred tax (liabilities) assets
$
$
$
(in thousands)
$
941
17,481
3,969
109,281
576
—
—
132,248
(673)
(16,160)
—
(31,188)
(4,319)
(133)
(52,473)
(80,028)
(253)
$
$
1,839
—
1,116
30,750
—
642
1,753
36,100
—
—
(285)
—
(2,034)
—
(2,319)
(33,781)
—
As of December 31, 2020 and 2019, we had net operating loss carryforwards for U.S. federal income tax purposes of approximately $395.9 million and
$106.0 million, respectively; and for state income tax purposes of approximately $316.5 million and $100.0 million, respectively. The federal net operating loss
carryforwards, if not utilized, will begin to expire in 2031. The state net operating loss carryforward, if not utilized, will begin to expire on various dates starting in
2021. The Company also has federal and California research and development credit carryforwards totaling $3.0 million and $1.0 million at December 31, 2020,
respectively. The federal research and development credit carryforwards will begin to expire in 2034, unless previously utilized. The California research credits do
not expire.
133
Based on all available evidence on a jurisdictional basis we believe that it is more likely than not that our deferred tax assets will not be utilized and have
recorded a full valuation allowance against its net deferred tax assets. We assess on a periodic basis the likelihood that we will be able to recover its deferred tax
assets. We consider all available evidence, both positive and negative, including historical losses, we determined that it is more likely than not that the net deferred
tax assets will not be fully realizable for the years ended December 31, 2020 and 2019.
We have a valuation allowance for deferred tax assets, including net operating loss carryforwards. We expect to maintain this valuation allowance for the
foreseeable future. During the year ended December 31, 2020, the valuation allowance related to the Company's deferred tax assets increased by $46.2 million.
During the year ended December 31, 2020, we released a total of $13.0 million of our U.S. valuation allowance.
Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986, as amended (the "Code") and similar state provisions. A detailed analysis was performed through June 30, 2020 for Fastly to
determine whether an ownership change under Section 382 of the Code has occurred has been performed and as a result there is no limitation on the use of net
operating loss carryforwards attributable to periods before the change. A detailed analysis was performed for the period March 1, 2014 to October 1, 2020 for
Signal Sciences to determine whether an ownership change under Section 382 of the Code has occurred has been performed and as a result there is a limitation on
the use of net operating loss carryforwards acquired from Signal Sciences.
No provision for U.S. income and foreign withholding taxes has been made for these permanently reinvested foreign earnings because it is management’s
intention to permanently reinvest such undistributed earnings outside the United States.
A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands):
Balance at beginning of year
Increases related to prior year tax positions
Increases related to current year tax positions
Balance at end of year
Year ended December 31,
2020
2019
$
$
— $
2,328
858
3,186 $
—
—
—
—
The Company has considered the amounts and probabilities of the outcomes that can be realized upon ultimate settlement with the tax authorities and
determined unrecognized tax benefits primarily related to credits should be established as noted in the summary rollforward above. The unrecognized tax benefits,
if recognized and in absence of full valuation allowance, would impact the income tax provision by $3.0 million in the year ended December 31, 2020. It would not
impact the tax provision for year ended December 31, 2019. As of December 31, 2020, the Company does not believe that it is reasonably possible that its
unrecognized tax benefits would significantly change in the following 12 months. Our policy is to recognize interest and penalties associated with uncertain tax
benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on its consolidated balance sheet. To
date, we have not recognized any interest and penalties in its consolidated statements of operations, nor has it accrued for or made payments for interest and
penalties.
Generally, in the U.S. federal and state taxing jurisdictions, tax periods in which certain loss and credit carryovers are generated remain open for audit until
such time as the limitation period ends for the year in which such losses or credits are utilized.
On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security (CARES) Act” was signed into law (the "CARES Act"). The CARES Act
includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods,
alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified
improvement property.
Since the second quarter of 2020, we utilized the provision to defer payment of certain of our payroll taxes. Any deferred payments will be accrued for as a
liability and included in our condensed consolidated balance sheet for the applicable period. As of December 31, 2020, we have accrued for $3.4 million in payroll
tax deferrals related to the CARES Act.
134
14. Information About Revenue and Geographic Areas
We consider operating segments to be components of the Company in which separate financial information is available and is evaluated regularly by our
Chief Operating Decision Maker ("CODM") in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer
("CEO"). The CEO reviews financial information presented on a consolidated basis, accompanied by information about revenue, customer size, and industry
vertical for purposes of allocating resources and evaluating financial performance.
We have determined that we operate our business as one reportable segment, and there are no segment managers who are held accountable for operations,
operating results, or plans for levels or components below the consolidated unit level. Accordingly, we have determined that we have a single reporting segment
and operating unit structure.
Revenue
Revenue by geography is based on the billing address of the customer. Refer to Note 3—Revenue for more information on net revenue by geographic
region.
Long-Lived Assets
The following table presents long-lived assets by geographic region:
United States
All other countries
Total long-lived assets
15. Subsequent Events
As of December 31,
2020
As of December 31,
2019
$
$
(in thousands)
65,054 $
30,925
95,979 $
40,747
19,290
60,037
On January 28, 2021, we entered into an additional finance lease agreement with the equipment provider for $2.0 million in network equipment at an annual
interest rate of 4.89% over a term of three years. The agreement provides for a bargain purchase price at the end of the term. The amortization of leased assets is
included in depreciation and amortization expense.
On February 16, 2021, we entered into a Senior Secured Credit Facilities Agreement ("Credit Agreement") with Silicon Valley Bank for an aggregate
commitment amount of $100.0 million. The Credit Agreement bears interest at a rate per annum equal to the sum of LIBOR for the applicable interest period plus
1.75% - 2.00%, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. Interest payments on outstanding
borrowings are due on the last day of each interest period. The Credit Agreement has a commitment fee on the unused portion of the borrowing commitment,
which is payable on the last day of each calendar quarter at a rate per annum of 0.20% - 0.25% depending on the average daily outstanding balance of all loans and
letters of credit under the Credit Agreement. In addition, our Credit Agreement contains a financial covenant that requires us to maintain a consolidated adjusted
quick ratio of at least 1:25 to 1:00 tested on a quarterly basis as well as a springing revenue growth covenant for certain periods if our consolidated adjusted quick
ratio falls below 1.75 to 1:00 on the last day of any fiscal quarter.
135
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the end of the period covered by this Annual Report on Form 10-K. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020,
our principal executive officer and principal financial officer concluded that, as of such date, due to the material weakness described below, our disclosure controls
and procedures were not effective as of December 31, 2020.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the
effectiveness of internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial
reporting is a process designed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial
Officer, to provide reasonable assurance regarding the reliability of financing reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America.
Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer and oversight of the board of directors, our
management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the criteria set forth
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this
evaluation, due to the material weakness described below, management concluded that our disclosure controls and procedures were not effective.
On October 1, 2020, we completed the acquisition of Signal Sciences Corporation ("Signal Sciences"). For further discussion of the Signal Sciences
acquisition, refer to Item 8—Financial Statements and Supplementary Data, Note 5—Business Combinations. The Securities and Exchange Commission permits
companies to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition, and our management has
elected to exclude Signal Sciences from our assessment as of December 31, 2020, except for goodwill and intangible assets. Signal Sciences contributed 5% of our
consolidated total assets (excluding goodwill and intangible assets) and 2% of revenues as of and for the year ended December 31, 2020, respectively.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report which is included in Part II, Item 8—Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K.
Material Weakness
We identified a material weakness in our internal control over financial reporting for the year ended December 31, 2019 which remains partially
unremediated for the year ended December 31, 2020. The material weakness related to the lack of sufficient qualified accounting resources, including those with
the appropriate level of technical accounting knowledge, to timely identify and assess accounting implications of complex transactions which resulted in the
incorrect application of generally accepted accounting principles. This control deficiency, aggregated with the other deficiencies, constitutes a material weakness.
These deficiencies if left unremediated, could result in increased deficiencies of misstatements in future years.
The process of implementing an effective financial reporting systems is a continuous effort that requires us to anticipate and react to changes in our business
and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting
obligations. We continue to evaluate and take
136
actions to improve our internal control over financial reporting, which includes but is not limited to hiring additional resources, to address control deficiencies.
Notwithstanding the material weakness, management has concluded that the financial statements included elsewhere in this Annual Report present fairly, in
all material respects, our financial position, results of operations and cash flows in the conformity with GAAP.
Changes in Internal Control
On December 31, 2020, we adopted the new lease accounting standard and credit and impairment loss standard. We have identified appropriate changes to
our accounting policies, business processes, and related internal controls to support recognition and disclosure requirements as a result of the adoption. For the new
leasing standard, these included the development of new policies including the capitalization of right-of-use assets and the recognition of the present value of lease
liabilities for identified leases, ongoing contract review requirements, and gathering of information for disclosures.
Other than as described above, there have been no changes in our internal control over financial reporting in connection with the evaluation required by
Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Annual Report on Form 10-K that materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system
of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
137
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Fastly, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Fastly, Inc. and subsidiaries (the “Company”) as of December 31, 2020, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In
our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework
(2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial
statements as of and for the year ended December 31, 2020, of the Company and our report dated March 1, 2021, expressed an unqualified opinion on those
financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.
As described in Managements Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over
financial reporting at Signal Sciences Corporation (“Signal Sciences”), which was acquired on October 1, 2020, and whose financial statements constitute 5% of
consolidated total assets (excluding goodwill and intangibles) and 2% of consolidated revenue as of and for the year ended December 31, 2020. Accordingly, our
audit did not include the internal control over financial reporting at Signal Sciences.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
138
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material
weakness has been identified and included in management's assessment: We and our independent registered public accounting firm identified a material weakness
in the internal control over financial reporting for the year ended December 31, 2019 and 2018 which remains partially unremediated for the year ended December
31, 2020. The material weakness relates to the lack of sufficient qualified accounting resources, including those with the appropriate level of technical accounting
knowledge to timely identify and assess accounting implications of complex transactions which resulted in the incorrect application of generally accepted
accounting principles. This control deficiency aggregated with other deficiencies constitutes a material weakness. These deficiencies, if left unremediated, could
result in increased deficiencies or misstatements in future years. This material weakness was considered in determining the nature, timing, and extent of audit tests
applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2020, of the Company, and this report does not affect our
report on such financial statements.
/s/ Deloitte & Touche LLP
San Francisco, California
March 1, 2021
Item 9B. Other Information
Not applicable.
139
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Information required by this Item is incorporated by reference to the sections of our proxy statement to be filed with the SEC no later than 120 days after
December 31, 2020 in connection with our 2021 Annual Meeting of Stockholders (the "Proxy Statement").
We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees, which is available on our website at
www.fastly.com. The Code of Business Conduct and Ethics is intended to qualify as a "code of ethics" within the meaning of Section 406 of the Sarbanes-Oxley
Act of 2002 and Item 406 of Regulation S-K. In addition, we intend to promptly disclose (1) the nature of any amendment to our Code of Business Conduct and
Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions
and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of
such person who is granted the waiver and the date of the waiver on our website in the future.
Item 11. Executive Compensation
Information required by this Item is incorporated by reference to our Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item is incorporated by reference to our Proxy Statement.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information required by this Item is incorporated by reference to our Proxy Statement.
Item 14. Principal Accountant Fees and Services
Information required by this Item is incorporated by reference to our Proxy Statement.
140
Item 15. Exhibits
(a)(1) Financial statements
PART IV
The information concerning Fastly’s financial statements and the Report of Independent Registered Public Accounting Firm required by this Item 15(a)(1) is
incorporated by reference herein to the section of this Annual Report on Form 10-K in Part II, Item 8, "Financial Statements and Supplementary Data."
(a)(2) Financial statement schedules
All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because the
information required is already included in the financial statements or the notes to those financial statements.
(a)(3) Exhibits
We have filed, or incorporated into this Annual Report on Form 10-K by reference, the exhibits listed on the accompanying Exhibit Index immediately
preceding the signature page of this Annual Report on Form 10-K.
Exhibit
Number
2.1
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8
10.9+
10.10+
10.11+
Exhibit Description
Form
File No.
Exhibit
Filing Date
Filed
Herewith
Agreement and Plan of Reorganization,
dated August 26, 2020.
Amended and Restated Certificate of
Incorporation.
Certificate of Amendment of Amended
and Restated Certificate of Incorporation.
Amended and Restated Bylaws.
Form of Class A common stock
certificate of Fastly, Inc.
Reference is made to Exhibits 3.1
through 3.2.
Description of Securities.
Amended and Restated Investor Rights
Agreement by and among Fastly, Inc. and
certain of its stockholders, dated June 29,
2018.
2011 Equity Incentive Plan, as amended
to date.
Forms of Option Agreement, Notice of
Stock Option Grant, and Exercise Notice
under 2011 Equity Incentive Plan.
2019 Equity Incentive Plan.
Forms of Option Agreement, Notice of
Stock Option Grant, and Exercise Notice
under 2019 Equity Incentive Plan.
Form of Restricted Stock Unit Award
Agreement under 2019 Equity Incentive
Plan.
2019 Employee Stock Purchase Plan.
Form of Indemnification Agreement by
and between Fastly, Inc. and each of its
directors and executive officers.
Cash Incentive Bonus Plan.
Employment Terms by and between
Fastly, Inc. and Artur Bergman, dated
May 3, 2019.
Offer Letter Agreement, by and between
Fastly, Inc. and Adriel Lares, dated April
26, 2016.
8-K
001-38897
2.1
8-K
001-38897 3.1
October 12,
2020
May 21, 2019
8-K
001-38897
3.1
June 10, 2020
10-Q 001-38897
3.3
August 7, 2020
S-1/A 333-230953 4.1
May 6, 2019
10-K 001-38897
S-1
4.3
333-230953 10.1
March 4, 2020
April 19, 2019
S-1
S-1
333-230953 10.2
April 19, 2019
333-230953 10.3
April 19, 2019
S-1/A 333-230953 10.4
S-1/A 333-230953 10.5
May 6, 2019
May 6, 2019
10-Q 001-38897
10.3
August 9, 2019
S-1/A 333-230953 10.7
S-1/A 333-230953 10.8
May 6, 2019
May 6, 2019
S-1/A 333-230953 10.9
May 6, 2019
S-1/A 333-230953 10.10 May 6, 2019
S-1
333-230953 10.11
April 19, 2019
141
Exhibit
Number
10.12+
10.13
10.14
10.15
10.16+
10.17+
10.18
10.19+
10.20+
10.21+
10.22+
10.23
21.1
23.1
24.1
31.1
31.2
32.1*
32.2*
101. INS
101.SCH
Exhibit Description
Offer Letter Agreement, by and
between Fastly, Inc. and Paul Luongo,
dated November 27, 2013.
Office Lease Agreement, by and
between Fastly, Inc. and CLPF-475
Brannan Street, L.P., dated August 22,
2014.
First Amendment to Lease Agreement,
by and between Fastly, Inc. and CLPF-
475 Brannan Street, L.P., dated May 27,
2015.
Second Amendment to Lease
Agreement, by and between Fastly, Inc.
and CLPF-475 Brannan Street, L.P.,
dated March 11, 2019.
Executive Change in Control and
Severance Benefit Plan.
Non-Employee Director Compensation
Policy, as amended.
Stock Ownership Guidelines.
Employment Agreement, by and
between Fastly International (Holdings)
Ltd. and Joshua Bixby dated February
19, 2020.
Equity Offer Letter, by and between
Fastly, Inc. and Joshua Bixby dated
February 19, 2020.
Modification to Offer Letter
Agreement, by and between Fastly, Inc.
and Artur Bergman dated February 19,
2020.
Signal Sciences Corp. 2014 Stock
Option and Grant Plan.
Senior Secured Credit Facilities Credit
Agreement, among Fastly, Inc., the
several lenders from time to time party
thereto, and Silicon Valley Bank, dated
as of February 16, 2021.
Subsidiaries of the Registrant.
Consent of Independent Registered
Public Accounting Firm.
Power of Attorney (contained on the
signature page of this report).
Certification of the Chief Executive
Officer pursuant to Exchange Act Rule
13a-14 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial
Officer pursuant to Exchange Act Rule
13a-14 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive
Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial
Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL Instance Document - the
instance document does not appear in
the Interactive Data File because its
XBRL tags are embedded within the
Inline XBRL document.
Inline XBRL Taxonomy Schema
Linkbase Document.
Form
S-1
File No.
Exhibit
333-230953 10.13
Filing Date
April 19, 2019
Filed
Herewith
S-1
333-230953 10.17
April 19, 2019
S-1
333-230953 10.18
April 19, 2019
S-1
333-230953 10.32
April 19, 2019
S-1/A 333-230953 10.31 May 6, 2019
S-1/A 333-230953 10.33 May 6, 2019
February 20,
8-K
2020
001-38897
10.1
8-K
001-38897
10.2
8-K
001-38897
10.3
S-8
333-249504 99.1
February 20,
2020
February 20,
2020
October 10,
2020
X
X
X
X
X
X
X
X
X
142
Exhibit
Number
101.CAL
101.DEF
101.LAB
101.PRE
104
__________
Exhibit Description
Form
File No.
Exhibit
Filing Date
Inline XBRL Taxonomy Calculation
Linkbase Document.
Inline XBRL Taxonomy Definition
Linkbase Document.
Inline XBRL Taxonomy Labels
Linkbase Document.
Inline XBRL Taxonomy Presentation
Linkbase Document.
Cover Page Interactive Data File
(formatted as inline XBRL and
contained in Exhibit 101).
Filed
Herewith
X
X
X
X
+ Indicates management contract or compensatory plan.
* The certifications furnished in Exhibit 32.1 and 32.2 hereto are deemed to be furnished with this Annual Report on Form 10-K and will not be deemed to be
“filed” for purposes of Section 18 of the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.
Item 16. Form 10-K Summary
None.
143
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Fastly, Inc. has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 1, 2021
Date: March 1, 2021
FASTLY, INC.
/s/ Joshua Bixby
Joshua Bixby
Chief Executive Officer (Principal Executive Officer)
/s/ Adriel Lares
Adriel Lares
Chief Financial Officer (Principal Financial and Accounting Officer)
By:
By:
144
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joshua Bixby and Adriel Lares,
and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such individual in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or the individual’s substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature
/s/ Joshua Bixby
Joshua Bixby
/s/ Adriel Lares
Adriel Lares
/s/ Artur Bergman
Artur Bergman
/s/ Aida Álvarez
Aida Álvarez
/s/ Sunil Dhaliwal
Sunil Dhaliwal
/s/ David Hornik
David Hornik
/s/ Christopher B. Paisley
Christopher B. Paisley
/s/ Kelly Wright
Kelly Wright
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Chief Architect, Executive Chairperson and Chairperson of the
Board of Directors
Director
Director
Director
Director
Director
145
Date
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
Exhibit 10.17
Fastly, Inc.
Non-Employee Director Compensation Policy
Adopted: May 1, 2019
Amended: August 4, 2020
Each member of the Board of Directors (the “Board”) of Fastly, Inc. (the “Company”) who is a non-employee director of the
Company (each such member, a “Non-Employee Director”) will receive the compensation described in this Non-Employee Director
Compensation Policy (the “Director Compensation Policy”) for his or her Board service.
The Director Compensation Policy may be amended at any time in the sole discretion of the Board or the Compensation Committee
of the Board.
Annual Cash Compensation
Commencing at the beginning of the first calendar quarter following the closing of the initial public offering (the “IPO”) of
the Company’s Class A common stock (the “Class A Common Stock”), each Non-Employee Director will receive the cash
compensation set forth below for service on the Board. The annual cash compensation amounts will be payable in equal quarterly
installments, in arrears following the end of each quarter in which the service occurred, pro-rated for any partial months of service.
All annual cash fees are vested upon payment.
1. Annual Board Service Retainer:
a. All Eligible Directors: $30,000
2. Annual Committee Member Service Retainer:
a. Member of the Audit Committee: $10,000
b. Member of the Compensation Committee: $7,500
c. Member of the Nominating and Corporate Governance Committee: $3,750
3. Annual Committee Chair Service Retainer (in lieu of Committee Member Service Retainer):
a. Chair of the Audit Committee: $20,000
b. Chair of the Compensation Committee: $15,000
c. Chair of the Nominating and Corporate Governance Committee: $7,500
4. Annual Lead Independent Director Retainer: $20,000
Equity Compensation
Equity awards will be granted under the Company’s 2019 Equity Incentive Plan (the “Plan”).
i.Initial Appointment Equity Grant. On appointment to the Board, and without any further action of the Board or
Compensation Committee of the Board, at the close of business on
the day of such appointment a Non-Employee Director will automatically receive a Restricted Stock Unit Award for Class A
Common Stock having a value of $175,000 based on the Fair Market Value (as defined in the Plan) of the underlying Class A
Common Stock on the date of grant, with the $175,000 being prorated based on the number of months from the date of appointment
until the next Annual Meeting of the Company’s Stockholders (the “Initial RSU”). For illustrative purposes, if a Non-Employee
Director joins the Board in January and the next Annual Meeting of the Company’s Stockholders will be held in June of the year of
appointment, then, upon appointment, such Non-Employee Director will receive a Restricted Stock Unit Award for Class A
Common Stock having a value of $87,500 (6/12 x $175,000). Each Initial RSU will vest on the earlier of (i) the date of the following
year’s Annual Meeting of the Company’s Stockholders (or the date immediately prior to the next Annual Meeting of our
Stockholders if the Non-Employee Director’s service as a director ends at such meeting due to the director’s failure to be re-elected
or the director not standing for re-election); or (ii) the one-year anniversary measured from the date of grant.
ii.Automatic Equity Grants. Without any further action of the Board or Compensation Committee of the Board, at the close
of business on the date of each Annual Meeting of the Company’s Stockholders, each person who is then a Non-Employee Director
will automatically receive a Restricted Stock Unit Award for Class A Common Stock having a value of $175,000 based on the Fair
Market Value (as defined in the Plan) of the underlying Class A Common Stock on the date of grant (the “Annual RSU”). Each
Annual RSU will vest on the earlier of (i) the date of the following year’s Annual Meeting of the Company’s Stockholders (or the
date immediately prior to the next Annual Meeting of our Stockholders if the Non-Employee Director’s service as a director ends at
such meeting due to the director’s failure to be re-elected or the director not standing for re-election); or (ii) the one-year anniversary
measured from the date of grant.
iii.Vesting; Change of Control. All vesting is subject to the Non-Employee Director’s “Continuous Service” (as defined in the
Plan) on each applicable vesting date. Notwithstanding the foregoing vesting schedules, for each Non-Employee Director who
remains in Continuous Service with the Company until immediately prior to the closing of a “Change of Control” (as defined in the
Plan), the shares subject to his or her then-outstanding equity awards will become fully vested immediately prior to the closing of
such Change of Control.
iv.Calculation of Value of a Restricted Stock Unit Award. The value of a Restricted Stock Unit Award to be granted under
this Director Compensation Policy will be determined based on the Fair Market Value per share on the grant date.
v.Remaining Terms. The remaining terms and conditions of each Nonstatutory Stock Option and Restricted Stock Unit
Award, including transferability, will be as set forth in the Company’s standard Option Agreement and Restricted Stock Unit Award
Agreement, in the form adopted from time to time by the Board or the Compensation Committee of the Board.
Expenses
The Company will reimburse Non-Employee Director for ordinary, necessary and reasonable out-of-pocket travel expenses to cover
in-person attendance at and participation in Board and committee meetings; provided, that the Non-Employee Director timely submit
to the Company appropriate documentation substantiating such expenses in accordance with the Company’s travel and expense
policy, as in effect from time to time.
Exhibit 10.23
SENIOR SECURED CREDIT FACILITIES
CREDIT AGREEMENT
dated as of February 16, 2021,
among
FASTLY, INC.
as the Borrower,
The Several Lenders from Time to Time PartY Hereto,
and
SILICON VALLEY BANK,
as Administrative Agent, Issuing Lender and Swingline Lender
243315917 v11243315917 v10
Table of Contents
Page
SECTION 1 DEFINITIONS
1.1 Defined Terms
1.2 Other Definitional Provisions.
1.3 Rounding
1.4 Exchange Rates.
1.5 Alternative Currencies.
1.6 Limited Condition Acquisitions
SECTION 2 AMOUNT AND TERMS OF COMMITMENTS
2.1 [Reserved]
2.2 [Reserved]
2.3 [Reserved]
2.4 Revolving Commitments.
2.5 Procedure for Revolving Loan Borrowing
2.6 Swingline Commitment
2.7 Procedure for Swingline Borrowing; Refunding of Swingline Loans.
2.8 Overadvances
2.9 Fees.
2.10 Termination or Reduction of Revolving Commitments; Prepayments.
2.11 [Reserved].
2.12 [Reserved].
2.13 Conversion and Continuation Options.
2.14 Limitations on Eurodollar Tranches
2.15 Interest Rates and Payment Dates.
2.16 Computation of Interest and Fees.
2.17 Inability to Determine Interest Rate
2.18 Pro Rata Treatment and Payments.
2.19 Illegality; Requirements of Law.
2.20 Taxes.
2.21 Indemnity
2.22 Change of Lending Office
2.23 Substitution of Lenders
2.24 Defaulting Lenders.
2.25 Joint and Several Liability of the Borrowers.
2.26 Notes
2.27 Incremental Facility.
SECTION 3 LETTERS OF CREDIT
3.1 L/C Commitment.
3.2 Procedure for Issuance of Letters of Credit
3.3 Fees and Other Charges.
3.4 L/C Participations; Existing Letters of Credit.
3.5 Reimbursement.
3.6 Obligations Absolute
3.7 Letter of Credit Payments
3.8 Applications
3.9 Interim Interest
1
1
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-1-
Table of Contents
(continued)
Page
3.10 Cash Collateral.
3.11 Additional Issuing Lenders
3.12 Resignation of the Issuing Lender
3.13 Applicability of UCP and ISP
SECTION 4 REPRESENTATIONS AND WARRANTIES
4.1 Financial Condition.
4.2 No Change
4.3 Existence; Compliance with Law
4.4 Power, Authorization; Enforceable Obligations
4.5 No Legal Bar
4.6 Litigation
4.7 No Default
4.8 Ownership of Property; Liens; Investments
4.9 Intellectual Property
4.10 Taxes
4.11 Federal Regulations
4.12 Labor Matters
4.13 ERISA
4.14 Investment Company Act; Other Regulations
4.15 Subsidiaries
4.16 Use of Proceeds
4.17 Environmental Matters
4.18 Accuracy of Information, etc.
4.19 Security Documents.
4.20 Solvency; Voidable Transaction
4.21 Regulation H
4.22 Designated Senior Indebtedness
4.23 [Reserved]
4.24 Insurance
4.25 No Casualty
4.26 [Reserved].
4.27 [Reserved].
4.28 OFAC
4.29 Anti-Corruption Laws
SECTION 5 CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit
5.2 Conditions to Each Extension of Credit
5.3 Post-Closing Obligations
SECTION 6 AFFIRMATIVE COVENANTS
6.1 Financial Statements
6.2 Certificates; Reports; Other Information
6.3 [Reserved].
6.4 Payment of Obligations
6.5 Maintenance of Existence; Compliance
6.6 Maintenance of Property; Insurance
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-2-
Table of Contents
(continued)
Page
6.7 Books and Records; Discussions
6.8 Notices
6.9 Environmental Laws.
6.10 Operating Accounts
6.11 Audits
6.12 Additional Collateral, Etc.
6.13 Use of Proceeds
6.14 Designated Senior Indebtedness
6.15 Anti-Corruption Laws
6.16 Further Assurances
SECTION 7 NEGATIVE COVENANTS
7.1 Financial Condition Covenants.
7.2 Indebtedness
7.3 Liens
7.4 Fundamental Changes
7.5 Disposition of Property
7.6 Restricted Payments
7.7 [Reserved]
7.8 Investments
7.9 ERISA
7.10 Optional Payments and Modifications of Certain Preferred Stock
7.11 Transactions with Affiliates
7.12 Sale Leaseback Transactions
7.13 Swap Agreements
7.14 Accounting Changes
7.15 Negative Pledge Clauses
7.16 Clauses Restricting Subsidiary Distributions
7.17 Lines of Business
7.18 Designation of other Indebtedness
7.19 [Reserved]
7.20 Amendments to Operating Documents and Material Contracts
7.21 Use of Proceeds
7.22 Subordinated Indebtedness.
7.23 Anti-Terrorism Laws
SECTION 8 EVENTS OF DEFAULT
8.1 Events of Default
8.2 Remedies Upon Event of Default
8.3 Application of Funds
SECTION 9 THE ADMINISTRATIVE AGENT
9.1 Appointment and Authority.
9.2 Delegation of Duties
9.3 Exculpatory Provisions
9.4 Reliance by Administrative Agent
9.5 Notice of Default
9.6 Non-Reliance on Administrative Agent and Other Lenders
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-3-
Table of Contents
(continued)
Page
9.7 Indemnification
9.8 Agent in Its Individual Capacity
9.9 Successor Administrative Agent.
9.10 Collateral and Guaranty Matters
9.11 Administrative Agent May File Proofs of Claim
9.12 [Reserved]
9.13 Cash Management Bank and Qualified Counterparty Reports
9.14 Survival
SECTION 10 MISCELLANEOUS
10.1 Amendments and Waivers.
10.2 Notices
10.3 No Waiver; Cumulative Remedies
10.4 Survival of Representations and Warranties
10.5 Expenses; Indemnity; Damage Waiver.
10.6 Successors and Assigns; Participations and Assignments.
10.7 Adjustments; Set-off.
10.8 Payments Set Aside
10.9 Interest Rate Limitation
10.10 Counterparts; Electronic Execution of Assignments.
10.11 Severability
10.12 Integration
10.13 GOVERNING LAW
10.14 Submission to Jurisdiction; Waivers
10.15 Acknowledgements
10.16 Releases of Guarantees and Liens.
10.17 Treatment of Certain Information; Confidentiality
10.18 Automatic Debits
10.19 Judgment Currency
10.20 Patriot Act; Other Regulations
10.21 Acknowledgement and Consent to Bail-In of EEA Financial Institutions
10.22 Acknowledgement Regarding Any Supported QFCs
-4-
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Table of Contents
(continued)
Schedules
Schedule 1.1A: Commitments
Schedule 1.1B: Existing Letters of Credit
Schedule 1.1C: Permitted Holders
Schedule 4.4: Governmental Approvals, Consents, Authorizations, Filings and Notices
Schedule 4.13: Pension Plans
Schedule 4.15: Subsidiaries
Schedule 4.17: Environmental Matters
Schedule 4.19(a): Financing Statements and Other Filings
Schedule 7.2(d): Existing Indebtedness
Schedule 7.3(f): Existing Liens
Schedule 7.8(e): Existing Investments
Exhibits
Exhibit A: Form of Guarantee and Collateral Agreement
Exhibit B: Form of Compliance Certificate
Exhibit C: Form of Secretary’s/Managing Member’s Certificate
Exhibit D: Form of Solvency Certificate
Exhibit E: Form of Assignment and Assumption
Exhibits F-1 – F-4: Forms of U.S. Tax Compliance Certificate
Exhibit G: [Reserved]
Exhibit H-1: Form of Revolving Loan Note
Exhibit H-2: Form of Swingline Loan Note
Exhibit I: [Reserved]
Exhibit J: Form of Collateral Information Certificate
Exhibit K: Form of Notice of Borrowing
Exhibit L: Form of Notice of Conversion/Continuation
-5-
CREDIT AGREEMENT
THIS Credit Agreement (this “ Agreement”), dated as of February 16, 2021, is entered into by and among FASTLY, INC., a
Delaware corporation (the “Borrower”), the several banks and other financial institutions or entities from time to time party to this
Agreement (each a “Lender” and, collectively, the “Lenders”), SILICON VALLEY BANK (“SVB”), as the Issuing Lender and the
Swingline Lender, and SVB, as administrative agent and collateral agent for the Lenders (in such capacities, together with any successors and
assigns in such capacities, the “Administrative Agent”).
recitals:
WHEREAS, the Borrower desires to obtain financing for working capital financing and letter of credit facilities;
Whereas, the Lenders have agreed to extend a revolving credit facility to the Borrower, upon the terms and conditions specified in
this Agreement, in an aggregate principal amount not to exceed $100,000,000, including a letter of credit sub-facility in the aggregate
availability amount of $10,000,000 (as a sublimit of the revolving loan facility), and a swingline sub-facility in the aggregate availability
amount of $20,000,000; (as a sublimit of the revolving loan facility);
WHEREAS, the Borrower has agreed to secure all of its Obligations by granting to the Administrative Agent, for the benefit of the
Secured Parties, a first priority lien on substantially all of its assets; and
WHEREAS, each of the Guarantors has agreed to guarantee the Obligations of the Borrower and to secure its respective Obligations
in respect of such guarantee by granting to the Administrative Agent, for the benefit of the Secured Parties, a first priority lien on
substantially all of its assets.
Now, Therefore, the parties hereto hereby agree as follows:
a.
Defined Terms
SECTION 1.
DEFINITIONS
. As used in this Agreement (including the recitals hereof), the terms listed in this Section 1.1 shall have the respective meanings set
forth in this Section 1.1.
“ABR”: for any day, a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective
Rate in effect for such day plus 0.50%, and (c) 3.25%. Any change in the ABR due to a change in any of the Prime Rate or the Federal Funds
Effective Rate, as the case may be, shall be effective as of the opening of business on the effective day of the change in such rates.
“ABR Loans”: Loans, the rate of interest applicable to which is based upon the ABR.
“Account Debtor”: any Person who may become obligated to any Person under, with respect to, or on account of, an Account, chattel
paper or general intangibles (including a payment intangible). Unless otherwise stated, the term “Account Debtor,” when used herein, shall
mean an Account Debtor in respect of an Account of a Group Member.
1
“Accounts”: all “accounts” (as defined in the UCC) of a Person, including, without limitation, accounts, accounts receivable, monies
due or to become due and obligations in any form (whether arising in connection with contracts, contract rights, instruments, general
intangibles, or chattel paper), in each case whether arising out of goods sold or services rendered or from any other transaction and whether or
not earned by performance, now or hereafter in existence, and all documents of title or other documents representing any of the foregoing,
and all collateral security and guaranties of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing.
Unless otherwise stated, the term “Account,” when used herein, shall mean an Account of a Group Member.
“Adjusted Quick Ratio”: as of any date of determination, (a) the sum of (i) Qualified Cash, plus (ii) net billed Accounts of the Loan
Parties; divided by (b) the result of (i) Current Liabilities minus (ii) to the extent included in Current Liabilities, the current portion of
Deferred Revenue.
“Administrative Agent”: SVB, as the administrative agent under this Agreement and the other Loan Documents, together with any of
its successors in such capacity.
“Administrative Borrower”: as defined in Section 2.25(m).
“Affected Financial Institution”: (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affected Lender”: as defined in Section 2.23.
“Affiliate”: with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified; provided that, neither the Administrative Agent nor the Lenders
shall be deemed Affiliates of the Loan Parties as a result of the exercise of their rights and remedies under the Loan Documents.
“Agent Parties”: as defined in Section 10.2(d)(ii).
“Aggregate Exposure”: with respect to any Lender at any time, an amount equal to the sum of (a) the amount of such Lender’s
Revolving Commitment then in effect or, if the Revolving Commitments have been terminated, the amount of such Lender’s Revolving
Extensions of Credit then outstanding, and (b) without duplication of clause (a), the L/C Commitment of such Lender then in effect (as a
sublimit of the Revolving Commitment of such Lender).
“Aggregate Exposure Percentage”: with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s
Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time.
“Agreement”: as defined in the preamble hereto.
“Agreement Currency”: as defined in Section 10.19.
“Alternative Currency”: each of the following currencies: Sterling, Euro or Australian Dollars, together with each other currency
(other than Dollars) that is approved in accordance with Section 1.5.
“Alternative Currency Equivalent”: at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof
in the applicable Alternative Currency as determined by the Administrative Agent or the Issuing Lender, as the case may be, at such time on
the basis of the Spot Rate
2
(determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with Dollars.
“Applicable Margin”: commencing on the first day of the second full quarter ending after the Closing Date, the rate per annum set
forth under the relevant column heading below based on the applicable Average Daily Usage for the prior quarter:
Level
Average Daily Usage
Applicable Margin for
Eurodollar Loans
Applicable Margin for
ABR Loans
I
II
< 50% of Total Revolving
Commitments
≥ 50% of Total Revolving
Commitments
1.75%
2.00%
0.75%
1.00%
Notwithstanding the foregoing, (a) until and including the last day of the first full quarter ending after the Closing Date, the
Applicable Margin shall be the rates corresponding to Level I in the foregoing table, and (b) no reduction to the Applicable Margin shall
become effective at any time when an Event of Default has occurred and is continuing.
“Applicable Time”: with respect to any Revolving Extensions of Credit and payments in any Alternative Currency, the local time in
the place of settlement for such Alternative Currency as may be determined by the Administrative Agent or the Issuing Lender, as the case
may be, to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.
“Application”: an application, in such form as the Issuing Lender may specify from time to time, requesting the Issuing Lender to
issue a Letter of Credit.
“Approved Fund”: 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.
“Assignment and Assumption”: an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent
of any party whose consent is required by Section 10.6), and accepted by the Administrative Agent, in substantially the form of Exhibit E or
any other form approved by the Administrative Agent.
“Available Revolving Commitment”: at any time, an amount equal to (a) the Total Revolving Commitments in effect at such time,
minus (b) the Dollar Equivalent of the aggregate undrawn amount of all outstanding Letters of Credit at such time, minus (c) the Dollar
Equivalent of the aggregate amount of all L/C Disbursements that have not yet been reimbursed or converted into Revolving Loans or
Swingline Loans at such time, minus (d) the aggregate principal balance of any Revolving Loans and Swingline Loans outstanding at such
time.
“Available Revolving Increase Amount”: as of any date of determination, an amount equal to the result of (a) $150,000,000 minus
(b) the aggregate principal amount of Increases to the Revolving Commitments previously made pursuant to Section 2.27 after the Closing
Date.
3
“Average Daily Usage”: the average of the result of the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit
at such time, (b) the aggregate amount of all Letter of Credit disbursements that have not yet been reimbursed or converted into Revolving
Loans or Swingline Loans at such time, and (c) the aggregate principal balance of any Loans (including Swingline Loans) outstanding at such
time for each day of the immediately preceding calendar quarter.
“Bail-In Action”: 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”: (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 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).
“Bankruptcy Code”: Title 11 of the United States Code entitled “Bankruptcy.”
“Benefitted Lender”: as defined in Section 10.7(a).
“Blocked Person”: as defined in Section 7.23.
“Board”: the Board of Governors of the Federal Reserve System of the United States (or any successor).
“Borrower”: as defined in the preamble hereto.
“Borrowing Date”: any Business Day specified by the Borrower in a Notice of Borrowing as a date on which the Borrower requests
the relevant Lenders to make Loans hereunder.
“Business”: as defined in Section 4.17(b).
“Business Day”: a day other than a Saturday, Sunday or other day on which commercial banks in the State of New York or the State
of California are authorized or required by law to close; provided that with respect to notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar deposits in the
interbank eurodollar market.
“Capital Lease Obligations”: as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the
amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP; provided
that, for all purposes hereunder, any obligations of such Person in respect of leases of real property that would have been treated as operating
leases in accordance with Accounting Standards Codification 840 (regardless of whether or not then in effect) shall be treated as operating
leases for purposes of all financial definitions, calculations and covenants, without giving effect
4
to Accounting Standards Codification 842 requiring operating leases to be recharacterized or treated as capital leases.
“Capital Stock”: with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such
Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other
ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other
ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or
such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests
therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date
of determination; provided that, Permitted Convertible Indebtedness shall not constitute Capital Stock; it being agreed that any common stock
or other equity securities into which Permitted Convertible Indebtedness is converted into or exchanged for shall constitute Capital Stock.
“Cash Collateralize”: to pledge and deposit with or deliver to (a) with respect to Obligations in respect of Letters of Credit, the
Administrative Agent, for the benefit of the Issuing Lender and one or more of the Lenders, as applicable, as collateral for L/C Exposure or
obligations of the Lenders to fund participations in respect thereof, cash or deposit account balances or, if the Administrative Agent and the
Issuing Lender shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance
satisfactory to the Administrative Agent and such Issuing Lender; (b) with respect to Obligations arising under any Cash Management
Agreement in connection with Cash Management Services, the applicable Cash Management Bank, for its own or any of its applicable
Affiliate’s benefit, as provider of such Cash Management Services, cash or deposit account balances or, if the Administrative Agent and the
applicable Cash Management Bank shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form
and substance satisfactory to the Administrative Agent and such Cash Management Bank; or (c) with respect to Obligations in respect of any
Specified Swap Agreements, the applicable Qualified Counterparty, as Collateral for such Obligations, cash or deposit account balances or, if
such Qualified Counterparty shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and
substance satisfactory to such Qualified Counterparty. “Cash Collateral” shall have a meaning correlative to the foregoing and shall include
the proceeds of such cash collateral and other credit support.
