As filed with the U.S. Securities and Exchange Commission on January 4, 2022.

Registration No. 333-261676          
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Justworks, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
7372
(Primary Standard Industrial
Classification Code Number)
32-0390469
(I.R.S. Employer
Identification Number)
55 Water Street
29th Floor
New York, New York 10041
(888) 534-1711
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)
Isaac Oates
Chief Executive Officer
Justworks, Inc.
55 Water Street
29th Floor
New York, New York 10041
(888) 534-1711
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Copies to:
Gregory P. Rodgers
Benjamin J. Cohen
Latham & Watkins LLP
1271 Avenue of the Americas
New York, New York 10002
(212) 906-1200
Mario Springer
General Counsel
Justworks, Inc.
55 Water Street
29th Floor
New York, New York 10041
(888) 534-1711
Dwight S. Yoo
Ryan J. Dzierniejko
Skadden, Arps, Slate, Meagher & Flom LLP
One Manhattan West
New York, New York 10001
(212) 735-3000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
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 oAccelerated filer o
Non-accelerated filer xSmaller reporting company o
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Amount to be Registered(1)
Proposed Maximum Offering Price Per Share(2)
Proposed Maximum
Aggregate Offering Price(2)
Amount of Registration Fee(3)
Class A common stock, $0.0005 par value per share
8,050,000
$32.00
$257,600,000
$23,880
(1)Includes 1,050,000 additional shares that the underwriters have the option to purchase to cover over-allotments.
(2)Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.
(3)The registrant previously paid $9,270 in connection with the prior filing of the registration statement.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated January 4, 2022
         7,000,000 Shares
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        Class A Common Stock
This is an initial public offering of shares of Class A common stock of Justworks, Inc. We are offering 7,000,000 shares of our Class A common stock.
Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price will be between $29.00 and $32.00 per share. We have applied to list our Class A common stock on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “JW.”
Upon the completion of this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock (collectively, our “common stock”). The rights of the holders of each class of our common stock are identical, except voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible into one share of Class A common stock. See the section titled “Description of Capital Stock” for more information. Outstanding shares of Class B common stock will represent approximately 95.7% of the voting power of our outstanding capital stock immediately following this offering, with our directors, executive officers, and 5% stockholders and their respective affiliates representing approximately 88.4% of the voting power.
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this registration statement and in future reports after the completion of this offering.
Investing in our Class A common stock involves a high degree of risk. See the section titled “Risk Factors” beginning on page 19 to read about factors you should consider before buying shares of our Class A common stock.
Per ShareTotal
Initial public offering price
Underwriting discounts and commissions(1)
Proceeds, before expenses, to us
_______________
(1)See the section titled “Underwriting” for a description of the compensation payable to the underwriters.
At our request, the underwriters have reserved up to 5% of the shares of Class A common stock offered by us in this offering, for sale at the initial public offering price to certain persons associated with us. See “Underwriting.”
We have granted to the underwriters the option for a period of up to 30 days to purchase up to an additional 1,050,000 shares of Class A common stock from us at the initial public offering price, less the underwriting discounts and commissions.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of Class A common stock to purchasers on                    , 2022.
Goldman Sachs & Co. LLCJ.P. Morgan BofA Securities
BairdPiper SandlerRaymond James
StifelWilliam BlairSiebert Williams Shank
Prospectus dated                    , 2022.


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TABLE OF CONTENTS
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You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission (“SEC”). Neither we nor any of the underwriters have authorized anyone to provide any information or make any representations other than those contained in this prospectus or in any free writing prospectus we have prepared. Neither we nor the underwriters take responsibility for, and can provide assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of Class A common stock offered by this prospectus, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Class A common stock. Our business, results of operations, financial condition, and prospects may have changed since such date.
We have proprietary rights to trademarks, trade names, and service marks appearing in this prospectus that are important to our business. Solely for convenience, the trademarks, trade names, and service marks may appear in this prospectus without the ® and TM symbols, but any such references are not intended to indicate, in any way, that we forgo or will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, trade names, and service marks. All trademarks, trade names, and service marks appearing in this prospectus are the property of their respective owners.
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For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus and any free writing prospectus must inform themselves about and observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.
Through and including                    , 2022 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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LETTER FROM OUR FOUNDER, ISAAC OATES

Dear Prospective Shareholder:
Thank you for taking the time to learn about what it means to be a Justworks shareholder. I have always believed that you should “do what you say, and say what you do.” This prospectus is an opportunity for us to say what we do. First, though, let me explain why.
As I’ve grown up, there have been people along the way who mentored me or gave me an opportunity. They saw something in me before I could see it for myself. Perhaps there have been people like this in your life, too. Or perhaps not—I have come to appreciate that these moments are not evenly distributed among us. That needs to change.
I started Justworks to help people realize their potential. This is our shared purpose and we seek to achieve it in three distinct ways.
First, we help people realize their potential by working towards our mission of helping entrepreneurs and businesses grow with confidence. These businesses create jobs, strengthen communities, and spur innovation. They are an important part of our economy and our society.
Second, as we work towards our mission, our own people learn, grow, and develop. We are at our best when we are helping others be at their best.
Finally, through Justworks.org, we aim to create more equitable access to entrepreneurship. This is good for our business and good for the world.
Our business
We help our customers with payroll, HR, benefits, and compliance. Our customers did not start their businesses to focus on these areas. They would prefer to spend their energy on other things. (Some will tell you that they would rather focus on anything else.)
This creates a tremendous opportunity for Justworks which, as you have gathered from our name, is meant to “just work.” By helping small businesses with all of the complex, high-stakes aspects of having a workforce, we establish deep customer relationships characterized by unusually high switching costs.
Our customers
Justworks’ customers are, first and foremost, entrepreneurs. They are extraordinary.
They eschew mainstream careers. They see an opportunity where others don’t. They conceive of products and services that are better than anything on the market. They convince investors to put money into their fledgling business, customers to buy when they have almost nothing to sell, and employees to join them on their adventure.
They build the businesses that comprise your community and mine. They create the household brands of tomorrow. They create technologies that large corporations buy. They create jobs and opportunity. They are the engine of our economy.
We are here to support these businesses at the beginning of their journey. The target market for our services is U.S.-based small businesses with less than 100 employees. Collectively, these businesses employ about 40 million people. This enormous market tends not to be well served because small businesses are difficult to reach and have complex needs. Most providers don’t think the juice is worth the squeeze in this market. Instead, they tend to drift upmarket in search of more profitable customers.
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For Justworks, though, we can’t imagine a better market to serve. Our customers have taken on perhaps the biggest challenge in their lifetime. They are looking for a partner they can trust. They are looking for modern software and high-quality service. They are looking for peace of mind.
Serving this segment efficiently—that is, offering the best product at the lowest cost—means that we must make certain trade-offs. We can’t be all things to all people. So, we prioritize inside sales and self-service over field sales; centralized support over on-site support; transparent pricing over “wheeling and dealing”; off-the-shelf software with limited customization. For our customers, these trade-offs make Justworks an ideal partner.
We are proud of our customers and proud to be part of their story. We will continue to work toward serving more of them and serving them in more ways. We are just getting started.
How we think
If you do choose to invest in Justworks, I hope you will plan to hold your shares for a long time. As in any partnership, it is useful for you to know how we think.
First, we think about our customers—the businesses we work with as well as their people—all the time. When they do well, we do well. They stand on our shoulders and we will never forget that.
Second, we consider every decision as it relates to our values: camaraderie, openness, grit, integrity, and simplicity. We call them COGIS for short. We won’t compromise these values because they are the essence of who we are.
Third, financially, we focus on maximizing the present value of future cash flows (per share) while maintaining a flexible balance sheet.
Our company
Justworks is a special company. We are intelligent, creative, optimistic, and have a high work ethic. We strive to maintain a culture of belonging and acceptance where people can be themselves, work together, trust each other, innovate, learn, laugh, and have fun.
When a new employee joins Justworks, one of our first conversations is about teamwork. We talk about what it means to be part of a high-performing team. We talk about how a team can be more than the sum of its parts, how it can accomplish something together that none of the individuals could do on their own. It is not an oversimplification to say that Justworks has gotten here because of how our teams work together.
Beyond the motivations described earlier, we also build products and provide services that people love because we crave the satisfaction of a job well done.
The most important product we build is our company itself. Justworks must continue to be a place where people want to be, a place where they can do their best work, and a place where people develop their leadership skills and go on to have a tremendous and positive impact on our world.
To all the people who have been part of building Justworks so far: Thank you.
Come join us.
Isaac

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PROSPECTUS SUMMARY
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Justworks,” the “company,” “we,” “us,” and “our” in this prospectus refer to Justworks, Inc. and its consolidated subsidiaries. The last day of our fiscal year is May 31.
Overview
Justworks is a cloud-based software platform that gives small and medium-sized businesses (“SMBs”) access to benefits, payroll, human resources (“HR”), and compliance support—all in one place. We drive economies of scale via co-employment, enabling attractive cost savings for our customers and providing them a richer suite of benefits for their employees. We believe we are the first provider to combine this powerful demand aggregation dynamic with a simple, intuitive user experience and 24/7 expert support—enabling entrepreneurs and SMBs to grow with confidence. That is why over 8,000 customers across all 50 U.S. states representing almost 140,000 worksite employees (“WSEs”), as of November 30, 2021, trust Justworks as their human capital management (“HCM”) platform.
For SMBs, particularly those with less than 100 employees who collectively represent over 40 million people in the United States, the vast majority of HCM tasks are manual or paper-based. These tasks can require an outsized amount of time for managers, distracting them from what matters most—running their businesses. Given their size, SMBs also often struggle to attract and retain top talent due to the relative cost of securing benefits packages in-line with what larger organizations are able to offer. Meanwhile, regulations often place a disproportionate burden on SMBs, particularly those with geographically distributed teams, forcing them to deal with complex compliance hurdles they are ill-equipped to handle.
Justworks modernizes nearly every aspect of people management for SMBs through our all-in-one and highly-scalable, cloud-based software. We combine a modern HCM platform that is purpose-built for entrepreneurs and emerging businesses with payroll and tax processing services, compliance solutions, and access to comprehensive employee benefits. We are able to sponsor and maintain a broad range of attractive benefits plans by aggregating employees from many small businesses into a single large entity known as a professional employer organization (“PEO”).
Our platform is designed for SMBs with under 100 employees, a typically underserved portion of the market, yet we often retain larger customers as they scale. Our product-market fit, award-winning support, and brand affinity within this segment of the SMB market has enabled us to establish a 5-year historical average Net Promoter Score® (“NPS”) of 58% for the fiscal year ended May 31, 2021, as compared to a 5-year historical average HR services industry NPS of around 16%, according to the ClearlyRated 2021 NPS Benchmarks for HR Service Providers.
We built our entire platform from the ground up for our customers with a focus on ease-of-use, while obsessing over our product design and brand. Together with our investments in self-service, simple user experience, and automation, our approachable identity is a key part of what enabled us to drive a subscription revenue net retention rate of 117% for the last fiscal year.
We have a cost efficient go-to-market engine, combining an inside sales team for established SMBs and an automated self-enrollment funnel for emerging businesses. This funnel represented 15% of new business during the twelve months ended August 31, 2021. Additionally, we engage with professional services providers such as insurance brokers and accountants to acquire more customers. This has enabled us to drive a lifetime value to customer acquisition cost ratio of 5.7x during the twelve months ended August 31, 2021.
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Our team is led by our founder and CEO, Isaac Oates, and a deep bench of leaders with highly relevant industry experience, averaging 24 years. We thrive in a founder-led and entrepreneurial culture, allowing us to adjust to market changes with agility and make strategic decisions decisively. Justworks is also consistently ranked as a top place to work. In 2021, our team won the Gold and Silver Stevie® Awards for Sales & Customer Service, including for our COVID-19 response; we secured a top-three placement in Selling Power’s “50 Best Companies to Sell For” rankings for the fourth consecutive year; and we were recognized by Fortune Magazine and Great Place to Work® as one of the “Best Workplaces in NYC” for the fourth time.
Our business has experienced significant historical growth, has strong margins, is highly capital efficient, and enjoys a significant degree of predictability. For the fiscal years ended May 31, 2021 and 2020, we generated:
•Total revenue of $982.7 million and $742.4 million, respectively, representing 32.4% year-over-year growth;
•Gross profit of $106.1 million and $77.1 million, respectively;
•Contribution profit of $139.8 million and $103.7 million, respectively;
•Adjusted gross profit of $107.4 million and $78.1 million, respectively;
•Income from operations of $12.8 million and loss from operations of $21.3 million, respectively; and
•Adjusted income from operations of $17.8 million and adjusted loss from operations of $5.3 million, respectively.
Contribution profit, adjusted gross profit, and adjusted income from operations are non-GAAP financial measures. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on our non-GAAP financial measures.
Industry Background
Human capital management is critical to the success of every organization. Labor costs, which include wages, benefits, taxes, onboarding, training, time and attendance, and performance management, are often the biggest costs of doing business. In addition to the expense, many of these items also require compliance with federal, state, and local employment laws, which can be a significant burden on management’s time and focus.
As a result, the HCM market is large, growing, and highly fragmented. It is comprised of various software and service providers who range from offering point solutions to fully outsourced HR services. Companies of different sizes often approach HCM in a variety of ways based on their geographic footprints, available resources, internal expertise, and other company-specific needs and factors.
Entrepreneurs and SMBs, in particular, are disproportionately affected by the time and resources required to handle these administrative tasks, which can distract them from focusing on their core business. While software-based point solutions can streamline and centralize the HR workflow, these solutions still require the SMBs to manage and integrate the software themselves.
Alternatively, SMBs can have their HR function managed by a provider through a PEO model which provides access to payroll, benefits, compliance and risk management, among other aspects of the HR workflow, all in one solution.
We believe the PEO model represents an attractive component of the HCM industry as it helps businesses manage the full HR workflow, navigate rising regulatory complexities, and offload the significant administrative burden—allowing companies to focus on their core operations.
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PEO Model Overview
In a PEO model, SMBs engage in a contractual relationship with the PEO provider known as co-employment. This allows the provider to aggregate many WSEs at their customers’ businesses under a single federal employer identification number (“EIN”) and file employment taxes on a consolidated basis. It also provides WSEs access to more attractive benefits and insurance plans that come with the scale of a larger employee base. The PEO model also involves managing certain employment-related and insurance risks.
The PEO model helps SMBs by outsourcing HR functions including:
•Payroll. Process automated payroll deposits and other types of one-off payments and handle related payroll taxes.
•Benefits. Handle all aspects of employee benefits administration, such as facilitating plan selection, claims support, and other benefits-related paperwork. The PEO model also provides WSEs access to a wider variety of medical, dental, and vision coverage at more affordable rates than what an SMB would be able to provide.
•HR. Allow businesses to manage their people via tools to handle onboarding, training, tracking paid time off, time and attendance, and performance management.
•Compliance. Assist businesses with their employer-related compliance needs including new hire reporting, workers’ compensation coverage, employment payroll tax filings, W-2 processing, Employment Practices Liability Insurance (“EPLI”), and State Unemployment Insurance (“SUI”) filings.