“Cash Equivalents”: (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or
issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date
of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of 12 months or
less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States or any state
thereof having combined capital and surplus of not less than $250,000,000; (c) commercial paper of an issuer rated at least A-1 by S&P or P-
1 by Moody’s, or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally, and maturing within 12 months from the date of acquisition; (d) repurchase
obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more
than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which
state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may
5
be) are rated at least A by S&P or A by Moody’s; (f) securities with maturities of 12 months or less from the date of acquisition backed by
standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; (g) money
market mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition; (h)
money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii)
are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000; (i) in the case of any Group Member
organized or having its principal place of business outside the United States, investments denominated in the currency of the jurisdiction in
which such Group member is organized or has its principal place of business which are similar and of comparable credit quality to the items
specified in clauses (b) through (i) above; or (j) investments permitted by the Borrower’s board-approved investment policy (x) as provided to
the Administrative Agent prior to the Closing Date and (y) as approved from time to time by the Administrative Agent thereafter (such
approval not to be unreasonably withheld, delayed or conditioned); provided that any changes to the Borrower’s board-approved investment
policy based on recommendations from the Administrative Agent or its Affiliates shall not be subject to such approval.
“Cash Management Agreement”: as defined in the definition of “Cash Management Services.”
“Cash Management Bank”: any Person that, at the time it enters into a Cash Management Agreement, is a Lender or an Affiliate of a
Lender, in its capacity as a party to such Cash Management Agreement.
“Cash Management Services”: cash management and other services provided to one or more of the Group Members by a Cash
Management Bank which may include treasury, depository, return items, overdraft, controlled disbursement, merchant store value cards,
epayables services, electronic funds transfer, interstate depository network, automatic clearing house transfer (including the Automated
Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system), merchant services, direct deposit
of payroll, business credit card (including so-called “purchase cards”, “procurement cards” or “pcards”), credit card processing services, debit
cards, stored value cards, and check cashing services identified in such Cash Management Bank’s various cash management services or other
similar agreements (each, a “Cash Management Agreement”).
“Casualty Event”: any damage to or any destruction of, or any condemnation or other taking by any Governmental Authority of any
property of the Loan Parties.
“Certificated Securities”: as defined in Section 4.19(a).
“Change of Control”: (a) at any time, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) (other than the Permitted Holders to the extent arising solely from the conversion of the Permitted Holders’ Capital Stock of the
Borrower held on the Closing Date to Series A Common Stock of the Borrower) shall become, or obtain rights (whether by means of
warrants, options or otherwise) to become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)5 under the Exchange Act), directly
or indirectly, of 40% or more of the ordinary voting power for the election of directors of the Borrower (determined on a fully diluted basis);
or (b) at any time, the Borrower shall cease to own and control, of record and beneficially, directly or indirectly, 100% of each class of
outstanding Capital Stock of each other Loan Party free and clear of all Liens other than Liens permitted by Section 7.3 (other than director’s
qualifying shares as required by law); or (c) a “change of control,” “fundamental change” or any comparable term or similar event under any
agreement governing Permitted Convertible Indebtedness or any other Indebtedness of the Group Members in an aggregate
6
principal amount in excess of the Threshold Amount, in each case that permits the holder of such Indebtedness to require repayment,
redemption, purchase, retirement, defeasance, sinking fund, settlement, conversion or similar payment with respect to all or part of the
principal amount thereof prior to the scheduled maturity thereof.
“Closing Date”: the date on which all of the conditions precedent set forth in Section 5.1 are satisfied or waived by the
Administrative Agent and, as applicable, the Lenders or the Required Lenders.
“Code”: the Internal Revenue Code of 1986, as amended from time to time.
“Collateral”: all property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any
Security Document. For the avoidance of doubt, no Excluded Asset shall constitute “Collateral.”
“Collateral Information Certificate”: the Collateral Information Certificate to be executed and delivered by the Borrower pursuant to
Section 5.1, substantially in the form of Exhibit J.
“Collateral-Related Expenses”: all reasonable costs and expenses of the Administrative Agent paid or incurred in connection with
any sale, collection or other realization on the Collateral, including reasonable compensation to the Administrative Agent and its agents and
counsel, and reimbursement for all other reasonable costs, expenses and liabilities and advances made or incurred by the Administrative
Agent in connection therewith (including as described in Section 6.6 of the Guarantee and Collateral Agreement), and all amounts for which
the Administrative Agent is entitled to indemnification under the Security Documents and all advances made by the Administrative Agent
under the Security Documents for the account of any Loan Party.
“Commitment”: as to any Lender, its Revolving Commitment.
“Commitment Fee Rate”: the rate per annum set forth under the relevant column heading below based on the applicable Average
Daily Usage for the prior calendar quarter:
Average Daily Usage
Commitment Fee Rate
Level
I
II
< 50% of Total Revolving
Commitments
≥ 50% of Total Revolving
Commitments
0.25%
0.20%
Notwithstanding the foregoing, until and including the last day of the first full calendar quarter ending after the Closing Date, the
Commitment Fee Rate shall be the rates corresponding to Level I in the foregoing table.
“Commodity Exchange Act”: the Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as amended from time to time, and any
successor statute.
“Communications”: as defined in Section 10.2(d)(ii).
7
“Compliance Certificate”: a certificate duly executed by a Responsible Officer of the Borrower substantially in the form of
Exhibit B.
“Connection Income Taxes”: Other Connection Taxes that are imposed on or measured by net income (however denominated) or
that are franchise Taxes or branch profits Taxes.
“Contractual Obligation”: as to any Person, any provision of any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any of its property is bound.
“Control”: 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.
“Control Agreement”: any account control agreement in form and substance reasonably satisfactory to the Administrative Agent
entered into among the depository institution at which a Loan Party maintains a Deposit Account or the securities intermediary at which a
Loan Party maintains a Securities Account, such Loan Party, and the Administrative Agent pursuant to which the Administrative Agent
obtains control (within the meaning of the UCC or any other applicable law) over such Deposit Account or Securities Account.
“Control Investment Affiliate”: as to any Person, any other Person that (a) directly or indirectly, is in Control of, is Controlled by, or
is under common Control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt
investments in one or more companies.
“Covenant Testing Period”: each period (a) commencing on and including the last day of any fiscal quarter of the Borrower for
which the Borrower’s Adjusted Quick Ratio as of such day is less than 1.75:1.00, and (b) continuing until the Borrower’s Adjusted Quick
Ratio as of the last day of a fiscal quarter of the Borrower is at least 1.75:1.00 for two consecutive fiscal quarters.
“Current Liabilities”: the sum of (without duplication) (a) the Obligations (including, without limitation, any outstanding drawn or
undrawn Letters of Credit), plus (b) the aggregate amount of the Group Members’ Total Liabilities (excluding operating leases, leases of real
property) that mature within one year from the applicable date of determination.
“Debtor Relief Laws”: 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.
“Default”: any of the events specified in Section 8.1, whether or not any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
“Default Rate”: as defined in Section 2.15(c).
“Defaulting Lender”: subject to Section 2.24(b), any Lender that (a) has failed to (i) fund all or any portion of its Loans within 2
Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the
Borrower in writing that such failure is the result of such Lender’s reasonable determination that one or more conditions precedent to funding
(each of which conditions precedent, together with any applicable default, shall be specifically
8
identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, the Issuing Lender, the Swingline Lender or any
other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline
Loans) within 2 Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent, the Issuing Lender or the
Swingline Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that
effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is
based on such Lender’s reasonable determination that a condition precedent to funding (which condition precedent, together with any
applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within 3 Business
Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower
that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender
pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), 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) become the subject of a Bail-In
Action or (iii) 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; 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. Any determination by the Administrative Agent
that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest
error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.24(b)) upon delivery of written notice of such
determination to the Borrower, the Issuing Lender, the Swingline Lender and each Lender.
“Deferred Revenue”: all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.
“Deposit Account”: any “deposit account” as defined in the UCC with such additions to such term as may hereafter be made.
“Deposit Account Control Agreement”: any Control Agreement entered into by the Administrative Agent, a Loan Party and a
financial institution holding a Deposit Account of such Loan Party pursuant to which the Administrative Agent is granted “control” (for
purposes of the UCC) over such Deposit Account.
“Designated Jurisdiction”: any country or territory to the extent that such country or territory itself is the subject of any Sanction.
“Determination Date”: as defined in the definition of “Pro Forma Basis”.
“Discharge of Obligations”: subject to Section 10.8, the satisfaction of the Obligations (including all such Obligations relating to
Cash Management Services) by the payment in full, in cash (or, as applicable, Cash Collateralization in accordance with the terms hereof) of
the principal of and interest on or other liabilities relating to each Loan and any previously provided Cash Management Services, all
9
fees and all other expenses or amounts payable under any Loan Document (other than inchoate indemnification obligations and any other
obligations which pursuant to the terms of any Loan Document specifically survive repayment of the Loans for which no claim has been
made), and other Obligations under or in respect of Specified Swap Agreements and Cash Management Services, to the extent (a) no default
or termination event shall have occurred and be continuing thereunder, (b) any such Obligations in respect of Specified Swap Agreements
have, if required by any applicable Qualified Counterparties, been Cash Collateralized, (c) no Letter of Credit shall be outstanding (or, as
applicable, each outstanding and undrawn Letter of Credit has been Cash Collateralized in accordance with the terms hereof), (d) no
Obligations in respect of any Cash Management Services are outstanding (or, as applicable, all such outstanding Obligations in respect of
Cash Management Services have been Cash Collateralized in accordance with the terms hereof), and (e) the aggregate Commitments of the
Lenders are terminated.
“Disclosure Letter”: the disclosure letter, dated as of the date hereof, delivered by each Loan Party to Administrative Agent for the
benefit of the Lenders.
“Disposition”: with respect to any property (including, without limitation, Capital Stock of any Subsidiary), any sale, lease, Sale
Leaseback Transaction, assignment, conveyance, transfer, encumbrance or other disposition thereof (in one transaction or in a series of
transactions and whether effected pursuant to a Division or otherwise) and any issuance of Capital Stock of any Subsidiary. The terms
“Dispose” and “Disposed of” shall have correlative meanings. For the avoidance of doubt, none of (a) the sale of any Permitted Convertible
Indebtedness by the Borrower, (b) the entry into any Permitted Equity Derivative Transaction by the Borrower in connection with the
issuance of any Permitted Convertible Indebtedness, (c) the settlement, unwinding or termination of any Permitted Equity Derivative
Transaction, or (d) the issuance of Capital Stock that is not Disqualified Stock pursuant to the conversion or exchange of Permitted
Convertible Indebtedness or the settlement, unwinding or termination of any Permitted Equity Derivative Transaction shall constitute a
Disposition.
“Disqualified Stock”: any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it
is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event (other than a change of control or
similar event), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Loans mature. The amount of
Disqualified Stock deemed to be outstanding at any time for purposes of this Agreement will be the maximum amount that the Group
Members may become obligated to pay upon maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock or
portion thereof, plus accrued dividends. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to be paid upon liquidation, dissolution, winding up or pursuant to such other
applicable statutory or regulatory obligations of the issuer of such Capital Stock will not constitute Disqualified Stock if the terms of such
Capital Stock provide that such payments may not be made with respect to such Capital Stock unless such payments are made after the
Discharge of Obligations.
“Division”: in reference to any Person which is an entity, the division of such Person into 2 or more separate Persons, with the
dividing Person either continuing or terminating its existence as part of such division, including as contemplated under Section 18-217 of the
Delaware Limited Liability Company Act, or any analogous action taken pursuant to any other applicable Requirements of Law.
“Dollars” and “$”: dollars in lawful currency of the United States.
10
“Dollar Equivalent”: at any time, (a) with respect to any amount denominated in Dollars, such amount, (b) with respect to any
amount denominated in any currency other than Dollars, the equivalent amount thereof in Dollars as determined by the Administrative Agent
at such time on the basis of the Spot Rate for the purchase of Dollars with such currency.
“Domestic Subsidiary”: any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States.
“EEA Financial Institution”: (a) any credit institution or investment firm established in any EEA Member Country which is subject
to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution
described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a Subsidiary of an
institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country”: any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority”: 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.
“Eligible Assignee”: any Person that meets the requirements to be an assignee under Section 10.6(b)(iii), (v) and (vi) (subject to such
consents, if any, as may be required under Section 10.6(b)(iii)); provided, that so long as no Event of Default has occurred and is continuing,
no Excluded Lender shall be an Eligible Assignee without the prior consent of the Borrower.
“Environmental Laws”: any and all foreign, federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be
in effect.
“Environmental Liability”: any liability, contingent or otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of any Group Member directly or indirectly resulting from or based upon (a) a violation of an
Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Materials of Environmental
Concern, (c) exposure to any Materials of Environmental Concern, (d) the release or threatened release of any Materials of Environmental
Concern 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.
“ERISA”: the Employee Retirement Income Security Act of 1974, as amended, including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
“ERISA Affiliate”: each business or entity which is, or within the last six years was, a member of a “controlled group of
corporations,” under “common control” or an “affiliated service group” with any Loan Party within the meaning of Section 414(b), (c), (m) or
(n) of the Code, required to be aggregated with any Loan Party under Section 414(o) of the Code, or is, or within the last six years was, under
“common control” with any Loan Party, within the meaning of Section 4001(a)(14) of ERISA.
11
“ERISA Event”: any of (a) a reportable event as defined in Section 4043 of ERISA with respect to a Pension Plan, excluding,
however, such events as to which the PBGC by regulation has waived the requirement of Section 4043(a) of ERISA that it be notified within
30 days of the occurrence of such event; (b) the applicability of the requirements of Section 4043(b) of ERISA with respect to a contributing
sponsor, as defined in Section 4001(a)(13) of ERISA, to any Pension Plan where an event described in paragraph (9), (10), (11), (12) or (13)
of Section 4043(c) of ERISA is reasonably expected to occur with respect to such plan within the following 30 days; (c) a withdrawal by any
Loan Party or any ERISA Affiliate thereof from a Pension Plan or the termination of any Pension Plan resulting in liability to a Loan Party
under Sections 4063 or 4064 of ERISA; (d) the withdrawal of any Loan Party or any ERISA Affiliate thereof in a complete or partial
withdrawal (within the meaning of Section 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability to a
Loan Party therefor, or the receipt by any Loan Party or any ERISA Affiliate thereof of notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA; (e) the filing of a notice of intent to terminate, the treatment of a
Pension Plan or Multiemployer Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (f) the imposition of liability on any Loan Party or any ERISA
Affiliate thereof pursuant to Sections 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (g) the failure
by any Loan Party or any ERISA Affiliate thereof to make any required contribution to a Pension Plan, or the failure to meet the minimum
funding standard of Section 412 of the Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(c) of
the Code) or the failure to make by its due date a required installment under Section 430 of the Code with respect to any Pension Plan or the
failure to make any required contribution to a Multiemployer Plan; (h) the determination that any Pension Plan is considered an at-risk plan or
a plan in endangered to critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA;
(i) an event or condition which would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (j) the imposition of any liability under Title I or Title IV
of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any ERISA Affiliate
thereof; (k) an application for a funding waiver under Section 303 of ERISA or an extension of any amortization period pursuant to
Section 412 of the Code with respect to any Pension Plan; (l) the occurrence of a nonexempt prohibited transaction under Sections 406 or 407
of ERISA for which any Group Member may be directly or indirectly liable; (m) a violation of the applicable requirements of Section 404 or
405 of ERISA or the exclusive benefit rule under Section 401(a) of the Code by any fiduciary or disqualified person for which any Loan
Party or any ERISA Affiliate thereof may be directly or indirectly liable; (n) the occurrence of an act or omission which could give rise to the
imposition on any Loan Party or any ERISA Affiliate thereof of fines, penalties, taxes or related charges under Chapter 43 of the Code or
under Sections 409, 502(c), (i) or (1) or 4071 of ERISA; (o) the assertion of a material claim (other than routine claims for benefits) against
any Plan or the assets thereof, or against any Group Member in connection with any such Plan; (p) receipt from the IRS of notice of the
failure of any Qualified Plan to qualify under Section 401(a) of the Code, or the failure of any trust forming part of any Qualified Plan to
qualify for exemption from taxation under Section 501(a) of the Code; (q) the imposition of any lien (or the fulfillment of the conditions for
the imposition of any lien) on any of the rights, properties or assets of any Loan Party or any ERISA Affiliate thereof, in either case pursuant
to Title I or IV of ERISA, including Section 302(f) or 303(k) of ERISA or to Section 401(a)(29) or 430(k) of the Code; or (r) the
establishment or amendment by any Group Member of any “welfare plan” as such term is defined in Section 3(1) of ERISA, that provides
post-employment welfare benefits in a manner that would increase the liability of any Loan Party.
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“ERISA Funding Rules”: the rules regarding minimum required contributions (including any installment payment thereof) to
Pension Plans, as set forth in Section 412 of the Code and Section 302 of ERISA, with respect to Plan years ending prior to the effective date
of the Pension Protection Act of 2006, and thereafter, as set forth in Sections 412, 430, 431, 432 and 436 of the Code and Sections 302, 303,
304 and 305 of ERISA.
“EU Bail-In Legislation Schedule”: the EU Bail-In Legislation Schedule published by the Loan Market Association (or any
successor Person), as in effect from time to time.
“Eurocurrency Reserve Requirements”: for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the
maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and
emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing
with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the
Board) maintained by a member bank of the Federal Reserve System.
“Eurodollar Base Rate”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum
determined by the Administrative Agent by reference to the ICE Benchmark Administration London Interbank Offered Rate (“LIBOR”) (or
any successor thereto if the ICE Benchmark Administration is no longer making LIBOR available) for deposits (for delivery on the first day
of such Interest Period) with a term equivalent to such Interest Period in Dollars, determined as of approximately 11:00 A.M. (London,
England time) 2 Business Days prior to the beginning of such Interest Period (as set forth by Bloomberg Information Service or any
successor thereto or any other commercially available service selected by the Administrative Agent which provides quotations of LIBOR);
provided that the Eurodollar Base Rate shall not be less than 0.00%. In the event that the Administrative Agent determines that LIBOR is not
available, the “Eurodollar Base Rate” shall be determined by reference to the rate per annum equal to the offered quotation rate to first class
banks in the London interbank market by SVB for deposits (for delivery on the first day of the relevant Interest Period) in Dollars of amounts
in Same Day Funds comparable to the principal amount of the applicable Loan of the Administrative Agent, in its capacity as a Lender, for
which the Eurodollar Base Rate is then being determined with maturities comparable to such period as of approximately 11:00 A.M.
(London, England time) 2 Business Days prior to the beginning of such Interest Period; provided that, in all events, such Eurodollar Base
Rate shall not be less than 0.00%.
“Eurodollar Loans”: Loans the rate of interest applicable to which is based upon the Eurodollar Base Rate.
“Eurodollar Rate”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined
for such day in accordance with the following formula:
Eurodollar Base Rate
1.00 - Eurocurrency Reserve Requirements
The Eurodollar Rate shall be adjusted automatically as of the effective date of any change in the Eurocurrency Reserve Requirements;
provided that the Eurodollar Rate shall not be less than 0.00%.
“Eurodollar Tranche”: the collective reference to Eurodollar Loans under a particular Facility (other than the L/C Facility), the then
current Interest Periods with respect to all of which begin on the
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same date and end on the same later date (whether or not such Loans shall originally have been made on the same day).
“Event of Default”: any of the events specified in Section 8.1; provided that any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.
“Exchange Act”: the Securities Exchange Act of 1934, as amended from time to time and any successor statute.
“Excluded Assets”: as defined in the Guarantee and Collateral Agreement.
“Excluded Lender”: any Person (a) that has been specifically identified by name in writing (which shall set forth in reasonable detail
the basis of each applicable designation) by the Borrower to the Administrative Agent as constituting an “Excluded Lender” on or prior to the
Closing Date or (b) that is a direct competitor of the Borrower or a vulture/distressed fund that has been specifically identified by name in
writing (which shall set forth in reasonable detail the basis of each applicable designation) by the Borrower to the Administrative Agent as
constituting an “Excluded Lender” (A) on or prior to the Closing Date or (B) periodically during the term of this Agreement; provided, in
every case, such Persons shall no longer be designated as an Excluded Lender if any Event of Default has occurred and is continuing. The
designation of any Person as an Excluded Lender after the Closing Date shall not become effective until three Business Days after approval
by the Administrative Agent. For the avoidance of doubt, with respect to any assignee or Participant that becomes an Excluded Lender after
the applicable Trade Date, (a) such assignee or Participant shall not retroactively be disqualified from becoming a Lender or Participant and
(b) such assignment or participation and, in the case of an assignment, the execution by Borrower of an Assignment and Assumption with
respect to such assignee, will not by itself result in such assignee no longer being considered an Excluded Lender. The Administrative Agent
(a) shall have the right (but not the obligation), and the Borrower hereby expressly authorizes the Administrative Agent, to post the list of
Excluded Lenders and any updates thereto from time to time on the Platform, and (B) shall provide the list of Excluded Lenders and any
updates thereto to each Lender or Participant requesting the same. 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 Excluded Lenders. Without
limiting the generality of the foregoing, the Administrative Agent shall not (x) be obligated to ascertain, monitor or inquire as to whether any
Lender or Participant or prospective Lender or Participant is an Excluded Lender or (y) have any liability with respect to or arising out of any
assignment or participation of Loans or Commitments, or disclosure of confidential information, to, or restrictions on the exercise of rights or
remedies of, Excluded Lenders or otherwise have any responsibility or liability for enforcing the Borrower’s or any Lender’s compliance with
the terms of any of the provisions set forth herein with respect to Excluded Lenders.
“Excluded Subsidiary”: any Subsidiary that is (a) not a direct Domestic Subsidiary of a Loan Party, (b) a Foreign Subsidiary Holding
Company or (c) an Immaterial Subsidiary.
“Excluded Swap Obligations”: with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the
Guarantee Obligation of such Guarantor with respect to, or the grant by such Guarantor of a Lien to secure, such Swap Obligation (or any
guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures
Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to
constitute an “eligible contract participant” as defined in the Commodity Exchange Act at the time such Guarantee Obligation of such
Guarantor, or the grant by such Guarantor of
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such Lien, becomes effective with respect to such Swap Obligation. If such a Swap Obligation arises under a master agreement governing
more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such
Guarantee Obligation or Lien is or becomes excluded in accordance with the first sentence of this definition.
“Excluded Taxes”: any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from
a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits
Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case
of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are
Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of
such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender
acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.23) or
(ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.20, amounts with respect to such
Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately
before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.20(f) and (d) any withholding
Taxes imposed under FATCA.
“Existing Letters of Credit”: the letters of credit described on Schedule 1.1B of the Disclosure Letter.
“Facility”: each of (a) the L/C Facility (which is a sub-facility of the Revolving Facility), (b) the Revolving Facility and (c) the
Swingline Facility (which is a sub-facility of the Revolving Facility).
“FASB ASC”: the Accounting Standards certification of the Financial Accounting Standards Board.
“FATCA”: Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is
substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations
thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices
adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such
Sections of the Code.
“Federal Funds Effective Rate”: for any day, the greater of (a) 0.00% and (b) the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System, as published on the next succeeding Business Day by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such
transactions received by SVB from three federal funds brokers of recognized standing selected by it.
“Fee Letter”: the letter agreement dated as of the date hereof, between the Borrower and the Administrative Agent.
“Flood Laws”: the National Flood Insurance Reform Act of 1994 and related legislation (including the regulations of the Board of
Governors of the Federal Reserve System).
“Flow of Funds Agreement”: the spreadsheet or other similar statement prepared by the Administrative Agent regarding the
disbursement of Loan proceeds (if any) on the Closing Date, the
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funding and the payment of the Administrative Agent’s reasonable and documented expenses and the reasonable and documented expenses of
the Administrative Agent’s counsel, and such other matters as may be agreed to by the Borrower and the Administrative Agent.
“Foreclosed Borrowers”: as defined in Section 2.25.
“Foreign Lender”: (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S.
Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax
purposes.
“Foreign Subsidiary”: any Subsidiary of the Borrower that is not a Domestic Subsidiary.
“Foreign Subsidiary Holding Company”: any direct or indirect Domestic Subsidiary of the Borrower, substantially all of the assets
of which consist of the Capital Stock (or Capital Stock and debt) of one or more controlled foreign corporations (within the meaning of
Section 957 of the Code) or one or more other Foreign Subsidiary Holding Companies.
“Fronting Exposure”: at any time there is a Defaulting Lender, as applicable, (a) with respect to the Issuing Lender, such Defaulting
Lender’s L/C Percentage of the outstanding L/C Exposure other than L/C 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, and (b) with respect to the
Swingline Lender, such Defaulting Lender’s Revolving Percentage of outstanding Swingline Loans made by the Swingline Lender other than
Swingline Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders.
“Fund”: any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in
commercial loans, bonds and similar extensions of credit in the ordinary course of its activities.
“Funding Office”: the Revolving Loan Funding Office.
“GAAP”: generally accepted accounting principles in the United States as in effect from time to time, except that for purposes of
Section 7.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the
preparation of the most recent audited financial statements referred to in Section 4.1(b). In the event that any “Accounting Change” (as
defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this
Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations to amend such provisions of this Agreement so
as to reflect equitably such Accounting Changes with the desired result that the criteria for evaluating the Borrower’s financial condition shall
be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall
have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards
and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. “Accounting
Changes” refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the
Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC, or the adoption of
IFRS.
“Global Intercompany Note”: a global intercompany note evidencing all Indebtedness of the Group Members to any Loan Party, to
be executed and delivered by each of the Group Members and pledged to the Administrative Agent as Collateral.
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“Governmental Approval”: any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation,
registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.
“Governmental Authority”: the government of the United States of America or any other nation, or of any political subdivision
thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-
national bodies such as the European Union or the European Central Bank), and any group or body charged with setting accounting or
regulatory capital rules or standards (including the Financial Standards Board, the Bank for International Settlements, the Basel Committee
on Banking Supervision and any successor or similar authority to any of the foregoing).
“Group Members”: the collective reference to the Borrower and its Subsidiaries.
“Guarantee and Collateral Agreement”: the Guarantee and Collateral Agreement to be executed and delivered by the Loan Parties,
substantially in the form of Exhibit A.
any obligation,
“Guarantee Obligation”: as to any Person (the “guaranteeing person”),
including a reimbursement,
counterindemnity or similar obligation, of the guaranteeing person that guarantees or in effect guarantees, or which is given to induce the
creation of a separate obligation by another Person (including any bank under any letter of credit) that guarantees or in effect guarantees, any
Indebtedness, leases, dividends or other obligations (the “primary obligations”) of any other third Person (the “primary obligor”) in any
manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or
payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain
the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to
assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided that the term Guarantee Obligation
shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
“Guarantors”: a collective reference to each Subsidiary of the Borrower which has become a Guarantor pursuant to the requirements
of Section 6.12 hereof and the Guarantee and Collateral Agreement. Notwithstanding the foregoing or any contrary provision herein or in any
other Loan Document, no Excluded Subsidiary shall be required to be a Guarantor.
“IBA”: as defined in Section 1.7.
“IFRS”: international accounting standards within the meaning of IAS Regulation 1606/2002 to the extent applicable to the relevant
financial statements delivered under or referred to herein.
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“Immaterial Subsidiary”: as of the last day of each fiscal quarter and at any other date of determination, any Subsidiary of any Loan
Party (other than a Borrower or a Guarantor) designated as such by the Borrower in writing and which as of such date (a) holds assets
representing 5% or less (or, in the case of Signal Sciences, LLC from the Closing Date through, and including, September 30, 2021, 7.5% or
less) of the Borrower’s consolidated total assets as of such date (determined in accordance with GAAP), (b) has generated 5% or less of the
Borrower’s consolidated total revenues determined in accordance with GAAP for the four fiscal quarter period ending on the last day of the
most recent period for which financial statements have been delivered after the Closing Date pursuant to Section 6.1(b); provided that all
Subsidiaries that are individually “Immaterial Subsidiaries” shall not have (i) aggregate consolidated total assets that would represent 10%
or more of the Borrower’s consolidated total assets as of such date, or (ii) generated 10% or more of the Borrower’s consolidated total
revenues for such four fiscal quarter period, in each case of clauses (i) and (ii) determined in accordance with GAAP, (c) owns no Capital
Stock of any Subsidiary that is not an Immaterial Subsidiary, and (d) other than in the case of Signal Sciences, LLC from the Closing Date
through, and including, September 30, 2021, owns no material Intellectual Property.
“Increase”: as defined in Section 2.27.
“Increase Joinder”: an instrument, in form and substance reasonably satisfactory to the Administrative Agent, by which a Lender
becomes a party to this Agreement pursuant to Section 2.27.
“Incurred”: as defined in the definition of “Pro Forma Basis”.
“Indebtedness”: of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or services (other than (i) current trade payables incurred in the
ordinary course of such Person’s business, (ii) any earn-out obligation unless either such obligation is not paid after becoming due and
payable or such obligation is required to be reflected on the Borrower’s balance sheet in accordance with GAAP and (iii) accruals for payroll
and other liabilities, including deferred compensation arrangements, in each case, accrued in the ordinary course of business), (c) all
obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under
any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease
Obligations and all Synthetic Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account
party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements, (g) all obligations of such Person
to purchase, redeem, retire, defease or otherwise make any payment in respect of Disqualified Stock, (h) all Guarantee Obligations of such
Person in respect of obligations of the kind referred to in clauses (a) through (g) above, (i) all obligations of the kind referred to in clauses (a)
through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any
Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable
for the payment of such obligation, and (j) the net obligations of such Person in respect of Swap Agreements. The Indebtedness of any Person
shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such
Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms
of such Indebtedness expressly provide that such Person is not liable therefor.
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“Indemnified Taxes”: (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of
any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
“Indemnitee”: as defined in Section 10.5(b).
“Insolvency Proceeding”: (a) any case, action or proceeding before any court or other Governmental Authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment
for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of any Person’s creditors
generally or any substantial portion of such Person’s creditors, in each case undertaken under U.S. federal, state or foreign law, including any
Debtor Relief Law.
“Intellectual Property”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks,
trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.
“Intellectual Property Security Agreement”: an intellectual property security agreement entered into between a Loan Party and the
Administrative Agent pursuant to the terms of the Guarantee and Collateral Agreement in form and substance satisfactory to the
Administrative Agent, together with each other intellectual property security agreement and supplement thereto delivered pursuant to
Section 6.12, in each case as amended, restated, supplemented or otherwise modified from time to time.
“Interest Payment Date”: (a) as to any ABR Loan (including any Swingline Loan), the last calendar day of each month to occur
while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of 3 months
or less, the last Business Day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than 3 months, each day
that is 3 months (or, if such date is not a Business Day, the Business Day next succeeding such date) after the first day of such Interest Period
and the last Business Day of such Interest Period, and (d) as to any Loan (other than any Revolving Loan that is an ABR Loan and any
Swingline Loan), the date of any repayment or prepayment made in respect thereof.
“Interest Period”: as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case
may be, with respect to such Eurodollar Loan and ending 1, 3, 6 or, subject to the agreement of each Lender, 12 months thereafter, as selected
by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, given with respect thereto; and (b)
thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending 1, 3,
6 or, subject to the agreement of each Lender, 12 months thereafter, as selected by the Borrower by irrevocable notice to the Administrative
Agent in a Notice of Conversion/Continuation not later than 10:00 A.M. on the date that is 3 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:
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;
(1)
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Revolving Termination Date;
(2)
the Borrower may not select an Interest Period under a particular Facility that would extend beyond the
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
(3)
Loan during an Interest Period for such Loan.
(4)
the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar
“Interest Rate Agreement”: any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate
hedging agreement or other similar agreement or arrangement, each of which is (a) for the purpose of hedging the interest rate exposure
associated with the Group Members’ operations and (b) not for speculative purposes.
“Inventory”: all “inventory,” as such term is defined in the UCC, now owned or hereafter acquired by any Loan Party, wherever
located, and in any event including inventory, merchandise, goods and other personal property that are held by or on behalf of any Loan Party
for sale or lease or are furnished or are to be furnished under a contract of service or that constitutes raw materials, work in process, finished
goods, returned goods, or materials or supplies of any kind used or consumed or to be used or consumed in such Loan Party’s business or in
the processing, production, packaging, promotion, delivery or shipping of the same, including all supplies and embedded software.
“Investments”: as defined in Section 7.8.
“IRS”: the Internal Revenue Service, or any successor thereto.
“ISP”: with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International
Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).
“Issuing Lender”: as the context may require, (a) SVB or any Affiliate thereof, in its capacity as issuer of any Letter of Credit
(including, without limitation, each Existing Letter of Credit), and (b) any other Lender or an Affiliate thereof that may become an Issuing
Lender pursuant to Section 3.11 or 3.12, with respect to Letters of Credit issued by such Lender or its Affiliate. The Issuing Lender may, in
its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Lender or other financial institutions, in which
case the term “Issuing Lender” shall include any such Affiliate or other financial institution with respect to Letters of Credit issued by such
Affiliate or other financial institution.
“Issuing Lender Fees”: as defined in Section 3.3(a).
“Judgment Currency”: as defined in Section 10.19.
“L/C Advance”: each L/C Lender’s funding of its participation in any L/C Disbursement in accordance with its L/C Percentage of the
L/C Commitment. All L/C Advances shall be denominated in Dollars.
“L/C Commitment”: as to any L/C Lender, the obligation of such L/C Lender, if any, to purchase an undivided interest in the Issuing
Lenders’ obligations and rights under and in respect of each Letter of
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Credit (including to make payments with respect to draws made under any Letter of Credit pursuant to Section 3.5(b)) in an aggregate
principal amount not to exceed the amount set forth under the heading “L/C Commitment” opposite such L/C Lender’s name on Schedule
1.1A or in the Assignment and Assumption or Increase Joinder pursuant to which such L/C Lender becomes a party hereto, as the same may
be changed from time to time pursuant to the terms hereof. The L/C Commitment is a sublimit of the Revolving Commitment and the
aggregate amount of the L/C Commitments shall not exceed the amount of the Total L/C Commitments at any time.
“L/C Disbursements”: a payment or disbursement made by the Issuing Lender pursuant to a Letter of Credit.
“L/C Exposure”: at any time, the sum of (a) the Dollar Equivalent of the aggregate undrawn amount of all outstanding Letters of
Credit at such time, and (b) the aggregate amount of all L/C Disbursements that have not yet been reimbursed or converted into Revolving
Loans or Swingline Loans at such time. The L/C Exposure of any L/C Lender at any time shall equal its L/C Percentage of the aggregate L/C
Exposure at such time.
“L/C Facility”: the L/C Commitments and the extensions of credit made thereunder.
“L/C Fee Payment Date”: as defined in Section 3.3(a).
“L/C Lender”: a Lender with an L/C Commitment.
“L/C Percentage”: as to any L/C Lender at any time, the percentage of the Total L/C Commitments represented by such L/C
Lender’s L/C Commitment, as such percentage may be adjusted as provided in Section 2.24.
“L/C-Related Documents”: collectively, each Letter of Credit (including any Existing Letter of Credit), all applications for any Letter
of Credit (and applications for the amendment of any Letter of Credit) submitted by the Borrower to the Issuing Lender and any other
document, agreement and instrument relating to any Letter of Credit, including any of the Issuing Lender’s standard form documents for
letter of credit issuances.
“LCA Election”: as defined in Section 1.6.
“LCA Test Date”: as defined in Section 1.6.
“Lenders”: as defined in the preamble hereto; provided that unless the context otherwise requires, each reference herein to the
Lenders shall be deemed to include the Issuing Lender, the L/C Lenders, and the Swingline Lender.
“Letter of Credit”: as defined in Section 3.1(a); provided that such term shall include each Existing Letter of Credit.
“Letter of Credit Availability Period”: the period from and including the Closing Date to but excluding the Letter of Credit Maturity
Date.
“Letter of Credit Fees”: as defined in Section 3.3(a).
“Letter of Credit Fronting Fees”: as defined in Section 3.3(a).
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“Letter of Credit Maturity Date”: the date occurring 15 days prior to the Revolving Termination Date then in effect (or, if such day is
not a Business Day, the next preceding Business Day).
“LIBOR”: as defined in the definition of “Eurodollar Base Rate.”
“Lien”: any mortgage, deed of trust, pledge, hypothecation, collateral assignment, deposit arrangement, encumbrance, lien (statutory
or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having substantially the same
economic effect as any of the foregoing).
“Limited Condition Acquisition”: any Permitted Acquisition, the consummation of which is not conditioned on the availability of, or
on obtaining, third party financing and is being financed with an Increase; provided, that, in the event the consummation of any such
Permitted Acquisition shall not have occurred on or prior to the date that is 120 days following the signing of the applicable Limited
Condition Acquisition Agreement, such Permitted Acquisition shall no longer constitute a Limited Condition Acquisition for any purpose.
“Limited Condition Acquisition Agreement”: any agreement providing for a Limited Condition Acquisition.
“Loan”: any loan made or maintained by any Lender pursuant to this Agreement.
“Loan Documents”: this Agreement, each Security Document, each Note, the Fee Letter, each Assignment and Assumption, each
Compliance Certificate, each Increase Joinder, each Notice of Borrowing, each Notice of Conversion/Continuation, the Solvency Certificate,
the Collateral Information Certificate, each L/C-Related Document, each subordination or intercreditor agreement and any agreement
creating or perfecting rights in cash collateral pursuant to the provisions of Section 3.10, or otherwise, and any amendment, waiver,
supplement or other modification to any of the foregoing.
“Loan Parties”: each Group Member that is a party to a Loan Document, as a Borrower or a Guarantor.
“Material Adverse Effect”: (a) a material adverse change in, or a material adverse effect on, the operations, business, assets,
properties, liabilities (actual or contingent), or financial condition of the Group Members, taken as a whole; (b) a material impairment of the
rights and remedies, taken as a whole, of the Administrative Agent or any Lender under any Loan Document, or of the ability of the Loan
Parties, taken as a whole, to perform their obligations under the Loan Documents; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.
“Materials of Environmental Concern”: any substance, material or waste that is defined, regulated, governed or otherwise
characterized under any Environmental Law as hazardous or toxic or as a pollutant or contaminant (or by words of similar meaning and
regulatory effect), any petroleum or petroleum products, asbestos, polychlorinated biphenyls, urea-formaldehyde insulation, molds or fungus,
and radioactivity, radiofrequency radiation at levels known to be hazardous to human health and safety.
“Minority Lender”: as defined in Section 10.1(b).
“Moody’s”: Moody’s Investors Service, Inc.
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“Mortgaged Properties”: the real properties as to which, pursuant to Section 6.12(b) or otherwise, the Administrative Agent, for the
benefit of the Secured Parties, shall be granted a Lien pursuant to the Mortgages.
“Mortgages”: each of the mortgages, deeds of trust, deeds to secure debt or such equivalent documents hereafter entered into and
executed and delivered by one or more of the Loan Parties to the Administrative Agent, in each case, as such documents may be amended,
amended and restated, supplemented or otherwise modified, renewed or replaced from time to time and in form and substance reasonably
acceptable to the Administrative Agent.
“Multiemployer Plan”: a “multiemployer plan” (within the meaning of Section 3(37) of ERISA) to which any Loan Party or any
ERISA Affiliate thereof makes, is making, or is obligated to make contributions or has any liability.
“Non-Consenting Lender”: any Lender that does not approve any consent, waiver or amendment that (a) requires the approval of all
Affected Lenders in accordance with the terms of Section 10.1 and (b) has been approved by the Required Lenders.
“Non-Defaulting Lender”: at any time, each Lender that is not a Defaulting Lender at such time.
“Note”: a Revolving Loan Note or a Swingline Loan Note.
“Notice of Borrowing”: a notice substantially in the form of Exhibit K.
“Notice of Conversion/Continuation”: a notice substantially in the form of Exhibit L.
“Obligations”: the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and interest accruing
after the filing of any petition in bankruptcy, or the commencement of any Insolvency Proceeding relating to any Loan Party, whether or not a
claim for post-filing or post-petition interest is allowed or allowable in such proceeding) the Loans and all other obligations and liabilities
(including any fees or expenses that accrue after the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Loan Party, whether or not a claim for post-filing or post-petition interest is allowed or
allowable in such proceeding) of the Loan Parties (and the other Group Members in the cash of obligations in respect of Cash Management
Services) to the Administrative Agent, the Issuing Lender, any other Lender, any applicable Cash Management Bank, and any Qualified
Counterparty, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Cash Management Agreement, any
Specified Swap Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of
principal, interest, reimbursement obligations, payment obligations, fees, indemnities, costs, expenses (including all reasonable and
documented out-of-pocket fees, charges and disbursements of counsel to the Administrative Agent, the Issuing Lender, any other Lender, any
applicable Cash Management Bank, to the extent that any applicable Cash Management Agreement requires the reimbursement by any
applicable Group Member of any such expenses, and any Qualified Counterparty) that are required to be paid by any Group Member pursuant
any Loan Document, Cash Management Agreement, Specified Swap Agreement or otherwise. For the avoidance of doubt, the Obligations
shall not include (a) any obligations arising under any warrants or other equity instruments issued by any Loan Party to any Lender, or
(b) solely with respect to any Guarantor that is not a Qualified ECP Guarantor, any Excluded Swap Obligations of such Guarantor.