Industry Trends
Operating a small business is getting increasingly harder—seemingly requiring more time to stay on top of HR-related tasks and regulations each year. We believe that several key trends are converging to create opportunity for Justworks to capture market share from other HCM providers:
•Millennial and Gen Z populations prefer a self-service model with limited touch points. According to the Department of Labor, the Millennial and Gen Z population is projected to comprise 46% of the total workforce in 2021 and 56% of the total workforce by 2026. Meanwhile, as reported in a Gartner survey, “of more than 4,500 customers conducted in December 2020 revealed that most millennials (62%) and Gen Z customers (75%) report they would use noncompany guidance to self-resolve their issues either all or most of the time, even when they have the option of contacting customer service. This is a significant difference from the 19% of baby boomers and 43% of Gen X customers who report they would do the same.” For more information on the Gartner Content, see the section titled “Market and Industry Data”.
•Businesses are using more digital work processes. Companies are increasingly adopting digital solutions to create efficiencies in the workplace and improve the overall employee experience. According to MarketsandMarkets, the global digital workplace market is expected to grow from $22.7 billion in 2020 to $72.2 billion in 2026, representing a 21% compound annual growth rate. Digital work processes also allow companies to attract and retain employees, mitigate risks, and adhere to regulatory requirements.
•Businesses are increasingly geographically distributed. In recent years, the workforce has become more geographically distributed, a trend that has only been further accelerated by COVID-19. Companies are becoming more flexible as to where their employees work geographically. According to the May 2020 “Survey of Business Uncertainty” conducted by the Atlanta Federal Reserve, 5-6% of employee working days were spent at home prior to the pandemic. This figure is expected to settle to around 16% post-pandemic—a threefold increase over the pre-COVID-19 status quo.
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•Regulation of employee benefits are becoming increasingly complex and expensive, making PEOs more attractive. There are currently more than 180 federal employment laws. This does not include the large and growing number of regulations that businesses need to comply with on a state and local level. For example, together, New York and California passed more than 35 new employment laws that took effect in 2020 and 2021. Moreover, regulation at the federal, state, and local levels can change materially and suddenly with the introduction of a major new piece of regulation, such as the Affordable Care Act (“ACA”). At the same time, small-group insurance premiums have been rising quickly and consistently. According to a survey conducted by Aon, the average medical plan premium has increased approximately 8% annually over the past 10 years. This complexity and expense has made PEO services more attractive. Research by the National Association of Professional Employer Organizations (“NAPEO”) showed average annual health benefits cost savings of 37% per employee for businesses using a PEO versus those that do not. In addition, the complexity of assembling a diverse range of plans and options for employees makes utilizing a PEO model increasingly attractive for SMBs.
•Talent acquisition and retention is becoming increasingly more competitive. The market for hiring quality talent has become increasingly competitive. According to a survey by the Society for Human Resource Management (“SHRM”), 46% of respondents said health insurance was either the deciding factor or a positive influence in choosing their current job. Further, the three main drivers in evaluating their satisfaction with the plan were coverage, cost, and choice. As companies seek to hire and retain talent, it is critical that they are able to provide comprehensive insurance, benefits coverage, and health and wellness perks that meet the expectations of the modern workforce.
Key Challenges Our Customers Are Facing
There are several key challenges SMBs face, particularly those with less than 100 employees, when managing their HCM needs, including:
•SMBs often struggle to manage critical HCM needs in an efficient and comprehensive manner. Small businesses often lack the internal resources and experience necessary to effectively and cost-efficiently address all of their HCM needs. Point solutions may solve individual needs of organizations but are often time consuming and difficult to integrate with other products, minimizing their effectiveness. Meanwhile, many legacy PEO service providers do not offer cloud-native solutions and are often disparate and labor-intensive to administer, driving up costs.
•Many legacy service providers offer cumbersome solutions while lacking self-service options. Many legacy PEO service providers’ solutions are complex and confusing, ultimately impacting the customer and employee experience. Everyday HCM tasks, from adding or removing an employee to the platform to requesting benefits enrollment changes, often require interaction with the PEO via a phone call or email.
•Managers often lack the time, experience, and resources necessary to handle personal and time-consuming employee issues. Benefits enrollment, payroll taxes, and related changes can be highly personal and complicated. Employees are often uncomfortable going to their manager to discuss private, sensitive, and health-related benefits questions. Furthermore, managers often do not have the time or expertise to deal with these issues. Legacy PEO service providers’ customer service teams are frequently unauthorized or unable to directly address and resolve employee questions and requests.
•Pricing tends to be opaque and counterintuitive. Many legacy PEO service providers do not publish their pricing models and have opaque invoices, often causing significant customer frustration. This lack of transparency can ultimately lead to higher costs with less money available for employee benefits.
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•Lack of scale can be a barrier to access high-quality, cost-effective benefits. SMBs, particularly those with less than 100 employees, are disadvantaged relative to larger businesses with the scale and resources to secure quality benefits options, especially health insurance. Ultimately, this can impact an SMB’s ability to recruit and retain high quality talent.
•The complex web of regulations creates a disproportionate burden on small businesses. Regulations often overlap and vary significantly across states and counties, making it difficult for companies, and specifically SMBs, to keep up and ensure compliance. This complexity has only been exacerbated with more companies operating with distributed teams across multiple jurisdictions. Additionally, SMBs are often ill-equipped to monitor and react to sudden and material changes in the regulatory environment. Over the past several years, these changes have included the ACA and the Coronavirus Aid, Relief, and Economic Security Act (“CARES”).
The Benefits of Our Differentiated Platform
Our PEO platform modernizes the HCM functionality most critical for SMBs with less than 100 employees through our cloud-based solution, with the following key benefits:
•All-in-one cloud-based software platform that we built for our customers from the ground up. We are a scalable 100% cloud-based software platform, supporting over 8,000 customers across all 50 U.S. states and almost 140,000 WSEs as of November 30, 2021. We enable HCM managers and employees alike to quickly and securely access benefits, payroll, and other HR functionality from anywhere, anytime. Our cloud-based software platform maintains structural cost advantages from onboarding to operating and servicing our customers. Furthermore, our in-house tech stack allows us to efficiently build and integrate solutions as we continually refine our product offering through continuous software updates.
•Intuitive self-service user experience. 71% of our WSEs are Millennials or from Gen Z, who often prefer to handle issues themselves using modern and straightforward software. With an interface that is intuitive, easy-to-use, and automated, our platform was built to be self-service first. Whether it is the CEO adding a new hire or the HR manager choosing to offer new benefits for their employees, it just works, whether at night, over a weekend, or on a holiday. Our reporting tools also enable our customers to make real-time data-driven decisions. Our approachable and easy-to-use software platform is a key part of what has enabled us to create and sustain an experience that we believe our customers and their employees love.
•Direct high-value employee engagement. Our software makes many payroll, benefits, HR, and compliance tasks manageable via self-service, empowering our customer support team to focus on more complex topics and challenges that our customers and their employees may face. This means that the conversations that our customers and their employees have with our team are typically higher value interactions. Although our core customer demographic prefers self-service solutions, which also keep costs low for us, when they need incremental help, they expect support from someone who is empathetic, knowledgeable, competent, and available. We provide this to our customers with a staff that is available 24 hours a day, seven days a week.
•Transparent pricing delivering significant value to our customers. Our transparent pricing structure is published on our website and charged on a per employee basis with no hidden costs, ensuring customers know exactly what they are buying. By cutting through the pricing complexity of legacy PEO solutions, we are able to create customer trust, satisfaction, and loyalty.
•Comprehensive and integrated benefits options. We offer various curated benefits packages to our customers and their employees. These include access to national health insurance from three major carriers at competitive rates. We also offer access to dental and vision coverage, 401(k), Flexible Spending Accounts (“FSAs”), and Health Savings Accounts (“HSAs”), and many other types of benefits with offerings in-line with larger organizations. We believe this ultimately allows our SMB customers to attract and retain high quality talent. Our software also enables us
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to streamline the benefits selection and enrollment process with greater transparency, education, and self-service features, making the new employee onboarding process seamless and integrated for our customers.
•Frictionless compliance. With numerous, multi-layered regulations that vary significantly across states and counties, we provide compliance and reporting services that are constantly updated and integrated into our platform. Ultimately, this enables our customers to minimize risk and the cost of non-compliance, allowing them to focus on running their core business. As new regulations are created and the workforce becomes more geographically distributed, our customers are able to stay in compliance and access new government programs. For example, through November 30, 2021 we were able to help customers identify and secure over $149 million of relief throughout the COVID-19 pandemic via the CARES Act and the Families First Coronavirus Relief Act (“FFCRA”).
Our founder-led and entrepreneurial culture is a critical differentiating factor when our customers select our platform. We strive to foster an environment that allows our employees to thrive, and in turn, provide what we believe to be a world-class customer experience. Ultimately, this engenders significant customer loyalty, as reflected by our 5-year historical average NPS of 58% for the fiscal year ended May 31, 2021.
Our Opportunity
Our cloud-based software platform was purpose-built for our customers, and we believe we are well positioned to serve our target market of SMBs with less than 100 employees as a result. Our product is designed to be used across various industries, with a core set of tools designed to assist our customers in growing their business. This simultaneously allows us to scale without incremental support costs driven by industry specification, or unique needs that arise when customers reach a significant size.
We estimate our current annual addressable market size to be $40 billion. To calculate this estimation, we identified that there are approximately 40 million employees working at companies with less than 100 employees, our target customer size, in the United States, according to the U.S. Bureau of Labor Statistics (“BLS”). Within this segment, our core target market also excludes certain industries. To account for this, we cited the total employment statistics from BLS for 2020, which are available on a per industry basis. Using this data, we identified that there are approximately 97 million employees working at companies of any size excluding the agriculture, state and local government, federal government, educational services, mining, construction, and manufacturing sectors. This represented 74% of the total employees reported by BLS for 2020, excluding state, local, and federal government employees. We then applied this same ratio to the approximately 40 million employees working at companies with less than 100 employees in the United States to estimate that there are roughly 29 million addressable employees in our core target market.
We then applied our annualized average contribution profit per employee per month (“PEPM”) of $113 for the fiscal year ended May 31, 2021 to derive our approximate addressable market size.
Our Growth Strategy
We are dedicated to continuing to differentiate ourselves as the leader in integrated benefits, payroll, HR, and compliance support for SMBs with less than 100 employees across the United States. Key elements of our growth strategy include:
•Acquiring newly formed and rapidly growing businesses as customers. Our platform is aimed at addressing the complexity of providing payroll and benefit services to newly formed and growing businesses. Given our estimated addressable market size of $40 billion, we believe our current customer base represents a small portion of the SMB market that could benefit from our platform. To further penetrate this market, we will continue to invest in sales and marketing initiatives and focus on large metropolitan statistical areas with high concentrations of digitally-
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native businesses. As evidence of our compelling value proposition, our lifetime value to customer acquisition cost ratio during the twelve months ended August 31, 2021 was 5.7x.
•Growing and scaling with our existing customers. As of November 30, 2021, we served over 8,000 customers across all 50 states representing almost 140,000 WSEs. Our customer base is largely comprised of businesses in high growth industries such as technology and professional services. As our customers grow and add additional WSEs, our comprehensive cloud-based software platform is able to scale alongside them and support their growth. We achieved a subscription revenue net retention rate of 117% for the last fiscal year.
•Continuing to innovate and expand our core capabilities. We work with our customers to innovate and expand our core capabilities to make the HR experience for SMBs better and more accessible. For example, we launched Benefits Lab which provides additional integrated benefits such as access to health facilities and digital mental health providers to customers on our Plus plan, as described below. We also recently introduced native e-Signature to increase customer efficiency by allowing them to upload their own HR documents and request signatures from their employees directly in our platform. In the fiscal year ended May 31, 2021, we launched and deployed over 50 product updates, and we will continue investing in our technology to sustain and increase our product leadership and deliver increased value to customers.
•Pursuing strategic M&A. Our M&A strategy centers on delivering additional value to our target market of SMBs with under 100 employees through expanded product capabilities and service offerings. For example, in October 2020, we acquired and successfully integrated Boomr, a leading cloud-based time and attendance solution that simplifies and automates the process of tracking employees’ work hours. We will continue to selectively execute M&A to enhance our platform, add new service offerings, and expand into different markets to capture additional share in the SMB market and augment our organic growth.
Recent Developments
Estimated Preliminary Results for the Three Months Ended November 30, 2021
Set forth below are certain preliminary and unaudited estimates of selected financial and other information for the three months ended November 30, 2021 and actual unaudited financial and other information for the three months ended November 30, 2020. All percentage comparisons to the three months ended November 30, 2020 are measured to the midpoint of the range provided for the three months ended November 30, 2021.The unaudited selected financial and other information for the three months ended November 30, 2021 reflects our preliminary estimates with respect to such results based on currently available information and is subject to completion of our financial closing procedures. Our financial closing procedures for the three months ended November 30, 2021 are not yet complete and, as a result, our actual results may vary from the estimated preliminary results presented here and will not be finalized until after the completion of this offering.
These estimates should not be viewed as a substitute for our full interim or annual financial statements prepared in accordance with U.S. generally accepted accounting practices (“GAAP”). Further, our preliminary estimated results are not necessarily indicative of the results to be expected for any future period as a result of various factors, including, but not limited to, those discussed in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for prior periods included elsewhere in this prospectus.
The preliminary estimates presented below have been prepared by, and are the responsibility of, management. Ernst & Young LLP, our independent registered public accounting firm, has not audited, reviewed, compiled, or performed any procedures with respect to the preliminary financial information. Accordingly, Ernst & Young LLP does not express an opinion or any other form of assurance with respect thereto.
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Three Months Ended November 30, 2020Three Months Ended November 30, 2021
(in millions)ActualLow (estimated)High (estimated)
Consolidated Statements of Operations Data:
Total revenue$222.9 $313.9 $321.0 
Total cost of revenue$201.1 $278.3 $284.4 
Gross profit $21.8 $35.6 $36.6 
Loss from operations$(1.2)$(3.2)$(2.4)
The table below presents a reconciliation of gross profit to contribution profit:
Three Months Ended November 30, 2020Three Months Ended November 30, 2021
(in millions)ActualLow (estimated)High (estimated)
Gross profit$21.8 $35.6 $36.6 
Cost of providing services8.1 12.1 12.1 
Contribution profit$29.9 $47.7 $48.7 
The table below presents a reconciliation of loss from operations to adjusted income from operations:
Three Months Ended November 30, 2020Three Months Ended November 30, 2021
(in millions)ActualLow (estimated)High (estimated)
Loss from operations$(1.2)$(3.2)$(2.4)
Stock-based compensation expense 1.2 4.4 4.4 
Adjusted income from operations$— $1.2 $2.0 
•Total revenue for the three months ended November 30, 2021 is expected to be between $313.9 million and $321.0 million, a 42.4% increase from $222.9 million for the three months ended November 30, 2020. We expect this increase in total revenue primarily due to an increase in WSEs compounded by an increase in total revenue per WSE attributable to a more advantageous customer and pricing mix.
•Total cost of revenue for the three months ended November 30, 2021 is expected to be between $278.3 million and $284.4 million, a 39.9% increase from $201.1 million for the three months ended November 30, 2020. We expect this increase in total cost of revenue primarily due to an increase in WSEs resulting in higher benefits and insurance fees in addition to an increase in cost of providing services, largely driven by higher compensation costs.
•Gross profit for the three months ended November 30, 2021 is expected to be between $35.6 million and $36.6 million, a 65.6% increase from $21.8 million for the three months ended November 30, 2020. We expect this increase in gross profit primarily due to the increases associated with total revenue and total cost of revenue, in addition to a reduction in workers’ compensation costs.