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“OFAC”: the Office of Foreign Assets Control of the United States Department of the Treasury and any successor thereto.
“Operating Documents”: for any Person as of any date, such Person’s constitutional documents, formation documents and/or
certificate of incorporation (or equivalent thereof), and, (a) if such Person is a corporation, its bylaws or memorandum and articles of
association (or equivalent thereof) in current form, (b) if such Person is a limited liability company, its limited liability company agreement
(or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all
current amendments or modifications thereto.
“Other Connection Taxes”: with respect to any Recipient, Taxes imposed as a result of a present or former connection between such
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).
“Other Taxes”: all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any
payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security
interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with
respect to an assignment (other than an assignment made pursuant to Section 2.23).
“Overadvance”: as defined in Section 2.8.
“Participant”: as defined in Section 10.6(d).
“Participant Register”: as defined in Section 10.6(d).
“Patriot Act”: the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
(USA PATRIOT ACT) Act of 2001, Title III of Pub. L. 107-56, signed into law October 26, 2001.
“PBGC”: the Pension Benefit Guaranty Corporation, or any successor thereto.
“Pension Plan”: an employee benefit plan (as defined in Section 3(3) of ERISA) other than a Multiemployer Plan (a) that is
sponsored by any Loan Party or any ERISA Affiliate thereof or to which any Loan Party or any ERISA Affiliate thereof has any obligation to
make contributions or has any liability (contingent or otherwise), and (b) that is or was subject to Section 412 of the Code, Section 302 of
ERISA or Title IV of ERISA.
“Permitted Acquisition”: as defined in Section 7.8(n).
“Permitted Convertible Indebtedness”: unsecured Indebtedness of the Borrower that (a) as of the date of issuance thereof contains
terms, conditions, covenants, conversion or exchange rights, redemption rights and offer to repurchase rights, in each case, as are typical and
customary for notes of such type (as determined by the Borrower in good faith) and (b) is convertible or exchangeable into shares of common
stock of the Borrower (or other securities of a successor Person following merger event, reclassification or other change of the common stock
of the Borrower), cash or a combination thereof (such amount of cash determined by reference to the price of the Borrower’s common stock
or such other securities or
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property), and cash in lieu of fractional shares of common stock of the Borrower; provided that (i) such Permitted Convertible Indebtedness
shall have a stated final maturity date that is no earlier than the date 180 days after the Revolving Termination Date (the “Earliest Date”), (ii)
such Indebtedness shall not be required to be repaid, prepaid, redeemed, repurchased or defeased, whether on one or more fixed dates, upon
the occurrence of one or more events or at the option of any holder thereof (except, in each case, upon any conversion of such Indebtedness
(whether into cash, shares of common stock in the Borrower or any combination thereof), the occurrence of an event of default or a
“fundamental change” or following the Borrower’s election to redeem such notes) prior to the Earliest Date, and (iii) no Group Member that
is not a Loan Party shall have Guarantee Obligations with respect to obligations of the Borrower thereunder.
“Permitted Equity Derivative Transaction”: any forward purchase, accelerated share repurchase, call option, warrant or other
derivative transaction relating to Borrower’s common stock (or other securities or property following a merger event, reclassification or other
change of the common stock of Borrower) purchased or sold by Borrower in connection with the issuance of any Permitted Convertible
Indebtedness and settled in common stock of Borrower (or such other securities or property), cash or a combination thereof, as the same may
be amended, restated, supplemented or otherwise modified from time to time; provided that (a) the aggregate net purchase price for such
Permitted Equity Derivative Transactions does not exceed the net cash proceeds received by Borrower from the sale of the Permitted
Convertible Indebtedness in connection with which such Permitted Equity Derivative Transactions were entered into, and (b) the other terms,
conditions and covenants of each such transaction shall be such as are customary for transactions of such type (as determined by Borrower in
good faith).
“Permitted Holders”: the Persons listed on Schedule 1.1C to the Disclosure Letter.
“Person”: any natural Person, corporation, limited liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
“Plan”: (a) an employee benefit plan (as defined in Section 3(3) of ERISA) other than a Multiemployer Plan which is maintained or
sponsored by any Group Member or to which any Group Member is obligated to make, contributions or has any liability, (b) a Pension Plan,
or (c) a Qualified Plan.
“Plan Assets Regulation”: as defined in Section 4.13(f).
“Platform”: is any of Debt Domain, Intralinks, Syndtrak, DebtX or a substantially similar electronic transmission system.
“Preferred Stock”: the preferred Capital Stock of the Borrower, if any.
“Prime Rate”: for any day, a rate per annum equal to the rate of interest per annum published in the money rates section of the Wall
Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that if such rate of interest, as set forth from
time to time in the money rates section of the Wall Street Journal, becomes unavailable for any reason as determined by the Administrative
Agent, the “Prime Rate” shall mean the rate of interest per annum announced by the Administrative Agent as its prime rate in effect at its
principal office in the State of California (such announced Prime Rate not being intended to be the lowest rate of interest charged by the
Administrative Agent in connection with extensions of credit to debtors).
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“Pro Forma Basis”: with respect to any calculation or determination for any period, in making such calculation or determination on
the specified date of determination (the “Determination Date”):
1.
pro forma effect will be given to any Indebtedness incurred by a Group Member (including by assumption of then
outstanding Indebtedness or by a Person becoming a Subsidiary) (“Incurred”) after the beginning of the applicable period and on or before
the Determination Date to the extent the Indebtedness is outstanding or is to be Incurred on the Determination Date, as if such Indebtedness
had been Incurred on the first day of such period;
2.
pro forma calculations of interest on Indebtedness bearing a floating interest rate will be made as if the rate in effect
on the Determination Date (taking into account any Swap Agreement applicable to the Indebtedness) had been the applicable rate for the
entire reference period; and
3.
pro forma effect will be given to: (A) the acquisition or disposition of companies, divisions or lines of businesses by a
Group Member, including any acquisition or disposition of a company, division or line of business since the beginning of the reference period
by a Person that became a Subsidiary after the beginning of the applicable period; and (B) the discontinuation of any discontinued operations;
in each case of clauses (A) and (B), that have occurred since the beginning of the applicable period and before the Determination Date as if
such events had occurred, and, in the case of any disposition, the proceeds thereof applied, on the first day of such period. To the extent that
pro forma effect is to be given to an acquisition or disposition of a company, division or line of business, the pro forma calculation will be
calculated in good faith by a responsible financial or accounting officer of the Borrower in accordance with Regulation S-X under the
Securities Act based upon the most recent four full fiscal quarters for which the relevant financial information is available.
“Projected Pro Forma Financial Statements”: projected balance sheets, income statements and cash flow statements prepared by the
Group Members demonstrating pro forma compliance with the covenants set forth in Section 7.1.
“Projections”: as defined in Section 6.2(c).
“Properties”: as defined in Section 4.17(a).
“Qualified Cash”: as of any date of determination, the aggregate amount of unrestricted cash and Cash Equivalents held at such time
by the Loan Parties in Deposit Accounts or Securities Accounts that are subject to a first priority perfected Lien in favor of the Administrative
Agent; provided that, notwithstanding the foregoing, from the Closing Date until ninety (90) days following the Closing Date, Qualified Cash
shall include the aggregate amount of unrestricted cash and Cash Equivalents held at such time by the Loan Parties.
“Qualified Counterparty”: with respect to any Specified Swap Agreement, any counterparty thereto that is a Lender or an Affiliate of
a Lender or, at the time such Specified Swap Agreement was entered into or as of the Closing Date, was the Administrative Agent or a
Lender or an Affiliate of the Administrative Agent or a Lender.
“Qualified ECP Guarantor”: in respect of any Swap Obligation, (a) each Guarantor that has total assets exceeding $10,000,000 at
the time the relevant Guarantee Obligation of such Guarantor provided in respect of, or the Lien granted by such Guarantor to secure, such
Swap Obligation (or guaranty thereof) becomes effective with respect to such Swap Obligation, and (b) any other Guarantor that
(i) constitutes an “eligible contract participant” under the Commodity Exchange Act or any
26
regulations promulgated thereunder, or (ii) can cause another Person (including, for the avoidance of doubt, any other Guarantor not then
constituting a “Qualified ECP Guarantor”) to qualify as an “eligible contract participant” at such time by entering into a “keepwell, support,
or other agreement” as contemplated by Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
“Qualified Plan”: an employee benefit plan (as defined in Section 3(3) of ERISA) other than a Multiemployer Plan (a) that is
maintained or sponsored by any Loan Party or any ERISA Affiliate thereof or to which any Loan Party or any ERISA Affiliate is obligated to
make contributions or has liability (contingent or otherwise), and (b) that is intended to be tax qualified under Section 401(a) of the Code.
“Recipient”: the (a) Administrative Agent, (b) any Lender or (c) the Issuing Lender, as applicable.
“Refunded Swingline Loans”: as defined in Section 2.7(b).
“Register”: as defined in Section 10.6(c).
“Regulation T”: Regulation T of the Board as in effect from time to time.
“Regulation U”: Regulation U of the Board as in effect from time to time.
“Regulation X”: Regulation X of the Board as in effect from time to time.
“Related Parties”: with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents,
trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Replacement Lender”: as defined in Section 2.23.
“Required Lenders”: at any time, (a) if only one Lender holds the Total Revolving Commitments, such Lender; and (b) if more than
one Lender holds the Total Revolving Commitments, then at least two Lenders who together hold more than 50% of the Total Revolving
Commitments (including, without duplication, the L/C Commitments) then in effect or, if the Revolving Commitments have been terminated,
the Total Revolving Extensions of Credit then outstanding; provided that for the purposes of this clause (b), the Revolving Commitments of,
and the portion of the Revolving Loans and participations in L/C Exposure and Swingline Loans held or deemed held by, any Defaulting
Lender shall be excluded for purposes of making a determination of Required Lenders; provided further that a Lender and its Affiliates shall
be deemed one Lender.
“Requirement of Law”: as to any Person, the Operating Documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority (including, for the avoidance of doubt, the Basel Committee on
Banking Supervision and any successor thereto or similar authority or successor thereto), in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is subject.
“Resolution Authority”: an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer”: with respect to any Loan Party, the chief executive officer, president, vice president, chief financial officer,
treasurer, controller or comptroller of such Loan Party, but in any
27
event, with respect to financial matters, the chief financial officer, treasurer, controller or comptroller of such Loan Party.
“Restricted Payments”: as defined in Section 7.6.
“Revaluation Date”: with respect to any Letter of Credit, each of the following: (a) each date of issuance, amendment and/or
extension of a Letter of Credit denominated in an Alternative Currency, (b) each date of any payment by the Issuing Lender under any Letter
of Credit denominated in an Alternative Currency, (c) in the case of all Existing Letters of Credit denominated in Alternative Currencies, the
Closing Date, and (d) such additional dates as the Administrative Agent or the Issuing Lender shall determine or the Required Lenders shall
require.
“Revenue Growth Rate”: the amount (expressed as a percentage) of (a) (i) the Borrower’s consolidated total revenues determined in
accordance with GAAP for any trailing 4 fiscal quarter period (the “Test Period”) minus (ii) the Borrower’s consolidated total revenues
determined in accordance with GAAP for the same trailing 4 fiscal quarter period of the immediately preceding year divided by (b) the
Borrower’s consolidated total revenues determined in accordance with GAAP for the same trailing 4 fiscal quarter period of the immediately
preceding year (the “Prior Period”); provided that if the Borrower has consummated a Permitted Acquisition, other merger or acquisition
permitted hereunder, or any disposition of any business, including any division or line of business, or assets permitted hereunder (each, a
“Specified Transaction”) during the Test Period, the Borrower’s consolidated total revenues for the Prior Period shall be recalculated,
adjusted and determined on a pro forma basis as if such transaction occurred on the first day of the Prior Period.
“Revolving Commitment”: as to any Lender, the obligation of such Lender, if any, to make Revolving Loans and participate in
Swingline Loans and Letters of Credit in an aggregate principal amount not to exceed the amount set forth under the heading “Revolving
Commitment” opposite such Lender’s name on Schedule 1.1A or in the Assignment and Assumption or Increase Joinder pursuant to which
such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof (including in connection with
assignments and Increases permitted hereunder). The amount of the Total Revolving Commitments as of the Closing Date is $100,000,000.
The L/C Commitment and the Swingline Commitment are each sublimits of the Total Revolving Commitments.
“Revolving Commitment Period”: the period from and including the Closing Date to the Revolving Termination Date.
“Revolving Extensions of Credit”: as to any Revolving Lender at any time, an amount equal to the sum of (a) the aggregate principal
amount of all Revolving Loans held by such Lender then outstanding, plus (b) such Lender’s L/C Percentage of the Dollar Equivalent of the
aggregate undrawn amount of all outstanding Letters of Credit (including the Existing Letter of Credit) at such time, plus (c) the Dollar
Equivalent of such Lender’s L/C Percentage of the aggregate amount of all L/C Disbursements that have not yet been reimbursed or
converted into Revolving Loans at such time, plus (d) such Lender’s Revolving Percentage of the aggregate principal amount of Swingline
Loans then outstanding.
“Revolving Facility”: the Revolving Commitments and the extensions of credit made thereunder.
“Revolving Lender”: each Lender that has a Revolving Commitment or that holds Revolving Loans.
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“Revolving Loan Conversion”: as defined in Section 3.5(b).
“Revolving Loan Funding Office”: the office of the Administrative Agent specified in Section 10.2 or such other office as may be
specified from time to time by the Administrative Agent as its funding office by written notice to the Borrower and the Lenders.
“Revolving Loan Note”: a promissory note in the form of Exhibit H-1, as it may be amended, supplemented or otherwise modified
from time to time.
“Revolving Loans”: as defined in Section 2.4(a).
“Revolving Percentage”: as to any Revolving Lender at any time, the percentage which such Lender’s Revolving Commitment then
constitutes of the Total Revolving Commitments or, at any time after the Revolving Commitments of all Lenders shall have expired or
terminated, the percentage which the aggregate principal amount of such Lender’s Revolving Loans then outstanding constitutes of the
aggregate principal amount of all Revolving Loans then outstanding; provided that in the event that the Revolving Loans are paid in full prior
to the reduction to zero of the Total Revolving Commitments, the Revolving Percentages shall be determined in a manner designed to ensure
that the other outstanding Revolving Extensions of Credit shall be held by the Revolving Lenders on a comparable basis.
“Revolving Termination Date”: February 16, 2024.
“S&P”: Standard & Poor’s Ratings Services.
“Sale Leaseback Transaction”: any arrangement with any Person or Persons, whereby in contemporaneous or substantially
contemporaneous transactions a Loan Party sells substantially all of its right, title and interest in any property and, in connection therewith,
acquires, leases or licenses back the right to use all or a material portion of such property.
“Same Day Funds”: (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to
disbursements and payments in an Alternative Currency, same day or other funds as may be determined by the Administrative Agent or the
Issuing Lender, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking
transactions in the relevant Alternative Currency.
“Sanction(s)”: any international economic sanction administered or enforced by the United States Government (including OFAC),
the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority.
“SEC”: the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority.
“Secured Parties”: the collective reference to the Administrative Agent, the Lenders (including any Issuing Lender in its capacity as
Issuing Lender and any Swingline Lender in its capacity as Swingline Lender), any Cash Management Bank (in its or their respective
capacities as providers of Cash Management Services), and any Qualified Counterparties.
“Securities Account”: any “securities account” as defined in the UCC with such additions to such term as may hereafter be made.
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“Securities Account Control Agreement”: any Control Agreement entered into by the Administrative Agent, a Loan Party and a
securities intermediary holding a Securities Account of such Loan Party pursuant to which the Administrative Agent is granted “control” (for
purposes of the UCC) over such Securities Account.
“Securities Act”: the Securities Act of 1933, as amended from time to time and any successor statute.
“Security Documents”: the collective reference to (a) the Guarantee and Collateral Agreement, (b) the Global Intercompany Note,
(c) the Mortgages (if any), (d) each Deposit Account Control Agreement, (e) each Securities Account Control Agreement, (f) each
Intellectual Property Security Agreement, (g) all other security documents hereafter delivered to the Administrative Agent granting a Lien on
any property of any Person to secure the Obligations of any Loan Party arising under any Loan Document, (h) each Pledge Supplement,
(i) each Assumption Agreement, and (j) all financing statements, fixture filings, intellectual property filings, assignments, acknowledgments
and other filings, documents and agreements made or delivered pursuant to any of the foregoing.
“Solvency Certificate”: the Solvency Certificate, dated the Closing Date, delivered to the Administrative Agent pursuant to Section
5.1(o), which Solvency Certificate shall be in substantially the form of Exhibit D.
“Solvent”: when used with respect to any Person, as of any date of determination, (a) the amount of the “fair value” of the assets of
such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise,” as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b)
the “present fair saleable value” of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the
liability of such Person on its debts as such debts become absolute and matured, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the insolvency of debtors, (c) such Person will not have, as of such date, an
unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts generally as they
mature. For purposes of this definition, (i) “debt” means liability on a “claim,” and (ii) “claim” means any (x) right to payment, whether or
not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment,
whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed,
secured or unsecured.
“Specified Acquisition Agreement Representations”: such of the representations and warranties made by the sellers and their
Affiliates in the Limited Condition Acquisition Agreement as are material to the interests of the Lenders, but only to the extent that the
Borrower (or its applicable Affiliates) has the right (taking into account any applicable cure provisions) to terminate its (or such Affiliates’)
obligations under the Limited Condition Acquisition Agreement, or decline to consummate the acquisition (in each case, in accordance with
the terms thereof), as a result of a breach of such representations and warranties.
“Specified Representations”: those representations and warranties made in Sections 4.3(a) (with respect to the organizational
existence of the Loan Parties only after giving effect to the Limited Condition Acquisition), 4.4 (excluding the third sentence thereof), 4.5
(solely with respect to the first sentence and with respect to Operating Documents), 4.11, 4.14, 4.19, 4.20 (giving effect to the Limited
Condition Acquisition and the incurrence of the Increase loans in connection therewith), 4.28 and 4.29.
30
“Specified Swap Agreement”: any Swap Agreement (other than a Permitted Equity Derivative Transaction) entered into by a Loan
Party (or in the sole discretion of the Administrative Agent, any other Group Member) and any Qualified Counterparty (or any Person who
was a Qualified Counterparty as of the Closing Date or as of the date such Swap Agreement was entered into).
“Spot Rate”: for any currency, the rate determined by the Administrative Agent to be the rate quoted by the Administrative Agent as
the spot rate for the purchase of such currency with another currency through its principal foreign exchange trading office at approximately
11:00 a.m. on the date 2 Business Days prior to the date as of which the foreign exchange computation is made; provided that the
Administrative Agent may obtain such spot rate from another financial institution designated by it if the Administrative Agent does not have
as of the date of determination a spot buying rate for any such currency.
“Subordinated Debt Document”: any agreement, certificate, document or instrument executed or delivered by any Group Member
and evidencing Indebtedness of any Group Member which is subordinated to the Obligations (including payment, lien and remedies
subordination terms, as applicable) in a manner approved in writing by the Administrative Agent, and any renewals, modifications, or
amendments thereof which are not prohibited by this Agreement or the applicable subordination agreement or are otherwise approved in
writing by the Administrative Agent.
“Subordinated Indebtedness”: Indebtedness of a Loan Party subordinated to the Obligations pursuant to subordination terms
(including payment, lien and remedies subordination terms, as applicable) reasonably acceptable to the Administrative Agent.
“Subsidiary”: as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.
“Surety Indebtedness”: as of any date of determination, indebtedness (contingent or otherwise) owing to sureties arising from surety
bonds issued on behalf of any Group Member as support for, among other things, their contracts with customers, whether such indebtedness
is owing directly or indirectly by such Group Member.
“SVB”: as defined in the preamble hereto.
“Swap Agreement”: any agreement with respect to any swap, hedge, forward, future or derivative transaction or option or similar
agreement (including without limitation, any Interest Rate Agreement) involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing
risk or value or any similar transaction or any combination of these transactions; provided that the following shall not constitute “Swap
Agreements”: (a) any phantom stock or similar plan providing for payments only on account of services provided by current or former
directors, officers, employees or consultants of the Group Members, (b) any stock option or warrant agreement for the purchase of Capital
Stock of the Borrower, (c) the purchase of Capital Stock or Indebtedness (including
31
securities convertible into Capital Stock) of the Borrower pursuant to delayed delivery contracts, accelerated stock repurchase agreements,
forward contracts or other similar agreements and (d) any of the items specified in the foregoing clauses (a) through (c), to the extent the
same constitutes a derivative embedded in a convertible security issued by the Borrower.
“Swap Obligation”: with respect to any Guarantor, any obligation of such Guarantor to pay or perform under any agreement, contract
or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“Swap Termination Value”: in respect of any one or more Swap Agreements, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Agreements, (a) for any date on or after the date any such Swap Agreement has been
closed out and termination value determined in accordance therewith, such termination value, and (b) for any date prior to the date referenced
in clause (a), the amount determined as the mark-to-market value for such Swap Agreement, as determined based upon one or more mid-
market or other readily available quotations provided by any recognized dealer in such Swap Agreements (which may include a Qualified
Counterparty).
“Swingline Commitment”: the obligation of the Swingline Lender to make Swingline Loans pursuant to Section 2.6 in an aggregate
principal amount at any one time outstanding not to exceed $20,000,000.
“Swingline Lender”: SVB, in its capacity as the lender of Swingline Loans or such other Lender as the Borrower may from time to
time select as the Swingline Lender hereunder pursuant to Section 2.7(f); provided that such Lender has agreed to be a Swingline Lender.
“Swingline Loan Note”: a promissory note in the form of Exhibit H-2, as it may be amended, supplemented or otherwise modified
from time to time.
“Swingline Loans”: as defined in Section 2.6.
“Swingline Participation Amount”: as defined in Section 2.7(c).
“Synthetic Lease Obligation”: 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 of 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).
“Taxes”: 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.
“Threshold Amount”: at any time, the greater of (a) $20,000,000 and (b) 20% of the Total Revolving Commitments.
“Total L/C Commitments”: at any time, the sum of all L/C Commitments at such time, as the same may be reduced from time to time
pursuant to Section 2.10 or 3.5(b). The initial amount of the Total L/C Commitments on the Closing Date is $10,000,000.
32
“Total Liabilities”: on any date of determination, obligations that should, under GAAP, be classified as liabilities on the Borrower’s
consolidated balance sheet, including all Indebtedness.
“Total Revolving Commitments”: at any time, the aggregate amount of the Revolving Commitments then in effect.
“Total Revolving Extensions of Credit”: at any time, the aggregate amount of the Revolving Extensions of Credit outstanding at such
time.
“Trade Date”: as defined in Section 10.6(b)(i)(B).
“Transferee”: any Eligible Assignee or Participant.
“Type”: as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
“UK Financial Institution”: any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended form 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”: the Bank of England or any other public administrative authority having responsibility for the resolution
of any UK Financial Institution.
“Unfriendly Acquisition”: any acquisition that has not, at the time of the first public announcement of an offer relating thereto, been
approved by the board of directors (or other legally recognized governing body) of the Person to be acquired; except that with respect to any
acquisition of a non-U.S. Person, an otherwise friendly acquisition shall not be deemed to be unfriendly if it is not customary in such
jurisdiction to obtain such approval prior to the first public announcement of an offer relating to a friendly acquisition.
“Uniform Commercial Code” or “UCC”: the Uniform Commercial Code (or any similar or equivalent legislation) as in effect from
time to time in the State of New York, or as the context may require, any other applicable jurisdiction.
“United States” and “U.S.”: the United States of America.
“USCRO”: the U.S. Copyright Office.
“USPTO”: the U.S. Patent and Trademark Office.
“U.S. Person”: any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate”: as defined in Section 2.20(f).
“Withholding Agent”: as applicable, any of any applicable Loan Party and the Administrative Agent, as the context may require.
33
“Write-Down and Conversion Powers”: (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.
b. Other Definitional Provisions.
4.
Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in
the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto.
5.
As used herein and in the other Loan Documents, and in any certificate or other document made or delivered pursuant
hereto or thereto, (i) accounting terms relating to any Group Member not defined in Section 1.1 and accounting terms partly defined in
Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, (ii) the words “include,” “includes” and
“including” shall be deemed to be followed by the phrase “without limitation,” (iii) the word “incur” shall be construed to mean incur, create,
issue, assume, become liable in respect of or suffer to exist (and the words “incurred” and “incurrence” shall have correlative meanings),
(iv) 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, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights,
(v) references to a given time of day shall, unless otherwise specified, be deemed to refer to Pacific time, and (vi) references to agreements
(including this Agreement) or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or
Contractual Obligations as amended, supplemented, restated, amended and restated or otherwise modified from time to time.
6.
The words “hereof,” “herein” and “hereunder” and words of similar import, when used in this Agreement, shall
refer to this Agreement as a whole and not to any particular provision of this Agreement, unless otherwise specified. The word “will” shall be
construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any reference herein to any
Person shall be construed to include such Person’s successors and assigns, (ii) all references herein to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, and (iii) any reference to any
law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to
time.
7.
The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such
terms. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.
8.
Any reference in any Loan Document 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
34
liability company (or the unwinding of such a Division or allocation), as if it were a merger, transfer, consolidation, amalgamation,
consolidation, assignment, sale 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 under the Loan Documents (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) on the first date of its existence. In connection with any
Division, if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then
such asset shall be deemed to have been transferred from the original Person to the subsequent Person.
c.
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).
d.
Exchange Rates.
9.
The Administrative Agent or the Issuing Lender, as applicable, shall determine the Spot Rates as of each Revaluation
Date to be used for calculating Dollar Equivalent amounts of Revolving Extensions of Credit denominated in Alternative Currencies. Such
Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the
applicable currencies until the next Revaluation 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 currency (other
than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or
the Issuing Lender, as applicable.
10.
Wherever in this Agreement 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 Letter of Credit is denominated in an Alternative Currency, such
amount shall be the relevant Alternative, Currency Equivalent of such Dollar amount (rounded to the nearest unit of such Alternative
Currency with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the Issuing Lender, as the case may be.
e.
Alternative Currencies.
11.
The Borrower may from time to time request that Letters of Credit be issued in a currency other than those
specifically listed in the definition of “Alternative Currency”; provided that such requested currency is a lawful currency that is readily
available and freely transferable and convertible into Dollars, Any such request shall be subject to the approval of the Administrative Agent
and the Issuing Lender.
12.
Any such request shall be made to the Administrative Agent not later than 11:00 a.m., twenty (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 Issuing Lender,
in their sole discretion). After receipt of such request, the Administrative Agent shall promptly notify the Issuing Lender thereof. The Issuing
Lender shall notify the Administrative Agent, not later than ten (10) Business Days after receipt of such request whether it consents, in its
sole discretion, to the issuance of Letters of Credit in such requested currency.
35
13.
Any failure by the Issuing Lender to respond to such request within the time period specified in the preceding
sentence shall be deemed to be a refusal by the Issuing Lender of Letters of Credit to be issued in such requested currency. If the
Administrative Agent and the Issuing Lender 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 an Alternative Currency. If the
Administrative Agent shall fail to obtain consent to any request for an additional currency under this Section 1.5, the Administrative Agent
shall promptly so notify the Borrower. Any specified currency of an Existing Letter of Credit that is neither Dollars nor one of the Alternative
Currencies specifically listed in the definition of “Alternative Currency” shall be deemed an Alternative Currency with respect to such
Existing Letter of Credit only.
14.
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.
15.
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.
16.
Each provision of this Agreement also shall be subject to such reasonable changes of construction as the
Administrative Agent may from time to time specify to be appropriate to reflect a change in currency of any other country and any relevant
market conventions or practices relating to the change in currency.
f.
Limited Condition Acquisitions
g.
. In connection with any action being taken in connection with a Limited Condition Acquisition, for purposes of determining
compliance with any provision of this Agreement which requires the calculation of any financial ratio or metric, at the option of the Borrower
(and, if the Borrower elects to exercise such option, such option shall be exercised on or prior to the date on which the definitive agreement
for such Limited Condition Acquisition is executed) (the Borrower’s election to exercise such option in connection with any Limited
Condition Acquisition, an “LCA Election”), then notwithstanding anything else to the contrary contained in this Agreement, the date of
determination of whether any such action is permitted hereunder, shall be deemed to be the date the definitive agreements for such Limited
Condition Acquisition are entered into (the “LCA Test Date”), and if, after giving pro forma effect to the Limited Condition Acquisition and
the other transactions to be entered into in connection therewith (including any incurrence of Indebtedness and the use of proceeds thereof) as
if they had occurred at the beginning of the most recent period of four fiscal quarters then ended prior to the LCA Test Date for which
consolidated financial statements of the Borrower are available, the Borrower could have taken such action on the relevant LCA Test Date in
compliance with such ratio or basket, such ratio or basket shall be deemed to have been complied with. If the Borrower has made an LCA
Election for any Limited Condition Acquisition, then in connection with any subsequent calculation of any basket availability with respect to
the incurrence of Indebtedness, the grant of Liens, or the making of Investments, Restricted Payments, Dispositions, mergers and
consolidations or other transfer of all or substantially all of the assets of any Group Member on or following the relevant LCA Test Date and
prior to the earlier of the date on which such Limited Condition Acquisition is consummated or the definitive agreement for such Limited
Condition Acquisition is terminated or expires without consummation of such Limited Condition Acquisition, any such ratio or basket shall
be calculated on a Pro Forma Basis assuming both that such
36
Limited Condition Acquisition and other transactions in connection therewith (including any incurrence of Indebtedness and the use of
proceeds thereof) have been consummated and have not been consummated.
a.
Interest; LIBOR Notification.
The interest rate on Eurodollar Loans is determined by reference to the Eurodollar Rate, which is derived from the London interbank
offered rate. The London interbank offered rate is intended to represent the rate at which contributing banks may obtain short-term
borrowings from each other in the London interbank market. In July 2017, the U.K. Financial Conduct Authority announced that, after the
end of 2021, it would no longer persuade or compel contributing banks to make rate submissions to the ICE Benchmark Administration
(together with any successor to the ICE Benchmark Administrator, the “IBA”) for purposes of the IBA setting the London interbank offered
rate. As a result, it is possible that, in the future, the London interbank offered rate may become unavailable or may no longer be deemed an
appropriate reference rate upon which to determine the interest rate on Eurodollar Loans. In light of this eventuality, public and private sector
industry initiatives are currently underway to identify new or alternative reference rates to be used in place of the London interbank offered
rate. In the event that the London interbank offered rate is no longer available or in certain other circumstances as set forth in Section 2.17, an
alternative rate of interest may be selected and implemented in accordance with the mechanism contained in such Section. The
Administrative Agent will notify the Borrower, pursuant to Section 2.17, in advance of any change to the reference rate upon which the
interest rate on Eurodollar Loans is based. However, the Administrative Agent does not warrant, nor accept responsibility, nor shall the
Administrative Agent have any liability with respect to the administration, submission or any other matter related to the rates in the definition
of “Eurodollar Rate” or with respect to any comparable or successor rate thereto or replacement rate thereof, including, without limitation,
whether the composition or characteristics of any such alternative, successor or replacement reference rate, as it may or may not be adjusted
pursuant to Section 2.17, will be similar to, or produce the same value or economic equivalence of, the Eurodollar Rate or have the same
volume or liquidity as did the London interbank offered rate prior to its discontinuance or unavailability.
SECTION 2.
AMOUNT AND TERMS OF COMMITMENTS
[Reserved]
a.
.
b.
[Reserved]
.
c.
.
[Reserved]
d. Revolving Commitments.
17.
Subject to the terms and conditions hereof, each Revolving Lender severally agrees to make revolving credit loans
(each, a “Revolving Loan” and, collectively, the “Revolving Loans”) to the Borrower from time to time during the Revolving Commitment
Period in an aggregate
37
principal amount at any one time outstanding which, when added to the aggregate outstanding amount of the Swingline Loans, the Dollar
Equivalent of the aggregate undrawn amount of all outstanding Letters of Credit, and the Dollar Equivalent of the aggregate amount of all
L/C Disbursements that have not yet been reimbursed or converted into Revolving Loans or Swingline Loans, incurred on behalf of the
Borrower and owing to such Lender, does not exceed the amount of such Lender’s Revolving Commitment. In addition, such aggregate
obligations shall not at any time exceed the Total Revolving Commitments in effect at such time. During the Revolving Commitment Period
the Borrower may use the Revolving Commitments by borrowing, prepaying the Revolving Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. The Revolving Loans may from time to time be Eurodollar Loans or ABR Loans, as
determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.13.
18.
The Borrower shall repay all outstanding Revolving Loans (including, without limitation, all Overadvances to the
extent not previously repaid) on the Revolving Termination Date.
e.
Procedure for Revolving Loan Borrowing
. The Borrower may borrow under the Revolving Commitments during the Revolving Commitment Period on any Business Day;
provided that the Borrower shall give the Administrative Agent an irrevocable Notice of Borrowing (which must be received by the
Administrative Agent prior to 10:00 A.M. (a) 3 Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
(b) 1 Business Day prior to the requested Borrowing Date, in the case of ABR Loans) (provided that any such Notice of Borrowing of ABR
Loans under the Revolving Facility to finance payments under Section 3.5(a) may be given not later than 10:00 A.M. on the date of the
proposed borrowing), in each such case specifying (i) the amount and Type of Revolving Loans to be borrowed, (ii) the requested Borrowing
Date, (iii) in the case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest
Period therefor, and (iv) instructions for remittance of the proceeds of the applicable Loans to be borrowed. Unless otherwise agreed by the
Administrative Agent in its sole discretion, no Revolving Loan may be made as, converted into or continued as a Eurodollar Loan having an
Interest Period in excess of 1 month prior to the date that is 30 days after the Closing Date. Each borrowing under the Revolving
Commitments shall be in an amount equal to $1,000,000 or a whole multiple of $100,000 in excess thereof (or, if the then Available
Revolving Commitments are less than $1,000,000, such lesser amount); provided that the Swingline Lender may request, on behalf of the
Borrower, borrowings under the Revolving Commitments that are ABR Loans in other amounts pursuant to Section 2.7. Upon receipt of any
such Notice of Borrowing from the Borrower, the Administrative Agent shall promptly notify each Revolving Lender thereof. Each
Revolving Lender will make the amount of its pro rata share of each such borrowing available to the Administrative Agent for the account of
the Borrower at the Revolving Loan Funding Office prior to 12:00 P.M. on the Borrowing Date requested by the Borrower in Same Day
Funds to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting such
account as is designated in writing to the Administrative Agent by the Borrower with the aggregate of the amounts made available to the
Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent or, if so specified in the Flow of
Funds Agreement, the Administrative Agent shall wire transfer all or a portion of such aggregate amounts in accordance with the wire
instructions specified for such purpose in the Flow of Funds Agreement.
f.
Swingline Commitment
38
. Subject to the terms and conditions hereof, the Swingline Lender agrees to make available a portion of the credit accommodations
otherwise available to the Borrower under the Revolving Commitments from time to time during the Revolving Commitment Period by
making swing line loans (each a “Swingline Loan” and, collectively, the “Swingline Loans”) to the Borrower; provided that (a) the aggregate
principal amount of Swingline Loans outstanding at any time shall not exceed the Swingline Commitment then in effect, (b) the Borrower
shall not request, and the Swingline Lender shall not make, any Swingline Loan if, after giving effect to the making of such Swingline Loan,
the amount of the Available Revolving Commitments would be less than zero, and (c) the Borrower shall not use the proceeds of any
Swingline Loan to refinance any then outstanding Swingline Loan. During the Revolving Commitment Period, the Borrower may use the
Swingline Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof. Swingline Loans
shall be ABR Loans only. The Borrower shall repay to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the
Revolving Termination Date. The Swingline Lender shall not make a Swingline Loan during the period commencing at the time it has
received notice (by telephone or in writing) from the Administrative Agent at the request of any Lender, acting in good faith, that one or more
of the applicable conditions specified in Section 5.2 (other than Section 5.2(c)) is not then satisfied and has had a reasonable opportunity to
react to such notice and ending when such conditions are satisfied or duly waived.
g.
Procedure for Swingline Borrowing; Refunding of Swingline Loans.
19.
Whenever the Borrower desires that the Swingline Lender make Swingline Loans the Borrower shall give the
Swingline Lender irrevocable telephonic notice (which telephonic notice must be received by the Swingline Lender not later than 12:00 P.M.
on the proposed Borrowing Date) confirmed promptly in writing by a Notice of Borrowing, specifying (i) the amount to be borrowed, (ii) the
requested Borrowing Date (which shall be a Business Day during the Revolving Commitment Period), and (iii) instructions for the remittance
of the proceeds of such Loan. Each borrowing under the Swingline Commitment shall be in an amount equal to $500,000 or a whole multiple
of $100,000 in excess thereof. Promptly thereafter, on the Borrowing Date specified in a notice in respect of Swingline Loans, the Swingline
Lender shall make available to the Borrower an amount in Same Day Funds equal to the amount of the Swingline Loan to be made by
depositing such amount in the account designated in writing to the Administrative Agent by the Borrower. Unless a Swingline Loan is sooner
refinanced by the advance of a Revolving Loan pursuant to Section 2.7(b), such Swingline Loan shall be repaid by the Borrower no later than
5 Business Days after the advance of such Swingline Loan.
20.
The Swingline Lender, at any time and from time to time in its sole and absolute discretion may, on behalf of the
Borrower (which hereby irrevocably directs the Swingline Lender to act on its behalf), on 1 Business Day’s telephonic notice given by the
Swingline Lender no later than 12:00 P.M. and promptly confirmed in writing, request each Revolving Lender to make, and each Revolving
Lender hereby agrees to make, a Revolving Loan, in an amount equal to such Revolving Lender’s Revolving Percentage of the aggregate
amount of such Swingline Loan (each a “Refunded Swingline Loan”) outstanding on the date of such notice, to repay the Swingline Lender.
Each Revolving Lender shall make the amount of such Revolving Loan available to the Administrative Agent at the Revolving Loan Funding
Office in Same Day Funds, not later than 10:00 A.M. 1 Business Day after the date of such notice. The proceeds of such Revolving Loan
shall immediately be made available by the Administrative Agent to the Swingline Lender for application by the Swingline Lender to the
repayment of the Refunded Swingline Loan. The Borrower irrevocably authorizes the Swingline Lender to charge the Borrower’s accounts
with the Administrative Agent (up to the amount available in each such account) immediately to
39
pay the amount of any Refunded Swingline Loan to the extent amounts received from the Revolving Lenders are not sufficient to repay in
full such Refunded Swingline Loan.
21.
If prior to the time that the Borrower has repaid the Swingline Loans pursuant to Section 2.7(a) or a Revolving Loan
has been made pursuant to Section 2.7(b), one of the events described in Section 8.1(f) shall have occurred or if for any other reason, as
determined by the Swingline Lender in its sole discretion, Revolving Loans may not be made as contemplated by Section 2.7(b), each
Revolving Lender shall, on the date such Revolving Loan was to have been made pursuant to the notice referred to in Section 2.7(b) or on the
date requested by the Swingline Lender (with at least 1 Business Day notice to the Revolving Lenders), purchase for cash an undivided
participating interest in the then outstanding Swingline Loans by paying to the Swingline Lender an amount (the “Swingline Participation
Amount”) equal to (i) such Revolving Lender’s Revolving Percentage times (ii) the sum of the aggregate principal amount of the outstanding
Swingline Loans that were to have been repaid with such Revolving Loans.
22.
Whenever, at any time after the Swingline Lender has received from any Revolving Lender such Lender’s Swingline
Participation Amount, the Swingline Lender receives any payment on account of the Swingline Loans, the Swingline Lender will distribute to
such Lender its Swingline Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during
which such Lender’s participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such
Lender’s pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swingline Loans then
due); provided that in the event that such payment received by the Swingline Lender is required to be returned, such Revolving Lender will
return to the Swingline Lender any portion thereof previously distributed to it by the Swingline Lender.
23.
Each Revolving Lender’s obligation to make the Loans referred to in Section 2.7(b) and to purchase participating
interests pursuant to Section 2.7(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff,
counterclaim, recoupment, defense or other right that such Revolving Lender or the Borrower may have against the Swingline Lender, the
Borrower or any other Person for any reason whatsoever, (ii) the occurrence of a Default or an Event of Default or the failure to satisfy any of
the other conditions specified in Section 5, (iii) any adverse change in the condition (financial or otherwise) of the Borrower, (iv) any breach
of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Revolving Lender, or (v) any other
circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.
24.
The Swingline Lender may resign at any time by giving 30 days’ prior notice to the Administrative Agent, the
Lenders and the Borrower. Following such notice of resignation from the Swingline Lender, the Swingline Lender may be replaced at any
time by written agreement among the Borrower, the Administrative Agent, the Required Lenders and the successor Swingline Lender. After
the resignation or replacement of the Swingline Lender hereunder, the retiring Swingline Lender shall remain a party hereto and shall
continue to have all the rights and obligations of the Swingline Lender under this Agreement and the other Loan Documents with respect to
Swingline Loans made by it prior to such resignation or replacement, but shall not be required or permitted to make any additional Swingline
Loans.
h. Overadvances
.
40
If at any time or for any reason the aggregate amount of the Total Revolving Extensions of Credit exceeds the amount of the
Total Revolving Commitments then in effect (any such excess, an “Overadvance”), the Borrower shall immediately pay the full amount of
such Overadvance to the Administrative Agent, without notice or demand. Any prepayment of any Revolving Loan that is a Eurodollar Loan
hereunder shall be subject to Borrower’s obligation to pay any amounts owing pursuant to Section 2.21.
i.
Fees.
25.
Fee Letter. The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates as set
forth in the Fee Letter and to perform any other obligations contained therein.
26.
Commitment Fee. As additional compensation for the Revolving Commitments, the Borrower shall pay to the
Administrative Agent for the account of the Lenders, in arrears, on the last day of each calendar quarter prior to the Revolving Termination
Date and on the Revolving Termination Date, a fee for the Borrower’s non-use of available funds in an amount equal to the Commitment Fee
Rate per annum multiplied by the difference between (x) the Total Revolving Commitments (as they may be reduced or increased from time
to time) and (y) the sum of (A) the average for the period of the daily closing balance of the Revolving Loans outstanding excluding the
aggregate principal amount of Swingline Loans which shall be deemed to be zero for purposes hereof, (B) the Dollar Equivalent of the
aggregate undrawn amount of all Letters of Credit outstanding at such time and (C) the Dollar Equivalent of the aggregate amount of all L/C
Disbursements that have not yet been reimbursed or converted into Revolving Loans or Swingline Loans at such time.
27.
28.
Fees Nonrefundable. All fees payable under this Section 2.9 shall be fully earned on the date paid and nonrefundable.
Increase in Fees. At any time that an Event of Default exists, upon the request of the Required Lenders, the amount of
any of the foregoing fees due under subsection (b) shall be increased by adding 2.0% per annum thereto.
j.
Termination or Reduction of Revolving Commitments; Prepayments.
The Borrower shall have the right, upon not less than 3 Business Days’ notice to the Administrative Agent, to terminate the
Revolving Commitments or, from time to time, to reduce the amount of the Revolving Commitments; provided that no such termination or
reduction of the Revolving Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Loans and
Swingline Loans made on the effective date thereof, the Total Revolving Extensions of Credit then outstanding would exceed the Total
Revolving Commitments then in effect; provided, further that if such notice indicates that such termination or reduction is conditioned on the
occurrence of a transaction it may be revoked if such transaction is not consummated. Any such reduction shall be in an amount equal to
$1,000,000, or a whole multiple thereof (or, if the then Total Revolving Commitments are less than $1,000,000, such lesser amount), and
shall reduce permanently the Revolving Commitments then in effect; provided further, if in connection with any such reduction or
termination of the Revolving Commitments a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable
thereto, the Borrower shall also pay any amounts owing (if any) pursuant to Section 2.21. The Borrower shall have the right, without penalty
or premium, upon not less than 3 Business Days’ notice to the Administrative Agent, to terminate the L/C Commitments or, from time to
time, to reduce the amount
41
of the L/C Commitments; provided that no such termination or reduction of L/C Commitments shall be permitted if, after giving effect
thereto, the Total L/C Commitments shall be reduced to an amount that would result in the aggregate L/C Exposure exceeding the Total L/C
Commitments (as so reduced); provided, further that if such notice indicates that such termination or reduction is conditioned on the
occurrence of a transaction it may be revoked if such transaction is not consummated. Any such reduction shall be in an amount equal to
$1,000,000, or a whole multiple thereof (or, if the then Total L/C Commitments are less than $1,000,000, such lesser amount), and shall
reduce permanently the L/C Commitments then in effect. The Borrower shall have the right, at any time and from time to time to prepay any
Loan in whole or in part, upon not less than 3 Business Days’ notice to the Administrative Agent; provided that if such notice indicates that
such prepayment is conditioned on the occurrence of a transaction it may be revoked if such transaction is not consummated. Upon receipt of
any such notice, the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Loans that are
ABR Loans and Swingline Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Revolving Loans shall be in an
aggregate principal amount of $100,000 or a whole multiple thereof. Partial prepayments of Swingline Loans shall be in an aggregate
principal amount of $100,000 or a whole multiple thereof.
k.
l.
[Reserved].
[Reserved].
m. Conversion and Continuation Options.
29.
The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative
Agent prior irrevocable notice in a Notice of Conversion/Continuation of such election no later than 10:00 A.M. on the Business Day
preceding the proposed conversion date; provided that any such conversion of Eurodollar Loans may only be made on the last day of an
Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the
Administrative Agent prior irrevocable notice in a Notice of Conversion/Continuation of such election no later than 10:00 A.M. on the third
Business Day preceding the proposed conversion date (which notice shall specify the length of the initial Interest Period therefor); provided
that no ABR Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing. Upon receipt of any
such notice, the Administrative Agent shall promptly notify each relevant Lender thereof.
30.
Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect
thereto by the Borrower giving irrevocable notice in a Notice of Conversion/Continuation to the Administrative Agent, in accordance with the
applicable provisions of the term “Interest Period” set forth in Section 1.1, of the length of the next Interest Period to be applicable to such
Loans; provided that no Eurodollar Loan may be continued as such when any Event of Default has occurred and is continuing; provided
further that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso, such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest
Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.
n.
Limitations on Eurodollar Tranches
42
. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions and continuations of Eurodollar Loans and
all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the
aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole multiple of
$100,000 in excess thereof
o.
Interest Rates and Payment Dates.
31.
Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per
annum equal to (i) the Eurodollar Rate determined for such day plus (ii) the Applicable Margin.
32.
Each ABR Loan (including any Swingline Loan) shall bear interest at a rate per annum equal to (i) the ABR plus (ii)
the Applicable Margin.
33.
During the existence of an Event of Default, at the request of the Required Lenders, all outstanding Loans shall bear
interest at a rate per annum equal to the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section
2.15 plus 2.00% (the “Default Rate”); provided that the Default Rate shall apply to all outstanding Loans automatically and without any
Required Lender consent therefor upon the occurrence of any Event of Default arising under Section 8.1(a) or (f).
34.
Interest shall be payable in arrears on each Interest Payment Date; provided that interest accruing pursuant to
Section 2.15(c) shall be payable from time to time on demand.
p. Computation of Interest and Fees.
35.
Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days
elapsed, except that, with respect to ABR Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon
shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as
soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate
on a Loan resulting from a change in the ABR or the Eurocurrency 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.
36.
Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall
be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of
the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate
pursuant to Section 2.16(a).
q.
Inability to Determine Interest Rate
37.
.
1.
If prior to the first day of any Interest Period the Administrative Agent or the Required Lenders shall have determined
(which determination shall be conclusive and binding upon the Borrower) in connection with any request for a Eurodollar Loan or a
conversion to or a continuation
43
thereof that, by reason of circumstances affecting the relevant market, (i) Dollar deposits are not being offered to banks in the London
interbank market for the applicable amount and Interest Period of such requested Loan or conversion or continuation, as applicable, (ii)
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (iii) the Eurodollar Rate
determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively
certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, then, in any such case (i), (ii) or (iii),
the Administrative Agent shall promptly notify the Borrower and the relevant Lenders thereof as soon as practicable thereafter. Any such
determination shall specify the basis for such determination and shall, in the absence of manifest error, be conclusive and binding for all
purposes. Thereafter, (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y)
any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and
(z) any outstanding Eurodollar Loans shall be converted, on the last day of the then-current Interest Period, to ABR Loans. Until such notice
has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower
have the right to convert Loans to Eurodollar Loans.
2.
If at any time the Administrative Agent determines (which determination shall be conclusive absent manifest error)
that (i) the circumstances set forth in Section 2.17(a)(i) or (ii) have arisen and such circumstances are unlikely to be temporary or (ii) the
circumstances set forth in Section 2.17(a)(i) or (ii) have not arisen but the supervisor for the administrator of the LIBOR reporting system or a
Governmental Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after
which LIBOR shall no longer be used for determining interest rates for loans, then Administrative Agent and Borrower shall endeavor to
establish an alternate rate of interest to LIBOR that gives due consideration to the then prevailing market convention for determining a rate of
interest for syndicated loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate
rate of interest and such other related changes to this Agreement as may be applicable; provided that if such alternate rate of interest shall be
less than 0.00%, such rate shall be deemed to be 0.00% for the purposes of this Agreement. Notwithstanding anything to the contrary in
Section 12.7, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as
the Administrative Agent shall not have received, within 5 Business Days of the date notice of such alternative rate of interest is provided to
the Lenders, a written notice from the Required Lenders stating that such Required Lenders object to such amendment. Until an alternate rate
of interest shall be determined in accordance with this clause (b) (but in the case of the circumstances described in clause (ii) of the first
sentence of this Section 2.17(b), only to the extent that LIBOR for such Interest Period is not available or published at such time on a current
basis), (x) any Eurodollar Loans requested to be made shall be made as ABR Loans, and (y) any outstanding Eurodollar Loans shall be
converted, on the last day of the then-current Interest Period, to ABR Loans.
r.
Pro Rata Treatment and Payments.
3.
Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any
commitment fee and any reduction of the Commitments shall be made pro rata according to the respective L/C Percentages or Revolving
Percentages, as the case may be, of the relevant Lenders.
4.
[Reserved]
44
5.
Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving
Loans shall be made pro rata according to the respective outstanding principal amounts of the Revolving Loans then held by the Revolving
Lenders.
6.
All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal,
interest, fees or otherwise, shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff and shall be
made prior to 10:00 A.M. on the due date thereof to the Administrative Agent, for the account of the Lenders, at the applicable Funding
Office, in Dollars (except as otherwise provided herein with respect to Letters of Credit denominated in an Alternative Currency) and in Same
Day Funds. If, for any reason, the Borrower is prohibited by any Requirement of Law from making any required payment hereunder in an
Alternative Currency, the Borrower shall make such payment in Dollars in the Dollar Equivalent of the Alternative Currency payment
amount. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. Any
payment in Dollars received by the Administrative Agent after 10:00 A.M. shall be deemed received on the next succeeding Business Day
and any applicable interest or fee shall continue to accrue. All payments received by the Administrative Agent after the Applicable Time
specified by the Administrative Agent, in the case of payments in an Alternative Currency, shall in each case be deemed received on the next
succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment hereunder (other than payments on the
Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding
Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar
month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment
of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension.
7.
Unless the Administrative Agent shall have been notified in writing by any Lender prior to the proposed date of any
borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent,
the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date in
accordance with Section 2, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not in fact made available to the Administrative Agent by the required time on the Borrowing Date
therefor, such Lender and the Borrower severally agree to pay to the Administrative Agent forthwith, on demand, such corresponding amount
with interest thereon, for each day from and including the date on which such amount is made available to the Borrower but excluding the
date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, a rate equal to the greater of (A) the
Federal Funds Effective Rate and (B) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank
compensation, and (ii) in the case of a payment to be made by the Borrower, the rate per annum applicable to 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 the Borrower 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 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.
45
8.
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 or the Issuing Lender 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 or the Issuing Lender, as the case may be, the amount due. In such event, if
the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Lender, as the case may be, severally agrees to repay
to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Lender, 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 on
interbank compensation. Nothing herein shall be deemed to limit the rights of Administrative Agent or any Lender against any Loan Party.
9.
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 Section 2, and such funds are not made available to the Borrower by the Administrative Agent
because the conditions to the applicable extension of credit set forth in Section 5.1 or Section 5.2 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, without
interest.
10.
The obligations of the Lenders hereunder to (i) make Revolving Loans, (ii) fund its participations in L/C
Disbursements in accordance with its respective L/C Percentage, (iii) fund its respective Swingline Participation Amount of any Swingline
Loan, and (iv) make payments pursuant to Section 9.7, as applicable, are several and not joint. The failure of any Lender to make any such
Loan, to fund any such participation or to make any such payment under Section 9.7 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 Loan, to purchase its participation or to make its payment under Section 9.7.
11.
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.
12.
If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of
principal, interest and fees then due hereunder, such funds shall be applied (i) first, toward payment of interest and fees and Overadvances
then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees and Overadvances then due
to such parties, and (ii) second, toward payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with
the amounts of principal then due to such parties.
13.
If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the principal of or interest on any Loan made by it, its participation in the L/C Exposure or other obligations
hereunder, as applicable (other than pursuant to a provision hereof providing for non-pro rata treatment), in excess of its Revolving
Percentage or L/C Percentage, as applicable, of such payment on account of the Loans or participations obtained by all of the Lenders, such
Lender shall (a) notify the Administrative Agent of the receipt of such payment, and (b) within 5 Business Days of such receipt purchase (for
cash at face value) from the other Revolving Lenders or L/C Lenders, as applicable (through the Administrative Agent), without recourse,
such
46
participations in the Revolving Loans made by them and/or participations in the L/C Exposure held by them, as applicable, or make such
other adjustments as shall be equitable, as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each
of the other Lenders in accordance with their respective Revolving Percentages or L/C Percentages, as applicable; provided, however, that
(i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be
rescinded and the purchase price restored to the extent of such recovery, without interest and (ii) the provisions of this clause (k) 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
(including the application of funds arising from the existence of a Defaulting Lender) or (y) any payment obtained by a Lender as
consideration for the assignment or sale of a participation in any of its Loans or participations in L/C Disbursements to any assignee or
participant, other than to the Borrower or any of its Affiliates (as to which the provisions of this clause (k) shall apply). The Borrower agrees
that any Lender so purchasing a participation from another Lender pursuant to this Section 2.18(k) may exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the
amount of such participation. No documentation other than notices and the like referred to in this Section 2.18(k) shall be required to
implement the terms of this Section 2.18(k). The Administrative Agent shall keep records (which shall be conclusive and binding in the
absence of manifest error) of participations purchased pursuant to this Section 2.18(k) and shall in each case notify the Revolving Lenders or
the L/C Lenders, as applicable, following any such purchase. The provisions of this Section 2.18(k) shall not be construed to apply to (i) any
payment made by or on behalf of the Borrower pursuant to and in accordance with the express terms of this Agreement (including the
application of funds arising from the existence of a Defaulting Lender), (ii) the application of Cash Collateral provided for in Section 3.10, or
(iii) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or sub-
participations in any L/C Exposure to any assignee or participant, other than an assignment to the Borrower or any Affiliate thereof (as to
which the provisions of this Section 2.18(k) shall apply). The Borrower consents on behalf of itself and each other Loan Party 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 each Loan Party rights of setoff and counterclaim with respect to such participation as fully as if
such Lender were a direct creditor of each Loan Party in the amount of such participation. For the avoidance of doubt, no amounts received
by the Administrative Agent or any Lender from any Guarantor that is not a Qualified ECP Guarantor shall be applied in partial or complete
satisfaction of any Excluded Swap Obligations.
14.
Notwithstanding anything to the contrary in this Agreement, the Administrative Agent may, in its discretion at any
time or from time to time, without the Borrower’s request and even if the conditions set forth in Section 5.2 would not be satisfied, make a
Revolving Loan in an amount equal to the portion of the Obligations constituting overdue interest and fees and Swingline Loans from time to
time due and payable to itself, any Revolving Lender, the Swingline Lender or the Issuing Lender, and apply the proceeds of any such
Revolving Loan to those Obligations; provided that after giving effect to any such Revolving Loan, the aggregate outstanding Revolving
Loans will not exceed the Total Revolving Commitments then in effect.
s.
Illegality; Requirements of Law.
15.
Illegality. If after the Closing Date any Lender determines that any Requirement of Law has made it unlawful, or that
any Governmental Authority has asserted that it is unlawful, for such Lender to make, maintain or fund Eurodollar Loans, or to determine or
charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of
47
such Lender to purchase or sell, or to take deposits of, Dollars 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 Eurodollar Loans or to convert ABR Loans
to Eurodollar 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 Eurodollar Loans of such Lender to ABR Loans, either on the last day of the
Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if such Lender
may not lawfully continue to maintain such Eurodollar. Upon any such prepayment or conversion, the Borrower shall also pay accrued
interest on the amount so prepaid or converted.
16.
Requirements of Law. If the adoption of or any change in any Requirement of Law or in the administration,
interpretation, implementation or application thereof by any Governmental Authority, or the making or issuance of any request, rule,
guideline or directive (whether or not having the force of law) by any Governmental Authority made subsequent to the date hereof:
i.shall subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses
(b) through (d) of the definition of Excluded Taxes, and (C) Connection Income Taxes) on its Loans, Loan principal, Letters of Credit,
Commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
ii.shall 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 reflected in the Eurodollar Rate); or
affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein;
iii.impose on any Lender or the London interbank market any other condition, cost or expense (other than Taxes)
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, converting to, continuing
or maintaining Loans determined with reference to the Eurodollar Rate or of maintaining its obligation to make such Loans, or to increase the
cost to such Lender or such other Recipient of issuing, maintaining or participating in Letters 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 receivable or received by such Lender or other Recipient
hereunder in respect thereof (whether of principal, interest or any other amount), then, in any such case, upon the request of such Lender or
other Recipient, the Borrower will promptly pay such Lender or other Recipient, as the case may be, any additional amount or amounts
necessary to compensate such Lender or other Recipient, as the case may be, for such additional costs incurred or reduction suffered. If any
Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
17.
If any Lender determines that any change in any Requirement of 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 or Swingline Loans held by, such Lender, or the
Letters of Credit issued by the Issuing Lender, to a level
48
below that which such Lender or such Lender’s holding company could have achieved but for such change in such Requirement of 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 or the Issuing Lender, as the case may be, such additional amount or
amounts as will compensate such Lender or the Issuing Lender or such Lender’s or Issuing Lender’s holding company for any such reduction
suffered.
18.
For purposes of this Agreement, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all
requests, rules, guidelines, or directives thereunder or issued in connection therewith and (ii) all requests, 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, shall in each case (i) and (ii) be deemed to be a
change in any Requirement of Law, regardless of the date enacted, adopted or issued.
19.
A certificate as to any additional amounts payable pursuant to paragraphs (b), (c), or (d) of this Section submitted by
any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Failure or delay on the part of any
Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation.
Notwithstanding anything to the contrary in this Section 2.19, the Borrower shall not be required to compensate a Lender pursuant to this
Section 2.19 for any amounts incurred more than 9 months prior to the date that such Lender notifies the Borrower of the change in the
Requirement of Law giving rise to such increased costs or reductions, and of such Lender’s intention to claim compensation therefor;
provided that if the circumstances giving rise to such claim have a retroactive effect, then such 9-month period shall be extended to include
the period of such retroactive effect. The obligations of the Borrower arising pursuant to this Section 2.19 shall survive the Discharge of
Obligations and the resignation of the Administrative Agent.
t.
Taxes.
For purposes of this Section 2.20, the term “Lender” includes the Issuing Lender and the term “applicable law” includes FATCA.
20.
Payments Free of Taxes. Any and all payments by or on account of any obligation of any Loan Party under any Loan
Document shall be made without deduction or withholding for any Taxes, except as required by applicable Requirements of Law, and the
Borrower shall, and shall cause each other Loan Party, to comply with the requirements set forth in this Section 2.20. If any applicable
Requirements of Law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding
of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction
or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with
applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Loan Party shall be increased as necessary so
that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable
under this Section 2.20) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or
withholding been made.
49
21.
Payment of Other Taxes. The Borrower shall and shall cause each other Loan Party to, timely pay to the relevant
Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment
of, any Other Taxes applicable to such Loan Party.
22.
Evidence of Payments. As soon as practicable after any payment of Taxes by any Loan Party to a Governmental
Authority pursuant to this Section 2.20, the Borrower shall, or shall cause such other Loan Party to, 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.
23.
Indemnification by Loan Parties. The Borrower shall, and shall cause each other Loan Party to, jointly and severally
indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes
imposed or asserted on or attributable to amounts payable under this Section 2.20) payable or paid by such Recipient or required to be
withheld or deducted from a payment to such Recipient 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.
24.
Indemnification by Lenders. 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 any Loan Party has not already
indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (ii) any
Taxes attributable to such Lender’s failure to comply with the provisions of Section 10.6 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 2.20(e).
25.
Status of Lenders.
iv.Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made
under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the
Borrower or the Administrative Agent, such properly completed and executed documentation 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 reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by
applicable Requirements of Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the
Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.
Notwithstanding anything to the contrary in the preceding two
50
sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Sections 2.20(f)(ii)
(A), (ii)(B) and (ii)(D) below) shall not be required if, in the Lender’s reasonable judgment, such completion, execution or submission would
subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such
Lender.
v.Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,
any Lender that is a U.S. Person 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), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal
backup withholding tax;
a.
any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the
Administrative Agent (in such number of copies as shall be requested by the recipient) 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), whichever of the following is applicable:
a.
a.
in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the
United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN or IRS
Form W-8BEN-E, as applicable (or any successor form) establishing an exemption from, or reduction of, U.S. federal withholding Tax
pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS
Form W-8BEN or IRS Form W-8BEN-E, as applicable (or any successor form) establishing an exemption from, or reduction of, U.S. federal
withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
b.
executed copies of IRS Form W-8ECI;
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 F-1 to the effect that such Foreign Lender is not a
“bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section
881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance
Certificate”) and (y) executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable (or any successor form); or
c.
d.
to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-
8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable (or any successor form), a U.S. Tax
Compliance Certificate substantially in the form of Exhibit F-2 or Exhibit F-3, IRS Form W-9, and/or 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 U.S. Tax Compliance Certificate
substantially in the form of Exhibit F-4 on behalf of each such direct and indirect partner;
51
b.
any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the
Administrative Agent (in such number of copies as shall be requested by the recipient) 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), executed copies of 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.
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 including IRS Form
W-8BEN-E) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for
the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied
with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of
this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
vi.Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate
in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal
inability to do so.
26.
Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has
received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.20 (including by the payment of additional
amounts pursuant to this Section 2.20), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of
indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses
(including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with
respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the
amount paid over pursuant to this Section 2.20(g) (plus any penalties, interest or other charges imposed by the relevant Governmental
Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding
anything to the contrary in this Section 2.20(g), in no event will the indemnified party be required to pay any amount to an indemnifying
party pursuant to this Section 2.20(g) the payment of which would place the indemnified party in a less favorable net after-Tax position than
the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld
or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph
shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it
deems confidential) to the indemnifying party or any other Person.
27.
Survival. Each party’s obligations under this Section 2.20 shall survive the resignation or replacement of the
Administrative Agent or any assignment of rights by, or the replacement of, a Lender and the Discharge of Obligations.
52
u.
Indemnity
. The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense that such Lender
may sustain or incur as a consequence of (a) a default by the Borrower in making a borrowing of, conversion into or continuation of
Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) a default
by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement, (c) any failure of the Borrower to make payment of any drawing under any Letter of Credit
(or interest due thereon) denominated in an Alternative Currency on its scheduled due date or any payment thereof in a different currency, or
(d) for any reason, the making of a prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto.
Such losses and expenses shall be equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid,
or not so borrowed, reduced, converted or continued, for the period from the date of such prepayment or of such failure to borrow, reduce,
convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, reduce, convert or continue, the Interest
Period that would have commenced on the date of such failure) in each case at the applicable rate of interest or other return for such Loans
provided for herein (excluding, however, the Applicable Margin included therein, if any), over (ii) the amount of interest (as reasonably
determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to
the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the Discharge of Obligations.
v.
Change of Lending Office
. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.19(b), Section 2.19(c),
Section 2.20(a), Section 2.20(b) or Section 2.20(d) with respect to such Lender or that would require any Loan Party to pay any Indemnified
Taxes or additional amounts to any Lender or Governmental Authority for the account of such Lender pursuant to Section 2.19 or Section
2.20, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate a
different lending office for funding or booking its Loans affected by such event or to assign its rights and obligations hereunder to another of
its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.19 or 2.20, as the case may be, in the future, and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender; provided that nothing in this Section shall affect or postpone any of the
obligations of the Borrower or the rights of any Lender pursuant to Section 2.19(b), Section 2.19(c), Section 2.20(a), Section 2.20(b) or
Section 2.20(d). The Borrower hereby agrees to pay all reasonable and documented costs and expenses incurred by any Lender in connection
with any such designation or assignment made at the request of the Borrower.
w.
Substitution of Lenders
. Upon the receipt by the Borrower of any of the following (or in the case of clause (a) below, if the Borrower is required to pay any
such amount), with respect to any Lender (any such Lender described in clauses (a) through (c) below being referred to as an “Affected
Lender” hereunder):
53
28.
a request from a Lender for payment of Indemnified Taxes or additional amounts under Section 2.20 or of increased
costs pursuant to Section 2.19(b) or Section 2.19(c) (and, in any such case, such Lender has declined or is unable to designate a different
lending office in accordance with Section 2.22 or is a Non-Consenting Lender);
29.
a notice from the Administrative Agent under Section 10.1(b) that one or more Minority Lenders are unwilling to
agree to an amendment or other modification approved by the Required Lenders and the Administrative Agent; or
30.
notice from the Administrative Agent that a Lender is a Defaulting Lender;
then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent and such Affected Lender:
(i) request that one or more of the other Lenders acquire and assume all or part of such Affected Lender’s Loans and Commitment; or
(ii) designate a replacement lending institution (which shall be an Eligible Assignee) to acquire and assume all or a ratable part of such
Affected Lender’s Loans and Commitment (the replacing Lender or lender in (i) or (ii) being a “Replacement Lender”); provided, however,
that the Borrower shall be liable for the payment upon demand of all costs and other amounts arising under Section 2.21 that result from the
acquisition of any Affected Lender’s Loan and/or Commitment (or any portion thereof) by a Lender or Replacement Lender, as the case may
be, on a date other than the last day of the applicable Interest Period with respect to any Eurodollar Loans then outstanding; and provided
further, however, that if the Borrower elects to exercise such right with respect to any Affected Lender under clauses (a) or (b) of this Section
2.23, then the Borrower shall be obligated to replace all Affected Lenders under such clauses. The Affected Lender replaced pursuant to this
Section 2.23 shall be required to assign and delegate, without recourse, all of its interests, rights and obligations under this Agreement and the
related Loan Documents to one or more Replacement Lenders that so agree to acquire and assume all or a ratable part of such Affected
Lender’s Loans and Commitment upon payment to such Affected Lender of an amount (in the aggregate for all Replacement Lenders) equal
to 100% of the outstanding principal of the Affected Lender’s Loans, accrued interest thereon, accrued fees and all other amounts payable to
it hereunder and under the other Loan Documents from such Replacement Lenders (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts, including amounts under Section 2.21 hereof). Any such designation of a
Replacement Lender shall be effected in accordance with, and subject to the terms and conditions of, the assignment provisions contained in
Section 10.6 (with the assignment fee to be paid by the Borrower in such instance), and if such Replacement Lender is not already a Lender
hereunder or an Affiliate of a Lender or an Approved Fund, shall be subject to the prior written consent of the Administrative Agent (which
consent shall not be unreasonably withheld). Notwithstanding the foregoing, with respect to any assignment pursuant to this Section 2.23,
(a) in the case of any such assignment resulting from a claim for compensation under Section 2.19 or payments required to be made pursuant
to Section 2.20, such assignment shall result in a reduction in such compensation or payments thereafter; (b) such assignment shall not
conflict with applicable law and (c) in the case of any assignment resulting from a Lender being a Minority Lender referred to in clause (b) of
this Section 2.23, the applicable assignee shall have consented to the applicable amendment, waiver or consent. Notwithstanding the
foregoing, an Affected Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by
such Affected Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
54
x.
Defaulting Lenders.
31.
Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender
becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable
law:
consent with respect to this Agreement shall be restricted as set forth in Section 10.1 and in the definition of Required Lenders.
(i) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or
(ii) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the
Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 8 or
otherwise, and including any amounts made available to the Administrative Agent by such Defaulting Lender pursuant to Section 10.7), 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 the Issuing Lender or to the Swingline Lender hereunder; third, to be held as Cash Collateral for the funding obligations
of such Defaulting Lender of any participation in any Letter of Credit; 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 to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under
this Agreement, and (y) be held as Cash Collateral for the future funding obligations of such Defaulting Lender of any participation in any
future Letter of Credit; sixth, to the payment of any amounts owing to any L/C Lender, Issuing Lender or Swingline Lender as a result of any
judgment of a court of competent jurisdiction obtained by any L/C Lender, Issuing Lender or Swingline Lender 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 has occurred and is continuing, 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 (A) such payment is a payment of the principal amount of any Loans or L/C Advances in respect of which such Defaulting
Lender has not fully funded its appropriate share and (B) such Loans or L/C Advances were made at a time when the conditions set forth in
Section 5.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Advances owed to, all Non-
Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Advances owed to, such Defaulting
Lender until such time as all Loans and funded and unfunded participations in L/C Advances and Swingline Loans are held by the Lenders
pro rata in accordance with the Commitments under the applicable Facility without giving effect to Section 2.24(a)(iv). 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 2.24(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each
Lender irrevocably consents hereto.
(iii) Certain Fees.
during which such Lender is a Defaulting Lender (and the
a.
No Defaulting Lender shall be entitled to receive any fee pursuant to Section 2.9(b) for any period
55
Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to such Defaulting Lender).
Section 3.3(d).
b.
Each Defaulting Lender shall be limited in its right to receive Letter of Credit Fees as provided in
c.
With respect to any Letter of Credit Fee not required to be paid to any Defaulting Lender pursuant to
clause (A) or (B) above, the Borrower shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such
Defaulting Lender with respect to such Defaulting Lender’s participation in Letters of Credit or Swingline Loans that has been reallocated to
such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to the Issuing Lender and the Swingline Lender, as applicable, the amount
of any such fee otherwise payable to such Defaulting Lender to the extent allocable to the Issuing Lender’s or the Swingline Lender’s
Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(iv) Reallocation of Pro Rata Share to Reduce Fronting Exposure. During any period in which there is a Defaulting
Lender, for purposes of computing the amount of the obligation of each Non-Defaulting Lender to acquire, refinance or fund participations in
Letters of Credit pursuant to Section 3.4 or in Swingline Loans pursuant to Section 2.7(c), the L/C Percentage of each Non-Defaulting Lender
of any such Letter of Credit and the Revolving Percentage of each Non-Defaulting Lender of any such Swingline Loan, as the case may be,
shall be computed without giving effect to the Revolving Commitment of such Defaulting Lender; provided that, the aggregate obligations of
each Non-Defaulting Lender to acquire, refinance or fund participations in Letters of Credit and Swingline Loans shall not exceed the
positive difference, if any, of (1) the Revolving Commitment of that Non-Defaulting Lender minus (2) the aggregate outstanding amount of
the Revolving Loans of that Lender plus the aggregate amount of that Lender’s L/C Percentage of the Dollar Equivalent of the then
outstanding Letters of Credit. Subject to Section 10.21, no reallocation hereunder shall constitute a waiver or release of any claim of any
party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-
Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(v) Cash Collateral, Repayment of Swingline Loans. If the reallocation described in clause (iv) above cannot, or can
only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, (x) first,
prepay Swingline Loans in an amount equal to the Swingline Lender’s Fronting Exposure and (y) second, Cash Collateralize the Issuing
Lender’s Fronting Exposure in accordance with the procedures set forth in Section 3.10.
32.
Defaulting Lender Cure. If the Borrower, the Administrative Agent, the Swingline Lender and the Issuing Lender
agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of
the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any
Cash Collateral), such Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take
such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in
Letters of Credit and Swingline Loans to be held on a pro rata basis by the Lenders in accordance with their respective Revolving
Percentages and L/C Percentages, as applicable (without giving effect to Section 2.24(a)(iv)), whereupon such Lender will cease to be a
Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of
the Borrower while such Lender was a Defaulting Lender; and provided further that, except to the extent otherwise expressly
56
agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any
party hereunder arising from such Lender having been a Defaulting Lender.
33.
New Swingline Loans/Letters of Credit. So long as any Lender is a Defaulting Lender, (i) the Swingline Lender shall
not be required to fund any Swingline Loans unless it is satisfied that it will have no Fronting Exposure after giving effect to such Swingline
Loan, and (ii) the Issuing Lender shall not be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will
have no Fronting Exposure in respect of Letters of Credit after giving effect thereto.
34.
Termination of Defaulting Lender. The Borrower may terminate the unused amount of the Revolving Commitment of
any Revolving Lender that is a Defaulting Lender upon not less than 10 Business Days’ prior notice to the Administrative Agent (which shall
promptly notify the Lenders thereof), and in such event the provisions of Section 2.24(a)(ii) will apply to all amounts thereafter paid by the
Borrower for the account of such Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other
amounts); provided that (i) no Event of Default shall have occurred and be continuing, and (ii) such termination shall not be deemed to be a
waiver or release of any claim the Borrower, the Administrative Agent, the Issuing Lender, the Swingline Lender or any other Lender may
have against such Defaulting Lender.
y.
Joint and Several Liability of the Borrowers.
If at any time there is more than one Person composing the Borrower:
35.
Each Borrower is accepting joint and several liability hereunder and under the other Loan Documents in
consideration of the financial accommodations to be provided by the Lenders under this Agreement, for the mutual benefit, directly and
indirectly, of each Borrower and in consideration of the undertakings of the other Borrowers to accept joint and several liability for the
Obligations.
36.
Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also
as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations
(including any Obligations arising under this Section 2.25), it being the intention of the parties hereto that all the Obligations shall be the joint
and several obligations of each Borrower without preferences or distinction among them.
37.
If and to the extent that any Borrower shall fail to make any payment with respect to any of the Obligations as and
when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Borrowers will make
such payment with respect to, or perform, such Obligations.
38.
The Obligations of each Borrower under the provisions of this Section 2.25 constitute the absolute and unconditional,
full recourse Obligations of each Borrower enforceable against each Borrower to the full extent of its properties and assets, irrespective of the
validity, regularity or enforceability of this Agreement or any other circumstances whatsoever.
39.
Except as otherwise expressly provided in this Agreement, each Borrower hereby waives notice of acceptance of its
joint and several liability, notice of any Loans made or Letters of Credit issued under or pursuant to this Agreement, notice of the occurrence
of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted
57
by the Administrative Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages
and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this
Agreement (except as otherwise provided in this Agreement). Each Borrower hereby assents to, and waives notice of, any extension or
postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance
of any partial payment thereon, any waiver, consent or other action or acquiescence by the Administrative Agent or Lenders at any time or
times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this
Agreement, any and all other indulgences whatsoever by the Administrative Agent or Lenders in respect of any of the Obligations, and the
taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition,
substitution or release, in whole or in part, of any Borrower. Without limiting the generality of the foregoing, each Borrower assents to any
other action or delay in acting or failure to act on the part of the Administrative Agent or Lender with respect to the failure by any Borrower
to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue
any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.25 afford
grounds for terminating, discharging or relieving any Borrower, in whole or in part, from any of its Obligations under this Section 2.25, it
being the intention of each Borrower that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of each Borrower
under this Section 2.25 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of
each Borrower under this Section 2.25 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement,
liquidation, reconstruction or similar proceeding with respect to any Borrower, the Administrative Agent or any Lender.
40.
Each Borrower represents and warrants to the Administrative Agent and Lenders that such Borrower is currently
informed of the financial condition of the Borrowers and of all other circumstances which a diligent inquiry would reveal and which bear
upon the risk of nonpayment of the Obligations. Each Borrower further represents and warrants to the Administrative Agent and Lenders that
such Borrower has read and understands the terms and conditions of the Loan Documents. Each Borrower hereby covenants that such
Borrower will continue to keep informed of the Borrowers’ financial condition, the financial condition of other guarantors, if any, and of all
other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations.
41.
Each Borrower waives all rights and defenses (i) arising out of an election of remedies by the Administrative Agent
or any Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation,
has destroyed such Borrower’s rights of subrogation and reimbursement against any applicable Loan Party by the operation of Section 580 or
726 of the California Code of Civil Procedure or otherwise, and (ii) relating to any suretyship defenses available to it under the Uniform
Commercial Code or any other applicable law, including, without limitation, the benefit of California Civil Code Section 2815 permitting
revocation as to future transactions and the benefit of California Civil Code Sections 1432, 2787 through 2855, 2899 and 3433.
42.
Each Borrower waives all rights and defenses that such Borrower may have because the Obligations are secured by
real property at any time. This means, among other things:
personal property Collateral pledged by the Borrowers.
vii.The Administrative Agent and Lenders may collect from such Borrower without first foreclosing on any real or
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Borrowers:
viii.If the Administrative Agent or any Lender forecloses on any Collateral consisting of real property pledged by the
the foreclosure sale, even if the collateral is worth more than the sale price.
d.
The amount of the Obligations may be reduced only by the price for which that collateral is sold at
Agent or Lenders, by foreclosing on real property, has destroyed any right such Borrower may have to collect from the other Borrowers.
e.
The Administrative Agent and Lenders may collect from such Borrower even if the Administrative
This is an unconditional and irrevocable waiver of any rights and defenses such Borrower may have because the Obligations are
secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b,
580d or 726 of the California Code of Civil Procedure.
43.
The provisions of this Section 2.25 are made for the benefit of the Administrative Agent, the Lenders, and their
respective successors and assigns, and may be enforced by it or them from time to time against any or all the Borrowers as often as occasion
therefor may arise and without requirement on the part of the Administrative Agent, any Lender, any successor or any assign first to marshal
any of its or their claims or to exercise any of its or their rights against any Borrower or to exhaust any remedies available to it or them
against any Borrower or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other
remedy. The provisions of this Section 2.25 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully
satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be
restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy or reorganization of any Borrower, or
otherwise, the provisions of this Section 2.25 will forthwith be reinstated in effect, as though such payment had not been made.
44.
Each Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against any other
Borrower with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to the
Administrative Agent or Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the
Obligations have been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any
payments to the Administrative Agent or Lender hereunder or under any other Loan Documents are hereby expressly made subordinate and
junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in
full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar
proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such
Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property,
shall be made to any other Borrower therefor. Notwithstanding anything to the contrary contained in this Section 2.25, no Borrower shall
exercise any rights of subrogation, contribution, indemnity, reimbursement or other similar rights against, and shall not proceed or seek
recourse against or with respect to any property or asset of, any other Borrower (the “Foreclosed Borrower”), including after payment in full
of the Obligations, if all or any portion of the Obligations have been satisfied in connection with an exercise of remedies in respect of the
Capital Stock of such Foreclosed Borrower whether pursuant to the Security Documents or otherwise.
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45.
Each Borrower hereby agrees that, after the occurrence and during the continuance of any Default or Event of
Default, the payment of any amounts due with respect to the indebtedness owing by any Borrower to any other Borrower is hereby
subordinated to the prior payment in full in cash of the Obligations. Each Borrower hereby agrees that after the occurrence and during the
continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of
any other Borrower owing to such Borrower until the Obligations shall have been paid in full in cash. If, notwithstanding the foregoing
sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected,
enforced and received by such Borrower as trustee for the Administrative Agent, and such Borrower shall deliver any such amounts to the
Administrative Agent for application to the Obligations in accordance with the terms of this Agreement.
46.
Subject to the foregoing, to the extent that any Borrower shall, under this Agreement as a joint and several obligor,
repay any of the Obligations made to another Borrower hereunder or other Obligations incurred directly and primarily by any other Borrower
(an “Accommodation Payment”), then the Borrower making such Accommodation Payment shall be entitled to contribution and
indemnification from, and be reimbursed by, each other Borrower in an amount, for each of such other Borrower, equal to a fraction of such
Accommodation Payment, the numerator of which fraction is such other Borrower’s Allocable Amount and the denominator of which is the
sum of the Allocable Amounts of all of the Borrowers. As of any date of determination, the “Allocable Amount” of each Borrower shall be
equal to the maximum amount of liability for Accommodation Payments which could be asserted against such Borrower hereunder without
(a) rendering such Borrower “insolvent” within the meaning of Section 101(31) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent
Transfer Act (“UFTA”) or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (b) leaving such Borrower with unreasonably
small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA, or Section 5 of the UFCA, or
(c) leaving such Borrower unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code or Section 4
of the UFTA, or Section 5 of the UFCA.
47.
Each entity composing the Borrower hereby irrevocably appoints Fastly, Inc. as the borrowing agent and attorney-in-
fact for all entities composing the Borrower (the “Administrative Borrower”), which appointment shall remain in full force and effect unless
and until the Administrative Agent shall have received prior written notice signed by each entity composing the Borrower that such
appointment has been revoked and that another entity composing the Borrower has been appointed Administrative Borrower. Each entity
composing the Borrower hereby irrevocably appoints and authorizes the Administrative Borrower (a) to provide Agent with all notices with
respect to Loans and Letters of Credit obtained for the benefit of any entity composing the Borrower and all other notices and instructions
under this Agreement and the other Loan Documents, and (b) to take such action as the Administrative Borrower deems appropriate on its
behalf to obtain Loans and Letters of Credit and to exercise such other powers as are reasonably incidental thereto to carry out the purposes of
this Agreement and the other Loan Documents.
z.
Notes
. If so requested by any Lender by written notice to the Borrower (with a copy to the Administrative Agent), the Borrower shall
execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender
pursuant to Section 10.6) (promptly after the Borrower’s receipt of such notice) a Note or Notes to evidence such Lender’s Loans.
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aa.
Incremental Facility.
48.