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•Contribution profit for the three months ended November 30, 2021 is expected to be between $47.7 million and $48.7 million, a 61.2% increase from $29.9 million for the three months ended November 30, 2020. We expect this increase in contribution profit primarily due to the increases associated with total revenue and total cost of revenue, in addition to a reduction in workers’ compensation costs.
•Loss from operations for the three months ended November 30, 2021 is expected to be between $3.2 million and $2.4 million, an increase from a loss of $1.2 million for the three months ended November 30, 2020. We expect this increase in loss from operations primarily due to an increase in compensation costs, partially offset by an increase in gross profit.
•Adjusted income from operations for the three months ended November 30, 2021 is expected to be between $1.2 million and $2.0 million, an increase from $0.0 million for the three months ended November 30, 2020. We expect this increase in adjusted income from operations primarily due to an increase in gross profit partially offset by an increase in operating expenses due to increased compensation costs.
Additionally, cash and cash equivalents as of November 30, 2021 are expected to be approximately $109.8 million, and total principal amount of debt outstanding as of November 30, 2021 is expected to be approximately $15.2 million.
Risk Factors Summary
Our business is subject to a number of risks and uncertainties of which you should be aware before making a decision to invest in our Class A common stock. These risks are more fully described in the section titled “Risk Factors” immediately following this prospectus summary. These risks relate to, among others, the following issues:
•SMBs may be unwilling to outsource their payroll administration and human resources support to a third-party service provider;
•our ability to compete successfully against existing and future competitors in the PEO industry;
•our ability to manage our growth effectively;
•our ability to maintain our company culture as we expand;
•pandemics, epidemics, or disease outbreaks, such as the COVID-19 pandemic;
•our ability to keep pace with technological and competitive developments and develop, or otherwise introduce new products and solutions and enhancements to our existing offerings;
•we may not be successful in our efforts to make acquisitions and successfully integrate newly acquired businesses or products in the future;
•risks associated with our co-employment relationship of worksite employees and the possible liability we may be subject to as a result of such relationships;
•our dependence on existing subscription customers, as well as our need to increase sales of our subscriptions to new customers;
•our dependence on our current management team and other key employees, and our inability to attract and retain highly skilled employees;
•our ability to develop and expand our marketing and sales capabilities and our ability to maintain consumer awareness of our brand;
•fluctuations in the sales prices of our products and solutions;
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•the adequacy of our customer support;
•our need for and ability to obtain additional financing to achieve our goals;
•complying with new and existing state and federal laws, especially relating to laws and regulations that govern what it means to be an employer or an employee, and uncertainty as to the application of these laws to us and our customers;
•losing recognition as an employer of worksite employees under federal and state laws and regulations, or for ERISA purposes;
•our reliance on third-party service providers that could experience a security breach, data loss, or other compromise, including if unauthorized parties obtain access to our customers’ data;
•our reliance on information technology systems, and any real or perceived bug, defect, security vulnerability, error, or other performance failure involving our platform, products or solutions;
•complying with laws and regulations relating to data privacy, data protection, advertising, and consumer protection;
•our ability to protect our proprietary technology, or to obtain, maintain, protect, and enforce sufficiently broad intellectual property rights therein;
•our reliance on third party software, including open source software, in our products and services;
•our dual class structure of our common stock; and
•risks related to our status as an emerging growth company.
Corporate Information
We were originally incorporated on October 5, 2012 as Clockwork Solutions, Inc., a Delaware corporation. On March 26, 2013, we changed our name to Justworks, Inc. Our principal executive offices are located at 55 Water Street, New York, New York 10041, and our telephone number is (888) 534-1711. Our website address is www.justworks.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
•not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;
•reduced disclosure obligations regarding executive compensation; and
•exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
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The JOBS Act also permits emerging growth companies to delay adopting new or revised accounting standards until such time as those standards would apply to private companies. We have elected to avail ourselves of this accommodation allowing for delayed adoption of new or revised accounting standards until the earlier of the date we (a) are no longer an emerging growth company or (b) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements and the reported results of operations contained therein may not be directly comparable to those of other public companies.
We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (4) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.
We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
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THE OFFERING
Class A common stock offered by us
7,000,000 shares.
Option to purchase additional shares of Class A common stock
1,050,000 shares.
Class A common stock to be outstanding after this offering
20,291,988 shares (or 21,341,988 shares if the underwriters exercise their option to purchase additional shares of Class A common stock in full).
Class B common stock to be outstanding after this offering
42,135,392 shares.
Total common stock to be outstanding after this offering
62,427,380 shares (or 63,477,380 shares if the underwriters exercise their option to purchase additional shares of Class A common stock in full).
Use of proceeds
We estimate that that we will receive net proceeds from this offering of approximately $195.1 million (or $225.1 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full), based on an assumed initial public offering price of $30.50 per share (which is the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We currently intend to use the net proceeds from this offering for working capital, to fund growth and for other general corporate purposes. We will have broad discretion in the way that we use the net proceeds of this offering. See the section titled “Use of Proceeds” for additional information.
Directed Share Program
At our request, the underwriters have reserved for sale at the initial public offering price up to 5% of the shares of Class A common stock offered by us in this offering, to certain individuals or entities, including our directors and employees and certain other individuals or entities identified by them, through a directed share program. If purchased by these individuals or entities, these shares will be subject to a lock-up restriction for a period of 180 days from the date of this prospectus. The number of shares of Class A common stock available for sale to the general public will be reduced by the number of reserved shares sold to these individuals or entities. Any reserved shares not purchased by these individuals or entities will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock offered under this prospectus. See “Certain Relationships and Related Party Transactions” and “Underwriting.”
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Voting Rights
Shares of our Class A common stock are entitled to one vote per share. Shares of our Class B common stock are entitled to ten votes per share.
Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our amended and restated certificate of incorporation. Following the completion of this offering, each share of our Class B common stock will be convertible into one share of Class A common stock at any time and will convert automatically upon certain transfers or, if earlier, upon the tenth anniversary of the completion of this offering. Immediately following the completion of this offering, the outstanding shares of our Class B common stock will represent approximately 95.7% of the voting power of our outstanding capital stock, assuming no exercise of the underwriters’ option to purchase additional shares. The Class B stockholders will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and the approval of any change of control transaction. See the section titled “Description of Capital Stock” for additional information.
Risk factorsSee the section titled “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our Class A common stock.
Proposed Nasdaq symbol
“JW”
The number of shares of our common stock to be outstanding after this offering is based on 13,291,988 shares of Class A common stock and 42,135,392 shares of Class B common stock, in each case outstanding as of November 30, 2021 (including 76,840 shares of Class A common stock and 91,091 shares of Class B common stock subject to our right of repurchase), after giving effect to the Preferred Stock Conversion (as defined below), and excludes:
•3,386,010 shares of Class B common stock issuable upon the exercise of stock options outstanding under our 2012 Plan as of November 30, 2021, with a weighted average exercise price of $6.36 per share;
•9,627,727 shares of Class A common stock issuable upon the exercise of stock options outstanding under our Second Amended and Restated 2018 Stock Plan (the “2018 Plan”) as of November 30, 2021 with a weighted-average exercise price of $8.67 per share;
•53,000 shares of Class A common stock issuable upon the exercise of a warrant to purchase Class A common stock outstanding as of November 30, 2021 with an exercise price of $0.01 per share;
•87,500 shares of Class B common stock issuable upon the exercise of a warrant to purchase Class B common stock outstanding as of November 30, 2021 with an exercise price of $0.01 per share;
•1,600,000 shares of Class A common stock issuable upon the exercise of stock options that we intend to grant to our Founder, Isaac Oates, under our 2022 Incentive Award Plan (the “2022 Plan”), which will become effective in connection with this offering, with an exercise price equal to the initial public offering price (the “Founder Award”) (see “Executive and Director Compensation” for additional information regarding the Founder Award);
•26,531 shares of Class A common stock, based on an assumed initial public offering price of $30.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, issuable upon the exercise of stock options that we intend to grant, to certain of our employees, under our 2022 Plan, which will become effective in connection with this offering, with an exercise price equal to the initial public offering price (the “IPO Options”);
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•244,688 shares of Class A common stock, based on an assumed initial public offering price of $30.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, issuable in connection with the vesting and settlement of restricted stock units that we intend to grant, to certain of our employees, under our 2022 Plan, which will become effective in connection with this offering (the “IPO RSUs”);
•6,646,762 additional shares of our Class A common stock reserved for future issuance under our 2022 Plan (which number, for the avoidance of doubt, excludes the Founder Award, IPO Options, and IPO RSUs), which will become effective in connection with this offering, as well as any automatic increases in the number of shares of our Class A common stock reserved for future issuance under our 2022 Plan;
•1,245,189 shares of our Class A common stock that will become available for future issuance under the 2022 Employee Stock Purchase Plan (the “2022 ESPP”), which will become effective in connection with this offering, as well as any automatic increases in the number of shares of our Class A common stock reserved for future issuance under our 2022 ESPP; and
•675,180 shares of our Class A common stock that we have reserved for future issuance, over a period of 10 years, to Justworks Foundation, a 501(c)(3) private foundation (“Justworks.org”), to fund and support our social impact initiatives (67,518 of which shares we plan to issue to Justworks.org within 30 days after the closing of this offering and an additional 67,518 of which we plan to issue in 2022 (after the initial issuance) and in each year starting in 2023 through 2030).
On the date immediately prior to the date of this prospectus, we will cease granting awards under each of the 2012 Plan and 2018 Plan. See the section titled “Executive and Director Compensation—Equity Compensation Plans” for additional information.
Unless otherwise indicated, this prospectus reflects and assumes the following:
•the automatic conversion of all outstanding shares of (i) our Series A preferred stock, Series B preferred stock, and Series C preferred stock into an aggregate of 30,756,552 shares of our Class B common stock and (ii) our Series A-1 preferred stock, Series B-1 preferred stock, Series C-1 preferred stock, Series D preferred stock, and Series E preferred stock into an aggregate of 9,820,964 shares of our Class A common stock, in each case, which will occur immediately prior to the filing and effectiveness of our amended and restated certificate of incorporation (the “Preferred Stock Conversion”);
•no exercise of the outstanding options or warrants referred to above after November 30, 2021;
•no exercise by the underwriters of their option to purchase up to 1,050,000 additional shares of our Class A common stock; and
•the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering.
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables summarize our consolidated financial and other data. The summary consolidated statements of operations data for the three months ended August 31, 2021 and 2020, and consolidated balance sheet data as of August 31, 2021 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited consolidated financial statements on the same basis consistent with the presentation of our audited consolidated financial statements that are included elsewhere in this prospectus. We have included, in our opinion, all adjustments necessary to state fairly our results of operations for these periods. The summary consolidated statements of operations data for the fiscal years ended May 31, 2021 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future and our results of operations for the three months ended August 31, 2021 are not necessarily indicative of the results that may be expected for the year ended May 31, 2022 or any other interim periods or any future year or period. You should read the following summary consolidated financial and other data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
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Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions, except per share data)(Unaudited)
Consolidated Statements of Operations Data:
Revenue:
Subscription revenue$27.5 $19.9 $87.4 $68.4 
Benefits and insurance related revenue263.7 186.9 895.3 674.0 
Total revenue291.2 206.8 982.7 742.4 
Cost of revenue:
Benefits and insurance fees249.2 178.0 842.9 638.7 
Cost of providing services11.0 6.7 33.7 26.6 
Total cost of revenue260.2 184.7 876.6 665.3 
Gross profit
31.0 22.1 106.1 77.1 
Operating expenses:
Sales and marketing12.9 8.7 37.8 49.2 
General and administrative expense15.8 7.8 39.9 38.0 
Product development6.2 3.0 15.6 11.2 
Total operating expenses34.9 19.5 93.3 98.4 
(Loss) income from operations(3.9)2.6 12.8 (21.3)
Loss on extinguishment of debt(1.1)— — — 
Interest and other expense(0.1)(0.4)(2.2)(1.8)
Interest and other income— — 0.3 2.8 
Net (loss) income before taxes(5.1)2.2 10.9 (20.3)
Income taxes— — — — 
Net (loss) income$(5.1)$2.2 $10.9 $(20.3)
Per Share Data (1):
Net (loss) income per share attributable to Class A and Class B common stockholders:
Basic$(0.35)$0.04 $0.20 $(1.52)
Diluted$(0.35)$0.04 $0.19 $(1.52)
Weighted average Class A and Class B common shares outstanding:
Basic14,544,37914,217,512 14,346,76313,407,274 
Diluted14,544,37956,864,729 56,860,07813,407,274 
Pro forma net income (loss) per share attributable to Class A and Class B common stockholders  (unaudited)
Basic$(0.09)$0.20 
Diluted$(0.09)$0.19 
Pro forma weighted average Class A and Class B common shares outstanding  (unaudited)
Basic55,121,895 54,924,279 
Diluted55,121,895 56,860,078 
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_______________
(1)See Note 3 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate historical basic and diluted net income (loss) per share of common stock and the weighted average number of shares used in the computation of the per share amounts. Pro forma basic and diluted net income (loss) per share give effect, where applicable, to the conversion of the outstanding redeemable convertible preferred stock into 40,577,516 shares of common stock immediately prior to the closing of this offering.
As of August 31, 2021
Actual
Pro Forma (1)
Pro Forma
as Adjusted (2)(3)
(in millions)(Unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents$109.9 $109.9 $306.1 
Working capital (4)
$73.1 $73.1 $268.2 
Total assets$573.2 $573.2 $768.3 
Total liabilities$471.6 $471.6 $471.6 
Redeemable convertible preferred stock$147.1 $— $— 
Additional paid-in capital$28.7 $175.8 $370.9 
Accumulated deficit$(74.2)$(74.2)$(74.2)
Total stockholders’ deficit$(45.5)$101.6 $296.7 
_______________
(1)The pro forma column in the consolidated balance sheet data table above reflects (i) the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws and (ii) the Preferred Stock Conversion.
(2)The pro forma as adjusted column reflects: (i) the pro forma adjustments set forth in footnote (1) above and (ii) the sale of 7,000,000 shares of our Class A common stock in this offering at an assumed initial public offering price of $30.50 per share (which is the midpoint of the price range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Approximately $1.2 million in offering expenses were prepaid as of August 31, 2021.
(3)The pro forma as adjusted information discussed above is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, the pro forma as adjusted amount of each of cash and cash equivalents, total assets, additional paid-in capital and total stockholders’ deficit by approximately $6.6 million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1,000,000 share increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease, as applicable, the pro forma as adjusted amount of each of cash and cash equivalents, total assets, additional paid-in capital, and total stockholders’ deficit by $28.6 million, assuming that the initial public offering price per share remains at $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(4)We define working capital as current assets less current liabilities. See our consolidated financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
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Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions)(Unaudited)
Non-GAAP Financial Data (1):
Contribution profit$42.0 $28.8 $139.8 $103.7 
Adjusted gross profit
$31.8 $22.3 $107.4 $78.1 
Adjusted income (loss) from operations$0.4 $3.8 $17.8 $(5.3)
_______________
(1)See “Selected Consolidated Financial Data—Non-GAAP Financial Measures” for the definitions of each unaudited non-GAAP financial measure listed above and for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP.
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RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before making a decision to invest in our Class A common stock. If any of the risks actually occur, our business, results of operations, financial condition, and prospects could be harmed. In that event, the trading price of our Class A common stock could decline, and you could lose part or all of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Risks Related to Our Business and Industry
Our success depends on a growing market for payroll and benefits administration, human resources outsourcing and related services.
Our success depends on the willingness of SMBs, particularly those with under 100 employees that represent our target customer size, to outsource their payroll administration and HR support to a third-party service provider. To the extent these companies have invested substantial personnel, infrastructure, and financial resources in their own internal HR organizations, they may be reluctant to switch to Justworks. In addition, SMBs may not engage us for other reasons, including a desire to maintain control over all aspects of their payroll and benefits administration, a belief that they manage their payroll and benefits administration more effectively using their internal administrative organizations or more established competitors, perceptions about the expenses associated with our services, perceptions about whether our services comply with laws and regulations applicable to SMBs or their particular businesses or other considerations that may not always be evident. If we are not successful in addressing potential customers’ concerns and convincing SMBs that Justworks can fulfill their payroll, benefits, and HR support needs, our business may not grow, and it may be difficult for us to achieve and maintain profitability.
We operate in a highly competitive, developing market, and we may be unable to compete successfully against existing and future competitors.
We face significant competition on a national and regional level from a number of established and emerging PEOs. In addition to competition from PEOs, we also face significant competition in the form of companies that perform their own administration of benefits, payroll and other HR functions in-house, companies that provide certain endpoint HR services, including payroll, benefits and business process outsourcing with high-volume transaction and administrative capabilities (such as TriNet, Inc., Automatic Data Processing, Inc., Paychex, Inc., Insperity, Inc., Paycom Software, Inc., Paylocity Holding Corporation, Paycor HCM, Inc., and other third-party administrators), and companies acting as benefits exchanges that provide benefits administration services over the Internet to customers that otherwise maintain their own benefits plans. Our competitors may develop products, features or services that are similar to ours or that achieve greater market acceptance; may undertake more successful product development efforts, employment listings or marketing campaigns; or may adopt more aggressive pricing policies. If and to the extent that we are successful in growing our businesses, we anticipate that competitors will continue to enter this industry. Many of our current and potential competitors may have significantly greater resources or better competitive positions than we do, and may be better-positioned than we are in certain markets. Increased competition in our industry could result in price reductions or loss of market share, any of which could harm our business and negatively impact our financial condition and results of operations.
We also compete with insurance brokers and other providers of workers’ compensation, health insurance and other benefits coverage. In order for us to attract and retain customers, our offerings for such coverage must be at similar or better quality and priced competitively with offerings provided by these competitors. We expect that we will continue to experience competitive pricing pressure in the
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future. If we cannot compete effectively, our market share and operational and financial condition will likely suffer.
We have a history of operating losses and may not be able to operate profitably or sustain positive cash flow in future periods.
Prior to our most recent fiscal year ended May 31, 2021, we recognized a net loss in each year since beginning operations in October 2012. As of May 31, 2021, we had an accumulated deficit of approximately $69.1 million.
We intend to continue to expend substantial financial and other resources on, among other things:
•growing our base of sales and customer service managers;
•expanding our customer base;
•strengthening and broadening our marketing process and outreach;
•increasing sales within our existing customer base through increased usage of our platform and the cross-selling of additional products and solutions;
•augmenting our current offerings by organic in-house development, increasing the breadth of our technology partnerships, and exploring potential transactions that may enhance our capabilities or increase the scope of our technology footprint; and
•general administration, including legal, accounting, and other expenses related to our transition to being a new public company.
These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently, or at all, to offset these higher expenses. In addition, to the extent we are successful in increasing our customer base, we may also experience increased losses because the costs associated with acquiring customers are generally incurred up front, while the revenue is generally recognized over time, when, or as, performance obligations under the terms of the applicable contract are satisfied. Revenue growth may slow or revenue may decline for a number of possible reasons, many of which are beyond our control, including lower demand for our platform, products or solutions from new or existing customers, increased competition or any of the other factors discussed in this “Risk Factors” section. Any failure to increase our revenue as we grow our business could prevent us from achieving profitability at all or on a consistent basis, which would cause our business, financial condition and results of operations to suffer and the market price of our Class A common stock to decline.
Our past growth may not be indicative of future growth, and we may not be able to sustain our revenue growth rate in the future.
Our total revenue for the fiscal years ended May 31, 2021 and 2020 was $982.7 million and $742.4 million, respectively, representing an annual growth rate of 32.4%. You should not rely on the revenue growth of any prior period as an indication of future performance. We believe our revenue growth will depend on a number of factors including, among other things, our ability to:
•attract new customers and maintain our relationships with, and increase revenues from, our existing customers;
•maintain the security and reliability of our platform, products, and solutions;
•provide excellent customer user experiences;
•hire, integrate, and retain skilled personnel;
•introduce and grow adoption of our offerings in new markets within and outside the United States;
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•adequately expand our sales force;
•continually improve and enhance our products and solutions, including the features, integrations, and capabilities we offer and develop or otherwise introduce new products and solutions;
•obtain, maintain, protect, and enforce intellectual property for our platform and technologies;
•expand and maintain our partner ecosystem;
•continually improve our systems infrastructure and operational efficiency;
•comply with existing and new applicable laws and regulations, including those related to data privacy and security;
•price our products and solutions effectively and determine appropriate contract terms;
•successfully compete against established companies and new market entrants; and
•increase awareness of our brand on a global basis.
If we are unable to accomplish these objectives, our revenue growth will be impaired. Even if our revenue continues to increase, we expect that our revenue growth rate will decline in future periods. Many factors may contribute to a decline in our revenue growth rate, including greater market penetration by competitors, lower demand for our offerings, a failure by us to capitalize on growth opportunities, the maturation of our business and economic downturns that impact the United States and/or other countries around the world, among others. If our revenue growth rate declines as a result of these or any of the other factors described above, investors’ perceptions of our business and the market price of our Class A common stock could be adversely affected.
In addition, our prior rate of growth may make it difficult to evaluate our current business and future prospects. Our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model our future growth. If we fail to achieve the necessary level of efficiency in our organization as it grows, or if we are not able to accurately forecast future growth, our business would be adversely affected.
Our limited operating history makes it difficult to evaluate our current business and future prospects.
We began operations in October 2012. We have not yet reached a mature stage and have a limited history of generating revenues. As a result of our short operating history, we have limited financial data that can be used to evaluate the current business, and that data may not be indicative of future performance. Estimates of future revenue growth are subject to many risks and uncertainties, and our future revenue may be materially higher or lower than projected. Strategic partnerships we enter into in the future may not perform as well as historical partnerships or expectations. Our inability to adequately assess our performance and growth could have a material adverse effect on our brand, reputation, business, financial condition, and results of operations.
If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service, or address competitive challenges adequately.
We have grown as a company since inception and we plan to make continued investments in the growth and expansion of our business and customer base. The growth and expansion of our business places a continuous and significant strain on our managerial, operational, financial, and other resources. In order to manage our growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our security and compliance requirements, our operating and administrative systems, our customer service and support capabilities, our relationships with various partners, and other third parties and our ability to manage headcount and processes in an efficient
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manner. Failure to manage our growth to date and any future growth effectively could increase costs, negatively affect customer satisfaction and adversely affect our business, financial condition, results of operations, and growth prospects.
We may not be able to successfully sustain the pace of improvements to our platform, products and solutions, develop and introduce new offerings or implement systems, processes, and controls in an efficient or timely manner or in a manner that does not negatively affect our business, financial condition or results of operations. Our failure to improve our systems, processes, and controls, or their failure to operate in the intended manner, may result in our inability to manage the growth of our business, forecast our revenue, expenses, and earnings accurately or prevent losses.
As we continue to grow and expand our business, operate as a public company and implement more complex organizational management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture while managing our employee growth, including maintaining the creative, open, and entrepreneurial spirit that we believe has contributed to our success to date. Any failure to manage our anticipated growth and related organizational changes in a manner that preserves our culture could negatively impact future growth, and achievement of our business objectives. Additionally, our productivity and the quality of our offerings may be adversely affected if we do not integrate and train our new employees quickly and effectively. These challenges have been, and likely will continue to be, heightened due to the ongoing COVID-19 pandemic and any related stay-at home, travel, and other restrictions.
The ongoing COVID-19 outbreak could adversely affect our business, financial condition, and results of operations.
In December 2019, an outbreak of a novel coronavirus disease, COVID-19, was first identified and began to spread across the globe and, in March 2020, the World Health Organization declared it a pandemic. This contagious disease has spread across the globe and continues to impact economic activity and financial markets worldwide. As a result of the COVID-19 pandemic, government authorities around the world ordered schools and businesses to close, imposed restrictions on non-essential activities and significant restrictions on travel and social gatherings.
In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, as well as government mandates, we took precautionary measures intended to minimize the risk of the virus to our employees, customers, vendors and the communities in which we operate, which could negatively impact our business. In March 2020, we temporarily closed our offices and required our entire workforce to work remotely. We also suspended all travel for our employees for non-essential business. In June 2021, we reopened our NYC office on an optional basis; however, most of our employees continue to work remotely as of the date of this prospectus. These measures and conditions could extend into future periods.
While COVID-19 has not had a material adverse impact on our operations through the date of this prospectus, the impact of COVID-19 and its variants on our ability to attract, serve and retain customers is inherently uncertain and depends on the duration, severity and potential resurgence of the outbreak, as well as the availability and efficacy of vaccines, and the disease’s impact on our customers and the macroeconomic environment as a whole. Prior to the COVID-19 pandemic, our employees traveled occasionally to establish and maintain relationships with one another, as well as our customers and vendors. We continue to monitor the situation and may adjust our current policies as more information and public health guidance become available; continued limitations on travel and doing business in person may negatively affect our customer service efforts, sales and marketing efforts, challenge our ability to enter into customer contracts in a timely manner, slow down our recruiting efforts, or create operational or other challenges, any of which could adversely affect our business, financial condition, and results of operations.
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Furthermore, COVID-19 has disrupted and may continue to disrupt the operations of our customers and vendors for an indefinite period of time, including as a result of travel restrictions and/or business shutdowns, all of which could negatively impact our business, financial condition, and results of operations. More generally, the COVID-19 outbreak has adversely affected economies and financial markets globally, including in the United States, leading to an economic downturn, which could decrease spending on HR outsourcing and related services we provide and adversely affect demand for our offerings and harm our business, financial condition, and results of operations.
The change in the economic environment has had, and will continue to have, an adverse economic impact on certain of our existing and potential customers. We have seen, and depending on certain developments may continue to see, impacted businesses freeze headcount, furlough employees and terminate employment, and partially or completely shut down impacted business operations. Impacted businesses have faced and will likely continue to face liquidity issues, reduced budgets, or an inability to pay for our services or the same level of our services as they have historically. Existing and potential customers may choose to reduce their engagement of third-party service providers in response to the COVID-19 pandemic, or attempt to renegotiate contracts and obtain concessions, which may materially and negatively impact our business, financial condition, and results of operations. Any of these issues have the potential to result in a material adverse effect on our revenues and margins, our business, financial condition, and results of operations, and/or on our ability to attract and retain customers.
The COVID-19 pandemic has also resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. It is also possible that continued widespread remote work arrangements may have a negative impact on our operations, the execution of our business plans, the productivity and availability of key personnel and other employees necessary to conduct our business and on third-party service providers who perform critical services for us, or otherwise may cause operational failures due to changes in our normal business practices necessitated by the outbreak and related governmental actions. The increase in remote working may also result in privacy, data protection, data security and fraud risks. Our understanding of applicable legal and regulatory requirements, as well as the latest guidance from regulatory authorities in connection with the COVID-19 pandemic, may be subject to legal or regulatory challenge, particularly as regulatory guidance evolves in response to future developments.
It is not possible at this time to estimate the long-term impact that COVID-19 could have on our business, financial condition, and results of operations as the impact will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, the emergence of variants of COVID-19 and their severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
Our customers are particularly affected by volatility in the financial and economic environment, which could harm our business.
Our customers are SMBs that we believe are particularly susceptible to changes in the level of overall economic activity in the markets in which they operate. These businesses are often exposed to credit and cash liquidity risks that larger businesses may be able to avoid. During economic downturns, our customers have in the past and may in the future reduce employee headcount, compensation and/or benefits levels, which could negatively affect our revenues and margins.
During economic downturns, such as the downturn associated with the COVID-19 pandemic, we have seen, and expect to see during such periods in the future, increased WSE attrition and/or fewer new customers, an increase in customers that are unable to pay their obligations on time and an increase in unemployment and related COBRA claims and employment-related costs from our customers, which we may be legally or practically unable to recover based on the fees we charge our customers.
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In addition, most of our customers are concentrated in certain geographic regions and operate in a relatively small number of industries, including the administrative services, professional services, publishing, financial services, technology, life sciences, and not-for-profit industries. For example, as of August 31, 2021, New York, California, and Texas accounted for 50.7%, 11.5%, and 3.9% of our WSEs, respectively. As a result, if any of those geographic regions or specific industries suffers an economic downturn, even if the economy at the national level remains strong, the portion of our business attributable to customers in such region or industry could be adversely affected, which could have a material adverse effect on our business, financial condition, and results of operations.
We regularly experience customer attrition and decreases in new customer sales due to a variety of factors that are difficult for us to control or predict, including the economic factors above, as well as cost pressures, customer merger and acquisition activity, reactions to any proposed increases in our service fees, customer business failure, effects of competition, and customer decision to bring HR support, payroll and benefits administration in-house. Historically, customers who intend to cease doing business with us often elect to do so effective as of the beginning of a calendar year. As a result, in the first quarter of each calendar year, which occurs during our third and fourth fiscal quarters, we typically experience our largest concentration of customer attrition. If we were to experience customer attrition due to the above reasons or otherwise in excess of historic rates, it could have a material adverse effect on our business, financial condition, and results of operations.
If we are not able to keep pace with technological and competitive developments and develop or otherwise introduce new products and solutions and enhancements to our existing offerings, our offerings may become less marketable, less competitive, or obsolete, and our business, financial condition, and results of operations may be adversely affected.
The markets in which we compete are characterized by rapid technological change, frequent introductions of new products, services, features and capabilities, and evolving industry standards and regulatory requirements. Our ability to grow our customer base and increase our revenue will depend in significant part on our ability to develop or otherwise introduce new products and solutions; develop or otherwise introduce new features, integrations, capabilities and other enhancements to our existing offerings on a timely basis; and interoperate across an increasing range of devices, operating systems and third-party applications. The success of any new products or solutions, or enhancements to our existing offerings, will depend on a number of factors including, but not limited to, the timeliness and effectiveness of our research and product development activities and go-to-market strategy, our ability to anticipate customer needs and achieve market acceptance, our ability to manage the risks associated with new product releases, the effective management of development and other spending in connection with the product development process, and the availability of other newly-developed products and technologies by our competitors.
In addition, in connection with our product development efforts, we may introduce significant changes to our existing products or solutions or develop or otherwise introduce new and unproven products or solutions, including technologies with which we have little or no prior development or operating experience. These new products, solutions and updates may not perform as expected, may fail to engage our customer base or other end users of our products, or may otherwise create a lag in adoption of such new products. New products may initially suffer from performance and quality issues that may negatively impact our ability to market and sell such products to new and existing customers. Some of our customers may either defer purchasing our offerings until the next upgrade is released or switch to a competitor if we are not able to keep up with technological developments.