At any time during the Revolving Commitment Period, the Borrower may request from time to time from one or
more existing Lenders or from other Eligible Assignees reasonably acceptable to the Administrative Agent, the Issuing Lender, the Swingline
Lender and the Borrower (but subject to the conditions set forth in clause (b) below) that the Total Revolving Commitments be increased by
an amount not to exceed the Available Revolving Increase Amount (each such increase, an “Increase”); provided that the Borrower may not
request an Increase on more than three occasions during the Revolving Commitment Period. No Lender shall be obligated to increase its
Revolving Commitments in connection with a proposed Increase. The Administrative Agent shall invite each Lender to provide a portion of
the Increase ratably in accordance with its Revolving Percentage of each requested Increase (it being agreed that no Lender shall be obligated
to provide an Increase and that any Lender may elect to participate in such Increase in an amount that is less than its Revolving Percentage of
such requested Increase or more than its Revolving Percentage of such requested Increase if other Lenders have elected not to participate in
any applicable requested Increase in accordance with their Revolving Percentage) and to the extent, 5 Business Days after receipt of
invitation, sufficient Lenders do not agree to provide the full amount of such Increase, then the Administrative Agent shall use its best efforts
to arrange for any prospective lender that satisfies the criteria of being an “Eligible Assignee” to become a Lender in connection with the
proposed Increase. Any Increase shall be in an amount of at least $5,000,000 (or, if the Available Revolving Increase Amount is less than
$5,000,000, such remaining Available Revolving Increase Amount) and integral multiples of $1,000,000 in excess thereof. Additionally, for
the avoidance of doubt, it is understood and agreed that in no event shall the aggregate amount of the Increases to the Revolving
Commitments exceed the Available Revolving Increase Amount during the term of the Agreement. Each request for an Increase delivered by
the Borrower to the Administrative Agent shall set forth the amount and proposed terms of the Increase.
49.
Each of the following shall be conditions precedent to any Increase of the Revolving Commitments in connection
therewith:
ix.any Increase shall be on the same terms (including the interest rate, and maturity date), as applicable, as, and pursuant
to documentation applicable to, the Revolving Facility then in effect; provided that any such Increase may provide for terms (including
interest rate) more favorable to such Increase lenders, if any existing Revolving Loans at the time of such Increase are also provided the
benefit of such more favorable terms (and the consent of any existing Revolving Lender shall not be required to implement such terms);
provided further, that any fees shall be agreed between the Borrower and the lenders providing such Increase;
x.the Borrower shall have delivered a written request for such Increase at least 10 Business Days prior to the requested
establishment of such Increase (or such later date as may be reasonably approved by the Administrative Agent), which request shall set forth
the amount and proposed terms of the Increase;
xi.each lender agreeing to such Increase, the Borrower and the Administrative Agent shall have signed an Increase
Joinder (any Increase Joinder may, with the consent of the Administrative Agent, the Borrower and the lenders agreeing to such Increase,
effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate to effectuate the provisions of
this Section 2.27 (including the preceding clause (ii))), the Borrower shall have executed any Notes requested by any Lender in connection
with the making of the Increase, and the Loan Parties shall have delivered any legal opinions, resolutions and customary closing certificates
requested by the
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Administrative Agent. Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, an Increase Joinder
reasonably satisfactory to the Administrative Agent, and the amendments to this Agreement effected thereby, shall not require the consent of
any Lender other than the Lender(s) agreeing to establish such Increase;
xii.immediately after giving pro forma effect to such Increase and the use of proceeds thereof, each of the conditions
precedent in Section 5.2(a) are satisfied (other than in connection with Limited Condition Acquisitions, in which case (i) Section 5.2(a) shall
be satisfied only in connection with the Specified Representations and (ii) the Specified Acquisition Agreement Representations shall be true
and correct on the date Loans are made under the Increase, but only to the extent that the Borrower (or any of its Affiliates) has the right
(taking into account any applicable cure provisions) to terminate its (or such Affiliates’) obligations under the Limited Condition Acquisition
Agreement, or to decline to consummate the Limited Condition Acquisition Agreement (in each case, in accordance with the terms thereof)
as a result of a breach of such Specified Acquisition Agreement Representations);
xiii.immediately after giving pro forma effect to such Increase and the use of proceeds thereof, (A) no Default or Event of
Default shall have occurred and be continuing at the time of such Increase (other than in connection with Limited Condition Acquisitions, in
which case there shall be no Default or Event of Default as of the LCA Test Date and no Event of Default under Section 8.1(a) or (f)
immediately after giving effect to such Increase and the use of proceeds thereof) and (B) the Borrower shall be in compliance with the
financial covenants set forth in Section 7.1 hereof as of the end of the most recently ended quarter for which financial statements are required
to be delivered prior to such Increase, and the Borrower shall have delivered to the Administrative Agent a Compliance Certificate
evidencing compliance with the requirements of this clause (v) (provided that, in the case of a Limited Condition Acquisition, such
calculation shall be made in compliance with Section 1.6);
xiv.in connection with such Increase, the Borrower shall pay to the Administrative Agent, for the benefit of the
Administrative Agent or the Increase lenders, as applicable, all fees that the Borrower has agreed to pay in connection with such Increase
(including pursuant to the Fee Letter); and
xv.upon each Increase in accordance with this Section 2.27, all outstanding Loans, participations hereunder in Letters of
Credit and participations hereunder in Swingline Loans held by each Lender shall be reallocated among the Lenders (including any newly
added Lenders) in accordance with the Lenders’ respective revised Revolving Percentages and L/C Percentages, pursuant to procedures
reasonably determined by the Administrative Agent in consultation with the Borrower.
50.
Upon the effectiveness of any Increase, (i) all references in this Agreement and any other Loan Document to the
Revolving Loans shall be deemed, unless the context otherwise requires, to include such Increase advanced pursuant to this Section 2.27 and
any amendments effected through the Increase Joinder and (ii) all references in this Agreement and any other Loan Document to the
Revolving Commitment shall be deemed, unless the context otherwise requires, to include the commitment to advance an amount equal to
such Increase pursuant to this Section 2.27.
51.
The Revolving Loans and Revolving Commitments established pursuant to this Section 2.27 shall constitute
Revolving Loans and Revolving Commitments under, and shall be entitled to all the benefits afforded by, this Agreement and the other Loan
Documents, and shall, without limiting the foregoing, benefit equally and ratably from any guarantees and the security interests created by the
Loan Documents. The Borrower shall take any actions reasonably required by Administrative Agent to ensure and demonstrate that the Liens
and security interests granted by the Loan Documents continue to be
62
perfected under the UCC or otherwise after giving effect to the establishment of any such new Revolving Commitments.
a.
L/C Commitment.
SECTION 3.
LETTERS OF CREDIT
52.
Subject to the terms and conditions hereof, the Issuing Lender agrees to issue letters of credit (“Letters of Credit”) for
the account of the Borrower (or any other Group Member so long as the Borrower is the applicant on the applicable Application and such
Group Member has furnished any documentation required by the Issuing Lender pursuant to “know-your-customer” or any internal
requirements) on any Business Day during the Letter of Credit Availability Period in such form as may reasonably be approved from time to
time by the Issuing Lender; provided that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to
such issuance, the L/C Exposure would exceed either the Total L/C Commitments or the Available Revolving Commitment at such time.
Each Letter of Credit shall (i) be denominated in Dollars or in an Alternative Currency (it being agreed that the Issuing Lender shall have no
obligation to issue, renew or extend a Letter of Credit in an Alternative Currency if the Issuing Lender as of any date of determination does
not issue Letters of Credit in such Alternative Currency), and (ii) unless otherwise agreed to by the Issuing Lender, expire no later than the
earlier of (x) the first anniversary of its date of issuance and (y) the Letter of Credit Maturity Date, provided that any Letter of Credit with a
one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to
in clause (y) above unless the Issuing Lender otherwise agrees).
53.
The Issuing Lender shall not at any time be obligated to issue any Letter of Credit if:
any applicable Requirement of Law;
xvi.such issuance would conflict with, or cause the Issuing Lender or any L/C Lender to exceed any limits imposed by,
xvii.any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or
restrain the Issuing Lender from issuing, amending or reinstating such Letter of Credit, or any law, rule or regulation applicable to the Issuing
Lender or any request, guideline or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction
over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance, amendment, renewal or reinstatement of
letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Lender with respect to such Letter of Credit
any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated) not in effect on the Closing Date,
or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the
Issuing Lender in good faith deems material to it;
xviii.the Issuing Lender has received written notice from any Lender, the Administrative Agent or the Borrower, at least 1
Business Day prior to the requested date of issuance, amendment, renewal or reinstatement of such Letter of Credit, that one or more of the
applicable conditions contained in Section 5.2 shall not then be satisfied;
amendment or renewal of a Letter of Credit shall violate any applicable laws or regulations or any applicable policies of the Issuing Lender;
xix.any requested Letter of Credit is not in form and substance acceptable to the Issuing Lender, or the issuance,
63
drawing thereunder;
xx.such Letter of Credit contains any provisions providing for automatic reinstatement of the stated amount after any
xxi.such Letter of Credit is not denominated in Dollars or an Alternative Currency;
face amount less than $250,000; or
xxii.except as otherwise agreed by the Administrative Agent and the Issuing Lender, such Letter of Credit is in an initial
xxiii.any Lender is at that time a Defaulting Lender, unless the Issuing Lender has entered into arrangements, including the
delivery of Cash Collateral pursuant to Section 3.10, satisfactory to the Issuing Lender (in its sole discretion) with the Borrower or such
Defaulting Lender to eliminate the Issuing Lender’s actual or potential Fronting Exposure (after giving effect to Section 2.24(a)(iv)) with
respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or such Letter of Credit and all other L/C
Exposure as to which the Issuing Lender has actual or potential Fronting Exposure, as it may elect in its sole discretion.
b.
Procedure for Issuance of Letters of Credit
. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit for the account of the Borrower by
delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing
Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any
Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it
in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in
no event shall the Issuing Lender be required to issue any Letter of Credit earlier than 3 Business Days (or such longer period as is required
by the Issuing Lender in the case of a Letter of Credit denominated in an Alternative Currency) after its receipt of the Application therefor
and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to
the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of
such Letter of Credit to the Borrower promptly following the issuance thereof. The Issuing Lender shall promptly furnish to the
Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the
amount thereof).
c.
Fees and Other Charges.
54.
The Borrower agrees to pay, with respect to each Existing Letter of Credit and each outstanding Letter of Credit
issued for the account of (or at the request of) the Borrower, (i) a fronting fee of 0.125% per annum on the Dollar Equivalent of the daily
amount available to be drawn under each such Letter of Credit to the Issuing Lender for its own account (a “Letter of Credit Fronting Fee”),
and (ii) a letter of credit fee equal to the Applicable Margin for Eurodollar Loans; multiplied by (B) the Dollar Equivalent of the daily amount
available to be drawn under each such Letter of Credit on the drawable amount of such Letter of Credit to the Administrative Agent for the
ratable account of the L/C Lenders (determined in accordance with their respective L/C Percentages) (a “Letter of Credit Fee”), in each case
payable quarterly in arrears on the last Business Day of each calendar quarter and on the Letter of Credit Maturity Date (each, an “L/C Fee
Payment Date”) after the issuance date of such Letter of Credit, and (iii) the Issuing Lender’s standard and reasonable fees with respect to the
issuance, amendment, renewal or extension of any Letter of Credit issued for the account of (or at the request of) the Borrower or processing
of drawings thereunder (the fees in this clause (iii), collectively, the “Issuing
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Lender Fees”). All Letter of Credit Fronting Fees and Letter of Credit Fees shall be computed on the basis of the actual number of days
elapsed in a year of 360 days. For purposes of computing the Dollar Equivalent of the daily amount available to be drawn under any Letter of
Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.5.
55.
In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Lender for such normal and
customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or
otherwise administering any Letter of Credit.
56.
The Borrower shall furnish to the Issuing Lender and the Administrative Agent such other documents and
information pertaining to any requested Letter of Credit issuance, amendment or renewal, including any L/C-Related Documents, as the
Issuing Lender or the Administrative Agent may reasonably require. This Agreement shall control in the event of any conflict with any L/C-
Related Document (other than any Letter of Credit).
57.
Any Letter of Credit Fees otherwise payable for the account of a Defaulting Lender with respect to any Letter of
Credit as to which such Defaulting Lender has not provided Cash Collateral satisfactory to the Issuing Lender pursuant to Section 3.10 shall
be payable, to the maximum extent permitted by applicable law, to the other L/C Lenders in accordance with the upward adjustments in their
respective L/C Percentages allocable to such Letter of Credit pursuant to Section 2.24(a)(iv), with the balance of such fee, if any, payable to
the Issuing Lender for its own account.
58.
All fees payable under this Section 3.3 shall be fully earned on the date paid and nonrefundable.
d.
L/C Participations; Existing Letters of Credit.
59.
L/C Participations. The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Lender, and, to
induce the Issuing Lender to issue Letters of Credit, each L/C Lender irrevocably agrees to accept and purchase and hereby accepts and
purchases from the Issuing Lender, on the terms and conditions set forth below, for such L/C Lender’s own account and risk an undivided
interest equal to such L/C Lender’s L/C Percentage in the Issuing Lender’s obligations and rights under and in respect of each Letter of Credit
and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Lender agrees with the Issuing Lender that, if a draft is paid
under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower pursuant to Section 3.5(a), such L/C Lender
shall pay to the Issuing Lender upon demand at the Issuing Lender’s address for notices specified herein an amount equal to such L/C
Lender’s L/C Percentage of the amount of such draft, or any part thereof, that is not so reimbursed. Each L/C Lender’s obligation to pay such
amount shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment,
defense or other right that such L/C Lender may have against the Issuing Lender, the Borrower or any other Person for any reason
whatsoever, (ii) the occurrence of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5.2,
(iii) any adverse change in the condition (financial or otherwise) of the Borrower, (iv) any breach of this Agreement or any other Loan
Document by the Borrower, any other Loan Party or any other L/C Lender, or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
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60.
Existing Letters of Credit. On and after the Closing Date, the Existing Letters of Credit shall be deemed for all
purposes, including for purposes of the fees to be collected pursuant to Sections 3.3(a) and (b), reimbursement of costs and expenses to the
extent provided herein and for purposes of being secured by the Collateral, a Letter of Credit outstanding under this Agreement and entitled
to the benefits of this Agreement and the other Loan Documents, and shall be governed by the applications and agreements pertaining thereto
and by this Agreement (which shall control in the event of a conflict).
e.
Reimbursement.
61.
If the Issuing Lender shall make any L/C Disbursement in respect of a Letter of Credit, the Issuing Lender shall notify
the Borrower and the Administrative Agent thereof and the Borrower shall pay or cause to be paid to the Issuing Lender an amount equal to
the entire amount of such L/C Disbursement not later than the immediately following Business Day. In the case of a Letter of Credit
denominated in an Alternative Currency, the Borrower shall reimburse the Issuing Lender in such Alternative Currency, unless (A) the
Issuing Lender (at its option) shall have specified in such notice that it will require reimbursement in Dollars, or (B) in the absence of any
such requirement for reimbursement in Dollars, the Borrower shall have notified the Issuing Lender promptly following receipt of the notice
of drawing that the Borrower will reimburse the Issuing Lender in Dollars. In the case of any such reimbursement in Dollars of a drawing
under a Letter of Credit denominated in an Alternative Currency, the Issuing Lender shall notify the Borrower of the Dollar Equivalent of the
amount of the drawing promptly following the determination thereof. In the event that a drawing denominated in an Alternative Currency is
to be reimbursed in Dollars and the Dollar amount paid by the Borrower shall not be adequate on the date of that payment to purchase in
accordance with normal banking procedures a sum denominated in the Alternative Currency equal to the drawing, the Borrower agrees, as a
separate and independent obligation, to indemnify the Issuing Lender for the loss resulting from its inability on that date to purchase the
Alternative Currency in the full amount of the drawing. Each such payment shall be made to the Issuing Lender at its address for notices
referred to herein in Same Day Funds; provided that the Borrower may, subject to the satisfaction of the conditions to borrowing set forth
herein, request in accordance with Section 2.5 or Section 2.7(a) that such payment be financed with a Revolving Loan or a Swingline Loan,
as applicable, in an equivalent amount and, to the extent so financed, the Borrower’s obligations to make such payment shall be discharged
and replaced by the resulting Revolving Loan or Swingline Loan.
62.
If the Issuing Lender shall not have received from the Borrower the payment that it is required to make pursuant to
Section 3.5(a) with respect to a Letter of Credit within the time specified in such Section, the Issuing Lender will promptly notify the
Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each L/C Lender of such L/C
Disbursement and its L/C Percentage thereof, and each L/C Lender shall pay to the Issuing Lender upon demand at the Issuing Lender’s
address for notices specified herein an amount equal to such L/C Lender’s L/C Percentage of such L/C Disbursement (expressed in Dollars in
the amount of the Dollar Equivalent thereof in the case of a Letter of Credit denominated in an Alternative Currency) (and the Administrative
Agent may apply Cash Collateral provided for this purpose); upon such payment pursuant to this paragraph to reimburse the Issuing Lender
for any L/C Disbursement, the Borrower shall be required to reimburse the L/C Lenders for such payments (including interest accrued
thereon from the date of such payment until the date of such reimbursement at the rate applicable to Revolving Loans that are ABR Loans
plus 2% per annum) on demand; provided that if at the time of and after giving effect to such payment by the L/C Lenders, the conditions to
borrowings and Revolving Loan Conversions set forth in Section 5.2 are satisfied, the Borrower may, by written notice to the Administrative
Agent certifying that
66
such conditions are satisfied and that all interest owing under this paragraph has been paid, request that such payments by the L/C Lenders be
converted into Revolving Loans (a “Revolving Loan Conversion”), in which case, if such conditions are in fact satisfied, the L/C Lenders
shall be deemed to have extended, and the Borrower shall be deemed to have accepted, a Revolving Loan in the aggregate principal amount
of such payment without further action on the part of any party, and the Total L/C Commitments shall be permanently reduced by such
amount; any amount so paid pursuant to this paragraph shall, on and after the payment date thereof, be deemed to be Revolving Loans for all
purposes hereunder; provided that the Issuing Lender, at its option, may effectuate a Revolving Loan Conversion regardless of whether the
conditions to borrowings and Revolving Loan Conversions set forth in Section 5.2 are satisfied.
f.
Obligations Absolute
. The Borrower’s obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against the Issuing Lender, any
beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be
responsible for, and the Borrower’s obligations hereunder shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute
between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be
transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing
Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice,
however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a
court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Issuing Lender. The Borrower’s
obligation under this Section 3 shall not be impacted by any adverse change in the relevant exchange rates or in the availability of the relevant
Alternative Currency to the Borrower or any Subsidiary or in the relevant currency markets generally. The Borrower agrees that any action
taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the
absence of gross negligence or willful misconduct, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender
to the Borrower.
In addition to amounts payable as elsewhere provided in the Agreement, the Borrower hereby agrees to pay and to protect,
indemnify, and save Issuing Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys’ fees) that the Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (a)
the issuance of any Letter of Credit, or (b) the failure of Issuing Lender or of any L/C Lender to honor a demand for payment under any
Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or
Governmental Authority, in each case other than to the extent solely as a result of the gross negligence or willful misconduct of Issuing
Lender or such L/C Lender (as finally determined by a court of competent jurisdiction).
g.
Letter of Credit Payments
. If any draft shall be presented for payment under any Letter of Credit, the Issuing Lender shall promptly notify the Borrower and the
Administrative Agent of the date and amount thereof. The responsibility of the Issuing Lender to the Borrower in connection with any draft
presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit,
be limited to determining that the documents (including each draft) delivered under such
67
Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit.
h. Applications
. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
i.
Interim Interest
. If the Issuing Lender shall make any L/C Disbursement in respect of a Letter of Credit, then, unless either the Borrower shall have
reimbursed such L/C Disbursement in full within the time period specified in Section 3.5(a) or the L/C Lenders shall have reimbursed such
L/C Disbursement in full on such date as provided in Section 3.5(b), in each case the Dollar Equivalent of the unpaid amount thereof shall
bear interest for the account of the Issuing Lender, for each day from and including the date of such L/C Disbursement to but excluding the
date of payment by the Borrower, at the rate per annum that would apply to such amount if such amount were a Revolving Loan that is an
ABR Loan; provided that the provisions of Section 2.15(c) shall be applicable to any such amounts not paid when due.
j.
Cash Collateral.
63.
Certain Credit Support Events. Upon the request of the Administrative Agent or the Issuing Lender (i) if the Issuing
Lender has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Advance by all the
L/C Lenders that is not reimbursed by the Borrower or converted into a Revolving Loan or Swingline Loan pursuant to Section 3.5(b), or
(ii) if, as of the Letter of Credit Maturity Date, any L/C Exposure for any reason remains outstanding, the Borrower shall, in each case,
immediately Cash Collateralize the then effective L/C Exposure in an amount equal to 105% (110% in the case of a Letter of Credit
denominated in an Alternative Currency) of such L/C Exposure.
At any time that there shall exist a Defaulting Lender, within 1 Business Day following the request of the Administrative Agent or the
Issuing Lender (with a copy to the Administrative Agent), the Borrower shall deliver to the Administrative Agent Cash Collateral in an
amount sufficient to cover 105% (110% in the case of a Letter of Credit denominated in an Alternative Currency) of the Fronting Exposure
relating to the Letters of Credit (after giving effect to Section 2.24(a)(iv) and any Cash Collateral provided by such Defaulting Lender).
64.
Grant of Security Interest. All Cash Collateral (other than credit support not constituting funds subject to deposit)
shall be maintained in blocked, non-interest bearing deposit accounts with the Administrative Agent. The Borrower, and to the extent
provided by any Lender or Defaulting Lender, such Lender or Defaulting Lender, hereby grants to (and subjects to the control of) the
Administrative Agent, for the benefit of the Administrative Agent, the Issuing Lender and the L/C Lenders, and agrees to maintain, a first
priority security interest and Lien in all such Cash Collateral and in all proceeds thereof, as security for the Obligations to which such Cash
Collateral may be applied pursuant to Section 3.10(c). If at any time the Administrative Agent determines that Cash Collateral is subject to
any right or claim of any Person other than the Administrative Agent or any Issuing Lender as herein provided, or that the total amount of
such Cash Collateral is less than 105% (110% in the case of a Letter of Credit denominated in an Alternative Currency) of the applicable L/C
Exposure, Fronting Exposure and other Obligations secured thereby, the Borrower or the relevant Lender or Defaulting Lender, as applicable,
will, promptly upon demand by the Administrative Agent, pay or provide to the
68
Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency (after giving effect to any Cash
Collateral provided by such Defaulting Lender).
65.
Application. Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under
any of this Section 3.10, Section 2.24 or otherwise in respect of Letters of Credit shall be held and applied to the satisfaction of the specific
L/C Exposure, obligations to fund participations therein (including, as to Cash Collateral provided by a Defaulting Lender, any interest
accrued on such obligation) and other obligations for which the Cash Collateral was so provided, prior to any other application of such
property as may otherwise be provided for herein.
66.
Termination of Requirement. Cash Collateral (or the appropriate portion thereof) provided to reduce Fronting
Exposure in respect of Letters of Credit or other Obligations shall no longer be required to be held as Cash Collateral pursuant to this Section
3.10 following (i) the elimination of the applicable Fronting Exposure and other Obligations giving rise thereto (including by the termination
of the Defaulting Lender status of the applicable Lender), or (ii) a determination by the Administrative Agent and the Issuing Lender that
there exists excess Cash Collateral; provided, however, (A) that Cash Collateral furnished by or on behalf of a Loan Party shall not be
released during the existence of an Event of Default, and (B) that, subject to Section 2.24, the Person providing such Cash Collateral and the
Issuing Lender may agree that such Cash Collateral shall not be released but instead shall be held to support future anticipated Fronting
Exposure or other obligations, and provided further, that to the extent that such Cash Collateral was provided by the Borrower or any other
Loan Party, such Cash Collateral shall remain subject to any security interest and Lien granted pursuant to the Loan Documents including any
applicable Cash Management Agreement.
k. Additional Issuing Lenders
. The Borrower may, at any time and from time to time with the consent of the Administrative Agent (which consent shall not be
unreasonably withheld) and such Lender, designate one or more additional Lenders to act as an issuing bank under the terms of this
Agreement. Any Lender designated as an issuing bank pursuant to this paragraph shall be deemed to be an “Issuing Lender” (in addition to
being a Lender) in respect of Letters of Credit issued or to be issued by such Lender, and, with respect to such Letters of Credit, such term
shall thereafter apply to the other Issuing Lender and such Lender.
l.
Resignation of the Issuing Lender
. The Issuing Lender may resign at any time by giving at least 30 days’ prior written notice to the Administrative Agent, the Lenders
and the Borrower. Subject to the next succeeding paragraph, upon the acceptance of any appointment as the Issuing Lender hereunder by a
Lender that shall agree to serve as successor Issuing Lender, such successor shall succeed to and become vested with all the interests, rights
and obligations of the retiring Issuing Lender and the retiring Issuing Lender shall be discharged from its obligations to issue additional
Letters of Credit hereunder without affecting its rights and obligations with respect to Letters of Credit previously issued by it. At the time
such resignation shall become effective, the Borrower shall pay all accrued and unpaid fees pursuant to Section 3.3. The acceptance of any
appointment as the Issuing Lender hereunder by a successor Lender shall be evidenced by an agreement entered into by such successor, in a
form satisfactory to the Borrower and the Administrative Agent, and, from and after the effective date of such agreement, (i) such successor
Lender shall have all the rights and obligations of the previous Issuing Lender under this Agreement and the other Loan Documents and
(ii) references herein and in the other Loan Documents to the term “Issuing Lender” shall be deemed to refer to such successor or to any
previous Issuing Lender, or to such successor and all previous Issuing
69
Lenders, as the context shall require. After the resignation of the Issuing Lender hereunder, the retiring Issuing Lender shall remain a party
hereto and shall continue to have all the rights and obligations of an Issuing Lender under this Agreement and the other Loan Documents with
respect to Letters of Credit issued by it prior to such resignation, but shall not be required to issue additional Letters of Credit or to extend,
renew or increase any existing Letter of Credit.
m. Applicability of UCP and ISP
. Unless otherwise expressly agreed by the Issuing Lender and the Borrower when a Letter of Credit is issued and subject to
applicable laws, the Letters of Credit shall be governed by and subject to (a) with respect to standby Letters of Credit, the rules of the ISP,
and (b) with respect to commercial Letters of Credit, the rules of the Uniform Customs and Practice for Documentary Credits, as published in
its most recent version by the International Chamber of Commerce on the date any commercial Letter of Credit is issued.
SECTION 4.
REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and issue the Letters of
Credit, the Borrower hereby represents and warrants to the Administrative Agent and each Lender, as to itself and each other Group Member,
that:
a.
Financial Condition.
67.
[Reserved].
68.
The audited consolidated balance sheets of the Borrower and its Subsidiaries as of December 31, 2017, December 31,
2018 and December 31, 2019 and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates,
present fairly in all material respects the consolidated financial condition of the Borrower and its Subsidiaries as at such date, and the
consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. The unaudited consolidated
balance sheets of the Borrower and its Subsidiaries as at March 31, 2020, June 30, 2020, and September 30, 2020, and the related unaudited
consolidated statements of income and cash flows for the three, six and nine month periods ended on such dates, respectively, present fairly
in all material respects the consolidated financial condition of the Borrower and its Subsidiaries as at such dates, and the consolidated results
of its operations and its consolidated cash flows for the trailing three, six and nine month periods then ended (subject to normal year end audit
adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein).
No Group Member has, as of the Closing Date, any material Guarantee Obligations, contingent liabilities, or any long term leases or unusual
forward or long term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect
of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph. During the period from December
31, 2019 to and including the date hereof, there has been no Disposition by any Group Member of any material part of its business or
property.
b. No Change
70
. Since December 31, 2019, there has been no development or event that has had or could reasonably be expected to have a Material
Adverse Effect.
c.
Existence; Compliance with Law
. Each Group Member (a) is duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of
its organization, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee
and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation or other organization and in good
standing (if applicable) under the laws of each jurisdiction where the failure to be so qualified or in good standing could reasonably be
expected to have a Material Adverse Effect and (d) is in material compliance with all Requirements of Law except in such instances in which
(i) such Requirement of Law is being contested in good faith by appropriate proceedings diligently conducted and the prosecution of such
contest would not reasonably be expected to result in a Material Adverse Effect, or (ii) the failure to comply therewith, either individually or
in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
d.
Power, Authorization; Enforceable Obligations
. Each Loan Party has the power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a
party and, in the case of the Borrower, to obtain extensions of credit hereunder. Each Loan Party has taken all necessary organizational action
to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the extensions of credit on the terms and conditions of this Agreement. No material Governmental Approval or consent or
authorization of, filing with, notice to or other act by or in respect of, any other Person is required in connection with the extensions of credit
hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i)
Governmental Approvals, consents, authorizations, filings and notices described on Schedule 4.4 to the Disclosure Letter, which
Governmental Approvals, consents, authorizations, filings and notices have been obtained or made and are in full force and effect, and (ii) the
filings referred to in Section 4.19. Each Loan Document has been duly executed and delivered on behalf of each Loan Party party thereto.
This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan
Party party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by
general equitable principles (whether enforcement is sought by proceedings in equity or at law).
e.
No Legal Bar
. The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the
extensions of credit hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any material Contractual
Obligation of any Group Member and will not result in, or require, the creation or imposition of any Lien on any of their respective properties
or revenues pursuant to any Requirement of Law or any such material Contractual Obligation (other than the Liens created by the Security
Documents). No Group Member has violated any Requirement of Law or violated or failed to comply with any Contractual Obligation
applicable to a Group Member that could reasonably be expected to have a Material Adverse Effect.
71
f.
Litigation
. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or threatened in writing
by or against any Group Member or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or
any of the transactions contemplated hereby or thereby, or (b) that could reasonably be expected to have a Material Adverse Effect.
g.
No Default
. No Group Member is in default under or with respect to any of its Contractual Obligations in any respect that could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing, nor shall either result from the
making of a requested credit extension.
h. Ownership of Property; Liens; Investments
. Each Group Member has title in fee simple to, or a valid leasehold interest in, all of its real property, and good title to, or a valid
leasehold interest in, all of its other property, and none of such property is subject to any Lien except as permitted by Section 7.3. No Loan
Party owns any Investment except as permitted by Section 7.8. Section 10 of the Collateral Information Certificate sets forth a complete and
accurate list of all real property owned by each Loan Party as of the Closing Date, if any. The Collateral Information Certificate sets forth a
complete and accurate list of all leases of real property under which any Loan Party is the lessee as of the Closing Date.
i.
Intellectual Property
. Each Group Member owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently
conducted. No claim has been asserted in writing and is pending by any Person challenging or questioning any Group Member’s use of any
Intellectual Property or the validity or effectiveness of any Group Member’s Intellectual Property, nor does any Group Member know of any
valid basis for any such claim, unless such claim could not reasonably be expected to have a Material Adverse Effect. The use of Intellectual
Property by each Group Member, and the conduct of such Group Member’s business, as currently conducted, does not infringe on or
otherwise violate the rights of any Person, unless such infringement could not reasonably be expected to have a Material Adverse Effect, and
there are no claims pending or, to the knowledge of any Group Member, threatened to such effect.
j.
Taxes
. Other than has been disclosed by the Borrower in documents filed with the SEC and publicly available on the SEC’s EDGAR filing
system or any successor thereto prior to the Closing Date and for which reserves have been established prior to the Closing Date, (a) each
Group Member has (i) filed or caused to be filed all Federal, state and other material tax returns that are required to be filed (taking into
account any extensions granted or grace periods in effect), excluding any failure to file a tax return or returns involving aggregate taxes in an
amount less than $5,000,000; and (ii) paid all taxes shown to be due and payable on said returns or on any assessments made against it or any
of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any
taxes, charges or assessments the amount or validity of which are currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have
72
been provided on the books of the relevant Group Member or where the amount is less than $5,000,000 in the aggregate); and (b) no tax Lien
has been filed against any Group Member, other than Liens for Taxes not yet due and payable and Liens for Taxes the amount or validity of
which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP
have been provided on the books of the relevant Group Member, and, to the knowledge of the Loan Parties, no claim is being asserted, with
respect to any such tax, fee or other charge.
k.
Federal Regulations
. The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of “buying” or
“carrying” “margin stock” (within the respective meanings of each of the quoted terms under Regulation U as now and from time to time
hereafter in effect) or extending credit for the purpose of purchasing or carrying margin stock. No part of the proceeds of any Loans, and no
other extensions of credit hereunder, will be used for buying or carrying any such margin stock or for extending credit to others for the
purpose of purchasing or carrying margin stock in violation of Regulations T, U or X of the Board. If any margin stock directly or indirectly
constitutes Collateral securing the Obligations, if requested by any Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form
U-1, as applicable, referred to in Regulation U.
l.
Labor Matters
. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other
labor disputes against any Group Member pending or, to the knowledge of the Loan Parties, threatened; (b) hours worked by and payment
made to employees of each Group Member have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters; and (c) all payments due from any Group Member on account of employee health and welfare insurance have
been paid or accrued as a liability on the books of the relevant Group Member.
m. ERISA
.
1.
Schedule 4.13 to the Disclosure Letter is a complete and accurate list of all Pension Plans maintained or sponsored by
the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes as of the Closing Date;
2.
except as could not reasonably be expected to result in a Material Adverse Effect, the Borrower and its ERISA
Affiliates are in compliance with all applicable provisions and requirements of ERISA with respect to each Plan, and have performed all their
obligations under each Plan;
3.
except as could not reasonably be expected to result in a Material Adverse Effect, no ERISA Event has occurred or is
reasonably expected to occur;
4.
except as could not reasonably be expected to result in a Material Adverse Effect, the Borrower and each of its
ERISA Affiliates have met all applicable requirements under the ERISA Funding Rules with respect to each Pension Plan, and no waiver of
the minimum funding standards under the ERISA Funding Rules has been applied for or obtained;
73
5.
as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in
Section 430(d)(2) of the Code) is at least 60%, and neither the Borrower nor any of its ERISA Affiliates knows of any facts or circumstances
that could reasonably be expected to cause the funding target attainment percentage to fall below 60% as of the most recent valuation date;
6.
no Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former
employee of the Borrower or any of its ERISA Affiliates except to the extent required under Section 4980B of the Code, and except to the
extent such benefit could not reasonably be expected to result in a Material Adverse Effect;
7.
assuming the assets of the Lenders do not constitute “plan assets” within the meaning of the United States
Department of Labor Regulations set forth in 29 C.F.R §2510.3-101 as modified by ERISA Section 3(42) (the “Plan Assets Regulation”) the
execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder will not involve any transaction
that is subject to the prohibitions of Section 406 of ERISA (and not otherwise exempt therefrom) or in connection with which taxes could be
imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code;
8.
except as could not reasonably be expected to result in a Material Adverse Effect, all liabilities under each Plan are
(i) funded to at least the minimum level required by law or, if higher, to the level required by the terms governing the Plans, (ii) insured with
a reputable insurance company, or (iii) (A) provided for or recognized in the financial statements most recently delivered to the
Administrative Agent and the Lenders pursuant hereto or (B) estimated in the formal notes to the financial statements most recently delivered
to the Administrative Agent and the Lenders pursuant hereto; and
9.
(i) the Borrower is not and will not be a “plan” within the meaning of Section 4975(e) of the Code; (ii) the assets of
the Borrower do not and will not constitute “plan assets” within the meaning of the Plan Assets Regulation; (iii) the Borrower is not and will
not be a “governmental plan” within the meaning of Section 3(32) of ERISA; and (iv) transactions by or with the Borrower are not and will
not be subject to state statutes applicable to the Borrower regulating investments of fiduciaries with respect to governmental plans.
n.
Investment Company Act; Other Regulations
. No Loan Party is required to register as an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. No Loan Party is subject to regulation under any Requirement of Law (that limits its ability to incur Indebtedness or which may
otherwise render all or any portion of the Obligations unenforceable.
Subsidiaries
o.
.
1.
Except as disclosed to the Administrative Agent by the Borrower in writing from time to time after the Closing Date,
(a) Schedule 4.15 to the Disclosure Letter sets forth the name and jurisdiction of organization of each Subsidiary of the Borrower and, as to
each such Subsidiary, the percentage of each class of Capital Stock owned by any Loan Party, and (b) there are no outstanding subscriptions,
options, warrants, calls, rights or other agreements or commitments (other than equity awards granted to employees, officers, consultants or
directors and directors’ qualifying shares) of any
74
nature relating to any Capital Stock of any Group Member, except as may be created by the Loan Documents.
2.
definition thereof.
No Subsidiary which has been designated as an Immaterial Subsidiary fails to satisfy the limitations set forth in the
p. Use of Proceeds
. The proceeds of the Revolving Loans, Swingline Loans and Letters of Credit shall be used to pay fees and expenses contemplated
hereunder and for general corporate purposes (including Permitted Acquisitions).
q.
Environmental Matters
. Except as, in the aggregate, could not reasonably be expected to have a Material Adverse Effect:
3.
the facilities and properties owned, leased or operated by any Group Member (the “Properties”) do not contain, and
have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute
or have constituted a violation of, or could give rise to liability under, any Environmental Law;
4.
no Group Member has received or is aware of any notice of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the
business operated by any Group Member (the “Business”), nor does any Group Member have knowledge or reason to believe that any such
notice will be received or is being threatened;
5.
no Group Member has transported or disposed of Materials of Environmental Concern from the Properties in
violation of, or in a manner or to a location that could give rise to liability under, any Environmental Law, nor has any Group Member
generated, treated, stored or disposed of Materials of Environmental Concern at, on or under any of the Properties in violation of, or in a
manner that could give rise to liability under, any applicable Environmental Law;
6.
no judicial proceeding or governmental or administrative action is pending or, to the knowledge of any Group
Member, threatened, under any Environmental Law to which any Group Member is or will be named as a party with respect to the Properties
or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business;
7.
there has been no release or threat of release of Materials of Environmental Concern at or from the Properties arising
from or related to the operations of any Group Member or otherwise in connection with the Business, in violation of or in amounts or in a
manner that could reasonably be expected to give rise to liability under Environmental Laws;
8.
the Properties and all operations of the Group Members at the Properties are in compliance, and have in the last five
years been in compliance, with all applicable Environmental Laws, and except as set forth on Schedule 4.17 to the Disclosure Letter, to the
knowledge of the Borrower, there
75
is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the Business;
and
9.
no Group Member has assumed any liability of any other Person under Environmental Laws.
r.
Accuracy of Information, etc.
No statement or information contained in this Agreement, any other Loan Document or any other document, certificate or statement
furnished by or on behalf of any Loan Party to the Administrative Agent or the Lenders, or any of them, for use in connection with the
transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or
certificate was so furnished, any untrue statement of a material fact or omitted to state a material fact necessary to make the statements
contained herein or therein not misleading in light of the circumstances under which such statement, information, document or certificate was
furnished. The projections contained in the materials referenced above are based upon good faith estimates and assumptions believed by
management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it
relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information
may differ from the projected results set forth therein by a material amount. There is no fact known to any Loan Party that could reasonably
be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents or in any other
documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents.
s.
Security Documents.
10.
The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of
the Secured Parties, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the
Pledged Stock described in the Guarantee and Collateral Agreement that are securities represented by stock certificates or otherwise
constituting certificated securities within the meaning of Section 8-102(a)(15) of the UCC or the corresponding code or statute of any other
applicable jurisdiction (“Certificated Securities”), when certificates representing such Pledged Stock are delivered to the Administrative
Agent, and in the case of the other Collateral constituting personal property described in the Guarantee and Collateral Agreement, when
financing statements and other filings specified on Schedule 4.19(a) to the Disclosure Letter in appropriate form are filed in the offices
specified on Schedule 4.19(a) to the Disclosure Letter, the Administrative Agent, for the benefit of the Secured Parties, shall have a fully
perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as
security for the Obligations, in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged
Stock, Liens permitted by Section 7.3). As of the Closing Date, none of the Capital Stock of any Group Member that is a limited liability
company or partnership has any Capital Stock that is a Certificated Security.
11.
Each of the Mortgages delivered after the Closing Date will be, upon execution, effective to create in favor of the
Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable Lien on the Mortgaged Properties described
therein and proceeds thereof, and when the Mortgages are filed in the offices for the applicable jurisdictions in which the Mortgaged
Properties are located, each such Mortgage shall constitute a fully perfected Lien on, and security interest in, all
76
right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in
the relevant Mortgage), in each case prior and superior in right to any other Person (subject only to Liens expressly permitted by Section 7.3).
t.
Solvency; Voidable Transaction
. Each Loan Party is, and after giving effect to the incurrence of all Indebtedness, Obligations and obligations being incurred in
connection herewith, will be and will continue to be, Solvent. No transfer of property is being made by any Loan Party and no obligation is
being incurred by any Loan Party in connection with the transactions contemplated by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud either present or future creditors of such Loan Party.
u. Regulation H
. No Mortgage encumbers improved real property that is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards and in which flood insurance has not been made available under the National
Flood Insurance Act of 1968.
v.