The short- and long-term impact of any major change to our existing offerings, or the introduction of new products or solutions, is particularly difficult to predict. If new or enhanced offerings fail to engage our customer base or other end users of our products, or do not perform as expected, we may fail to generate sufficient revenue, operating margin, or other value to justify our investments in such products, any of which may adversely affect our reputation and negatively affect our business in the short-term, long-term, or both. If we are unable to successfully enhance our existing offerings to meet evolving customer
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requirements, increase adoption and use cases of our offerings, develop or otherwise introduce new products and solutions and quickly resolve security vulnerabilities or other errors or defects, or if our efforts in any of these areas are more expensive than we expect, our business, financial condition, and results of operations would be adversely affected.
We may not be successful in our efforts to make acquisitions, integrate newly acquired products or businesses or enter into other strategic transactions and relationships that support our long-term strategy.
As part of our business strategy, we have pursued and may in the future consider opportunities to acquire or make investments in complementary companies, products or technologies, and we may enter into other strategic transactions and relationships in the ordinary course of business. We may be unable to identify suitable targets, opportunistic or otherwise, for acquisition or partnership in the future on acceptable terms or at all. Promising acquisitions, investments, and other strategic transactions are difficult to identify and complete for a number of reasons, including high valuations, competition among prospective buyers, the availability of affordable funding and the need to satisfy applicable closing conditions and obtain applicable antitrust and other regulatory approvals on acceptable terms. In addition, competition for acquisitions, investments and other strategic transactions may result in higher purchase prices or other terms less economically favorable to us. Changes in accounting or regulatory requirements or instability in the credit markets could also adversely impact our ability to consummate these transactions on acceptable terms or at all.
In addition, exploring acquisition or strategic opportunities may divert management attention from our core business and organic innovation and growth, which could negatively impact our business, financial condition, and results of operations.
In addition, even if we are able to consummate acquisitions and enter into other strategic transactions and relationships, these transactions and relationships involve a number of financial, accounting, managerial, operational, legal, compliance and other risks and challenges, including the following, any of which could negatively affect our growth rate and the trading price of our Class A common stock, and may have a material adverse effect on our business, financial condition, and results of operations:
•any business, technology, product or solution that we acquire or invest in could under-perform relative to our expectations and the price that we paid or not perform in accordance with our anticipate timetable, or we could fail to operate any such business or deploy any such technology, product, or solution profitably;
•we may incur or assume significant debt in connection with our acquisitions and other strategic transactions and relationships, which could cause a deterioration of our credit ratings, result in increased borrowing costs and interest expenses and diminish our future access to the capital markets;
•acquisitions and other strategic transactions and relationships could create demands on management, operational resources, and financial and internal control systems;
•we could experience difficulty and increased or unanticipated operational costs in integrating personnel, operations, and financial and other controls and systems and retaining key employees and customers;
•we may be unable to achieve cost savings or other synergies anticipated in connection with an acquisition or other strategic transaction or relationship;
•we may assume unknown liabilities, known contingent liabilities that become realized, known liabilities that prove greater than anticipated, internal control deficiencies or exposure to regulatory sanctions resulting from the acquired company’s or investee’s activities, and the
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realization of any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position, and/or cause us to fail to meet our public financial reporting obligations;
•we may experience risks associated with entering markets through such acquisitions or strategic transactions in which we have no prior experience and may not succeed; and
•revenues, insurance, or seller indemnification may be insufficient to offset increased expenses associated with the acquisitions and unanticipated liabilities of the acquired business.
Adverse changes in our relationships with key vendors could impair the quality of our solutions.
Our success depends in part on our ability to establish and maintain arrangements and relationships with vendors that supply us with essential components of our services. These vendors include insurance carriers to provide health insurance, workers’ compensation and employment practices liability insurance coverage, and banks and payment processors used to electronically transfer funds to employees, vendors and tax authorities. Failure by these vendors, for any reason, to deliver their services in a timely and accurate manner could cause material interruptions to our operations, impact customer relations, and result in significant penalties or other liabilities. Our agreements with these service providers typically have a term of one year. In addition, many of our employee benefit plan agreements may be terminated for convenience by the insurance companies on short term notice, often as short as 60 days’ notice. If any of these vendors decided to terminate its relationship with us, we may have difficulty obtaining replacement services at reasonable rates or on a timely basis, if at all. The loss of any one or more of our key vendors, or our inability to partner with certain vendors that are better-known or more desirable to our customers or potential customers, could impair the quality of our platform and services and may have a material adverse effect on our business, financial condition, and results of operations.
Our co-employment relationship with WSEs exposes us to business risks.
We are a co-employer of WSEs, and we may be exposed to liability for violations of employment laws by our customers and acts or omissions of WSEs, who may be alleged to be our agents, even if we do not participate in any such acts or violations. Such employment laws include, but are not limited to, laws relating to payment of wages, employment discrimination, labor relations and whistleblower protection. Although our customer agreements establish the contractual division of responsibilities and liabilities between us and our customers for various personnel management matters, including compliance with and liability under various governmental regulations, as well as requiring customers to indemnify us for any liability attributable to customers’ or their employees’ conduct, we may not be able to effectively enforce or collect these contractual obligations with our customers, which could harm our business, financial condition, and results of operations. We maintain employment practices liability insurance coverage (including coverages for our customers) to manage our and our customers’ exposure for various employment-related claims, and as a result, our incurred costs with respect to this exposure have historically been insignificant to our operating results. Employment practices liability insurance generally excludes coverage for claims relating to compliance with laws associated with the classification of employees as exempt or non-exempt, such as overtime pay and minimum wage law compliance. We cannot assure you that our insurance will be sufficient in amount or scope to cover all claims that may be asserted against us and for which we are unable to obtain indemnification from our customers. If judgments or settlements related to WSEs that we and our customers co-employ exceed our insurance coverage, it could harm our business, financial condition, and results of operations. We cannot assure you that we will be able to obtain appropriate types and levels of insurance in the future, that we will be able to replace existing policies on acceptable terms, or at all, or that our insurers will be able to pay all claims that we may make under our policies, any of which could harm our business, financial condition, and results of operations.
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Our results of operations may fluctuate as a result of numerous factors, many of which are outside of our control.
Our results of operations are likely to fluctuate, and our results in some periods may be below the expectations of our management or investors. Some of our significant expenses, such as insurance costs, rent expense, and debt expense, may require significant lead time to reduce. If we do not achieve our expected revenues targets, we may be unable to adjust our costs quickly enough to offset any revenues shortfall, which could harm our business, financial condition, and results of operations. Some of the important factors that may cause our revenues, results of operations, and cash flows to fluctuate include:
•the number of new customers initiating service;
•our loss of existing customers;
•reduction in the number of WSEs employed by existing customers;
•the number and severity of workers’ compensation insurance claims by WSEs;
•the number and severity of unemployment insurance claims by WSEs;
•the timing of customer payments and payment defaults by customers;
•amount and timing of our operating expenses and capital expenditures;
•costs associated with our acquisitions of companies, assets, and technologies;
•expenses we incur for geographic and service expansion;
•regulatory compliance costs;
•changes to our credit ratings by rating agencies;
•economic downturn of the technology sector and/or the United States;
•changes in our effective tax rate; and
•extraordinary expenses such as litigation or other dispute-related settlement payments.
Many of these factors are outside of our control, and the variability and unpredictability of these factors could cause us to fail to meet our expectations for revenues or results of operations for a given period. In addition, the occurrence of one or more of these factors might cause our results of operations to vary widely, which could lead to negative impacts on our margins, short-term liquidity or ability to retain or attract key personnel and could cause other unanticipated issues. Such fluctuations make forecasting more difficult and could cause us to fail to meet the expectations of investors and securities analysts, which could cause the trading price of our Class A common stock to fall substantially, resulting in the loss of all or part of your investment, and subject us to costly lawsuits, including securities class action suits. Accordingly, we believe that quarter-to-quarter comparisons of our revenues, results of operations, and cash flows may not always be meaningful and should not be relied upon as an indication of our future performance.
If we are unable to increase sales of our subscriptions to new customers, or our existing customers do not renew their subscriptions, or if they renew on terms that are less economically beneficial to us, it could have an adverse effect on our business, financial condition, and results of operations.
We expect to derive a significant portion of our revenue from renewals of existing subscriptions. Our customers have no contractual obligation to renew their subscriptions after the completion of the subscription term. Subscriptions for our offerings are offered on either an annual or monthly basis. As a result, we cannot provide assurance that customers will renew their subscriptions for a similar contract
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period or with other terms that are equally or more economically beneficial to us, if they renew at all. Additionally, our success depends on our ability to sell our subscriptions to new customers and to do so in a cost-effective manner.
In order to attract and retain customers, we believe that we must compete in our industry effectively on the basis of the value proposition that we deliver to our customers, including customer experience and satisfaction, relevance and cost-effectiveness of our benefit plans, geographic market expertise, total price of service, brand awareness and reputation, ability to innovate and respond to customer needs rapidly, access to online solutions, and human resources subject matter expertise. The expectations of our customers and prospective customers in these areas change over time as a result of many factors outside of our control, such as competition, regulatory and technical changes, and changing trends in the demands employees place on their SMB employers.
To satisfy customer expectations, we must timely and effectively identify, develop, or license appropriate technologies, and incorporate them into the solutions that we provide. New services or upgrades may not be released according to schedule, or may contain defects when released. Difficulties with the performance of our new technologies could result in adverse publicity, loss of sales, delay in market acceptance of our services, or customer claims against us, any of which could materially harm our business. Even if we are capable of satisfying customer expectations in these areas, we may not be able to do so on a cost-effective basis, which could have a material adverse effect on our business, financial condition, and our results of operations. We could lose market share if our competitors develop superior products and services or satisfy customer or regulatory demands before we are able to do so. If we are unable to satisfy the evolving product and service expectations and regulatory requirements, then we would experience lower customer satisfaction, fewer new customers and higher customer attrition, which could have a material adverse effect on our business, financial condition, and results of operations.
Unexpected changes in workers’ compensation, dental, vision, and short-term disability claims by WSEs could harm our business and/or industry.
Our insurance costs are impacted significantly by WSE workers’ compensation insurance claims experience in particular. We establish reserves to provide for the estimated costs of reimbursing our workers’ compensation, dental, vision, and short-term disability insurance carriers for paying claims within a particular deductible or risk layer in accordance with their insurance policies. A number of factors affect claim activity levels, such as changes in general economic conditions, proposed and enacted regulatory changes and disease outbreaks. Estimating these reserves involves our consideration of a number of factors and requires significant judgment. If there is an unexpected increase in the severity or frequency of claims or if we subsequently receive updated information indicating insurance claims were higher than previously estimated and reported, our insurance costs could be higher in that period or subsequent periods as we adjust our reserves accordingly. In addition, we may be unable to increase our pricing to offset increases in insurance costs on a timely basis or, if we are able to increase our pricing, we may experience lower customer satisfaction, fewer new customers or higher customer attrition in response to such an increase, all of which could have a material adverse effect on our business, financial condition, and results of operations.
Under our risk-based dental, vision, and short-term disability insurance policies, which began on November 1, 2021, we assume the risk of variability in future claims costs for our enrollees. We have experienced variability, and may experience variability in the future, in the amounts that we are required to pay for group dental and vision insurance expenses incurred by worksite employees within our deductible or risk layer under these risk-based policies, based on changing trends in the volume and severity of claims. This variability arises from changes to the components of cost trends. These trends change, and other seasonal trends and variability may develop, which makes it difficult for us to predict this aspect of our business and which may have an adverse effect on our business, financial condition, and results of operations.
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As of June 1, 2021, under our fully-insured workers’ compensation insurance policies, we assume the risk for losses up to $1 million per claim occurrence (deductible layer) and is currently capped at $16.3 million annually. The ultimate cost of the workers’ compensation services provided will not be known until all the claims are settled. If we do not accurately predict the risks that we assume, we may not charge adequate fees to cover our costs, which could reduce our net income and result in a material adverse effect on our business, financial condition, and results of operations. Our ability to predict these costs is limited by unexpected increases in frequency or severity of claims, which can vary due to changes in the cost of treatments or claim settlements. See “Business—Regulatory Landscape” for additional information on the regulatory framework we are subject to.
We accrue for the estimated future costs of reimbursing our workers’ compensation, dental, vision, and short-term disability carriers under our insurance policies, using external actuaries and our own experience to develop the estimate. However, the volume and severity of claims activity is inherently unpredictable. Estimating these accrued costs requires us to consider a number of factors and requires significant judgment.
If we subsequently receive updated information indicating that the volume and severity of workers’ compensation, dental, vision, and short-term disability insurance claims were higher than previously estimated and reported, our insurance costs could be higher in that period or subsequent periods as we adjust our accrued costs accordingly, which could have a material adverse effect on our business, financial condition, and results of operations.
The definitions of employers, employees, and independent contractors are evolving. Changes to the laws and regulations that govern what it means to be an employer or an employee may require us to make significant changes in our operations and may negatively affect our business.
National views and legislation on employers, employees and independent contractors are changing at a rapid rate, as evidenced by recent federal and state rule changes. In September 2019, California passed AB5, a law that could potentially reclassify customer independent contractors as employees. In November 2020, California voters passed Proposition 22, which supersedes AB5 for certain types of contractors. On August 20, 2021, a California state court found that portions of Proposition 22 were unconstitutional and further held that the entirety of Proposition 22 was unenforceable. Similar changes to the rules in any jurisdiction that define when a worker is an employee or independent contractor can increase or decrease the pool of WSEs that we can co-employ and include in our Justworks-sponsored benefit plans, which may negatively impact customer demand for the services we provide, require us to modify or change how we operate our business and have a material adverse effect on our business, financial condition, and results of operations.
In January 2020, the U.S. Department of Labor (the “DOL”) issued a new rule modifying the definition of joint employer that has been used for obligations and liabilities under the Fair Labor Standards Act (“FLSA”) for more than sixty years. While this rule was rescinded in July 2021, effective September 2021, future broadening of the long-standing definition of joint employer could potentially result in increased FLSA joint employment claims, which could divert management attention and cause us to incur additional and potentially material costs to defend.
The examples above highlight the impact to our business when regulations regarding the definitions or classification of employers, employees, independent contractors and other groups of workers change. Any such regulatory changes could affect the way in which we provide Justworks-sponsored benefits to our WSEs, the way in which we report and remit payroll taxes to tax authorities, and our legal liability for the actions and inactions of our customers. Any of such regulatory changes could also require us to change the manner in which we operate our business or provide our services, and could have an adverse effect on our business, financial condition, and results of operations.
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Increased expenditures for certain aspects of our business, including planned improvements to certain parts of our platform, will negatively impact our operating margins in the near-term and may not lead to increased visits to our platform and increased revenue in the long-term.
We have incurred and intend to continue to incur significant expenses related to the improvement of our platform. One such expense is hiring to improve, among other things, the customer experience and engagement on our platform. Such expenses do not directly generate related revenue, and these changes may negatively impact our operating margins in the near-term. These changes also may not result in increased visits to, or increased revenue generated by, our platform.
We focus on product innovation and customer engagement rather than short-term operating results.
We encourage our employees to develop and help launch new and innovative products, features, and services for our customers, and we often prioritize innovation and the customer experience. In this regard, we frequently make product and service decisions that may negatively impact our short-term operating results. These decisions may not be consistent with the short-term expectations of our stockholders and may not produce the long-term benefits that we expect, in which case our customer base growth and customer engagement and our business, financial condition, and results of operations could be harmed.
Our growth depends on a strong brand, and any failure to maintain, protect and enhance our brand could hurt our ability to retain or expand our customer base and our ability to increase its level of engagement.
We believe that a strong brand is necessary to attract and retain customers. Among other ways we enhance brand awareness, we use traditional outdoor, direct mail and digital advertising, as well as third-party social media platforms (such as Facebook, Twitter, and Instagram) as marketing tools. As advertising venues, direct mail, online, and social media platforms continue to rapidly evolve, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media and advertising and marketing platforms. If we are unable to cost-effectively use outdoor, direct mail, digital, and social media platforms as marketing tools, our ability to acquire new customers and our financial condition may suffer as a result. In addition, an increase in the use of outdoor, direct mail, digital, and social media for product promotion and marketing may increase the burden on us to monitor compliance of such materials and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations.
Additionally, unfavorable publicity about us, including our products, services, technology, customer service, or personnel could diminish confidence in, and the use of, our products, features, and services. Such negative publicity also could have an adverse effect on the size, engagement and loyalty of our customer base and result in decreased revenue, which could have a material adverse effect on our business, financial condition, and results of operations.
Finally, while we take steps to protect our brand against unauthorized use by third parties under applicable trademark and similar laws, our efforts may be inadequate or ineffective. Furthermore, our efforts to enforce our rights in our brand may be met with defenses, counterclaims, and countersuits attaching the validity and enforceability of our rights, which may be successful.
We depend on recruiting and retaining key executives and technical personnel whose expertise is difficult to replace.
Our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of the services of any of our key personnel, the inability to attract or retain qualified personnel, or delays in hiring required personnel, particularly in engineering and sales, may seriously and adversely affect our business, financial condition, and results of operations. We also substantially depend on the continued service of our existing engineering personnel because of the complexity of our products.
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Although we have entered into employment offer letters with our key personnel, their employment is for no specific duration and constitutes at-will employment.
Our future performance also depends on the continued services and continuing contributions of our senior management team, which includes Isaac Oates, our founder and Chief Executive Officer, to execute on our business plan and to identify and pursue new opportunities and product innovations. The loss of services of our senior management team, particularly our Chief Executive Officer, could significantly delay or prevent the achievement of our development and strategic objectives, which could adversely affect our business, financial condition, and results of operations.
Additionally, the industry in which we operate is generally characterized by significant competition for skilled personnel, as well as high employee attrition. There is currently a high demand for experienced software industry personnel, particularly for engineering, research and development, sales, and support positions, and we may not be successful in attracting, integrating and retaining qualified personnel to fulfill our current and future needs. This intense competition has resulted in increasing wages and/or fringe benefits, especially in New York, where our headquarters is located, which may make it more difficult for us to attract and retain qualified personnel, as a number of the companies against which we compete for personnel are in a later stage of their company lifecycle and thus may have greater financial resources than we do, and/or are able to provide fringe benefits that are more comprehensive or are otherwise viewed as more attractive than ours. These competitors may also actively seek to hire our existing personnel away from us, even if such employees have entered into a non-compete agreement. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work.
If we fail to attract new personnel, or fail to retain and motivate our current personnel, our business, financial condition, results of operations, and growth prospects could be adversely affected. In addition, we have not purchased key person life insurance on any members of our senior management.
The 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 offerings.
Our ability to increase our customer base and achieve broader market acceptance of our products and solutions will depend to a significant extent on our ability to expand our sales and marketing operations. As part of our growth strategy, we plan to continue to invest in growing our direct sales force, which consists of inside sales representatives who focus on serving customers in specific geographic markets. If we are unable to hire a sufficient number of qualified sales personnel in the near-term, our business, financial condition, results of operations, and growth prospects will be adversely impacted. Identifying and recruiting qualified sales representatives and training them is time-consuming and resource-intensive, and they may not be fully trained and productive for a significant amount of time. Newly hired sales personnel are typically not as productive as experienced sales personnel for up to a year following their hiring resulting in increased near-term costs to our business relative to the sales contributions of these newly hired sales personnel.
We also plan to continue to dedicate significant resources to our marketing programs. All of these efforts will require us to invest significant financial and other resources. Our business will be harmed if our efforts do not generate a correspondingly significant increase in revenue. We will not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, and retain talented sales personnel, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective.
The prices of our products and solutions may change, which may reduce our revenue and adversely affect our financial results.
The prices of our products and solutions may be subject to change for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new offerings, general economic conditions, or our marketing, customer acquisition and technology costs, and as a result, we anticipate that we will need to change our pricing model from time to time. In the past, we have
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sometimes adjusted our prices for individual customers in certain situations, and expect to do so in the future. Moreover, demand for our products and solutions is price-sensitive. Competition continues to increase in the markets in which we operate, and we expect competition to further increase in the future, thereby leading to increased pricing pressures. Larger competitors with more diverse offerings may reduce the price of offerings that compete with ours or may bundle them with other offerings and provide for free. Similarly, certain competitors may use marketing strategies that enable them to gain customers more rapidly or at a lower cost than us, or both, and we may be unable to attract new customers or grow and retain our customer base based on our historical pricing. As we develop and introduce new offerings, as well as features, integrations, capabilities and other enhancements, we may need to, or choose to, revise our pricing. There can be no assurance that we will not be forced to engage in price-cutting initiatives or to increase our marketing and other expenses to attract customers in response to competitive or other pressures. Any decrease in the sales prices for our products, without a corresponding decrease in costs, increase in volume or increase in revenue from our other offerings will adversely affect our revenue and gross profit. We cannot assure you that we will be able to maintain our prices and gross profits at levels that will allow us to achieve and maintain profitability.
Our failure to offer high quality customer support may harm our reputation and have an adverse effect on our business, financial condition, and results of operations.
Our customers depend on our internal support team to resolve issues and realize the full benefits relating to our products and solutions. If we do not succeed in helping customers quickly resolve issues or provide effective ongoing support and education, our ability to renew subscription with, or sell subscriptions for additional offerings to, existing customers, or expand the value of existing customers’ subscriptions, may be adversely affected and our reputation with potential customers could be damaged.
Additionally, growing our internal support team is a key component of our growth strategy. We may not be able to hire or train such resources fast enough to keep up with demand. To the extent that we are unsuccessful in hiring, training, and retaining adequate support resources, our ability to provide adequate and timely support to our customers, and our customers’ satisfaction with our products and solutions will be adversely affected.
We depend on external sources of capital and may not be able to obtain capital when desired on favorable terms, if at all, or without substantial dilution to our stockholders, which may impact our ability to execute on our current or future business strategies.
We may not generate sufficient cash flow from operations or otherwise have the capital resources to meet our future capital needs, including investing in areas for growth. If we do not generate sufficient cash flow from operations or otherwise have sufficient capital resources available, we may need to enter into a new financing arrangement to execute on our current or future business strategies, including developing new or investing in existing service offerings, maintaining our operating infrastructure, acquiring complementary businesses, hiring additional personnel or otherwise responding to competitive pressures. We cannot assure you that a new financing arrangement will be available to us on favorable terms, or at all.
We may be unable to generate sufficient cash flow to satisfy our debt service obligations.
Our ability to make principal and interest payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations in the amounts projected or at all, or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs including working capital needs or acquisition needs, then our business, financial condition, and results of operations may be adversely affected. If we cannot generate sufficient cash flow from operations to make scheduled principal amortization and interest payments on our debt obligations in the future, then we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets, delay vendor payments, and capital
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expenditures, or seek additional equity investments. If we are unable to refinance any of our indebtedness on commercially reasonable terms or at all or to effect any other action relating to our indebtedness on satisfactory terms or at all, then our business, financial condition, and results of operations may be adversely affected.
Our Credit Agreement has, and agreements governing any future indebtedness may contain, restrictive covenants and our failure to comply with any of these covenants could put us in default.
In June 2021, we entered into a credit agreement (as amended, the “Credit Agreement”) with JP Morgan Chase Bank, N.A. Unless and until we repay all outstanding borrowings under our Credit Agreement we will remain subject to the terms and restrictive covenants of these borrowings. The terms of any future indebtedness will likely impose similar restrictions as those imposed by our Credit Agreement. The Credit Agreement contains, and agreements governing any future indebtedness may contain, a number of covenants which put some limits on our ability to, among other things:
•sell assets;
•engage in mergers, acquisitions, and other business combinations;
•declare dividends or redeem or repurchase capital stock;
•incur, assume or permit to exist additional indebtedness or guarantees;
•make loans and investments;
•incur liens or give guarantees; and
•enter into transactions with affiliates.
The Credit Agreement also requires us to maintain certain financial ratios, and our ability to meet these financial ratios may be affected by events beyond our control, and we may not satisfy such a test. A breach of the covenants including in our Credit Agreement or of any agreements governing future debt obligations could result in a default under such agreements. By reason of cross-acceleration or cross-default provisions, other indebtedness may then become immediately due and payable. Our assets or cash flows may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. If amounts owed under the Credit Agreement are accelerated because of a default and we are unable to pay such amounts, our lenders may have the right to assume control of substantially all of the assets securing the Credit Agreement.
No assurance can be given that any refinancing or additional financing will be possible when needed or that we will be able to negotiate acceptable terms. In addition, our access to capital is affected by prevailing conditions in the financial and capital markets and other factors beyond our control. There can be no assurance that market conditions will be favorable at the times that we require new or additional financing. In addition, the Credit Agreement contains, and agreements governing any future indebtedness are likely to contain, restrictive covenants that limit our subsidiaries from making certain dividend payments, loans or advances to us, unless certain conditions are met. Our failure to comply with such covenants may result in default, which could result in the acceleration of all our debt.
The London Inter-bank Offered Rate (“LIBOR”) and other interest rates that are indices deemed to be “benchmarks” are the subject of recent and ongoing national, international, and other regulatory guidance and proposals for reform. Some of these reforms are already effective, while others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences that cannot be predicted. Any such consequence could have a material adverse effect on our existing facilities, our interest rate swap agreement or our future debt linked to such a “benchmark” and our ability to service debt that bears interest at floating rates of interest.
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Risks Related to Tax and Regulatory Compliance
Our business is subject to numerous state and federal laws, and uncertainty as to the application of these laws, or adverse applications of these laws, as well as changes in applicable laws, including those related to the COVID-19 pandemic, could adversely affect our business.
Our operations are governed by numerous federal, state, and local laws relating to labor, tax, benefits, insurance, and employment matters. We provide benefits to our PEO customers, and by entering into co-employer relationships with WSEs, we assume certain obligations, responsibilities and potential legal risks of an employer under these laws. However, many of these laws (such as the Employee Retirement Income Security Act, as amended (“ERISA”), and federal and state employment tax laws) do not specifically address the obligations and responsibilities of a provider of outsourced HR services in a co-employer relationship, and the definition of employer under these laws is not uniform. In addition, many states have not addressed the co-employer relationship for purposes of compliance with applicable state laws governing the relationship between employers and employees and state insurance laws.
We are not able to predict whether broader federal or state regulation governing the co-employer relationship will be implemented, or if it is, how it will affect us. Any adverse application or interpretation (in courts, agencies or otherwise) of new or existing federal or state laws to the co-employer relationship with our WSEs and customers could harm our business. If federal, state or local jurisdictions were to change their regulatory framework related to outsourced HR, or introduce new laws governing our industry that were materially different from existing laws, those changes could reduce or eliminate the need for some of our services, or could require that we make significant changes in our methods of doing business, which could increase our cost of doing business. Changes in regulations could also affect the extent and type of benefits employers can or must provide employees, the amount and type of taxes employers and employees are required to pay or the time within which employers must remit taxes to the applicable authority. These changes could substantially decrease our revenues and substantially increase our cost of doing business. If we fail to educate and assist our customers regarding new or revised legislation that impacts them, our reputation could be harmed, and our business, financial condition, and results of operations may be adversely affected.
Most states have adopted laws and regulations for licensing, registration, certification or recognition of PEOs, and the Internal Revenue Service (“IRS”) has implemented a voluntary federal certification program for PEOs. We expect states without such laws and regulations to adopt them in the future. While these laws and regulations can vary widely, most regulators monitor the financial health and other relevant business information of PEOs on an annual or quarterly basis. In some cases, these laws and regulations codify and clarify the co-employment relationship for certain payroll, unemployment, workers’ compensation and other employment-related purposes or require specific customer contractual terms and/or WSE disclosures. We may be required to spend significant time and resources to satisfy licensing requirements or other applicable regulations in some states, and we may not be able to satisfy these requirements or regulations in all states, which could prohibit us from doing business in such states. In addition, we cannot assure you that we will be able to renew our licenses in all states in a timely manner or at all.
We must also comply with the federal and state payroll tax and unemployment tax requirements that apply where our customers are located. Tax reform efforts, and other payroll tax changes, at the federal, state and local level can impact our payroll tax reporting obligations for our customers and the services we can provide. State unemployment tax rates vary by state based, in part, on prior years’ compensation and unemployment claims experience and may also vary based on the overall claims experience of a PEO. As a result, depending on where customers are located, the fees we charge for unemployment taxes can be higher or lower than a customer could obtain alone. In some cases, the unemployment taxes we pay can also be retroactively increased to cover deficiencies in the unemployment tax funds. We also rely on our customers to accurately report their work locations and inaccurate reporting, due to work
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from home policies during the COVID-19 pandemic or otherwise, can impact our payroll tax obligations and the obligations of our customers and WSEs.
Due to the ongoing COVID-19 pandemic, new laws and programs have been enacted, and may continue to be enacted, at every level of government to help the economy, employers, and employees. For example, the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were signed into law in March 2020, creating numerous new programs, including a paycheck protection program (“PPP”), mandatory employee leave requirements, payroll tax deferral and tax credit programs and other employment- and employment tax-related incentives. The Paycheck Protection Program Flexibility Act was signed into law in June 2020, modifying and expanding the original PPP program. The appropriations package passed into law in December 2020 further expanded the availability of some of the employee leave and tax credit programs available to SMBs and their employees, as well as the PPP. Many states have also passed laws to address the impact of COVID-19, and many local governments have enacted ordinances for the same reason. New and amended laws may be passed at the federal, state, and local level at any time. We are spending, and will continue to spend, significant time and resources to comply with new and amended laws and to provide the benefits created by these laws for our customers, where applicable. Most of these laws and programs have not been, and we do not anticipate will be, enacted with the PEO industry in mind. As a result, we cannot guarantee we will be able to support any of these laws and programs in a timely and cost effective manner or at all, which could reduce or eliminate the attractiveness of our services and/or affect the ability of our customers to fully realize the benefits of these laws and programs. Many of these laws are complex and require interpretation from various federal and state agencies to implement. Government agency interpretations, at any level of government, can increase the unpredictability and inconsistent application, interpretation and enforcement of these laws. In addition, since many of these laws do not specifically address the PEO industry and many regulators are unfamiliar with the PEO industry, we have been, and expect in the future to be, particularly impacted by unpredictable and inconsistent application, interpretation, and enforcement of these laws. For example, implementation of the PPP and the tax credit programs offered under the FFCRA and CARES Act involves substantial input and interpretation from the U.S. Small Business Association (“SBA”), the DOL and the IRS, respectively. We have experienced delays in our support for, and have been required to change our approach to implementing, various COVID-19 programs created by these laws in the past due to guidance from the SBA, DOL, IRS and other government agencies, and we expect to experience future delays and changes. Any government agency interpretation may delay, reduce or eliminate our ability to support any of these COVID-19 assistance programs, which could have a material adverse effect on our business.