Designated Senior Indebtedness
. The Loan Documents and all of the Obligations have been deemed “Designated Senior Indebtedness” or a similar concept thereto, if
applicable, for purposes of any other Indebtedness of the Loan Parties.
w.
[Reserved]
.
x.
Insurance
. All insurance maintained by the Loan Parties is in full force and effect, all premiums have been duly paid, no Loan Party has
received notice of violation or cancellation thereof, and there exists no default under any requirement of such insurance. Each Loan Party
maintains insurance with financially sound and reputable insurance companies on all its property in at least such amounts and against at least
such risks (but including in any event public liability, product liability, and business interruption) as are usually insured against in the same
general area by companies engaged in the same or a similar business.
y.
No Casualty
. No Loan Party has received any notice of, nor does any Loan Party have any knowledge of, the occurrence or pendency or
contemplation of any Casualty Event affecting all or any material portion of its property.
z.
[Reserved].
aa.
[Reserved].
ab. OFAC
77
. No Group Member, nor, to the knowledge of any Group Member, any director, officer, employee, agent, affiliate or representative
thereof, is an individual or an entity that is, or is owned or controlled by an individual or entity that is (a) currently the subject of any
Sanctions, or (b) located, organized or resident in a Designated Jurisdiction.
ac. Anti-Corruption Laws
. Each Group Member has conducted its business in compliance in all material respects with applicable anti-corruption laws and has
instituted and maintained policies and procedures designed to promote and achieve compliance with such laws.
a.
Conditions to Initial Extension of Credit
SECTION 5.
CONDITIONS PRECEDENT
. The effectiveness of this Agreement and the obligation of each Lender to make its initial extension of credit hereunder shall be
subject to the satisfaction or waiver, prior to or concurrently with the making of such extension of credit on the Closing Date, of the following
conditions precedent:
12.
Loan Documents. The Administrative Agent shall have received each of the following, each of which shall be in form
and substance satisfactory to the Administrative Agent:
xxiv.this Agreement, executed and delivered by the Administrative Agent, the Borrower and each Lender listed on
Schedule 1.1A;
Borrower;
Lender;
Lender;
xxv.the Collateral Information Certificate and the Disclosure Letter, each executed by a Responsible Officer of the
xxvi.if required by any Revolving Lender, a Revolving Loan Note executed by the Borrower in favor of such Revolving
xxvii.if required by the Swingline Lender, the Swingline Loan Note executed by the Borrower in favor of such Swingline
xxviii.the Guarantee and Collateral Agreement, executed and delivered by each Grantor named therein;
xxix.each Intellectual Property Security Agreement, executed and delivered by each Grantor named therein; and
Loan Party party thereto.
xxx.each other Security Document required to be delivered on the Closing Date, executed and delivered by the applicable
13.
Projected Pro Forma Financial Statements; Financial Statements; Projections. The Administrative Agent shall have
received the Projected Pro Forma Financial Statements and the Financial Statements set forth in Section 4.1.
14.
Approvals. Except for the Governmental Approvals described on Schedule 4.4 to the Disclosure Letter, all
Governmental Approvals and consents and approvals of, or notices to, any
78
other Person (including the holders of any Capital Stock issued by any Loan Party) required in connection with the execution and
performance of the Loan Documents, and the consummation of the transactions contemplated hereby, shall have been obtained and be in full
force and effect.
15.
Secretary’s or Managing Member’s Certificates; Certified Operating Documents; Good Standing Certificates. The
Administrative Agent shall have received (i) a certificate of each Loan Party, dated the Closing Date and executed by the Secretary,
Managing Member or equivalent officer of such Loan Party, substantially in the form of Exhibit C, with appropriate insertions and
attachments, including (A) the Operating Documents of such Loan Party certified, in the case of formation documents, as of a recent date by
the secretary of state or similar official of the relevant jurisdiction of organization of such Loan Party, (B) the relevant board resolutions or
written consents of such Loan Party adopted by such Loan Party for the purposes of authorizing such Loan Party to enter into and perform the
Loan Documents to which such Loan Party is party, and (C) the names, titles, incumbency and signature specimens of those representatives
of such Loan Party who have been authorized by such resolutions and/or written consents to execute Loan Documents on behalf of such Loan
Party, (ii) a long form good standing certificate for each Loan Party from its respective jurisdiction of organization, and (iii) certificates of
foreign qualification from each jurisdiction where the failure of a Loan Party to be qualified could reasonably be expected to have a Material
Adverse Effect.
16.
Responsible Officer’s Certificates.
xxxi.The Administrative Agent shall have received a certificate signed by a Responsible Officer of the Borrower, in form
and substance reasonably satisfactory to it, either (A) attaching copies of all consents, licenses and approvals required in connection with the
execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is party,
and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so
required.
xxxii.The Administrative Agent shall have received a certificate signed by a Responsible Officer of the Borrower, dated as
of the Closing Date and in form and substance reasonably satisfactory to it, certifying (A) that the conditions specified in Sections 5.2(a) and
(d) have been satisfied, and (B) that there has been no event or circumstance since December 31, 2019, that has had or that could reasonably
be expected to have, either individually or in the aggregate, a Material Adverse Effect.
17.
Patriot Act, etc. The Administrative Agent and each Lender shall have received, prior to the Closing Date, all
documentation and other information requested to comply with applicable “know your customer” and anti-money-laundering rules and
regulations, including the Patriot Act, and a properly completed and signed IRS Form W-8 or W-9, as applicable, for each Loan Party.
18.
Due Diligence Investigation. The Administrative Agent shall have completed a due diligence investigation of the
Group Members in scope, and with results, satisfactory to the Administrative Agent and shall have been given such access to the
management, records, books of account, contracts and properties of the Group Members and shall have received such financial, business and
other information regarding each of the foregoing Persons and businesses as it shall have requested.
19.
Reports. The Administrative Agent shall have received, in form and substance satisfactory to it, all asset appraisals,
field audits, and such other reports and certifications, as it has reasonably requested.
20.
[Reserved].
79
21.
Collateral Matters.
xxxiii.Lien Searches. The Administrative Agent shall have received the results of recent lien, judgment and litigation
searches in each of the jurisdictions reasonably required by the Administrative Agent, and such searches shall reveal no Liens on any of the
assets of the Loan Parties except for Liens permitted by Section 7.3, or Liens to be discharged on or prior to the Closing Date.
xxxiv.[Reserved].
xxxv.Filings, Registrations, Recordings, Agreements, Etc. Subject to Section 5.3, each document (including any UCC
financing statements, Intellectual Property Security Agreements, Control Agreements and landlord access agreements and/or bailee waivers)
required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded to
create in favor of the Administrative Agent (for the benefit of the Secured Parties), a perfected Lien on the Collateral described therein, prior
and superior in right and priority to any Lien in the Collateral held by any other Person (other than with respect to Liens expressly permitted
by Section 7.3), shall have been executed and delivered to the Administrative Agent or, as applicable, be in proper form for filing, registration
or recordation.
22.
[Reserved].
23.
Fees. The Lenders and the Administrative Agent shall have received all fees required to be paid on or prior to the
Closing Date (including pursuant to the Fee Letter), and all reasonable and documented fees and expenses for which invoices have been
presented at least 1 Business Day prior to the Closing Date (including the reasonable and documented fees and expenses of legal counsel to
the Administrative Agent) for payment on or before the Closing Date.
24.
Legal Opinions. The Administrative Agent shall have received the executed legal opinion of Cooley LLP, counsel to
the Borrower, in form and substance reasonably satisfactory to the Administrative Agent.
Borrowing Notices. The Administrative Agent shall have received, in respect of any Revolving Loans to be made on
the Closing Date, a completed Notice of Borrowing executed by the Borrower and otherwise complying with the requirements of Section 2.5.
25.
26.
officer or treasurer of the Borrower.
Solvency Certificate. The Administrative Agent shall have received a Solvency Certificate from the chief financial
27.
No Material Adverse Effect. There shall not have occurred since December 31, 2019, any event or condition that has
had or could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
28.
No Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is
pending or, to the knowledge of any Group Member, threatened, that could reasonably be expected to have a Material Adverse Effect.
For purposes of determining compliance with the conditions specified in this Section 5.1, each Lender that has executed this
Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent (or
made available) by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be
80
consented to or approved by or acceptable or satisfactory to such Lender, unless an officer of the Administrative Agent responsible for the
transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Closing Date specifying such
Lender’s objection thereto and either such objection shall not have been withdrawn by notice to the Administrative Agent to that effect on or
prior to the Closing Date or, if any extension of credit on the Closing Date has been requested, such Lender shall not have made available to
the Administrative Agent on or prior to the Closing Date such Lender’s Revolving Percentage of such requested extension of credit.
b. Conditions to Each Extension of Credit
. The agreement of each Lender to make any extension of credit requested to be made by it on any date (including its initial extension
of credit) is subject to the satisfaction of the following conditions precedent:
29.
Representations and Warranties. Each of the representations and warranties made by each Loan Party in or pursuant
to any Loan Document (i) that is qualified by materiality shall be true and correct, and (ii) that is not qualified by materiality, shall be true and
correct in all material respects, in each case, on and as of such date as if made on and as of such date, except to the extent any such
representation and warranty expressly relates to an earlier date, in which case such representation and warranty shall have been true and
correct in all material respects (or all respects, as applicable) as of such earlier date, subject to the limitations set forth in Section 2.27.
30.
Availability. With respect to any requests for any Revolving Extensions of Credit, after giving effect to such
Revolving Extension of Credit, the availability and borrowing limitations specified in Section 2.4 shall be complied with.
31.
Notices of Borrowing. The Administrative Agent shall have received a Notice of Borrowing in connection with any
such request for extension of credit which complies with the requirements hereof.
32.
No Default. No Default or Event of Default shall have occurred and be continuing as of or on such date or after
giving effect to the extensions of credit requested to be made on such date and the use of proceeds thereof (other than in connection with
Limited Condition Acquisitions as set forth in Section 1.6, in which case there shall be (i) no Default or Event of Default as of the LCA Test
Date and (ii) no Event of Default under Section 8.1(a) or (f) as of or on the date of such Revolving Extension of Credit or after giving effect
to the extensions of credit requested to be made on such date and the use of proceeds thereof).
33.
Foreign Currency. In the case of a Revolving Extension of Credit to be denominated in an Alternative Currency, there
shall not have occurred any change in national or international financial, political or economic conditions or currency exchange rates or
exchange controls which in the reasonable opinion of the Administrative Agent or the Issuing Lender would make it impracticable for such
Revolving Extension of Credit to be denominated in the relevant Alternative Currency.
34.
Pro Forma Covenant Compliance. Immediately after giving pro forma effect to such extension of credit and the use of
proceeds thereof, the Borrower shall be in compliance with the financial covenants set forth in Section 7.1 hereof as of the end of the most
recently ended fiscal quarter for which financial statements were required to be delivered prior to the date of such extension of credit
81
(provided that, in the case of an extension of credit to finance a Limited Condition Acquisition in accordance with Section 2.27, such
calculation shall be made in compliance with Section 1.6).
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder and each Revolving Loan Conversion shall
constitute a representation and warranty by the Borrower as of the date of such extension of credit, or Revolving Loan Conversion, as
applicable, that the conditions contained in this Section 5.2 have been satisfied.
c.
Post-Closing Obligations
. The Borrower shall satisfy each of the conditions below to the reasonable satisfaction of the Administrative Agent, in each case, by
no later than the date specified for such condition below (or such later date as the Administrative Agent shall agree in its sole discretion):
35.
within 5 days after the Closing Date, the Administrative Agent shall have received (A) the certificates, if any,
representing the shares of Capital Stock pledged to the Administrative Agent (for the benefit of the Secured Parties) pursuant to the
Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized
officer of the pledgor thereof, and (B) each promissory note (if any) pledged to the Administrative Agent (for the benefit of the Secured
Parties) pursuant to the Guarantee and Collateral Agreement, endorsed (without recourse) in blank (or accompanied by an executed transfer
form in blank) by the pledgor thereof;
36.
within 90 days after the Closing Date, the Administrative Agent shall have received Control Agreements, in form and
substance reasonably satisfactory to the Administrative Agent, duly executed by each applicable Loan Party and the applicable financial
institution, with respect to all Deposit Accounts and Securities Accounts (other than Excluded Accounts (as defined in the Guarantee and
Collateral Agreement)) of the Loan Parties;
37.
within 30 days after the Closing Date, the Administrative Agent shall have received the Global Intercompany Note, in
form and substance reasonably satisfactory to the Administrative Agent;
38.
within 10 days after the Closing Date, the Administrative Agent shall have received insurance certificates and
endorsements satisfying the requirements of Section 6.6 hereof and Section 5.2(b) of the Guarantee and Collateral Agreement, in form and
substance satisfactory to the Administrative Agent; and
39.
within 30 days after the Closing Date, the Borrower shall have used commercially reasonable efforts to deliver to the
Administrative Agent landlord’s agreements or bailee letters, as applicable, from the lessor of the Borrower’s corporate headquarters and
each leased property or other location where Collateral having a value in excess of $5,000,000 is stored or located (other than Group Member
customer locations), which agreement or letter shall contain a waiver or subordination of all Liens or claims that the landlord or bailee may
assert against the Collateral at that location, and shall otherwise be reasonably satisfactory in form and substance to the Administrative Agent.
SECTION 6.
AFFIRMATIVE COVENANTS
82
The Borrower hereby agrees that, at all times prior to the Discharge of Obligations, each of the Loan Parties shall, and, where
applicable, shall cause each of its Subsidiaries to:
a.
Financial Statements
. Furnish to the Administrative Agent for distribution to each Lender:
40.
no later than 90 days after the end of each fiscal year of the Borrower, a copy of the audited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year and the related audited consolidated statements of
income and of cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous year, reported on
without a “going concern” or like qualification or exception (other than a “going concern” or like qualification or exception solely as a result
of the final maturity date of any Loan being scheduled to occur within 12 months from the date of such opinion), or qualification arising out
of the scope of the audit, by Deloitte & Touche LLP or other independent certified public accountants of nationally recognized standing and
reasonably acceptable to the Administrative Agent;
41.
no later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, the
unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such fiscal quarter and the related
unaudited consolidated statements of income and of cash flows for such fiscal quarter and the portion of the fiscal year through the end of
such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly
stated in all material respects.
All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in
accordance with GAAP (except in the case of interim statements for the absence of footnotes and normal year-end adjustments) applied
(except as approved by such accountants or officer, as the case may be, and disclosed in reasonable detail therein) consistently throughout the
periods reflected therein and with prior periods.
Additionally, documents required to be delivered pursuant to this Section 6.1 and Section 6.2(e) (to the extent any such documents are
included in materials otherwise filed with the SEC) may be delivered electronically and, shall be deemed to have been delivered on the date
on which the Borrower posts such documents, or provides a link thereto, either: (i) on the Borrower’s website on the Internet at the website
address listed in Section 10.2; (ii) when such documents are posted electronically on the Borrower’s behalf on an internet or intranet website
to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the
Administrative Agent), if any; or (iii) on which the Borrower files such documents with the SEC and such documents are publicly available
on the SEC’s EDGAR filing system or any successor thereto, if any.
b. Certificates; Reports; Other Information
. Furnish (or, in the case of clause (a), use commercially reasonable efforts to furnish) to the Administrative Agent, for distribution to
each Lender (or in the case of clause (g), to the relevant Lender):
42.
[reserved];
43.
within 5 Business Days of the Borrower’s delivery of any financial statements pursuant to Section 6.1, (i) a certificate
of a Responsible Officer of the Borrower stating that, to the best of such Responsible Officer’s knowledge, each Loan Party during such
period has observed or performed
83
all of its covenants and other agreements, and satisfied every condition contained in this Agreement and the other Loan Documents to which
it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event
of Default except as specified in such certificate, (ii) a Compliance Certificate containing all information and calculations necessary for
determining compliance by each Loan Party with the provisions of this Agreement referred to therein as of the last day of the applicable
period of the Borrower, and (y) to the extent not previously disclosed to the Administrative Agent, a description of any change in the
jurisdiction of organization of any Loan Party, and (z) to the extent not previously disclosed to the Administrative Agent, a list of any
registered Intellectual Property issued to, applied for, or acquired by any Loan Party since the date of the most recent report delivered
pursuant to this clause (z) (or, in the case of the first such report so delivered, since the Closing Date) and (iii) in the case of financial
statements delivered pursuant to Section 6.1(a), updated insurance certificates evidencing the insurance coverage required to be maintained
pursuant to Section 6.6;
44.
as soon as available, and in any event no later than 90 days after the end of each fiscal year of the Borrower, a
detailed consolidated board of director approved operating budget for the following fiscal year (including a projected consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of each fiscal quarter of such fiscal year, the related consolidated statements of
projected cash flow, projected changes in financial position and projected income and a description of the underlying assumptions applicable
thereto), and, as soon as available, material revisions, if any, of such operating budget and projections with respect to such fiscal year
(collectively, the “Projections”);
45.
promptly, and in any event within 5 Business Days after receipt thereof by any Group Member, copies of each notice
or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation
or possible investigation by such agency regarding financial or other operational results of any Group Member (other than routine comment
letters from the staff of the SEC relating to the Borrower’s filings with the SEC);
46.
within 5 days after the same are sent, copies of each annual report, proxy or financial statement or other material
report that any Group Member sends to the holders of any class of its Indebtedness or public equity securities and, within 5 days after the
same are filed, copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file with the
SEC under Section 13 or 15(d) of the Exchange Act, or with any national securities exchange, and not otherwise required to be delivered to
the Administrative Agent pursuant hereto;
47.
upon reasonable request by the Administrative Agent, within 5 days after the same are sent or received, copies of all
correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of
Governmental Approvals or Requirements of Law or that could reasonably be expected to have a Material Adverse Effect on any of the
Governmental Approvals or otherwise on the operations of the Group Members; and
48.
promptly, such additional other information regarding the operations, business affairs and financial condition of the
Group Members, or compliance with the terms of the Loan Documents as the Administrative Agent or any Lender may from time to time
reasonably request with respect to the Group Members.
c.
d.
[Reserved].
Payment of Obligations
84
. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent (after giving effect to any extensions
granted or grace periods in effect), as the case may be, all its material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have
been provided on the books of the relevant Group Member.
e. Maintenance of Existence; Compliance
. (a)(i) Preserve, renew and keep in full force and effect its organizational existence and (ii) take all reasonable action to maintain or
obtain all Governmental Approvals and all other rights, privileges and franchises necessary or desirable in the normal conduct of its business
or necessary for the performance by such Person of its Obligations under any Loan Document, except, in each case, as otherwise permitted by
Section 7.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material
Adverse Effect; (b) comply with all Contractual Obligations (including with respect to leasehold interests of the Borrower) and Requirements
of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect; and (c) comply with all Governmental Approvals, and any term, condition, rule, filing or fee obligation, or other requirement related
thereto, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, the Borrower shall, and shall cause each of its ERISA Affiliates to: (1) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code or other Federal or state law; (2) cause each Qualified Plan to maintain
its qualified status under Section 401(a) of the Code; (3) make all required material contributions to any Plan; (4) not become a party to any
Multiemployer Plan; (5) ensure that all liabilities under each Plan are either (x) funded to at least the minimum level required by law or, if
higher, to the level required by the terms governing such Plan; (y) insured with a reputable insurance company; or (z) provided for or
recognized in the financial statements most recently delivered to the Administrative Agent and the Lenders pursuant hereto; and (6) ensure
that the contributions or premium payments to or in respect of each Plan are and continue to be promptly paid at no less than the rates
required under the rules of such Plan and in accordance with the most recent actuarial advice received in relation to such Plan and applicable
law.
f. Maintenance of Property; Insurance
. (a) Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear and casualty
excepted, (b) maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and
against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against
in the same general area by companies engaged in the same or a similar business and shall provide to the Administrative Agent, insurance
certificates and accompanying endorsements naming the Administrative Agent (for the benefit of the Secured Parties) as an “additional
insured” or “lender loss payee,” as applicable, with respect to such insurance policies of the Loan Parties in form and substance reasonably
satisfactory to the Administrative Agent, and (c) maintain flood insurance on all real property subject to a Mortgage as required under Section
6.12(b).
g.
Books and Records; Discussions
. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements
of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives and independent
contractors of the
85
Administrative Agent (who may be accompanied by any Lender) to visit and inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations,
properties and financial and other condition of the Group Members with officers, directors and employees of the Group Members and with
their independent certified public accountants; provided that (i) such inspections shall not be undertaken more frequently than once every 12
months unless an Event of Default has occurred and is continuing, and (ii) nothing in this Section 6.7 shall require any Group Member to take
any action that would violate a confidentiality agreement (to the extent not created in contemplation of such Group Member’s obligations
hereunder) or waive any attorney-client or similar privilege (to the extent not created in contemplation of such Group Member’s obligations
hereunder) of such Group Member.
h. Notices
. Give prompt written notice to the Administrative Agent of:
1.
the occurrence of any Default or Event of Default;
2.
any (i) default or event of default under any Contractual Obligation of any Group Member or (ii) litigation,
investigation or proceeding that may exist at any time between any Group Member and any Governmental Authority, that in either case, if not
cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect;
3.
any litigation or proceeding affecting any Group Member (i) in which the amount involved is $5,000,000 or more and
not covered by insurance, (ii) in which injunctive or similar relief is sought against any Group Member which, if not cured or if adversely
determined, could reasonably be expected to have a Material Adverse Effect, or (iii) which relates to any Loan Document;
4.
(i) promptly after the Borrower has knowledge or becomes aware of the occurrence of any of the following ERISA
Events affecting the Borrower or any ERISA Affiliate (but in no event more than 10 days after such event (or such longer period as the
Administrative Agent may agree in its reasonable discretion), the occurrence of any of the following ERISA Events, and shall provide the
Administrative Agent with a copy of any notice with respect to such event that may be required to be filed with a Governmental Authority
and any notice delivered by a Governmental Authority to the Borrower or any ERISA Affiliate with respect to such event: (A) an ERISA
Event, (B) the adoption of any new Pension Plan by the Borrower or any ERISA Affiliate, (C) the adoption of any amendment to a Pension
Plan, if such amendment will result in a material increase in contribution obligations or unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA), or (D) the commencement of contributions by the Borrower or any ERISA Affiliate to any Plan that is subject to
Title IV of ERISA or Section 412 of the Code; and
(ii) (A) promptly after request from the Administrative Agent, copies of each Schedule B (Actuarial Information) to the annual
report (Form 5500 Series) filed by the Borrower or any of its ERISA Affiliates with the IRS with respect to each Pension Plan and such other
documents or governmental reports or filings relating to any Pension Plan or Multiemployer Plan as the Administrative Agent shall
reasonably request, and (B) promptly after the giving, sending or filing thereof, or the receipt thereof, copies of all notices received by the
Borrower or any of its ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event;
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5.
at any time Borrower is not a public company or an issuer of securities that are registered with the SEC under Section
12 of the Exchange Act or is required to file reports under Section 15(d) of the Exchange Act, any changes to the beneficial ownership
information set forth in item 37 of the Collateral Information Certificate in the event that (A) any individual shall become the owner, directly
or indirectly, of 25% or more of the equity interests of the Borrower or (B) the individual identified in Section 37 of the Collateral
Information Certificate delivered on the Closing Date shall no longer be an individual with significant responsibility for managing the Group
Members. The Loan Parties understand and acknowledge that the Secured Parties rely on such true, accurate and up-to-date beneficial
ownership information to meet their regulatory obligations to obtain, verify and record information about the beneficial owners of their legal
entity customers;
6.
7.
any material change in it accounting policies or financial reporting practices by any Loan Party; and
any development or event that has had or could reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.8 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth
details of the occurrence referred to therein and stating what action the relevant Group Member proposes to take with respect thereto.
i.
Environmental Laws.
8.
Except as could not reasonably be expected to result in a Material Adverse Effect, comply with, and ensure
compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply with and maintain, and
ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or
permits required by applicable Environmental Laws.
9.
Except as could not reasonably be expected to result in a Material Adverse Effect, conduct and complete all
investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly
comply with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws.
j.
Operating Accounts
. Except as otherwise agreed by the Administrative Agent, from and after the date set forth in Section 5.3(b), the Borrower shall cause
the Group Members to maintain at least the lesser of (a) $100,000,000 or (b) one-third of their cash and Cash Equivalents located in the
United States in Deposit Accounts and Securities Accounts at SVB.
k. Audits
. Without duplication of the rights set forth in Section 6.7, at reasonable times, on 5 Business Day’s’ notice (provided that no notice is
required if an Event of Default has occurred and is continuing), the Administrative Agent, or its agents or independent contractors, shall have
the right to inspect the Collateral and the right to audit and copy any and all of any Loan Party’s books and records including ledgers, federal
and state tax returns, records regarding assets or liabilities, the Collateral, business operations or financial condition, and all computer
programs or storage or any equipment containing such information. The foregoing inspections and audits shall be at the Borrower’s expense,
and the charge
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therefor shall be $1,000 per person per day (or such higher amount as shall represent the Administrative Agent’s then-current standard charge
for the same), plus reasonable out-of-pocket expenses. Such inspections and audits shall not be undertaken more frequently than once every
12 months, unless an Event of Default has occurred and is continuing.
l.
Additional Collateral, Etc.
10.
With respect to any property (to the extent included in the definition of Collateral) acquired after the Closing Date by
any Loan Party (other than (x) any property described in paragraph (b), (c) or (d) below, and (y) any property subject to a Lien expressly
permitted by Section 7.3(g)) as to which the Administrative Agent, for the benefit of the Secured Parties, does not have a perfected Lien,
promptly (and in any event within 10 Business Days or such later date as the Administrative Agent may agree in its sole discretion) take all
actions necessary or advisable in the opinion of the Administrative Agent to grant to the Administrative Agent, for the benefit of the Secured
Parties, a perfected first priority (except as expressly permitted by Section 7.3) security interest and Lien in such property, including the filing
of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by
law or as may be requested by the Administrative Agent.
11.
With respect to any fee interest in any real property having a fair market value (together with improvements thereof)
of at least $1,000,000 (or such other amount as approved in writing by the Administrative Agent in its sole discretion) acquired after the
Closing Date by any Loan Party (other than any such real property subject to a Lien expressly permitted by Section 7.3(g)), promptly (and in
any event within 60 days (or such longer time period as the Administrative Agent may agree in its sole discretion)) after such acquisition, to
the extent requested by the Administrative Agent, (i) execute and deliver a first priority Mortgage, in favor of the Administrative Agent, for
the benefit of the Secured Parties, covering such real property, (ii) if requested by the Administrative Agent, provide the Lenders with title
and extended coverage insurance covering such real property in an amount not in excess of the fair market value as reasonably estimated by
the Borrower as well as a current ALTA survey thereof, together with a surveyor’s certificate, each of the foregoing in form and substance
reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent
legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent. In connection with the foregoing, no later than 5 Business Days prior to the date on which a
Mortgage is executed and delivered pursuant to this Section 6.12, in order to comply with the Flood Laws, the Administrative Agent (for
delivery to each Lender) shall have received the following documents (collectively, the “Flood Documents”): (A) a completed standard “life
of loan” flood hazard determination form (a “Flood Determination Form”) and such other documents as any Lender may reasonably request
to complete its flood due diligence, (B) if the improvement(s) to the applicable improved real property is located in a special flood hazard
area, a notification to the applicable Loan Party (if applicable) (“Loan Party Notice”) that flood insurance coverage under the National Flood
Insurance Program (“NFIP”) is not available because the community does not participate in the NFIP, (C) documentation evidencing the
applicable Loan Party’s receipt of any such Loan Party Notice (e.g., countersigned Loan Party Notice, return receipt of certified U.S. Mail, or
overnight delivery), and (D) if the Loan Party Notice is required to be given and, to the extent flood insurance is required by any applicable
Requirement of Law or any Lenders’ written regulatory or compliance procedures and flood insurance is available in the community in which
the property is located, a copy of one of the following: the flood insurance policy, the applicable Loan Party’s application for a flood
insurance policy plus proof of premium payment, a declaration page confirming that flood insurance has been issued, or such other
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evidence of flood insurance that complies with all applicable laws and regulations reasonably satisfactory to the Administrative Agent and
each Lender (any of the foregoing being “Evidence of Flood Insurance”). Notwithstanding anything contained herein to the contrary, no
Mortgage will be executed and delivered until each Lender has confirmed to the Administrative Agent that such Lender has satisfactorily
completed its flood insurance due diligence and compliance requirements. Each of the parties hereto acknowledges and agrees that, if there
are any Mortgaged Properties, any increase, extension or renewal of any of the Revolving Commitments including the provision of any
incremental credit facilities hereunder, but excluding (i) any continuation or conversion of borrowings, (ii) the making of any Revolving
Loans or (iii) the issuance, renewal or extension of Letters of Credit) shall be subject to (and conditioned upon): (A) the prior delivery of all
applicable Flood Documents with respect to such Mortgaged Properties as required by the Flood Laws and as otherwise reasonably required
by the Lenders and (B) the Administrative Agent having received written confirmation from each Lenders that such Lender has satisfactorily
completed its flood insurance due diligence and compliance requirements
12.
With respect to any Subsidiary (other than an Excluded Subsidiary) created or acquired after the Closing Date by any
Loan Party (including pursuant to a Permitted Acquisition), or any new Subsidiary formed by Division or if an Excluded Subsidiary ceases to
qualify as an Excluded Subsidiary, the Loan Parties shall, except to the extent compliance with this Section 6.12 is prohibited by existing
Contractual Obligations (so long as such prohibition is not incurred in contemplation of such acquisition or the obligations hereunder) or
Requirements of Law binding on such Subsidiary or its properties, promptly (but in any event within 30 days) (i) execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent reasonably deems necessary
or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the
Capital Stock of such Subsidiary that is owned directly by such Loan Party, (ii) deliver to the Administrative Agent such documents and
instruments as may be reasonably required to grant, perfect, protect and ensure the priority of such security interest, including but not limited
to, the certificates representing such Capital Stock (if applicable), together with undated stock powers, in blank, executed and delivered by a
duly authorized officer of the relevant Loan Party, (iii) cause such Subsidiary (A) to become a party to the Guarantee and Collateral
Agreement, (B) to take such actions as are necessary or advisable in the opinion of the Administrative Agent to grant to the Administrative
Agent for the benefit of the Secured Parties a perfected first priority security interest in the Collateral described in the Guarantee and
Collateral Agreement, with respect to such Subsidiary, including the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be reasonably requested by the
Administrative Agent and (C) to deliver to the Administrative Agent a certificate of such Subsidiary, in a form reasonably satisfactory to the
Administrative Agent, with appropriate insertions and attachments, and (iv) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent; it being agreed that if such Subsidiary is formed by Division, the foregoing
requirements shall be satisfied substantially concurrently with the formation of such Subsidiary.
13.
With respect to any new direct Foreign Subsidiary of a Loan Party that is an Excluded Subsidiary under clause (a) of
the definition thereof and that is not an Immaterial Subsidiary or any new direct Foreign Subsidiary Holding Company that is an Excluded
Subsidiary under clause (b) of the definition thereof and that is not an Immaterial Subsidiary, in each case, created or acquired after the
Closing Date by any Loan Party, promptly (but in any event within 30 days) (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement, as the Administrative Agent deems necessary or advisable to grant to the
Administrative Agent, for the benefit
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of the Secured Parties, a perfected first priority security interest in the Capital Stock of such Foreign Subsidiary or Foreign Subsidiary
Holding Company that is directly owned by any such Loan Party (provided that in no event shall more than 65% of the total outstanding
voting Capital Stock of any such new Foreign Subsidiary or Foreign Subsidiary Holding Company be required to be so pledged), (ii) deliver
to the Administrative Agent any certificates representing such Capital Stock, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of the relevant Loan Party, and take such other action (including, as applicable, the delivery of any
foreign law pledge documents reasonably requested by the Administrative Agent) as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Administrative Agent’s security interest therein, and (iii) if reasonably requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.
14.
At the request of the Administrative Agent, each Loan Party shall use commercially reasonable efforts to obtain a
landlord’s agreement or bailee letter, as applicable, from the lessor of each Loan Party’s corporate headquarters and each leased property or
bailee with respect to any warehouse, processor or converter facility or other location where Collateral having a value in excess of $5,000,000
is stored or located, which agreement or letter shall contain a waiver or subordination of all Liens or claims that the landlord or bailee may
assert against the Collateral at that location, and shall otherwise be reasonably satisfactory in form and substance to the Administrative Agent.
After the Closing Date, no Collateral having a value in excess of $5,000,000 shall be stored at any location leased by any Loan Party and no
Collateral having a value in excess of $5,000,000 shall be shipped to a processor or converter under arrangements established after the
Closing Date without one Business Days’ prior written notice to the Administrative Agent. At the Administrative Agent’s request following
notice to it pursuant to the immediately preceding sentence, the Borrower shall use commercially reasonable efforts to obtain a reasonably
satisfactory landlord agreement or bailee letter, as appropriate, with respect to such location; provided that in no event shall any Loan Party
be required to seek a landlord agreement or bailee letter, as applicable, from any customer of any Group Member. Each Loan Party shall pay
and perform its material obligations under all leases and other agreements with respect to each leased location, warehouse or processing
center where any Collateral is or may be located.
m. Use of Proceeds
. Use the proceeds of each credit extension only for the purposes specified in Section 4.16.
n. Designated Senior Indebtedness
. Cause the Loan Documents and all of the Obligations to be deemed “Designated Senior Indebtedness” or a similar concept thereto,
if applicable, for purposes of any Indebtedness of the Loan Parties.
o.
Anti-Corruption Laws
. Conduct its business in compliance in all material respects with all applicable anti-corruption laws and maintain policies and
procedures designed to promote and achieve compliance with such laws.
p.
Further Assurances
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. Execute any further instruments and take such further action as the Administrative Agent reasonably deems necessary to perfect,
protect, ensure the priority of or continue the Administrative Agent’s Lien on the Collateral or to effect the purposes of this Agreement.
SECTION 7.
NEGATIVE COVENANTS
The Borrower hereby agrees that, at all times prior to the Discharge of Obligations, no Loan Party shall, nor shall any Loan Party
permit any of its respective Subsidiaries to, directly or indirectly:
a.
Financial Condition Covenants.
15.
Adjusted Quick Ratio. Permit the Adjusted Quick Ratio, as of the last day of each fiscal quarter of the Borrower, to
be less than 1.25:1.00.
16.
Revenue. During a Covenant Testing Period, permit the Revenue Growth Rate for any trailing 4 fiscal quarter period
ending on the last day of each fiscal quarter of the Borrower to be less than (i) ten percent (10%) for each fiscal quarter ending on or prior to
December 31, 2021, commencing with the fiscal quarter ending March 31, 2021, and (ii) five percent (5%) for each fiscal quarter ending
thereafter.
b.
Indebtedness
. Create, issue, incur, assume, become liable in respect of or suffer to exist any Indebtedness, except:
17.
Indebtedness of any Loan Party pursuant to any Loan Document and under any Cash Management Agreement;
18.
Indebtedness of (i) any Loan Party owing to any other Loan Party; (ii) any Group Member (which is not a Loan
Party) owing to any other Group Member (which is not a Loan Party); (iii) any Group Member (which is not a Loan Party) owing to any
Loan Party, which constitutes an Investment permitted by Section 7.8(f)(iii); provided, that, any such Indebtedness shall be evidenced by the
Global Intercompany Note; and (iv) any Loan Party owing to any Group Member (which is not a Loan Party); provided that such
Indebtedness is subordinated to the Obligations on terms and conditions reasonably acceptable to the Administrative Agent;
19.
Guarantee Obligations (i) of any Loan Party of the Indebtedness of any other Loan Party; (ii) of any Group Member
(which is not a Loan Party) of the Indebtedness of any Loan Party; (iii) by any Group Member (which is not a Loan Party) of the
Indebtedness of any other Group Member (which is not a Loan Party); or (iv) of any Loan Party of the Indebtedness of any Group Member
that is not a Loan Party, so long as the aggregate amount of such Guarantee Obligations is an Investment permitted by Section 7.8(f)(iii);
provided that, in any case of clauses (i), (ii), (iii), or (iv), the underlying Indebtedness so guaranteed is otherwise permitted by the terms
hereof;
20.
(i) Indebtedness outstanding on the date hereof and listed on Schedule 7.2(d) of the Disclosure Letter and (ii) any
refinancings, refundings, renewals or extensions thereof (which do not shorten the maturity thereof or increase the principal amount thereof,
except by an amount equal to a reasonable premium and other fees and expenses reasonably incurred in connection therewith); provided, that
the underlying Indebtedness is otherwise permitted by the terms hereof;
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21.
Indebtedness (including, without limitation, Capital Lease Obligations and purchase money financing) secured by
Liens permitted by Section 7.3(g) in an aggregate principal amount not to exceed $100,000,000 at any one time outstanding and any
Guarantee Obligations in respect thereof and any refinancings, refundings, renewals or extensions thereof (which do not shorten the maturity
thereof or increase the principal amount thereof, except by an amount equal to a reasonable premium and other fees and expenses reasonably
incurred in connection therewith);
22.
Subordinated Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any time outstanding;
23.
Surety Indebtedness and any other Indebtedness in respect of letters of credit, banker’s acceptances, bank guarantees
or similar arrangements, provided that the aggregate principal amount of any such Indebtedness outstanding at any time shall not exceed
$10,000,000;
24.
unsecured Indebtedness to trade creditors in the ordinary course of business;
25.
obligations (contingent or otherwise) of the Group Members existing or arising under any Specified Swap
Agreement, provided that such obligations are (or were) entered into by such Person in accordance with Section 7.13 and not for purposes of
speculation;
26.
Indebtedness of a Person (other than a Loan Party or an existing Subsidiary) existing at the time such Person is
merged with or into a Loan Party or a Subsidiary or becomes a Subsidiary, provided that (i) such Indebtedness was not, in any case, incurred
by such other Person in connection with, or in contemplation of, such merger or acquisition, (ii) such merger or acquisition constitutes a
Permitted Acquisition, (iii) with respect to any such Person who becomes a Subsidiary, (A) such Subsidiary and any of its Subsidiaries are
the only obligors in respect of such Indebtedness, and (B) to the extent such Indebtedness is permitted to be secured hereunder, only the
assets of such Subsidiary and any of its Subsidiaries secure such Indebtedness, and (iv) the aggregate amount of such Indebtedness does not
exceed $10,000,000 in the aggregate;
27.
Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
28.
Indebtedness in the form of purchase price adjustments, earn outs, deferred compensation, or other arrangements
representing acquisition consideration or deferred payments of a similar nature incurred in connection with Investments permitted by Section
7.8; provided that the amount of such obligation shall be deemed part of the cost of such Investment (the amount of which shall be deemed to
be the amount required to be accrued as a liability in accordance with GAAP or the amount actually paid);
29.
Indebtedness consisting of the financing of insurance premiums;
30.
Permitted Convertible Indebtedness in an aggregate principal amount not to exceed $1,500,000,000 at any one time
outstanding and any refinancings, refundings, renewals or extensions thereof so long as such Indebtedness continues to qualify as Permitted
Convertible Indebtedness;
31.
to the extent constituting Indebtedness, any Permitted Equity Derivative Transaction; and
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32.
Indebtedness not otherwise permitted by this Section in an aggregate principal amount not to exceed $10,000,000 at
any time outstanding.
c.
Liens
. Create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, except:
33.
Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings; provided that
adequate reserves with respect thereto are maintained on the books of the applicable Group Member in conformity with GAAP;
34.
carriers’, warehousemen’s, landlord’s, mechanics’, materialmen’s, repairmen’s supplier’s, construction or other like
Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good
faith by appropriate proceedings;
35.
pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security
legislation;
36.
deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business
(other than for indebtedness or any Liens arising under ERISA) or deposits made in connection with Permitted Acquisitions;
37.
easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that,
in the aggregate, are not substantial in amount and that 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 Group Member;
38.
Liens in existence on the date hereof listed on Schedule 7.3(f) of the Disclosure Letter; provided that (i) no such Lien
is spread to cover any additional property after the Closing Date, (ii) the amount of Indebtedness or obligations secured or benefitted thereby
is not increased, (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the
obligations secured thereby is permitted by Section 7.2(d);
39.
Liens securing Indebtedness incurred pursuant to Section 7.2(e) to finance the acquisition of fixed or capital assets;
provided that (i) such Liens shall be created substantially simultaneously with, or within 90 days after, the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and the proceeds
thereof, and (iii) the amount of Indebtedness secured thereby is not increased;
40.
Liens created pursuant to the Security Documents;
41.
(x) any interest or title of a lessor or licensor under any lease or license entered into by a Group Member in the
ordinary course of its business and covering only the assets so leased or licensed, (y) leases, licenses, subleases and sublicenses of real
property granted to others in the ordinary course of business and (z) non-exclusive licenses of Intellectual Property in the ordinary course of
business and other licenses and sublicenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in
respects other than territory and that may be exclusive as to territory
93
only as to discreet geographical areas outside of the United States, in each case in the ordinary course of business;
42.
judgment Liens that do not constitute a Default or an Event of Default under Section 8.1(h) of this Agreement;
43.
bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash, Cash Equivalents,
securities, commodities and other funds on deposit in one or more accounts maintained by a Group Member, in each case arising in the
ordinary course of business in favor of banks, other depositary institutions, securities or commodities intermediaries or brokerages with which
such accounts are maintained securing amounts owing to such banks or financial institutions with respect to cash management and operating
account management or are arising under Section 4-208 or 4-210 of the UCC on items in the course of collection;
44.
(i) cash deposits and liens on cash and Cash Equivalents pledged to secure Indebtedness permitted under Section
7.2(g), (ii) Liens securing reimbursement obligations with respect to letters of credit, banker’s acceptances, bank guarantees permitted by
Section 7.2(g) that encumber documents and other property relating to such letters of credit, and (iii) Liens securing Obligations under any
Specified Swap Agreements permitted by Section 7.2(i);
45.
Liens on property of a Person existing at the time such Person is acquired by, merged into or consolidated with a
Group Member or becomes a Subsidiary of a Group Member or acquired by a Group Member; provided that (i) such Liens were not created
in contemplation of such acquisition, merger, consolidation or Investment, (ii) such Liens do not extend to any assets other than those of such
Person, and (iii) the applicable Indebtedness or obligation secured by such Lien is not prohibited under Section 7.2;
46.
the replacement, extension or renewal of any Lien permitted by clause (m) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent
obligor) of the Indebtedness secured thereby;
47.
48.
Liens on insurance proceeds in favor of insurance companies granted solely to secured financed insurance premiums;
Liens in favor of custom and revenue authorities arising as a matter of law to secure the payment of custom duties in
connection with the importation of goods;
49.
Liens on any earnest money deposits required in connection with a Permitted Acquisition or consisting of earnest
money deposits required in connection with an acquisition of property not otherwise prohibited hereunder;
50.
51.
Liens securing Subordinated Indebtedness permitted under Section 7.2(f);
Liens that are contractual rights of setoff relating to purchase orders and other agreements entered into with customers
of such Person in the ordinary course of business; and
52.
other Liens securing obligations in an outstanding amount not to exceed $10,000,000 at any one time.
d.
Fundamental Changes
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. Consummate any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or Dispose of all or substantially all of its property or business, except that:
53.
(i) any Group Member that is not a Loan Party may be merged, amalgamated or consolidated with or into (A) any
Loan Party (provided that a Loan Party shall be the continuing or surviving Person, or the continuing or surviving Person shall become a
Loan Party substantially contemporaneous with such merger, amalgamation or consolidation) or (B) any Group Member that is not a Loan
Party, and (ii) any Loan Party may be merged, amalgamated or consolidated with or into with any other Loan Party (provided that if such
merger, amalgamation or consolidation involves the Borrower, Borrower shall be the continuing or surviving Person);
54.
(i) any Group Member that is not a Loan Party may Dispose of any or all of its assets (including upon voluntary
liquidation, dissolution or otherwise) (A) to any other Group Member or (B) pursuant to a Disposition permitted by Section 7.5; and (ii) any
Loan Party (other than the Borrower) may Dispose of any or all of its assets (including upon voluntary liquidation, dissolution or otherwise)
(A) to any other Loan Party or (B) pursuant to a Disposition permitted by Section 7.5;
55.
any Investment expressly permitted by Section 7.8 may be structured as a merger, consolidation or amalgamation;
and
56.
any Subsidiary that is a limited liability company may consummate a Division as the dividing Person if, immediately
upon the consummation of the Division, the assets of the applicable dividing Person are held by one or more Guarantors.
e.
Disposition of Property
. Dispose of any of its property, whether now owned or hereafter acquired, or, in the case of any Subsidiary of the Borrower, issue or
sell any shares of such Subsidiary’s Capital Stock to any Person, except:
57.
58.
59.
Dispositions of obsolete, worn out or surplus property in the ordinary course of business;
Dispositions of Inventory in the ordinary course of business;
Dispositions permitted by Sections 7.4(b)(i)(A) and (b)(ii)(A);
60.
the sale or issuance of the Capital Stock of a Subsidiary of the Borrower (i) to the Borrower or any other Loan Party,
or (ii) by a Subsidiary that is not a Loan Party to another Subsidiary that is not a Loan Party or (iii) in connection with any transaction that
does not result in a Change of Control;
61.
the use or transfer of money, cash or Cash Equivalents in a manner that is not prohibited by the terms of this
Agreement or the other Loan Documents;
62.
course of business;
the non-exclusive licensing of patents, trademarks, copyrights, and other Intellectual Property rights in the ordinary
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63.
the Disposition of property (i) from any Loan Party to any other Loan Party, and (ii) from any Group Member (which
is not a Loan Party) to any other Group Member; provided that in each case in which there is a Lien over the relevant property in favor of the
Administrative Agent in advance of the Disposition, an equivalent Lien will be granted to the Administrative Agent by the Group Member
which acquires the property;
64.
65.
66.
Dispositions of property subject to a Casualty Event;
leases or subleases of real property;
the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection
with the compromise or collection thereof;
67.
any abandonment, cancellation, non-renewal or discontinuance of use or maintenance of Intellectual Property (or
rights relating thereto) of any Group Member that the Borrower determines in good faith is desirable in the conduct of its business and not
materially disadvantageous to the interests of the Lenders;
68.
Dispositions of other property having a fair market value not to exceed $10,000,000 in the aggregate for any fiscal
year of the Borrower, provided that at the time of any such Disposition, no Event of Default shall have occurred and be continuing or would
result from such Disposition; and
69.
Restricted Payments permitted by Section 7.6, Investments permitted by Section 7.8 and Liens permitted by Section
7.3.
provided, however, that any Disposition made pursuant to this Section 7.5 (other than (x) Dispositions solely between Loan Parties,
(y) Dispositions solely between Group Members that are not Loan Parties or (z) Dispositions between a Loan Party and a Group Member that
is not a Loan Party in which the terms thereof in favor of a Loan Party are at least arm’s length terms) shall be made in good faith on an arm’s
length basis for fair value.
f.
Restricted Payments
. Make any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance
(including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness, pay any earn-
out payment, seller debt or deferred purchase price payments, declare or pay any dividend (other than dividends payable solely in Capital
Stock (other than Disqualified Stock) of the Person making such dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of any Group
Member, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of any Group Member (collectively, “Restricted Payments”), except that, so long as no Event of Default shall
have occurred and be continuing at the time of any action described below or would result therefrom;
70.
any Group Member may make Restricted Payments to any Loan Party and any Group Member that is not a Loan
Party may make Restricted Payments to any other Group Member;
96
71.
each Loan Party may purchase Capital Stock from present or former officers, directors or employees, of any Group
Member; provided that the aggregate amount of payments made under this clause (b) shall not exceed $5,000,000 during any fiscal year of
the Borrower;
72.
the Group Members make payments in respect of any earn-out obligation, seller debt or deferred purchase price
payments (in each case, other than Subordinated Indebtedness) so long as immediately after giving effect to any such payment, the Borrower
is in pro forma compliance with the financial covenants contained in Section 7.1, as of the most recently ended fiscal quarter for which
financial statements were required to be delivered;
73.
(i) each Group Member may make repurchases of Capital Stock deemed to occur upon exercise of stock options or
warrants if such repurchased Capital Stock represents a portion of the exercise price of such options or warrants, and (ii) each Group Member
may make repurchases of Capital Stock deemed to occur upon the withholding of a portion of the Capital Stock issued, granted or awarded to
a current or former officer, director, employee or consultant to pay for the taxes payable by such Person upon such issuance, grant or award
(or upon vesting thereof);
74.
any Group Member may make payments in respect of Subordinated Indebtedness solely to the extent such payment is
made in accordance with Section 7.22;
75.
each Group Member may purchase, redeem or otherwise acquire Capital Stock issued by it solely with the proceeds
received from the substantially concurrent issue of new shares of its Capital Stock (other than Disqualified Stock); provided that any such
issuance is otherwise permitted hereunder;
76.
the Borrower may deliver its common Capital Stock upon conversion of any convertible Indebtedness having been
issued by the Borrower; provided that such Indebtedness is otherwise permitted by Section 7.2;
77.
the Borrower may deliver its common Capital Stock in connection with the exercise of stock options, warrants,
restricted stock units or other equity awards by way of cashless exercise;
78.
the Borrower may make distributions or dividends consisting solely of its Capital Stock (other than Disqualified
Stock);
79.
the Group Members may make other Restricted Payments in an aggregate amount not to exceed $10,000,000 in any
fiscal year of the Borrower so long as immediately after giving effect to any such payment, the Borrower is in pro forma compliance with the
financial covenants contained in Section 7.1, as of the most recently ended fiscal quarter for which financial statements were required to be
delivered; provided that, notwithstanding the foregoing, such amount shall be unlimited so long as immediately before and immediately after
giving effect to any such Restricted Payment, the Borrower shall have a pro forma Adjusted Quick Ratio of at least 1.50:1.00 and be in pro
forma compliance with the covenant set forth in Section 7.1(b), if the Borrower’s pro forma Adjusted Quick Ratio would have resulted in a
Covenant Testing Period, in each case as of the most recently ended fiscal quarter for which financial statements were required to be
delivered, based upon financial statements delivered to the Administrative Agent which give effect, on a Pro Forma Basis, to such Restricted
Payment; and
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80.
any payment (including payment of any premium) or delivery with respect to, or early unwind or settlement or
termination of, any Permitted Equity Derivative Transaction.
[Reserved]
g.
.
h.
Investments
. Make any advance, loan, extension of credit (by way of guarantee or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or any assets constituting a business unit of, or make any other investment in, any
Person (all of the foregoing, “Investments”), except:
81.
82.
83.
extensions of trade credit in the ordinary course of business;
Investments in cash and Cash Equivalents;
Guarantee Obligations permitted by Section 7.2 and Guarantee Obligations of obligations not constituting
Indebtedness in the ordinary course of business;
84.
Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances
in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of the Group
Members pursuant to employee stock purchase plans or agreements approved by the Borrower’s board of directors in an aggregate amount
not to exceed $5,000,000 at any time outstanding;
85.
Investments existing on the Closing Date and set forth on Schedule 7.8 of the Disclosure Letter;
86.
intercompany Investments (i) by any Loan Party in any other Loan Party, (ii) by any Group Member that is not a
Loan Party in any other Group Member, (iii) by any Loan Party in any Group Member that is not a Loan Party to the extent (x) no Default or
Event of Default exists or would result therefrom and (y) such Investments do not exceed $15,000,000 in the aggregate for all such
Investments in any fiscal year of the Borrower, or (iv) to the extent arising from customary transfer pricing or cost-plus services agreements
entered into in the ordinary course of business and on terms that are, when taken as a whole and in the good faith judgment of the Borrower,
no less favorable to the Loan Parties than would be obtained in arm’s length transactions with a nonaffiliated third party.
87.
Investments in the ordinary course of business consisting of endorsements of negotiable instruments for collection or
deposit;
88.
Investments received in settlement of amounts due to any Group Member effected in the ordinary course of business
or owing to such Group Member as a result of Insolvency Proceedings involving an Account Debtor or upon the foreclosure or enforcement
of any Lien in favor of such Group Member;
89.
Investments held by any Person as of the date such Person is acquired in connection with a Permitted Acquisition,
provided that (A) such Investments were not made, in any case, by such Person in connection with, or in contemplation of, such Permitted
Acquisition, and (B) with
98
respect to any such Person which becomes a Subsidiary as a result of such Permitted Acquisition, such Subsidiary remains the only holder of
such Investment;
90.
so long as no Event of Default exists immediately after giving effect to such Investment, in addition to Investments
otherwise expressly permitted by this Section 7.8, any Investments in an aggregate amount not to exceed $15,000,000 in any fiscal year of the
Borrower; provided that, notwithstanding the foregoing, such amount shall be unlimited so long as immediately before and immediately after
giving effect to any such Investment, the Borrower shall have a pro forma Adjusted Quick Ratio of at least 1.50:1.00 and be in pro forma
compliance with the covenant set forth in Section 7.1(b), if the Borrower’s pro forma Adjusted Quick Ratio would have resulted in a
Covenant Testing Period, in each case as of the most recently ended fiscal quarter for which financial statements were required to be
delivered, based upon financial statements delivered to the Administrative Agent which give effect, on a Pro Forma Basis, to such
Investment;
91.
deposits made to secure the performance of leases, licenses or contracts in the ordinary course of business, and other
deposits made in connection with the incurrence of Liens permitted under Section 7.3;
92.
the licensing or contribution of Intellectual Property pursuant to joint marketing or joint venture arrangements with
other Persons in the ordinary course of business;
93.
promissory notes and other non-cash consideration received in connection with Dispositions permitted by Section 7.5,
to the extent not exceeding the limits specified therein with respect to the receipt of non-cash consideration in connection with such
Dispositions;
94.
so long as (i) at the time of such Investment or immediately after giving effect thereto, no Event of Default exists and
(ii) immediately after giving effect to such Investment, the Borrower is in pro forma compliance with the financial covenants contained in
Section 7.1 as of the most recently ended reporting period for which financial statements were required to be delivered, based on financial
statements and projections delivered to the Administrative Agent which give effect, on a pro forma basis to Investment, Investments in joint
ventures, corporate collaborations, or strategic alliances; provided that, the aggregate amount of all such Investments made in cash shall not
exceed $150,000,000 at any time outstanding;
95.
Investments in Permitted Equity Derivative Transactions; and
96.
purchases or other acquisitions by any Group Member of the Capital Stock in a Person that, upon the consummation
thereof, will be a Subsidiary (including as a result of a merger or consolidation) or all or substantially all of the assets of, or assets
constituting one or more business units of, any Person (each, a “Permitted Acquisition”); provided that, with respect to each such purchase or
other acquisition consummated pursuant to this Section 7.8(p):
xxxvi.the newly-created or acquired Subsidiary (or assets acquired in connection with such asset sale) shall be in a business
permitted by Section 7.17;
xxxvii.all transactions related to such purchase or acquisition shall be consummated in all material respects in accordance
with all Requirements of Law;
xxxviii.no Loan Party shall, as a result of or in connection with any such purchase or acquisition, assume or incur any direct
or contingent liabilities (whether relating to environmental, tax,
99
litigation or other matters) that, as of the date of such purchase or acquisition (or in the case of a Limited Condition Acquisition, as of the
LCA Test Date), could reasonably be expected to result in the existence or incurrence of a Material Adverse Effect;
xxxix.the Borrower shall give the Administrative Agent at least 10 Business Days’ prior written notice of any such purchase
or acquisition;
xl.the Borrower shall provide to the Administrative Agent as soon as available but in any event not later than 5 Business
Days after the execution thereof, a copy of any executed purchase agreement or similar agreement with respect to any such purchase or
acquisition;
xli.any such newly-created or acquired Subsidiary, or the Loan Party that is the acquirer of assets in connection with an
asset acquisition, shall comply or be prepared to comply with the requirements of Section 6.12, except to the extent compliance with Section
6.12 is prohibited by pre-existing Contractual Obligations or Requirements of Law binding on such Subsidiary or its properties;
xlii.immediately after giving effect to any such purchase or other acquisition, no Default or Event of Default shall have
occurred and be continuing (other than in connection with a Limited Condition Acquisition, in which case there shall be (x) no Default or
Event of Default as of the LCA Test Date and (y) no Event of Default under Section 8.1(a) or (f) immediately after giving effect to any such
purchase or other acquisition);
xliii.immediately after giving effect to any such purchase or acquisition the Borrower is in pro forma compliance with the
financial covenants contained in Section 7.1 as of the most recently ended reporting period for which financial statements were required to be
delivered, based on financial statements and projections delivered to the Administrative Agent which give effect, on a pro forma basis to such
purchase or acquisition;
permitted by the terms of Section 7.2;
xliv.no Indebtedness is assumed or incurred in connection with any such purchase or acquisition other than Indebtedness
xlv.such purchase or acquisition shall not constitute an Unfriendly Acquisition;
xlvi.in any merger involving the Borrower, the Borrower is the sole surviving entity; and
xlvii.the Borrower shall have delivered to the Administrative Agent, at least 5 Business Days prior to the date on which
any such purchase or other acquisition is to be consummated (or such later date as is agreed by the Administrative Agent in its sole
discretion), a certificate of a Responsible Officer of the Borrower, in form and substance reasonably satisfactory to the Administrative Agent,
certifying that all of the requirements set forth in this definition have been satisfied or will be satisfied on or prior to the consummation of
such purchase or other acquisition.
Notwithstanding anything herein to the contrary, no Group Member shall consummate an Unfriendly Acquisition.
i.
ERISA
. The Borrower shall not, and shall not permit any of its ERISA Affiliates to: (a) terminate any Pension Plan so as to result in any
material liability to the Borrower or any ERISA Affiliate, (b) permit to
100
exist any ERISA Event, or any other event or condition, which presents the risk of a material liability to any ERISA Affiliate, (c) make a
complete or partial withdrawal (within the meaning of ERISA Section 4201) from any Multiemployer Plan so as to result in any material
liability to the Borrower or any ERISA Affiliate, (d) enter into any new Pension Plan or Multiemployer Plan or modify any existing Pension
Plan or Multiemployer Plan so as to increase its obligations thereunder which could be reasonably likely to result in material liability to any
ERISA Affiliate or permit the present value of all nonforfeitable accrued benefits under any Pension Plan (using the actuarial assumptions
utilized by the PBGC upon termination of a Plan) materially to exceed the fair market value of Pension Plan assets allocable to such benefits,
all determined as of the most recent valuation date for each such Pension Plan, or (e) engage in any transaction which would cause any
obligation, or action taken or to be taken, hereunder (or the exercise by the Administrative Agent or any Lender of any of its rights under this
Agreement, any Note or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code with respect to a Plan, except, in the case of each of the foregoing
clauses, to the extent that failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
j.
Optional Payments and Modifications of Certain Preferred Stock
. Amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other
change to, any of the terms of Preferred Stock (a) that would move to an earlier date the scheduled redemption date thereof
(but only to the extent that moving any such scheduled redemption date would result in the redemption to be prior to 91 days
after the Revolving Termination Date) or increase the amount of any scheduled redemption payment or increase the rate or
move to an earlier date any date for payment of dividends thereon, (b) that could reasonably be expected to be otherwise
materially adverse to any Lender or any other Secured Party, or (c) make any payment or prepayment of principal of,
premium, if any, or redemption, purchase, retirement, defeasance, sinking fund, settlement, conversion or similar payment
with respect to any Permitted Convertible Indebtedness not expressly required pursuant to the terms of the agreements
governing such Permitted Convertible Indebtedness unless (x) made exclusively with common stock of Fastly, Inc. and cash
in lieu of fractional shares and/or to pay accrued interest, if any, on such Permitted Convertible Indebtedness, (y) made for
cash exclusively using proceeds of a substantially concurrent refinancing or replacement of such Permitted Convertible
Indebtedness permitted pursuant to Section 7.2(n), or (z) immediately after giving effect to any such payment or prepayment
(i) no Default or Event of Default shall have occurred and be continuing and (ii) the Borrower is in pro forma compliance
with the financial covenants contained in Section 7.1 as of the most recently ended reporting period for which financial
statements were required to be delivered, based on financial statements and projections delivered to the Administrative Agent
which give effect, on a pro forma basis to such payment or prepayment (it being agreed that nothing herein shall prohibit
settlement of expressly required conversion or expressly required payment obligations of Permitted Convertible Indebtedness
for cash (or a combination of cash and common stock)).
k.
Transactions with Affiliates
. Directly or indirectly enter into or permit to exist any transaction with any Affiliate of a Loan Party except for (a) intercompany
transactions permitted by Sections 7.2, 7.6 or 7.8 hereof, (b) transactions that are in the ordinary course of such Loan Party’s business, upon
fair and reasonable terms
101
that are no less favorable to such Loan Party than would be obtained in an arm’s length transaction with a non-affiliated Person, and (c)
reasonable and customary indemnification arrangements,
compensation arrangements (including equity-based
compensation and bonuses), and reimbursement of expenses of employees, consultants, officers, and directors, in each case, approved by the
board of directors or management of a Group Member.
employee benefits,
l.
Sale Leaseback Transactions
. Enter into any Sale Leaseback Transaction, except in connection with transactions that would be permitted under this Section 7.
m.
Swap Agreements
. Enter into any Swap Agreement, except (a) Specified Swap Agreements which are entered into by a Group Member (i) to hedge or
mitigate risks to which such Group Member has actual exposure, (ii) to effectively cap, collar or exchange interest rates (from fixed to
floating rates, from one floating rate to another floating rate or otherwise) with respect to any interest-bearing liability or investment of such
Group Member, or (b) Permitted Equity Derivative Transactions.
n. Accounting Changes
. Make any change in its (a) accounting policies or reporting practices, except as required or permitted by GAAP, or (b) fiscal year, in
each case, without the prior written consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed).
o.
Negative Pledge Clauses
. Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of any Loan Party to create, incur,
assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure its Obligations
under the Loan Documents to which it is a party, other than (a) this Agreement and the other Loan Documents, and (b) pursuant to
agreements entered into in accordance with Sections 7.2 and 7.3.
p. Clauses Restricting Subsidiary Distributions
. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (a)
make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or to pay any Indebtedness owed to, any other Group
Member, (b) make loans or advances to, or other Investments in, any other Group Member, or (c) transfer any of its assets to any other Group
Member, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents,
(ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with a Disposition
permitted hereby of all or substantially all of the Capital Stock or assets of such Subsidiary, (iii) customary restrictions on the assignment of
leases, licenses and other agreements, (iv) restrictions of the nature referred to in clause (c) above under agreements governing purchase
money liens or Capital Lease Obligations otherwise permitted hereby which restrictions are only effective against the assets financed thereby,
(v) any agreement in effect at the time any Subsidiary becomes a Subsidiary of a Borrower, so long as such agreement applies only to such
Subsidiary, was not entered into solely in contemplation of such Person becoming a Subsidiary or, in each case that is set forth in any
agreement evidencing any amendments, restatements, supplements, modifications, extensions, renewals and replacements of the foregoing, so
102
long as such amendment, restatement, supplement, modification, extension, renewal or replacement is not as a whole materially less
favorable to such Subsidiary, (vi) restrictions under any Subordinated Debt Documents, (vii) restrictions on the transfer of any asset pending
the close of the sale of such asset and customary restrictions contained in purchase agreements and acquisition agreements (including by way
of merger, acquisition or consolidation), to the extent in effect pending the consummation of such transaction, (viii) customary net worth
provisions or similar financial maintenance provisions contained in real property leases entered into by a Foreign Subsidiary, so long as the
Borrower has determined in good faith that such net worth provisions could not reasonably be expected to impair the ability of the Group
Members to meet their ongoing obligations under the Loan Documents, (ix) applicable law, (x) restrictions on cash or other deposits or net
worth imposed under agreements entered into in the ordinary course of business, (xi) provisions in joint venture agreements and other similar
agreements (including equity holder agreements) relating to such joint venture or its members or entered into in the ordinary course of
business, (xii) Requirements of Law applicable to a Foreign Subsidiary prohibiting or restricting the applicable Foreign Subsidiary from
making Restricted Payments to the Borrower, or (xiii) any restriction pursuant to any document, agreement or instrument governing or
relating to any Lien permitted under Section 7.3.
q.
Lines of Business
. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Group Members are
engaged on the date of this Agreement or that are reasonably related, ancillary or incidental thereto.
r.
Designation of other Indebtedness
. Designate any Indebtedness or indebtedness other than the Obligations as “Designated Senior Indebtedness” or a similar concept
thereto, if applicable.
s.
.
t.
[Reserved]
Amendments to Operating Documents and Material Contracts
. (a) Amend or permit any amendments to any Loan Party’s organizational documents if such amendment, termination, or waiver would be
adverse to the Administrative Agent or the Lenders in any material respect; or (b) amend or permit any amendments to, or terminate or waive
any provision of, any material Contractual Obligation if such amendment, termination or waiver could reasonably be expected to result in a
Material Adverse Effect.
u. Use of Proceeds
. Use the proceeds of any Loan or extension of credit hereunder, whether directly or indirectly, and whether immediately, incidentally
or ultimately, (a) to purchase or carry margin stock (within the meaning of Regulation U of the Board) 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; (b) to finance an Unfriendly Acquisition; (c)
to fund any activities of or business with any individual or entity, or in any Designated Jurisdiction, that, at the time of such funding, is the
subject of Sanctions, or in any other manner that will result in a violation by any individual or entity (including any
103
individual or entity participating in the transaction, whether as Lender, arranger, Administrative Agent, Issuing Lender, Swingline Lender, or
otherwise) of Sanctions (or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other
individual or entity in violation of the foregoing); or (d) for any purpose which would breach the United States Foreign Corrupt Practices Act
of 1977, the UK Bribery Act 2010, or other similar legislation in other jurisdictions.
v.
Subordinated Indebtedness.
97.
Amendments. Amend, modify, supplement, waive compliance with, or consent to noncompliance with, any
Subordinated Debt Document, unless the amendment, modification, supplement, waiver or consent is in compliance with the subordination
provisions therein and any subordination agreement with respect thereto in favor of the Administrative Agent and the Lenders.
98.
Payments. Make any payment (including any interest payment, other than paid-in-kind interest), prepayment or
repayment on, redemption, exchange or acquisition for value of, any sinking fund or similar payment with respect to, any Subordinated
Indebtedness, except as permitted by the subordination provisions in the applicable Subordinated Debt Documents and any subordination
agreement with respect thereto in favor of the Administrative Agent and the Lenders.
w. Anti-Terrorism Laws
. Conduct, deal in or engage in or permit any Affiliate or agent of any Loan Party within its control to conduct, deal in or engage in
any of the following activities: (a) conduct any business or engage in any transaction or dealing with any person blocked pursuant to
Executive Order No. 13224 (a “Blocked Person”), including the making or receiving any contribution of funds, goods or services to or for
the benefit of any Blocked Person; (b) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked
pursuant to Executive Order No. 13224; or (c) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of
evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or the Patriot Act.
SECTION 8.
EVENTS OF DEFAULT
a.
Events of Default
. The occurrence of any of the following shall constitute an Event of Default:
99.
the Borrower shall fail to pay any amount of principal of any Loan when due in accordance with the terms hereof; or
the Borrower shall fail to pay any amount of interest on any Loan, or any other amount payable hereunder or under any other Loan
Document, within 3 Business Days after any such interest or other amount becomes due in accordance with the terms hereof; or
100.
any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or
that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this
Agreement or any such other Loan Document (i) if qualified by materiality, shall be incorrect or misleading when made or deemed made, or
(ii) if not qualified by materiality, shall be incorrect or misleading in any material respect when made or deemed made; or
104
101.
(i) any Loan Party shall default in the observance or performance of any agreement contained in, Section 5.3, Section
6.1, Section 6.2, clause (i) or (ii) of Section 6.5(a), Section 6.6(b), Section 6.8(a), Section 6.10, Section 6.16 or Section 7 of this Agreement or
(ii) an “Event of Default” under and as defined in any Security Document shall have occurred and be continuing; or
102.
any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or
any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section 8.1), and such default shall continue
unremedied for a period of 30 days thereafter; or
103.
(i) any Group Member shall (A) default in making any payment of any principal of any Indebtedness (including any
Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; (B) default in making any payment
of any interest, fees, costs or expenses on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created; (C) default in making any payment or delivery under any such Indebtedness constituting a Swap
Agreement beyond the period of grace, if any, provided in such Swap Agreement; or (D) default in the observance or performance of any
other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to (1) cause, or to permit the
holder or beneficiary of, or, in the case of any such Indebtedness constituting a Swap Agreement, counterparty under, such Indebtedness (or a
trustee or agent on behalf of such holder, beneficiary, or counterparty) to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable or (in
the case of any such Indebtedness constituting a Swap Agreement) to be terminated, or (2) to cause, with the giving of notice if required, any
Group Member to purchase, redeem, mandatorily prepay or make an offer to purchase, redeem or mandatorily prepay such Indebtedness prior
to its stated maturity; provided that a default, event or condition described in clauses (i)(A), (B), (C), or (D) of this Section 8.1(e) shall not at
any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in any of clauses
(i)(A), (B), (C), or (D) of this Section 8.1(e) shall have occurred with respect to Indebtedness, the outstanding principal amount (and, in the
case of Swap Agreements, the Swap Termination Value that is or would be owed by a Group Member (other than in the form of Capital
Stock of Holdings that is not Disqualified Stock)) of which, individually or in the aggregate for all such Indebtedness, exceeds the Threshold
Amount; provided, further, that this clause (e)(i) shall not apply to (x) any early payment requirement or unwinding or termination with
respect to any Permitted Equity Derivative Transaction, or satisfaction of any condition giving rise to or permitting the foregoing, in
accordance with the terms thereof, so long as, in any such case, the Group Members are not the “defaulting party” or otherwise in breach
under the terms of such Permitted Equity Derivative Transaction, or (y) any event that permits or causes repurchase, payment, prepayment,
redemption, conversion, settlement or exchange of Permitted Convertible Indebtedness that is not the result of a breach or default by a Group
Member of the terms of an agreement governing such Permitted Convertible Indebtedness or an event or condition that constitutes an Event
of Default hereunder or (ii) any default or event of default (however designated) shall occur with respect to any Subordinated Indebtedness of
any Group Member (after any applicable grace period (but excluding any standstill or similar period) and to the extent not waived); or
104.
(i) any Group Member shall commence any case, proceeding or other action (a) under any Debtor Relief Law seeking
to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, windingup,
105
liquidation, dissolution, composition or other relief with respect to it or its debts, or (b) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial part of its assets, or any Group Member shall make a general assignment
for the benefit of its creditors; or (ii) there shall be commenced against any Group Member any case, proceeding or other action of a nature
referred to in clause (i) above that (x) results in the entry of an order for relief or any such adjudication or appointment or (y) remains
undismissed, undischarged or unbonded for a period of 60 days (provided that, during such 60 day period, no Loan shall be advanced or
Letters of Credit issued hereunder); or (iii) there shall be commenced against any Group Member any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results
in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof (provided that, during such 60 day period, no Loan shall be advanced or Letters of Credit issued hereunder); or (iv) any
Group Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay
its debts as they become due; or
105.
there shall occur one or more ERISA Events which individually or in the aggregate results in or otherwise is
associated with liability of any Loan Party or any ERISA Affiliate thereof in excess of the Threshold Amount during the term of this
Agreement; or there exists an amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the
aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit
liabilities) which exceeds the Threshold Amount; or
106.
there is entered against any Group Member (i) one or more final judgments or orders for the payment of money
involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged
coverage) of the Threshold Amount or more, or (ii) one or more non-monetary final judgments that have, or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any
creditor upon such judgment or order, or (B) all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 60 days from the entry thereof; or
107.
any of the Security Documents shall cease, for any reason, to be in full force and effect (other than pursuant to the
terms thereof), or any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of
the same effect and priority purported to be created thereby; or
more than five consecutive Business Days; or
xlviii.any court order enjoins, restrains or prevents a Loan Party from conducting all or any material part of its business for
108.
the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in
full force and effect or any Loan Party shall so assert; or
109.
a Change of Control shall occur; or
110.
any of the Governmental Approvals necessary for an of the Group Members to operate its respective business shall
have been (i) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or
(ii) subject to any decision by a
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Governmental Authority that designates a hearing with respect to any applications for renewal of any of the Governmental Approvals or that
could result in the Governmental Authority taking any of the actions described in clause (i) above, and such decision or such revocation,
rescission, suspension, modification or nonrenewal (x) has, or could reasonably be expected to have, a Material Adverse Effect, or (y)
adversely affects the legal qualifications of any Group Member to hold any material Governmental Approval in any applicable jurisdiction
and such adverse effect on the legal qualifications of any such Group Member to hold any material Governmental Approval in any applicable
jurisdiction could reasonably be expected to have a Material Adverse Effect; or
111.
any Loan Document (including the subordination provisions of any subordination or intercreditor agreement
governing Subordinated Indebtedness) not otherwise referenced in Section 8.1(i) or (j), at any time after its execution and delivery and for
any reason other than as expressly permitted hereunder or thereunder or the Discharge of Obligations, ceases to be in full force and effect; or
any Loan Party or any other Person contests in any manner the validity or enforceability of any Loan Document; or any Loan Party denies
that it has any liability or obligation under any Loan Document to which it is a party, or purports to revoke, terminate or rescind any such
Loan Document.
b. 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:
112.
if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) of Section 8.1 with respect to the
Borrower, the Commitments shall immediately terminate automatically and the Loans (with accrued interest thereon) and all other amounts
owing under this Agreement and the other Loan Documents shall automatically immediately become due and payable, and
113.
if such event is any other Event of Default, any of the following actions may be taken: (i) with the consent of the
Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to
the Borrower declare the Revolving Commitments, the Swingline Commitments and the L/C Commitments to be terminated forthwith,
whereupon the Revolving Commitments, the Swingline Commitments and the L/C Commitments shall immediately terminate; (ii) with the
consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall,
by notice to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other
Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable; (iii) any Cash
Management Bank may terminate any Cash Management Agreement then outstanding and declare all Obligations then owing by the Loan
Parties under any such Cash Management Agreements then outstanding to be due and payable forthwith, whereupon the same shall
immediately become due and payable; and (iv) the Administrative Agent may exercise on behalf of itself, any Cash Management Bank, the
Lenders and the Issuing Lender all rights and remedies available to it (including for the avoidance of doubt, place a “hold” on any account
maintained with SVB and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any
Control Agreement or similar agreements providing control of any Collateral and demand and receive possession of Borrower’s books and
records), any such Cash Management Bank, the Lenders and the Issuing Lender under the Loan Documents.
With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrower shall Cash
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Collateralize an amount equal to 105% (110% in the case of a Letter of Credit denominated in an Alternative Currency) of the aggregate then
undrawn and unexpired amount of such Letters of Credit. Amounts so Cash Collateralized shall be applied by the Administrative Agent to the
payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or
been fully drawn upon, if any, shall be applied to repay other Obligations of the Borrower hereunder and under the other Loan Documents in
accordance with Section 8.3.
In addition, (x) the Borrower shall also Cash Collateralize the full amount of any Swingline Loans then outstanding, and
(y) to the extent elected by any applicable Cash Management Bank, the Borrower shall also Cash Collateralize the amount of any Obligations
in respect of Cash Management Services then outstanding, which Cash Collateralized amounts shall be applied by the Administrative Agent
to the payment of all such outstanding Cash Management Services, and any unused portion thereof remaining after all such Cash
Management Services shall have been fully paid and satisfied in full shall be applied by the Administrative Agent to repay other Obligations
of the Loan Parties hereunder and under the other Loan Documents in accordance with the terms of Section 8.3.
114.
After all such Letters of Credit and Cash Management Agreements shall have been terminated, expired or fully drawn
upon, as applicable, and all amounts drawn under any such Letters of Credit shall have been reimbursed in full and all other Obligations of
the Borrower and the other Loan Parties (including any such Obligations arising in connection with Cash Management Services) shall have
been paid in full, the balance, if any, of the funds having been so Cash Collateralized shall be returned to the Borrower (or such other Person
as may be lawfully entitled thereto). Except as expressly provided above in this Section, presentment, demand, protest and all other notices of
any kind are hereby expressly waived by the Borrower.
c.
Application of Funds
. After the exercise of remedies provided for in Section 8.2, any amounts received by the Administrative Agent on account of the
Obligations shall be applied by the Administrative Agent in the following order:
First, to the payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (other than
principal and interest but including any Collateral-Related Expenses, fees, charges and disbursements of counsel to the Administrative Agent
and amounts payable under Sections 2.19, 2.20 and 2.21 (including interest thereon)) 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, the Issuing Lender ((including any Letter of Credit Fronting Fees and Issuing
Lender Fees), and any Qualified Counterparty and any applicable Cash Management Bank (in its respective capacity as a provider of Cash
Management Services), and the reasonable and documented out-of-pocket fees, charges and disbursements of counsel to the respective
Lenders and the Issuing Lender, and amounts payable under Sections 2.19, 2.20 and 2.21), in each case, ratably among them in proportion to
the respective amounts described in this clause Second payable to them;
Third, to the extent that the Swingline Lender has advanced any Swingline Loans that have not been refunded by each
Lender’s Swingline Participation Amount, payment to the Swingline
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Lender of that portion of the Obligations constituting the unpaid principal of and interest upon the Swingline Loans advanced by the
Swingline Lender;
Fourth, to the payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest in
respect of any Cash Management Services and on the Loans and L/C Disbursements which have not yet been converted into Revolving
Loans, and to payment of premiums and other fees (including any interest thereon) under any Specified Swap Agreements and any Cash
Management Agreements, in each case, ratably among the Lenders, any applicable Cash Management Bank (in its respective capacity as a
provider of Cash Management Services), and any Qualified Counterparties, in each case, ratably among them in proportion to the respective
amounts described in this clause Fourth payable to them;
Fifth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, L/C Disbursements which have
not yet been converted into Revolving Loans, and settlement amounts, payment amounts and other termination payment obligations under
any Specified Swap Agreements and Cash Management Agreements, in each case, ratably among the Lenders, any applicable Cash
Management Bank (in its respective capacity as a provider of Cash Management Services), and any applicable Qualified Counterparties, in
each case, ratably among them in proportion to the respective amounts described in this clause Fifth and payable to them;
Sixth, to the Administrative Agent for the account of the Issuing Lender, to Cash Collateralize that portion of the L/C
Exposure comprised of the Dollar Equivalent of the aggregate undrawn amount of Letters of Credit pursuant to Section 3.10;
Seventh, for the account of any applicable Qualified Counterparty and any applicable Cash Management Bank, to any
settlement amounts, payment amounts and other termination payment obligations under any Specified Swap Agreements and Cash
Management Agreements not paid pursuant to clause Fifth and to Cash Collateralize Obligations arising under any then outstanding Specified
Swap Agreements and Cash Management Services, in each case, ratably among them in proportion to the respective amounts described in
this clause Seventh payable to them;
Eighth, to the payment of all other Obligations of the Loan Parties that are then due and payable to the Administrative Agent
and the other Secured Parties on such date, in each case, ratably among them in proportion to the respective aggregate amounts of all such
Obligations described in this clause Eighth and payable to them;
Last, the balance, if any, after the Discharge of Obligations, to the Borrower or as otherwise required by Law.
Subject to Sections 2.24(a), 3.4, 3.5 and 3.10, amounts used to Cash Collateralize the Dollar Equivalent of the aggregate undrawn amount of
Letters of Credit pursuant to clause Sixth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount
remains on deposit as Cash Collateral for Letters of Credit 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, no Excluded Swap Obligation of any Guarantor shall be paid with amounts received from such
Guarantor or from any Collateral in which such Guarantor has granted to the Administrative Agent a Lien (for the benefit of the Secured
Parties) pursuant to the Guarantee and Collateral Agreement; provided, however, that each party to this Agreement hereby acknowledges and
agrees that appropriate adjustments shall be made by the Administrative Agent (which adjustments shall
109
be controlling in the absence of manifest error) with respect to payments received from other Loan Parties to preserve the allocation of such
payments to the satisfaction of the Obligations in the order otherwise contemplated in this Section 8.3.
a.
Appointment and Authority.
SECTION 9.
THE ADMINISTRATIVE AGENT
115.
Each of the Lenders hereby irrevocably appoints SVB 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 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.
116.
The provisions of Section 9 are solely for the benefit of the Administrative Agent, the Lenders, the Issuing Lender,
and the Swingline Lender, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such
provisions. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or
obligations, except those expressly set forth herein and in the other Loan Documents, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document
or otherwise exist against the Administrative Agent. 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.
117.
The Administrative Agent shall also act as the collateral agent under the Loan Documents, and each of the Lenders
(in their respective capacities as a Lender and, as applicable, Qualified Counterparty and provider of Cash Management Services) hereby
irrevocably (i) authorizes the Administrative Agent to enter into all other Loan Documents, as applicable, including the Guarantee and
Collateral Agreement and any Subordination Agreements, and (ii) appoints and authorizes the Administrative Agent to act as the agent of the
Secured Parties 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 Obligations, together with such powers and discretion as are reasonably incidental thereto. The Administrative Agent, as collateral
agent and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.2 for purposes of
holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Security 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 Section 9 and
Section 10 (including Section 9.7, 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, without the necessity of any notice to or further consent from the Lenders, 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.
110
b. 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 Section 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 Facilities provided for herein as well as
activities as the 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 nonappealable judgment that the Administrative Agent
acted with gross negligence or willful misconduct in the selection of such sub agents.
c.
Exculpatory Provisions
. The Administrative Agent shall have no duties or obligations except those expressly set forth herein and in the other Loan
Documents, and its duties hereunder and thereunder shall be administrative in nature. Without limiting the generality of the foregoing, the
Administrative Agent shall not:
118.
be subject to any fiduciary or other implied duties, regardless of whether any Default or any Event of Default has
occurred and is continuing;
119.