Furthermore, on December 22, 2017, the U.S. government enacted legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”), which significantly reformed the Internal Revenue Code of 1986, as amended (the “Code”). The TCJA, among other things, contained significant changes to corporate taxation, including a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, the limitation of the tax deduction for net interest expense to 30% of adjusted taxable income (except for certain small businesses), the limitation of the deduction for net operating losses, or NOLs, arising in taxable years beginning after December 31, 2017 to 80% of current year taxable income and elimination of NOL carrybacks for losses arising in taxable years ending after December 31, 2017 (though any such NOLs may be carried forward indefinitely), the imposition of a one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, the elimination of U.S. tax on foreign earnings (subject to certain important exceptions), the allowance of immediate deductions for certain new investments instead of deductions for depreciation expense over time and the modification or repeal of many business deductions and credits.
As part of Congress’s response to the COVID-19 pandemic, the FFCRA was enacted on March 18, 2020, and the CARES Act was enacted on March 27, 2020. Both contain numerous tax provisions. The CARES Act also temporarily (for taxable years beginning in 2019 or 2020) relaxed the limitation of the tax
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deduction for net interest expense by increasing the limitation from 30% to 50% of adjusted taxable income.
Regulatory guidance under the TCJA, the FFCRA and the CARES Act is and continues to be forthcoming, and such guidance could ultimately increase or lessen impact of these laws on our business and financial condition. It is uncertain if and to what extent various states will conform their laws to the TCJA, the FFCRA, or the CARES Act.
We were required, and may in the future continue to be required, to modify our systems to effectively implement the assistance provided to businesses and employees through programs and incentives like those created via the FFCRA and CARES Act. For example, certain of these programs and incentives have required us to make changes to our systems that manage payroll and payroll-related tax calculation and reporting and invoicing and collection of service fees. To make these types of modifications, we were, and may continue to be, required to invest additional resources and/or to reallocate earmarked resources. If we do not successfully or timely deploy these types of modifications, we may be unable to comply with applicable regulations, including any further legislation that is enacted by states, localities and the federal government, which could subject us to litigation, as well as fines, penalties, and other regulatory action, any of which could adversely impact our PEO state licenses or registrations and our certified PEO status. Furthermore, if we are unable to support such laws and programs in a timely and cost-effective manner or at all, such inability could reduce or eliminate the attractiveness of our platform, products and solutions and/or affect the ability of our customers to fully realize the benefits of these law and programs. In addition, if any of our customers accessed these benefits and there are allegations of fraud or improprieties, we could be subject to government inquiries, which could distract our management, and our reputation may be harmed.
We are voluntarily subject to certification requirements by the IRS and could lose such certification.
The Small Business Efficiency Act (“SBEA”) amended the Code to create a voluntary certification program for PEOs. The SBEA specifically recognizes certificated professional employer organizations (“CPEOs”) by providing, among other things, potential benefits to the customers of CPEOs (e.g., stringent operational and financial standards such as ongoing bonding requirements, audits, and IRS reporting). We are voluntarily subject to the IRS’ CPEO program that establishes our sole statutory liability for federal employment taxes processed through Justworks. Our “certified” designation under the voluntary CPEO program may be unilaterally suspended or revoked by the IRS if we fail to comply with applicable rules and regulations in connection with the program, including if such failure is due to inadvertent administrative errors. For example, our voluntary CPEO certification with the IRS was suspended on November 15, 2019 due to certain inadvertent administrative errors. We added payroll tax personnel and implemented process improvements and control enhancements in order to reduce the risk of this situation reoccurring. After concluding an independent review of the matter, the IRS Office of Professional Responsibility lifted our suspension as of September 30, 2020, and fully restored our status as a CPEO. If the IRS suspends or revokes our “certified” designation under the voluntary CPEO program, such suspension or revocation could harm our business, financial condition, and results of operations.
If we are not recognized as an employer of WSEs under federal and state laws and regulations, we and our customers could be adversely impacted.
In order for WSEs to receive the full benefit of our benefits offerings, it is important that we act and qualify as an employer of the WSEs under the Code and ERISA. In addition, our status as an employer is important for purposes of ERISA preemption of state laws. The definition of employer under various laws is not uniform, and under both the Code and ERISA the term is defined in part by complex multi-factor tests under common law. The DOL has issued guidance that certain entities in the HR outsourcing industry do not qualify as common law employers of WSEs for ERISA purposes. If we were found not to be an employer for ERISA purposes, one or more of our employee benefit plans may need to be
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restructured to comply with ERISA and/or certain state laws and regulations, including laws governing multiple employer welfare arrangements.
Further, if we are deemed to be a money transmitter, we may incur fines and significant additional costs and expenses, which could harm our business, financial condition, and results of operations. While specific laws vary among jurisdictions, a money transmitter is commonly defined as a party that is engaged in: (i) receipt of money (or something of value) and (ii) transmission of money (or something of value) to a different person or place. Federal law requires registration of money services businesses, including money transmitters, and such companies are required to adopt and follow an anti-money laundering program consistent with the Bank Secrecy Act. State regulatory authorities generally require licenses for companies that are considered money transmitters or money service businesses under the laws of their states, as well as bond requirements and limitations and reporting for how outstanding liabilities are maintained. Money transmitter licensing laws vary by state. If regulatory authorities in any state determine that the nature of our business requires that we be licensed as a money transmitter, we may need to hire additional personnel to manage regulatory compliance and become obligated to pay fines for prior unlicensed activity as well as annual licensing fees, which could adversely affect our business, financial condition, and results of operations.
If we are deemed to be an insurance agent or third-party administrator, we may incur significant additional costs and expenses, which could harm our business, financial condition, and results of operations.
State regulatory authorities generally require licenses for companies that do business in their states as insurance agents or third-party administrators, such as those that handle health or retirement plan funding and claim processing. Insurance and third-party administrator regulation cover a host of activities, including sales, underwriting, rating, claims payments, and record keeping by companies and agents. If regulatory authorities in any state determine that the nature of our business requires that we be licensed as an insurance agent or as a third-party administrator, we may need to hire additional personnel to manage regulatory compliance and become obligated to pay annual regulatory fees, which could adversely affect our business, financial condition, and results of operations.
We and our customers could be adversely impacted by health care reform.
Since enactment, there have been numerous attempts to modify, repeal or replace the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (“ACA”). While initial attempts at repeal and replacement have not been successful, uncertainty regarding the potential future modification, repeal or replacement of the ACA at the federal or state levels could adversely affect our ability to sell certain of our services to new customers. For example, for several years, the New York legislature has advanced, but not enacted, various bills that would create a single-payer healthcare system in the State of New York. Such a system would materially disrupt and possibly eliminate the current employment-based health insurance system in the State of New York. Given our significant presence in New York and the importance of benefits administration to our product offering, the enactment of a single-payer healthcare system in the State of New York could materially harm our business, financial condition, and results of operations. Failure to update our services to comply with modified or new legislation in the area of health care reform as well as failure to educate and assist our customers regarding this legislation could adversely impact our business reputation and negatively impact our customer base. Furthermore, the uncertainty surrounding the terms and application of the ACA may delay or inhibit the decisions of potential customers to outsource their HR needs. Any of these developments could harm our business, financial condition, and results of operations.
Increased use of payroll tax credits and other payroll tax-related incentive or stimulus programs could adversely impact our business.
In the past several years, the Protecting Americans from Tax Hikes (PATH) Act of 2015, the FFCRA, the CARES Act, the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act of 2021
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created or extended various federal incentive or stimulus programs that deliver benefits to customers through payroll tax credits or other payroll tax-related incentives or stimulus, such as the employer Social Security tax deferral program under the CARES Act. We expect an increase in the use of these types of programs at the federal, state, and local levels over the next several years. These programs have required us to spend significant time and resources to comply with new and amended laws and to provide the benefits created by these laws for our customers. In addition, these programs involve processing payroll tax credits or other incentives or stimulus for customers, which may later result in payroll tax deficiencies assessed against us if the credits or other incentives or stimulus are disallowed, in whole or in part, following an audit of customer facts and circumstances that are not within our knowledge or control. If we are unable to timely administer incentive or stimulus programs that deliver benefits to customers through payroll tax credits or other payroll tax-related incentives or stimulus, or incur substantial additional costs or liabilities in doing so, our business, financial condition, and results of operations could be adversely impacted.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under the rules of sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a rolling three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change taxable income may be limited. The applicable rules generally operate by focusing on changes in ownership among stockholders considered by the rules as owning, directly or indirectly, 5% or more of the stock of a corporation, as well as changes in ownership arising from new issuances of stock by the corporation. We may have experienced ownership changes in the past and could experience one or more ownership changes in the future, including in connection with this offering and as a result of future changes in our stock ownership, some of which changes may be outside our control. Further, U.S. tax laws limit the time during which NOL carryforwards generated before January 1, 2018 may be applied against future taxes. While NOL carryforwards generated on or after January 1, 2018 are not subject to expiration, the deductibility of such NOL carryforwards is limited to 80% of our taxable income for taxable years beginning on or after January 1, 2021. Similar provisions of state tax law may also apply to our state NOLs. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset post-change taxable income may be subject to limitations. For these reasons, we may not be able to utilize our NOLs and other tax attributes, which could adversely affect our future cash flows.
Risks Related to Technology, Data Privacy, and Security
Our efforts to protect against and to remediate cyber-attacks, other security-related incidents, and data breaches may not succeed and any such event, whether intentional or inadvertent and whether attributable to us or our service providers, could have a material adverse effect on our business, reputation and the price of our Class A common stock.
We collect, process, store and use a wide variety of data and personal information from current and prospective customers, employees of customers, and, in some cases, customers’ third-party vendors, including bank account and social security numbers, tax information, certain health information, certain health claim information, retirement account information, payroll data and email and physical addresses. Federal, state and international laws and regulations governing privacy, data protection, and e-commerce transactions require us to safeguard our customers’ personal information, including names, addresses, bank account information and social security numbers. Furthermore, changes in the laws and regulations that govern our collection, use and disclosure of customers’ data and personal information could impose additional requirements with respect to the retention and security of such data and personal information and related notification requirements. While we have security measures and programs in place to prevent, detect, and respond to cyber-attacks, security-related incidents, data breaches and other similar threats, and we require our service providers to do so as well, these security measures and programs and our
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collective efforts have not always succeeded, and may not succeed in the future. A significant number of our customers provide us with bank account and other confidential information and authorize us to bill their bank accounts directly for our products and services. Typically, we rely on encryption and authentication technology licensed from third parties to enhance the security of our confidential information transmissions. Advances in computer capabilities, the development of new cyberattack tools and techniques, new discoveries in the field of cryptography, inadequate facility security or other developments may result in a compromise or breach of the technology used by us to protect customers’ data and personal information.
We cannot fully eliminate the possibility of such cyber-attacks, security-related incidents and other threats, whether intentional or inadvertent and whether internal or external, and we, our customers or our service providers may not discover a security incident for a significant period of time after the incident occurs. Other malicious actors may direct social engineering, phishing, credential stuffing, ransomware, extortion, denial or degradation of service attacks and similar types of attacks against any or all of us, our customers and our service providers. These attacks may come from individual hackers, criminal groups or state-sponsored organizations. If our security measures are breached as a result of third-party action, employee error or negligence, a defect or bug in our offerings or those of our third-party service providers, malfeasance or otherwise and, as a result, someone obtains unauthorized access to any data, including our confidential, sensitive, or personal information or the confidential, sensitive, or personal information of our customers or other persons, or any of these types of information is lost, destroyed, or used, altered, disclosed, or acquired without authorization, then our reputation may be damaged, our business may suffer, and we could incur significant liability, including under applicable data privacy and security laws and regulations. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain and receive timely payments from existing customers. Further, we could be required to expend significant capital and other resources to protect against and address any data security incident or breach, which may not be covered or fully covered by our insurance and which may involve payments for investigations, forensic analyses, regulatory compliance, breach notification, legal advice, public relations advice, system repair or replacement, or other services.
While we typically conduct risk assessments of our service providers and/or require them to undertake security measures through contractual provisions, we do not control our service providers, and our ability to monitor their data security is limited. As such, we cannot ensure the security measures they take will be sufficient to protect our confidential, sensitive and personal information. Due to applicable laws and regulations or contractual obligations, we may be held responsible for any cyber-attack or other security-related incident attributed to our service providers regarding the information we share with them and any contractual protections we may have from our service providers may not be sufficient to adequately protect us from any such liabilities and losses.
We, our customers, and our service providers have been the victims of these types of threats, attacks, and security incidents in the past, and we, our customers, and our service providers expect to be victims of such threats, attacks, and security incidents again in the future. We have in the past reported these types of threats, attacks, and security incidents to regulators, affected individuals, customers, and/or other third parties. Moreover, we expect in the future to report data breaches to regulators, affected individuals, customers, and/or other third parties. We cannot guarantee that any future threats, attacks, and security incidents will not have a material impact on our business, reputation, financial conditions, and results of operations.
Although we maintain insurance coverage, the amount of our insurance may not cover the costs associated with any security incident, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. Moreover, there could be public announcements regarding any security-related incidents and any steps we take to respond to or remediate such incidents, if securities analysts or investors perceive these announcements to be negative, could have a material adverse effect on the price of our Class A common stock.
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The security protections and strategies that we implement, and the investigation and remediation efforts we undertake, may not be successful. Any security breach, data loss, or other compromise, including those resulting from a cybersecurity attack, phishing attack, or any unauthorized access, unauthorized usage, virus or similar breach or disruption, whether intentional or inadvertent, could result in the access, public disclosure, loss or theft of our customers’, WSEs’ and corporate employees’ confidential, sensitive and personal information, which could negatively affect our ability to attract new customers, cause existing customers to terminate their agreements with us, result in significant reputational damage and subject us to significant lawsuits, regulatory fines, or other actions or liabilities, any of which could materially and adversely affect our business, financial condition, and results of operations.
Any failure in our business systems could reduce the quality of our business services, which could harm our reputation and expose us to liability.
Our business systems rely on the complex integration of numerous hardware and software subsystems to manage the transactions involved in managing the customer relationship through the processing of employee, payroll and benefits data. These systems can be disrupted by, among other things, equipment failures, computer server or systems failures, network outages, malicious acts, software errors or defects, vendor performance problems and power failures. Any delay or failure in our systems that impairs our ability to communicate electronically with our customers, employees or vendors or our ability to store or process data could harm our reputation and our business. If we are unable to meet customer demands or service expectations, we may lose existing customers and we may have difficulty attracting new customers. In addition, errors in our products and services, such as delays in making payroll, could expose our customers to liability claims from improperly serviced WSEs, for which we might have contractual indemnification obligations.
Our platform, products and solutions are inherently complex and have in the past and may in the future contain bugs, defects, security vulnerabilities, errors, or other performance failures, especially when first introduced, or otherwise not perform as intended. Any such bug, defect, security vulnerability, error, or other performance failure could cause damage to our reputation, loss of customers or revenue, order cancellations, service terminations, and lack of market acceptance of our offerings. As the use of our offerings among new and existing customers expands, particularly to more sensitive, secure, or mission critical uses, we may be subject to increased scrutiny, potential reputational risk, or potential liability should our offerings fail to perform as contemplated in such deployments. We have in the past and may in the future need to issue corrective releases of our software to fix these defects, errors or performance failures, which could require us to allocate significant research and development and customer support resources to address these problems. Despite our efforts, such corrections may take longer to develop and release than we or our customers anticipate and expect.