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), as applicable; 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
120.
except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and the
Administrative Agent shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is
communicated to or obtained by any Person serving as the Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not 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 8.2 and 10.1), or (ii) in the absence of its own gross negligence
or willful misconduct as determined by a court of competent jurisdiction by final and nonappealable judgment.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with 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
111
covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the
validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or
document or (v) the satisfaction of any condition set forth in Section 5.1, Section 5.2 or elsewhere herein, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent.
d. 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, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender, the
Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received
notice to the contrary from such Lender 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 any of the Loan Parties), 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. The
Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing
or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the
Required Lenders (or such other number or percentage of Lenders as shall be provided for herein or in the other Loan Documents) as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it
by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or such
other number or percentage of Lenders as shall be provided for herein or in the other Loan Documents), and such request and any action
taken or failure to act pursuant thereto shall be binding upon the Lenders and all future holders of the Loans.
e.
Notice of Default
. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default
unless the Administrative Agent has received notice in writing from a Lender or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a “notice of default.” In the event that the Administrative Agent receives such a
notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders);
provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be
obligated to) take such action or refrain from taking such action with respect to such Default or Event of Default as it shall deem advisable in
the best interests of the Lenders.
f.
Non-Reliance on Administrative Agent and Other Lenders
112
. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents,
attorneys in fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereafter taken,
including any review of the affairs of a Group Member or any Affiliate of a Group Member, shall be deemed to constitute any representation
or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender or any of their Related Parties, and based on such documents and
information as it has deemed appropriate, made its own appraisal of, and investigation into, the business, operations, property, financial and
other condition and creditworthiness of the Group Members and their Affiliates and made its own credit analysis and decision to make its
Loans hereunder and enter into this Agreement. Each Lender also agrees that it will, independently and without reliance upon the
Administrative Agent or any other Lender or any of their Related Parties, 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, the other Loan Documents or any related agreement or any document furnished hereunder or thereunder, and to make
such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and
creditworthiness of the Group Members and their Affiliates. Except for notices, reports and other documents expressly required to be
furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall have no duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Group Member or any Affiliate of a Group Member that may come into the possession of the Administrative Agent
or any of its officers, directors, employees, agents, attorneys in fact or Affiliates.
g.
Indemnification
. Each of the Lenders agrees to indemnify each of the Administrative Agent, the Issuing Lender and the Swingline Lender and each of
its Related Parties in its capacity as such (to the extent not reimbursed by the Borrower or any other Loan Party and without limiting the
obligation of the Borrower or any other Loan Party to do so) according to its Aggregate Exposure Percentage in effect on the date on which
indemnification is sought under this Section 9.7 (or, if indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, in accordance with its Aggregate Exposure Percentage immediately prior to such date),
from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against
the Administrative Agent or such other Person in any way relating to or arising out of, the Commitments, this Agreement, any of the other
Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Administrative Agent or such other Person under or in connection with any of the foregoing and any other
amounts not reimbursed by the Borrower or such other Loan Party; provided that no Lender shall be liable for the payment of any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final
and nonappealable decision of a court of competent jurisdiction to have resulted primarily from the Administrative Agent’s or such other
Person’s gross negligence or willful misconduct, and that with respect to such unpaid amounts owed to any Issuing Lender or Swingline
Lender solely in its capacity as such, only the Revolving Lenders shall be required to pay such unpaid amounts, such payment to be made
severally among them based on such Revolving Lenders’ Revolving Percentage (determined as of the time that the applicable unreimbursed
expense or indemnity
113
payment is sought). The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.
h. Agent in Its Individual Capacity
. 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.
i.
Successor Administrative Agent.
121.
The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon
receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to 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 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, 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. Whether or not a successor has been appointed, such resignation shall become effective in accordance with
such notice on the Resignation Effective Date.
122.
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.
123. 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 (except
that in the case of any collateral security held by the Administrative Agent on behalf of the Secured Parties under any of the Loan
Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor
Administrative Agent is appointed and such collateral security is assigned to such successor Administrative Agent) 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 directly, until such time, if any, as the Required
Lenders appoint a successor Administrative Agent as provided for above in this Section. 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
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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 (if not already discharged therefrom as provided above in this Section). 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 Section 9 and Section 10.5 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 the Administrative Agent.
Collateral and Guaranty Matters
j.
.
124.
The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion,
xlix.to release any Lien on any Collateral or other property granted to or held by the Administrative Agent under any Loan
Document (A) upon the Discharge of Obligations (other than contingent indemnification obligations) and the expiration or termination of all
Letters of Credit (other than Letters of Credit as to which other arrangements satisfactory to the Administrative Agent and the applicable
Issuing Lender shall have been made), (B) that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in
connection with any sale or other disposition permitted hereunder or under any other Loan Document, or (C) subject to Section 10.1, if
approved, authorized or ratified in writing by the Required Lenders;
Loan Document to the holder of any Lien on such property that is permitted by Sections 7.3 (g) and (i); and
l.to subordinate any Lien on any Collateral or other property granted to or held by the Administrative Agent under any
be a Subsidiary as a result of a transaction permitted under the Loan Documents.
li.to release any Guarantor from its obligations under the Guarantee and Collateral Agreement if such Person ceases to
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 interest in particular types or items of property, or to release any Guarantor from its obligations under
the guaranty pursuant to this Section 9.10.
125.
The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or
warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s
Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or
liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
126.
Notwithstanding anything contained in any Loan Document, no Secured Party shall have any right individually to
realize upon any of the Collateral or to enforce any guaranty of the Obligations (including any such guaranty provided by the Guarantors
pursuant to the Guarantee and Collateral Agreement), it being understood and agreed that all powers, rights and remedies under the Loan
Documents may be exercised solely by the Administrative Agent on behalf of the Secured Parties in
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accordance with the terms thereof; provided that, for the avoidance of doubt, in no event shall a Secured Party be restricted hereunder from
filing a proof of claim on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law or any
other judicial proceeding. In the event of a foreclosure by the Administrative Agent on any of the Collateral pursuant to a public or private
sale or other disposition, the Administrative Agent or any Secured Party may be the purchaser or licensor of any or all of such Collateral at
any such sale or other disposition, and the Administrative Agent, as agent for and representative of such Secured Party (but not any Lender or
Lenders in its or their respective individual capacities unless the Required Lenders shall otherwise agree in writing) shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public
sale, to use and apply any of the Obligations as a credit on account of the purchase price for any Collateral payable by the Administrative
Agent on behalf of the Secured Parties at such sale or other disposition. Each Secured Party, whether or not a party hereto, will be deemed, by
its acceptance of the benefits of the Collateral and of the guarantees of the Obligations provided by the Loan Parties under the Guarantee and
Collateral Agreement, to have agreed to the foregoing provisions. In furtherance of the foregoing, and not in limitation thereof, no Specified
Swap Agreement and no Cash Management Agreement, the Obligations under which constitute Obligations, will create (or be deemed to
create) in favor of any Secured Party that is a party thereto any rights in connection with the management or release of any Collateral or of the
Obligations of any Loan Party under any Loan Document except as expressly provided herein or in the Guarantee and Collateral Agreement.
By accepting the benefits of the Collateral and of the guarantees of the Obligations provided by the Loan Parties under the Guarantee and
Collateral Agreement, any Secured Party that is a Cash Management Bank or a Qualified Counterparty shall be deemed to have appointed the
Administrative Agent to serve as administrative agent and collateral agent under the Loan Documents and to have agreed to be bound by the
Loan Documents as a Secured Party thereunder, subject to the limitations set forth in this paragraph.
k. 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 any Loan Party,
the Administrative Agent (irrespective of whether the principal of any Loan or Obligation in respect of any Letter of Credit 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 (but not obligated), by intervention in such proceeding or otherwise:
127.
to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans,
Obligations in respect of any Letter of Credit and all other Obligations that are owing and unpaid and to file such other documents as may be
necessary or advisable to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other
amounts due the Lenders and the Administrative Agent under Sections 2.9 and 10.5) allowed in such judicial proceeding; and
128.
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 to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent
to the making of such payments
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directly to the Lenders, 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 2.9
and 10.5.
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 any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any
Lender to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
[Reserved]
l.
.
m. Cash Management Bank and Qualified Counterparty Reports
. Each Cash Management Bank and each Qualified Counterparty agrees to furnish to the Administrative Agent, as frequently as the
Administrative Agent may reasonably request, with a summary of all Obligations in respect of Cash Management Services and/or Specified
Swap Agreements, as applicable, due or to become due to such Cash Management Bank or Qualified Counterparty, as applicable. In
connection with any distributions to be made hereunder, the Administrative Agent shall be entitled to assume that no amounts are due to any
Cash Management Bank or Qualified Counterparty (in its capacity as a Cash Management Bank or Qualified Counterparty and not in its
capacity as a Lender) unless the Administrative Agent has received written notice thereof from such Cash Management Bank or Qualified
Counterparty and if such notice is received, the Administrative Agent shall be entitled to assume that the only amounts due to such Cash
Management Bank or Qualified Counterparty on account of Cash Management Services or Specified Swap Agreements are set forth in such
notice.
n.
Survival
. This Section 9 shall survive the Discharge of Obligations.
a.
Amendments and Waivers.
SECTION 10.
MISCELLANEOUS
1.
Neither this Agreement, any other Loan Document (other than any L/C Related Document), nor any terms hereof or
thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1. The Required Lenders and
each Loan Party party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time, (i) enter into written amendments, supplements or
modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (ii) waive, on such terms
and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided that no such
waiver and no such amendment, supplement or modification shall (A) forgive the principal amount or extend the final scheduled date of
maturity of any Loan, reduce the stated rate of any interest or fee payable hereunder (except that no amendment or modification of defined
terms used in the financial covenants in this
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Agreement or waiver of any Default or Event of Default or the right to receive interest at the Default Rate shall constitute a reduction in the
rate of interest or fees for purposes of this clause (A)) or extend the scheduled date of any payment thereof, or increase the amount or extend
the expiration date of any Lender’s Revolving Commitment, in each case, without the written consent of each Lender directly affected
thereby; (B) eliminate or reduce the voting rights of any Lender under this Section 10.1 without the written consent of such Lender;
(C) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its
rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral, subordinate the
Obligations (including any guarantees thereof) or the Administrative Agent’s Lien on all or substantially all of the Collateral or release all or
substantially all of the value of the guarantees (taken as a whole) of the Guarantors from their obligations under the Guarantee and Collateral
Agreement, in each case without the written consent of all Lenders; (D) (i) amend, modify or waive the pro rata requirements of Section 2.18
or any other provision of the Loan Documents requiring pro rata treatment of the Lenders in a manner that adversely affects Revolving
Lenders without the written consent of each Revolving Lender or (ii) amend, modify or waive the pro rata requirements of Section 2.18 or
any other provision of the Loan Documents requiring pro rata treatment of the Lenders in a manner that adversely affects the L/C Lenders
without the written consent of each L/C Lender; (E) [reserved]; (F) amend, modify or waive any provision of Section 9 without the written
consent of the Administrative Agent; (G) amend, modify or waive any provision of Section 2.6 or 2.7 without the written consent of the
Swingline Lender; (H) amend, modify or waive any provision of Section 3, the definition of Alternative Currency or Section 1.5 without the
written consent of the Administrative Agent, the Issuing Lender and each Lender; or (I) amend or modify the application of payments set
forth in Section 8.3 without the written consent of each Lender Any such waiver and any such amendment, supplement or modification shall
apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent, the Issuing Lender,
each Cash Management Bank, each Qualified Counterparty, and all future holders of the Loans. In the case of any waiver, the Loan Parties,
the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be cured during the period such waiver is effective; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Notwithstanding the
foregoing, the Issuing Lender may amend any of the L/C Related Documents without the consent of the Administrative Agent or any other
Lender and the Issuing Lender, Administrative Agent and the Borrower may make customary technical amendments if any Letter of Credit
shall be issued hereunder in a currency other than U.S. Dollars. Notwithstanding anything to the contrary herein, no Defaulting Lender shall
have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its
terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than
Defaulting Lenders), except that (x) the Revolving Commitment of any Defaulting Lender may not be increased or extended without the
consent of such Lender and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by
its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such
Defaulting Lender.
2.
Notwithstanding anything to the contrary contained in Section 10.1(a) above, in the event that the Borrower requests
that this Agreement or any of the other Loan Documents be amended or otherwise modified in a manner which would require the consent of
all of the Lenders and such amendment or other modification is agreed to by the Borrower, the Required Lenders and the Administrative
Agent, then, with the consent of the Borrower, the Administrative Agent and the Required Lenders, this Agreement or such other Loan
Document may be amended without the consent of the
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Lender or Lenders who are unwilling to agree to such amendment or other modification (each, a “Minority Lender”), to provide for:
lii.the termination of the Commitment of each such Minority Lender;
pursuant to the provisions of Section 2.23; and
liii.the assumption of the Loans and Commitment of each such Minority Lender by one or more Replacement Lenders
liv.the payment of all interest, fees and other obligations payable or accrued in favor of each Minority Lender and such
other modifications to this Agreement or to such Loan Documents as the Borrower, the Administrative Agent and the Required Lenders may
determine to be appropriate in connection therewith.
3.
Notwithstanding any provision herein to the contrary, this Agreement may be amended (or amended and restated)
with the written consent of the Required Lenders, the Administrative Agent, and the Borrower, (i) to add one or more additional credit or
term loan facilities to this Agreement and to permit all such additional extensions of credit and all related obligations and liabilities arising in
connection therewith and from time to time outstanding thereunder to share ratably (or on a basis subordinated to the existing facilities
hereunder) in the benefits of this Agreement and the other Loan Documents with the obligations and liabilities from time to time outstanding
in respect of the existing facilities hereunder, and (ii) in connection with the foregoing, to permit, as deemed appropriate by the
Administrative Agent and approved by the Required Lenders, the Lenders providing such additional credit facilities to participate in any
required vote or action required to be approved by the Required Lenders.
4.
Notwithstanding any provision herein to the contrary, any Cash Management Agreement may be amended or
otherwise modified by the parties thereto in accordance with the terms thereof without the consent of the Administrative Agent or any
Lender.
5.
Notwithstanding any provision herein or in any other Loan Document to the contrary, no Cash Management Bank
and no Qualified Counterparty shall have any voting or approval rights hereunder (or be deemed a Lender) solely by virtue of its status as the
provider or holder of Cash Management Services or Specified Swap Agreements or Obligations owing thereunder, nor shall the consent of
any such Cash Management Bank or Qualified Counterparty, as applicable, be required for any matter, other than in their capacities as
Lenders, to the extent applicable.
6.
Notwithstanding any other provision herein to the contrary, no consent of any Lender (or other Secured Party other
than the Administrative Agent) shall be required to effectuate any amendment to implement any Increase permitted by Section 2.27.
7.
Notwithstanding any other provision herein to the contrary, this Agreement may be amended with the written consent
of the Administrative Agent, the Issuing Lender, the Borrower and the Lenders affected thereby to amend the definition of “Alternative
Currency” solely to add additional currency options, in each case solely to the extent permitted pursuant to Section 1.5.
8.
The Administrative Agent may, with the consent of the Borrower only, amend, modify or supplement this Agreement
or any of the Loan Documents to cure any omission, mistake or defect.
b. Notices
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. (a) All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by
facsimile or electronic mail), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when
delivered, or 3 Business Days after being deposited in the mail, postage prepaid, or, in the case of facsimile or electronic mail notice, when
received, addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective
parties hereto:
Borrower:
with a copy (which shall not constitute
notice) to :
Administrative Agent:
with a copy (which shall not constitute
notice) to:
Fastly, Inc.
P.O. Box 78266
San Francisco, CA 94017
Attention: General Counsel
Email: gc@fastly.com
Cooley LLP
1299 Pennsylvania Avenue, NW
Suite 700
Washington, DC 20004
Attn: Jonathan Bagg
Email: JBagg@cooley.com
Silicon Valley Bank
2400 Hanover Street
Palo Alto, CA 94304
Attn: Jon Wolter
E-Mail: JWolter@svb.com
Morrison & Foerster LLP
200 Clarendon Street
Boston, Massachusetts 02116
Attention: Charles W. Stavros, Esq.
E-Mail: CStavros@mofo.com
provided that any notice, request or demand to or upon the Administrative Agent or the Lenders shall not be effective until received.
2.
Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic
communications (including email 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 Section 2 unless otherwise agreed by the Administrative Agent and the
applicable Lender. The Administrative Agent or any 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; 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
email address shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return
receipt requested” function, as
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available, return email or other written acknowledgment); 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 email address as described in the foregoing clause (i) of notification
that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii), 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.
3.
notice to the other parties hereto.
Any party hereto may change its address or facsimile number for notices and other communications hereunder by
4.
(i) Each Loan Party agrees that the Administrative Agent may, but shall not be obligated to, make the
Communications (as defined below) available to the Issuing Lender and the other Lenders by posting the Communications on the Platform.
(ii) The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the
adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express,
implied or statutory, including, without limitation, 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 any Agent Party in connection with the Communications or the
Platform. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the
Borrower or the other Loan Parties, any Lender or any other Person 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 the Borrower’s, any Loan Party’s or the
Administrative Agent’s transmission of communications through the Platform. “Communications” means, collectively, any notice, demand,
communication, information, document or other material provided by or on behalf of any Loan Party pursuant to any Loan Document or the
transactions contemplated therein which is distributed to the Administrative Agent, any Lender or the Issuing Lender by means of electronic
communications pursuant to this Section, including through the Platform.
c.
No Waiver; Cumulative Remedies
. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents 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.
d.
Survival of Representations and Warranties
. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans
and other extensions of credit hereunder.
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e.
Expenses; Indemnity; Damage Waiver.
5.
Costs and Expenses. The Borrower shall pay (i) all reasonable and documented outofpocket expenses incurred by the
Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in
connection with the syndication of the Facilities, 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 outofpocket expenses incurred by the Issuing
Lender 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 outofpocket expenses incurred by the Administrative Agent or any Lender (including the fees, charges
and disbursements of counsel for the Administrative Agent or any Lender), 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, or (B) in connection with the
Loans made or Letters of Credit issued or participated in hereunder, including all such documented outofpocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
6.
Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent
thereof), each Lender (including the Issuing 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 losses, claims, damages, liabilities and related expenses
(including the fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any
Indemnitee by any Person (including the Borrower or any other Loan Party) other than such Indemnitee and its Related Parties 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 or the
consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds
therefrom (including any refusal by the Issuing Lender to honor a demand for payment under a Letter of Credit if the documents presented in
connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of
Materials of Environmental Concern on or from any property owned or operated by the Group Members, or any Environmental Liability
related in any way to the Group Members, or (iv) 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 or any other Loan Party,
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) are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim
brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or
under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such
claim as determined by a court of competent jurisdiction. This Section 10.5(b) shall not apply with respect to Taxes other than any Taxes that
represent losses, claims, damages, etc. arising from any non-Tax claim.
7.
Reimbursement by Lenders. To the extent that the Borrower for any reason fails indefeasibly to pay any amount
required under paragraph (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the Issuing Lender,
the Swingline Lender or any Related
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Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Issuing Lender,
the Swingline Lender or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought based on each Lender’s Revolving Percentage at such time) of such unpaid amount
(including any such unpaid amount in respect of a claim asserted by such Lender); provided that with respect to such unpaid amounts owed to
the Issuing Lender or the Swingline Lender solely in its capacity as such, only the Revolving Lenders shall be required to pay such unpaid
amounts, such payment to be made severally among them based on such Revolving Lenders’ Revolving Percentage (determined as of the
time that the applicable unreimbursed expense or indemnity payment is sought); provided further, 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), the Issuing Lender or the Swingline Lender 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), the Issuing Lender or the Swingline Lender in connection with such
capacity. The obligations of the Lenders under this paragraph (c) are subject to the provisions of Sections 2.1, 2.4 and 2.20(e).
8.
Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower and each
other Loan Party shall not assert, and hereby waives, any claim against any Indemnitee, 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. No Indemnitee referred to in paragraph (b) above shall be liable for any
damages arising from the use by unintended recipients of any information or other materials distributed by it 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.
9.
Payments. All amounts due under this Section shall be payable promptly after demand therefor.
10.
Survival. Each party’s obligations under this Section shall survive the Discharge of Obligations.
f.
Successors and Assigns; Participations and Assignments.
11.
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 (which, for purposes of this Section 10.6, shall include any
Cash Management Bank and any Qualified Counterparty), except that neither the Borrower nor any other Loan Party may assign or otherwise
transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender, and no
Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions
of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of Section 10.6(d), or (iii) by way of pledge or
assignment of a security interest subject to the restrictions of Section 10.6(e) (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, their respective successors and assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section
and, to the extent expressly contemplated hereby, the Related Parties of each
123
of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
12.
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 (in
each case with respect to any Facility) any such assignment shall be subject to the following conditions:
lv.Minimum Amounts.
f.
in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment
and/or the Loans at the time owing to it (in each case with respect to any Facility) or contemporaneous assignments to related Approved
Funds (determined after giving effect to such assignments) that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the
aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned;
and
g.
in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the
Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable 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 Default
or Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or
delayed).
lvi.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 Loan or the Commitment assigned, except that this clause
(ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Facilities on a non-pro rata basis.
(B) of this Section and, in addition:
lvii.Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)
h.
the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be
required unless (x) a Default or an Event of Default has occurred and is continuing at the time of such assignment, or (y) such assignment is
to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Borrower shall be deemed to have consented to any such
assignment unless it shall object thereto by written notice to the Administrative Agent within 5 Business Days after having received notice
thereof;
the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed)
shall be required for assignments in respect of the Revolving Facility if such assignment is to a Person that is not a Lender with a Revolving
Commitment; and
i.
withheld or delayed) shall be required for any assignment in respect of the Revolving Facility.
j.
the consent of the Issuing Lender and the Swingline Lender (such consent not to be unreasonably
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lviii.Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Assumption, together with a processing and recordation fee of $3,500; provided 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 any such administrative questionnaire as the Administrative Agent may request.
lix.No Assignment to Certain Persons. No such assignment shall be made to (A) the Borrower or any of the Borrower’s
Affiliates or Subsidiaries or (B) to 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 (B).
investment vehicle or trust established for, or owned and operated for the primary benefit of, a natural Person).
lx.No Assignment to Natural Persons. No such assignment shall be made to a natural Person (or a holding company,
lxi.Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender
hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the
assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as
appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions,
including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously
requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x)
pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, the Issuing Lender, the
Swingline Lender and each other Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata
share of all Loans and participations in Letters of Credit and Swingline Loans in accordance with its Revolving Percentage. Notwithstanding
the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under
applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting
Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, 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 2.19, 2.20, 2.21 and
10.5 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent
otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of
any party hereunder arising from that Lender’s having been a Defaulting Lender. Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section.
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13.
Register. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall
maintain at one of its offices in California 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 stated interest) of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the
Borrower, the Administrative Agent 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. The Register shall be available for inspection by the Borrower and any
Lender, at any reasonable time and from time to time upon reasonable prior notice.
14.
Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative
Agent, sell participations to any Person (other than a natural Person, a holding company, investment vehicle or trust established for, or owned
and operated for the primary benefit of, a natural Person, or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (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, and (iii) the Borrower, the
Administrative Agent, the Issuing Lender and the other Lenders shall continue to deal solely and directly with such Lender in connection with
such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnities
under Sections 2.20(e) and 9.7 with respect to any payments made by such Lender to its Participant(s).
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole
right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that
such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver which affects such Participant and for which the consent of such Lender is required (as described in Section 10.1).
The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.19, 2.20 and 2.21 (subject to the requirements and
limitations therein, including the requirements under Section 2.20(f) (it being understood that the documentation required under
Section 2.20(f) shall be delivered by such Participant to the Lender granting such participation)) to the same extent as if it were a Lender and
had acquired its interest by assignment pursuant to Section 10.6(b); provided that such Participant (A) agrees to be subject to the provisions
of Sections 2.22 and 2.23 as if it were an assignee under Section 10.6(b); and (B) shall not be entitled to receive any greater payment under
Sections 2.19 or 2.20, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent
such entitlement to receive a greater payment results from a change in any Requirement of Law that occurs after the Participant acquired the
applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to
cooperate with the Borrower to effectuate the provisions of Sections 2.22 and 2.23 with respect to any Participant. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 10.7 as though it were a Lender; provided that such Participant agrees to
be subject to Section 2.18(k) as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-
fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts
(and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”);
provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any
Participant or any information relating to a Participant’s interest in any Commitments, Loans, Letters of Credit or its other obligations under
any Loan Document) to any Person except to the
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extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under
Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest
error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all
purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity
as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
15.
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 to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve
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.
16.
Notes. The Borrower, upon receipt by the Borrower of written notice from the relevant Lender, agrees to issue Notes
to any Lender requiring Notes to facilitate transactions of the type described in Section 10.6.
17.
Representations and Warranties of Lenders. Each Lender, upon execution and delivery hereof or upon succeeding to
an interest in the Commitments or Loans, as the case may be, represents and warrants as of the Closing Date or as of the effective date of the
applicable Assignment and Assumption that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in
commitments, loans or investments such as the Commitments and Loans; and (iii) it will make or invest in its Commitments and Loans for its
own account in the ordinary course of its business and without a view to distribution of such Commitments and Loans within the meaning of
the Securities Act or the Exchange Act, or other federal securities laws (it being understood that, subject to the provisions of this
Section 10.6, the disposition of such Commitments and Loans or any interests therein shall at all times remain within its exclusive control).
g.
Adjustments; Set-off.
18.
Except to the extent that this Agreement expressly provides for payments to be allocated to a particular Lender or to
the Lenders under a particular Facility, if any Lender (a “Benefitted Lender”) shall receive any payment of all or part of the Obligations
owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, pursuant to events or proceedings of
the nature referred to in Section 8.1(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of the Obligations owing to such other Lender, such Benefitted Lender shall purchase for cash from the other
Lenders a participating interest in such portion of the Obligations owing to each such other Lender, or shall provide such other Lenders with
the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such
collateral ratably with each of the Lenders; provided that if all or any portion of such excess payment or benefits is thereafter recovered from
such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but
without interest.
19.
Upon (i) the occurrence and during the continuance of any Event of Default and (ii) obtaining the prior written
consent of the Administrative Agent, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, without
prior notice to the Borrower or any other Loan Party, any such notice being expressly waived by the Borrower and each Loan Party, to the
fullest
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extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final), in any
currency, at any time held or owing, and any other credits, indebtedness, claims or obligations, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender, its Affiliates or any branch or agency
thereof to or for the credit or the account of the Borrower or any other Loan Party, as the case may be, against any and all of the obligations
of the Borrower or such other Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender or its
Affiliates, irrespective of whether or not such Lender or Affiliate shall have made any demand under this Agreement or any other Loan
Document and although such obligations of the Borrower or such other Loan Party may be contingent or unmatured or are owed to a branch,
office or Affiliate of such Lender different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness;
provided, that in the event that any Defaulting Lender or any of its Affiliates shall exercise any such right of setoff, (x) all amounts so set off
shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.23 and,
pending such payment, shall be segregated by such Defaulting Lender or Affiliate thereof from its other funds and deemed held in trust for
the benefit of the Administrative Agent and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a
statement describing in reasonable detail the Obligations owing to such Defaulting Lender or Affiliate thereof as to which it exercised such
right of setoff. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application made
by such Lender or any of its Affiliates; provided that the failure to give such notice shall not affect the validity of such setoff and application.
The rights of each Lender and its Affiliates under this Section 10.7 are in addition to other rights and remedies (including other rights of set-
off) which such Lender or its Affiliates may have.
h.
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 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
Insolvency Proceeding 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 Discharge of Obligations.
i.
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
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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.
j.
Counterparts; Electronic Execution of Assignments.
20.
This Agreement may be executed by one or more of the parties to this Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed
signature page of this Agreement by facsimile or other electronic mail transmission shall be effective as delivery of an original executed
counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative
Agent.
21.
The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be
deemed to include electronic signatures 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 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.
k.
Severability
. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the
foregoing provisions of this Section 10.11, if and to the extent that the enforceability of any provisions in this Agreement relating to
Defaulting Lenders shall be limited under or in connection with any Insolvency Proceeding, as determined in good faith by the
Administrative Agent or the Issuing Lender, as applicable, then such provisions shall be deemed to be in effect only to the extent not so
limited.
l.
Integration
. This Agreement and the other Loan Documents represent the entire agreement of the Borrower, the other Loan Parties, the
Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
m. GOVERNING LAW
. THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, AND ANY CLAIM, CONTROVERSY, DISPUTE, CAUSE OF
ACTION, OR PROCEEDING (WHETHER BASED IN CONTRACT, TORT, OR OTHERWISE) BASED UPON, ARISING OUT
OF, CONNECTED WITH, OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO
ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND THERETO, SHALL
BE
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GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK. This Section 10.13 shall survive the Discharge of Obligations.
n.
Submission to Jurisdiction; Waivers
. Each party hereto hereby irrevocably and unconditionally:
1.
agrees that all disputes, controversies, claims, actions and other proceedings involving, directly or indirectly, any
matter in any way arising out of, related to, or connected with, this Agreement, any other Loan Document, any contemplated transactions
related hereto or thereto, or the relationship between any Loan Party, on the one hand, and the Administrative Agent or any Lender or any
other Secured Party, on the other hand, and any and all other claims of the Borrower or any other Group Member against the Administrative
Agent or any Lender or any other Secured Party of any kind, shall be brought only in a state court located in the Borough of Manhattan, or, to
the extent permitted by law, in a federal court sitting in the Borough of Manhattan; provided that nothing in this Agreement shall be deemed
to operate to preclude the Administrative Agent or any Lender or any other Secured Party from bringing suit or taking other legal action in
any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in
favor of Administrative Agent or such Lender or any other Secured Party, to the extent permitted by law. The Borrower, on behalf of itself
and each other Loan Party (i) expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such
court and to the selection of any referee referred to below, (ii) hereby waives any objection that it may have based upon lack of personal
jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed
appropriate by such court, and (iii) agrees that it shall not file any motion or other application seeking to change the venue of any such suit or
other action. The Borrower, on behalf of itself and each other Loan Party, hereby waives personal service of any summons, complaints, and
other process issued in any such action or suit and agrees that service of any such summons, complaints, and other process may be made by
registered or certified mail addressed to the Borrower at the address set forth in Section 10.2 of this Agreement and that service so made shall
be deemed completed upon the earlier to occur of the Borrower’s actual receipt thereof or 3 days after deposit in the U.S. mails, proper
postage prepaid;
2.
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ITS RIGHT TO A JURY TRIAL OF
ANY CLAIM, CAUSE OF ACTION, OR PROCEEDING (WHETHER BASED IN CONTRACT, TORT, OR OTHERWISE)
BASED UPON, ARISING OUT OF, CONNECTED WITH, OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
DOCUMENT, OR ANY TRANSACTION CONTEMPLATED HEREBY AND THEREBY, AMONG ANY OF THE PARTIES
HERETO AND THERETO. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE PARTIES HERETO TO ENTER INTO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. THE BORROWER HAS REVIEWED THIS WAIVER WITH ITS
COUNSEL; and
3.
waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or
proceeding referred to in this Section any special, exemplary, punitive or consequential damages; provided that nothing contained herein shall
limit the right of any Indemnitee to be indemnified as provided in this Agreement and the other Loan Documents.
This Section 10.14 shall survive the Discharge of Obligations.
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o.
Acknowledgements
. The Borrower hereby acknowledges that:
4.
it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan
Documents;
5.
in connection with all aspects of each transaction contemplated hereby (including in connection with any amendment,
waiver or other modification hereof or of any other Loan Document), the Borrower, on behalf of each Group Member, acknowledges and
agrees that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent and any Affiliate thereof,
and the Lenders and any Affiliate thereof are arm’s-length commercial transactions between the Borrower, each other Loan Party and their
respective Affiliates, on the one hand, and the Administrative Agent, the Lenders and their respective applicable Affiliates (collectively,
solely for purposes of this Section 10.15, the “Lenders”), on the other hand, (B) each of the Borrower and the other Loan Parties has
consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower and each other
Loan Party is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and
by the other Loan Documents; (ii) (A) the Administrative Agent, its Affiliates, each Lender and their Affiliates is and has been acting solely
as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor,
agent or fiduciary for Borrower, any other Loan Party or any of their respective Affiliates, or any other Person and (B) neither the
Administrative Agent, its Affiliates, any Lender nor any of their Affiliates has any obligation to the Borrower, any other Loan Party or any of
their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the
other Loan Documents; and (iii) the Administrative Agent, its Affiliates, the Lenders and their Affiliates may be engaged in a broad range of
transactions that involve interests that differ from those of the Borrower, the other Loan Parties and their respective Affiliates, and neither the
Administrative Agent, its Affiliates, any Lender nor any of their Affiliates has any obligation to disclose any of such interests to the
Borrower, any other Loan Party or any of their respective Affiliates. To the fullest extent permitted by law, each of the Borrower and each
other Loan Party hereby waives and releases any claims that it may have against the Administrative Agent, its Affiliates, each Lender and any
of their Affiliates with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transactions
contemplated hereby; and
6.
no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Group Members and the Lenders.
p. Releases of Guarantees and Liens.
1.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Administrative Agent
is hereby irrevocably authorized by each Lender (without requirement of notice to or consent of any Lender except as expressly required by
Section 10.1) to take any action requested by the Borrower having the effect of releasing any Collateral or Guarantee Obligations (1) to the
extent necessary to permit consummation of any transaction not prohibited by any Loan Document or that has been consented to in
accordance with Section 10.1 or (2) under the circumstances described in Section 10.16(b) below.
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2.
Upon the Discharge of Obligations, the Collateral (other than any cash collateral securing any Specified Swap
Agreements, any Cash Management Services or outstanding Letters of Credit) shall be released from the Liens created by the Security
Documents and Cash Management Agreements (other than any Cash Management Agreements used to Cash Collateralize any Obligations
arising in connection with Cash Management Agreements), and all obligations (other than those expressly stated to survive such termination)
of the Administrative Agent and each Loan Party under the Security Documents and Cash Management Agreements (other than any Cash
Management Agreements used to Cash Collateralize any Obligations arising in connection with Cash Management Agreements) shall
terminate, all without delivery of any instrument or performance of any act by any Person.
q.
Treatment of Certain Information; Confidentiality
. Each of the Administrative Agent and each Lender agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential);
(b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties
(including any self-regulatory authority, such as the National Association of Insurance Commissioners); (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process; (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, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations
under this Agreement, or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which
payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder; (g) on a confidential basis
to (i) any rating agency in connection with rating the Group Members or the Facilities or (ii) the CUSIP Service Bureau or any similar agency
in connection with the issuance and monitoring of CUSIP numbers with respect to the Facilities; (h) with the consent of the Borrower; or
(i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section, or (y) becomes available to
the Administrative Agent, any Lender or any of their respective Affiliates on a non-confidential basis from a source other than the Borrower.
In addition, the Administrative Agent, the Lenders, and any of their respective Related Parties, may (A) disclose the existence of this
Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry and service
providers to the Administrative Agent or the Lenders in connection with the administration of this Agreement, the other Loan Documents,
and the Commitments; and (B) use any information (not constituting Information subject to the foregoing confidentiality restrictions) related
to the syndication and arrangement of the credit facilities contemplated by this Agreement in connection with marketing, press releases, or
other transactional announcements or updates provided to investor or trade publications, including the placement of “tombstone”
advertisements in publications of its choice at its own expense.
Notwithstanding anything herein to the contrary, any party to this Agreement (and any employee, representative, or other agent of
any party to this Agreement) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the
transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it
relating to such tax treatment and tax structure. However, any such information relating to the tax treatment or tax structure is required to be
kept confidential to the extent necessary to comply with any applicable federal or state securities laws, rules, and regulations.
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For purposes of this Section, “Information” means all information received from the Group Members relating to the Group Members
or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a non-
confidential basis prior to disclosure by the Group Members; provided that, in the case of information received from the Group Members
after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential
information.
r.
Automatic Debits
. With respect to any principal, interest, fee, or any other cost or expense (including attorney costs of the Administrative Agent or any
Lender payable by the Borrower hereunder) due and payable to the Administrative Agent or any Lender under the Loan Documents, the
Borrower hereby irrevocably authorizes the Administrative Agent to debit any deposit account of the Borrower maintained with the
Administrative Agent in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such principal,
interest, fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount then due, such debits will be
reversed (in whole or in part, in the Administrative Agent’s sole discretion) and such amount not debited shall be deemed to be unpaid. No
such debit under this Section 10.18 shall be deemed a set-off.
s.
Judgment Currency
. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document
in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the
Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment
is given. The obligation of the Borrower and each other Loan Party in respect of any such sum due from it to the Administrative Agent or any
Lender hereunder or under any other Loan Document shall, notwithstanding any judgment in a currency (the “Judgment Currency”) other
than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “Agreement Currency”), be
discharged only to the extent that on the Business Day following receipt by the Administrative Agent or such Lender, as the case may be, of
any sum adjudged to be so due in the Judgment Currency, the Administrative Agent or such Lender, as the case may be, may in accordance
with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so
purchased is less than the sum originally due to the Administrative Agent or any Lender from the Borrower or any other Loan Party in the
Agreement Currency, the Borrower and each other Loan Party agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Administrative Agent or such Lender, as the case may be, against such loss. If the amount of the Agreement Currency so
purchased is greater than the sum originally due to the Administrative Agent or any Lender in such currency, the Administrative Agent or
such Lender, as the case may be, agrees to return the amount of any excess to the Borrower or other Loan Party, as applicable (or to any other
Person who may be entitled thereto under applicable law).
t.
Patriot Act; Other Regulations
. Each Lender and the Administrative Agent (for itself and not on behalf of any other party) hereby notifies the Borrower and each
other Loan Party that, pursuant to the requirements of “know your
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customer” and anti-money laundering rules and regulations, including the Patriot Act and 31 C.F.R. § 1010.230, it is required to obtain, verify
and record information that identifies each Loan Party and certain related parties thereto, which information includes the names and addresses
and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party and certain of their
beneficial owners and other officers in accordance with the Patriot Act and 31 C.F.R. § 1010.230. The Borrower and each other Loan Party
will, and will cause each of their respective Subsidiaries to, provide, to the extent commercially reasonable or required by any Requirement of
Law, such information and documents and take such actions as are reasonably requested by the Administrative Agent or any Lender to assist
the Administrative Agent and the Lenders in maintaining compliance with “know your customer” requirements under the PATRIOT Act, 31
C.F.R. § 1010.230 or other applicable anti-money laundering laws.
u.
Acknowledgement and Consent to Bail-In of Affected Financial Institutions
.
Notwithstanding anything to the contrary in this Agreement or in any other Loan Document or in any other agreement, arrangement
or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under
any Loan Document, 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:
1.
the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities
arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and
2.
the effects of any Bail-In Action on any liability, including, if applicable:
(i)
(ii)
a reduction in full or in part of cancellation of any such liability;
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
(iii)
the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers
of the applicable Resolution Authority.
v.
Acknowledgement Regarding Any Supported QFCs
. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for Swap Agreements or any other
agreement or instrument that is a QFC (such support, “QFC Credit Support” and each such QFC a “Supported QFC”), the parties
acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal
Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations
promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such
134
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):
1.
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.
2.
As used in this Section 10.22, 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:
a.
b.
c.
a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b)
a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
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).
[Remainder of page left blank intentionally]
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In Witness Whereof, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
BORROWER:
FASTLY, INC.
By: /s/ Adriel Lares
Name: Adriel Lares
Title: Chief Financial Officer
ADMINISTRATIVE AGENT:
SILICON VALLEY BANK
By: /s/ Jonathan Wolter
Name: Jonathan Wolter
Title: Director
LENDERS:
SILICON VALLEY BANK,
as Issuing Lender, Swingline Lender and as a Lender
By: /s/ Jonathan Wolter
Name: Jonathan Wolter
Title: Director
Subsidiaries of Fastly, Inc.
Exhibit 21.1
Name of Subsidiary
Jurisdiction of Organization
Brannan International Limited
Cayman Islands
Fastly Australia Pty Ltd
Fastly Cloud Iberica S.L.
Fastly GmbH
Fastly India Private Limited
Fastly International (Holdings) Limited
Fastly International Technology Limited
Fastly Kabushiki Kaisha
Fastly Limited
Signal Sciences, LLC
Australia
Spain
Germany
India
United Kingdom
United Kingdom
Japan
United Kingdom
Delaware, United States
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-249495 and 333-242370 on Form S-3ASR and Registration Statement Nos. 333-231558, 333-
237655 and 333-249504 on Form S-8 of our reports dated March 1, 2021, relating to the financial statements of Fastly, Inc. and subsidiaries and the effectiveness of Fastly Inc’s
internal control over financial reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2020
/s/ Deloitte & Touche LLP
San Francisco, California
March 1, 2021
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joshua Bixby, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Fastly, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: March 1, 2021
By:
/s/ Joshua Bixby
Joshua Bixby
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Adriel Lares, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Fastly, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: March 1, 2021
By:
/s/ Adriel Lares
Adriel Lares
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Fastly, Inc. (the "Company”) on Form 10-K for the year ended December 31, 2020 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: March 1, 2021
By:
/s/ Joshua Bixby
Joshua Bixby
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Fastly, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2020 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: March 1, 2021
By:
/s/ Adriel Lares
Adriel Lares
Chief Financial Officer