Any limitation of liability provision contained in an agreement with a customer, user, third-party vendor, service provider, or partner may not be enforceable, adequate or effective as a result of existing or future applicable law or judicial decisions, and may not function to limit our liability arising from regulatory enforcement or other specific circumstances. The sale and support of our offerings entail the risk of liability claims, which could be substantial in light of the use of our offerings in enterprise-wide environments. In addition, our insurance against any such liability may not be adequate to cover a potential claim, and may be subject to exclusions, or subject us to the risk that the insurer will deny coverage as to any future claim or exclude from our coverage such claims in policy renewals, increase our fees or deductibles or impose co-insurance requirements. Any such bugs, defects, security vulnerabilities, errors, or other performance failures in our platform, products or solutions, including as a result of denial of claims by our insurer or the successful assertion of claims by others against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including increases or the imposition of large deductible or co-insurance requirements, could harm our reputation and have a material adverse effect on our business, financial condition, and results of operations. Further, our ability to seek reimbursement from our third party vendors or service providers for damages we incur may be limited by limitation of liability provisions in our agreements with these third parties.
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We have crisis management plans and procedures designed to protect our business against a multitude of events, including natural disasters, military or terrorist actions, power or communication failures, or similar events. Our plans may not be successful in preventing the loss of customer data, service interruptions, and disruptions to our operations, or damage to our important facilities. If we suffer damage to our data or operations centers, experience a telecommunications failure or experiences a security breach, our operations could be interrupted. Any interruption or other loss may not be covered by our insurance and could harm our reputation.
If our systems were to fail for any reason during payroll processing, preventing the proper payment of employees, or the proper remission of payroll taxes, we could be liable for wage payment delay penalties and payroll tax penalties, as well as other contractual penalties. Any inaccuracies in the processing of health insurance benefits could result in liability for lapses in coverage. If any of our systems fails to operate properly or becomes disabled even for a brief period of time, we could suffer financial loss, a disruption of our businesses, liability to customers, regulatory intervention, or damage to our reputation.
We must comply with constantly evolving data privacy and security laws and regulations, which may require substantial costs or changes to our business, and any actual or perceived compliance failure could result in reduced revenue, increased costs, liability claims, regulatory penalties, and damage to our reputation.
We are subject to various federal, state, and local laws, rules, and regulations, as well as contractual obligations, relating to the collection, storage, use, retention, security, disclosure, transfer and other processing of confidential, sensitive and personal information. Existing laws and regulations are constantly evolving, and new laws and regulations that apply to our business are being introduced at every level of government inside and outside of the United States. As we seek to expand our business, we are, and may increasingly become subject to various laws, regulations and standards, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. These laws, regulations and standards are continuously evolving and may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our reputation, business, financial condition, and results of operations.
Many states are considering adopting, or have already adopted, privacy regulations. Such regulations, including the California Consumer Privacy Act (“CCPA”) which came into effect in 2020, provide new data privacy rights for California consumers and new operational requirements for covered companies. Specifically, the CCPA mandates that covered companies provide new disclosures to California consumers and afford such consumers new data privacy rights that include, among other things, the right to request a copy from a covered company of the personal information collected about them, the right to request deletion of such personal information, and the right to request to opt-out of certain sales of such personal information. The California Attorney General can enforce the CCPA, including seeking an injunction and civil penalties for violations. The CCPA also provides a private right of action for certain data breaches that is expected to increase data breach litigation. Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by California voters in the November 3, 2020 election. The CPRA generally takes effect on January 1, 2023 and significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Moreover, on March 2, 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”). The VCDPA creates consumer rights, similar to the CCPA, but also imposes security and assessment requirements for businesses. In addition, on July 7, 2021, Colorado enacted the Colorado Privacy Act (“COCPA”), becoming the third comprehensive consumer privacy law to be passed in the United States (after the CCPA and VCDPA). The COCPA closely resembles the VCDPA, and will be enforced by the respective states’ Attorney General and district attorneys, although the two differ in many ways and once they become enforceable in 2023, we must comply with each if our operations fall within the scope of these newly enacted comprehensive mandates. Personal information
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we handle may be subject to the CCPA, CPRA, VCDPA, and COCPA, which may increase our compliance costs and potential liability. Similar laws have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. Furthermore, due to the nature of our business and operations, we have interpreted laws in other jurisdictions, such as the General Data Protection Regulation, as not applying to us; however, such interpretations may prove incorrect and/or as our business evolves, we may become subject to such laws, leading to risks of noncompliance and increased compliance costs. This legislation may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, could impact strategies and availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.
Our communications with our customers are subject to certain laws and regulations, including the Telephone Consumer Protection Act of 1991 (the “TCPA”), the Controlling the Assault of Non-Solicited Pornography and Marketing (“CAN-SPAM”) Act of 2003, and the Telemarketing Sales Rule and analogous state laws, that could expose us to significant damages awards, fines and other penalties that could materially impact our business. For example, the Telephone Consumer Protection Act, or TCPA, is a federal law that imposes significant restrictions on the ability to make telephone calls or send text messages to mobile telephone numbers without the prior consent of the person being contacted. The TCPA provides for substantial statutory damages for violations, which has generated extensive class-action litigation. In addition, class-action plaintiffs in the United States are employing novel legal theories to allege that federal and state eavesdropping/wiretapping laws and state constitutions prohibit the use of analytics technologies widely employed by website and mobile app operators to understand how their users interact with their services. The CAN-SPAM Act and the Telemarketing Sales Rule and analogous state laws also impose various restrictions on marketing conducted use of email, telephone, fax or text message. As laws and regulations, including FTC enforcement, rapidly evolve to govern the use of these communications and marketing platforms, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations could adversely impact our business, financial condition, and results of operations or subject us to fines or other penalties.
In addition, the FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Our failure to take any steps perceived by the FTC as appropriate to protect consumers’ personal information may result in claims by the FTC that we have engaged in unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act. State consumer protection laws provide similar causes of action for unfair or deceptive practices for alleged privacy, data protection, and data security violations.
Further, some laws may require us to notify governmental authorities and/or affected individuals of data breaches involving certain personal information or other unauthorized or inadvertent access to or disclosure of such information. For example, laws in all 50 U.S. states may require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach may be difficult and costly. We also may be contractually required to notify consumers or other counterparties of a security breach. Regardless of our contractual protections, any actual or perceived security breach or breach of our contractual obligations could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.
We make public statements about our use and disclosure of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices. Any concerns about our data privacy
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and security practices, even if unfounded, could damage the reputation of our business and harm our business, financial condition, and results of operations.
We rely on vendors to handle Payment Card Industry Data Security Standards (“PCI DSS”) matters and to ensure compliance with PCI DSS based on past, present, and future business practices. Despite our compliance efforts, we may become subject to claims that we have violated the PCI DSS requirements, which could subject us to substantial fines, termination of banking relationships, and increased transaction fees. In addition, there is no guarantee that PCI DSS compliance will prevent illegal or improper use of our payment systems or the theft, loss or misuse of payment card data or transaction information.
Despite our efforts, we may not be successful in complying with the rapidly evolving privacy, data protection, and data security requirements discussed above. Any failure or perceived failure by us to comply with our posted privacy policies, our privacy-related obligations to users or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or data security, may result in governmental investigations or enforcement actions, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, other obligations, and policies that are applicable to the businesses of our users may limit the adoption and use of, and reduce the overall demand for, our platform. Additionally, if third parties we work with violate applicable laws, regulations or contractual obligations, such violations may put our users’ data at risk, could result in governmental investigations or enforcement actions, fines, litigation, claims, or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our users to lose trust in us, and otherwise materially and adversely affect our reputation and business. Further, public scrutiny of, or complaints about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry or operations, may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks. Any of the foregoing could materially and adversely affect our business, financial condition, and results of operations.
Risks Related to Our Intellectual Property
Inability to protect, or the misappropriation or misuse of, our intellectual property could harm our reputation, affect our competitive position, and cost us money.
We believe the protection of our intellectual property is critical to our success. In addition to the JUSTWORKS trademark and trade secrets and unregistered copyrights in our proprietary software, we also currently hold various web domain names, including www.justworks.com, which are critical to the operation of our business and the promotion of our brands. We seek to protect our intellectual property rights by relying on applicable laws and regulations in the United States; however, we may not be able to prevent third parties from infringing or misappropriating our intellectual property or deter independent development of equivalent or superior intellectual property rights by others. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services, including confidentiality, work-for-hire and invention assignment agreements entered into with our employees, consultants and contractors and confidentiality agreements with parties with whom we conduct business; however, we may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. Furthermore, our efforts to enforce our rights in our intellectual property may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our rights, which may be successful. Any failure to adequately protect or enforce our intellectual property rights, or significant costs incurred in doing so, could materially harm our business, financial condition, and results of operations.
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Our products and services may infringe or be alleged to infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products and services. Moreover, from time to time we may hire employees previously employed by competitors, which may subject us to claims that such employees have wrongfully divulged intellectual property or confidential information belonging to such competitors.
The markets in which we operate and compete are characterized by large numbers of patents, copyrights, trademarks, trade secrets, and other intellectual property rights, and by litigation based on allegations of infringement or other violations of intellectual property or other proprietary rights. Furthermore, it is common for individuals and groups to purchase patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. We cannot guarantee that on the basis of our internally developed or acquired software and other intellectual property we use in our operations, products and services we will not be accused of infringing or misappropriating the intellectual property rights of others. In such regard, it is notable that we use certain software and products licensed or purchased from third parties, which software and products may be subject to claims of infringement or misappropriation. The licensors or other third parties from whom we obtained such software and products may not be required to indemnify us fully or at all from such claims. Any intellectual property-related infringement or misappropriation claims, whether or not meritorious, could result in costly litigation and divert management resources and attention. Such claims could force us to enter into licensing agreements, which may not be available on commercially reasonable terms, pay substantial damages, or limit or curtail our operations, products and services. Furthermore, we may need to redesign our operations, products or services to avoid future infringement liability. Any of the foregoing could prevent us from competing effectively and increase our costs.
Finally, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged their former employers’ proprietary or other confidential information or incorporated such information into our products, which could include claims that such former employers therefore own or otherwise have rights to their inventions or other work product developed while employed by us.
We rely on third party software, including open source software, in our operations, products and services, and as such we are subject to certain risks and restrictions.
Certain of our internal operations, as well as our products and services include software of third parties, which we license under agreements that may need to be renewed or renegotiated from time to time. We may not be able to obtain licenses to such software on reasonable terms, or at all. If we are unable to obtain the rights necessary to use this software, we may not be able to continue our internal operations, or to sell the affected products and services, and customers who are currently using the affected products and services may be disrupted, which may in turn harm our future financial results, damage our brand, and result in customer loss. In our internal operations, and in our products and services, we use third party software that is licensed under “open source” licenses, some of which may include a requirement that, under certain circumstances, we make available, or grant licenses to, any modifications or derivative works we create based upon the open source software, in particular if we deploy our software to a customer site. We cannot be sure that all open source software is submitted for approval prior to use in our products and services. Some of the risks and restrictions associated with usage of open source may not be eliminated, and may, if not properly addressed, harm our business.
Risks Related to this Offering and Ownership of Our Class A Common Stock
There has been no prior public market for our Class A common stock. An active market may not develop or be sustainable, and you may not be able to resell your shares at or above the initial public offering price.
There has been no public market for our Class A common stock prior to this offering. The initial public offering price for our Class A common stock was determined through negotiations between us and the
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underwriters and may vary from the market price of our Class A common stock following the completion of this offering. An active or liquid market in our Class A common stock may not develop upon completion of this offering or, if it does develop, it may not be sustainable. In the absence of an active trading market for our Class A common stock, you may not be able to resell any shares you hold at or above the initial public offering price or at all. We cannot predict the prices at which our Class A common stock will trade.
Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors purchasing shares in this offering.
The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
•actual or anticipated fluctuations in our financial condition and results of operations;
•the projections we may provide to the public, any changes in these projections, or our failure to meet these projections;
•failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;
•announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations, or capital commitments, whether or not they are successfully consummated;
•changes in stock market valuations and operating performance of other PEOs generally, or those in the payroll and benefits administration industry in particular;
•price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
•changes in our board of directors or management, or any actions by our directors or management that damages our reputation or the image of our brands;
•sales of large blocks of our Class A common stock, including sales by certain affiliates of Redpoint Omega, Bain Capital Ventures, Index Ventures, and Thrive Capital, our founder or our executive officers and directors;
•lawsuits threatened or filed against us;
•actions taken or threatened by any regulatory or government agency;
•anticipated or actual changes in laws, regulations or government policies applicable to our business;
•changes in our capital structure, such as future issuances of debt or equity securities;
•short sales, hedging. and other derivative transactions involving our capital stock;
•general economic conditions around the world, particularly in the United States;
•other events or factors, including those resulting from war, pandemics (including COVID-19), incidents of terrorism, or responses to these events; and
•the other factors described in the sections of this prospectus titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
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The stock market has recently experienced extreme price and volume fluctuations. The market prices of securities of companies have experienced fluctuations that often have been unrelated or disproportionate to their results of operations. Market fluctuations could result in extreme volatility in the price of shares of our Class A common stock, which could cause a decline in the value of your investment. Price volatility may be greater if the public float and trading volume of shares of our Class A common stock are low. Furthermore, in the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management’s attention and resources, and harm our business, financial condition, and results of operations.
Sales, directly or indirectly, of a substantial amount of our Class A common stock in the public markets by our existing security holders may cause the price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers and principal stockholders, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline. Many of our existing security holders have substantial unrecognized gains on the value of the equity they hold, and may take steps to sell their shares or otherwise secure or limit their risk exposure to the value of their unrecognized gains on those shares. We are unable to predict the timing or effect of such sales on the market price of our Class A common stock.
All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, except that any shares held by our affiliates, as defined in Rule 144 under the Securities Act (“Rule 144”), would only be able to be sold in compliance with Rule 144 and any applicable lock up agreements described below.
In connection with this offering, we, all of our directors and executive officers and holders of substantially all of our outstanding securities have entered into market standoff agreements with us or lock-up agreements with the underwriters that restrict our and their ability to sell or transfer shares of our capital stock for a period of 180 days from the date of this prospectus, subject to certain exceptions and certain provisions that provide for the automatic early release of certain shares. See “Shares Eligible for Future Sale” for a discussion of such exceptions and of the early release provisions that would allow for sales during the 180-day period. In addition, we and Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, and BofA Securities, Inc. may release certain stockholders from the market standoff agreements or lock-up agreements prior to the end of the lock-up period. If not otherwise released early, when the applicable market standoff and lock-up periods expire, we and our security holders subject to a lock-up agreement or market standoff agreement will be able to sell our shares freely in the public market, except that any shares held by our affiliates, as defined in Rule 144, would only be able to be sold in compliance with Rule 144. Sales of a substantial number of such shares upon expiration of the lock-up and market standoff agreements, or the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.
In addition, as of November 30, 2021, we had stock options outstanding that, if fully exercised, would result in the issuance of 13,013,737 shares of common stock. In connection with this offering, we also intend to grant the Founder Award, IPO Options, and IPO RSUs, which, if fully exercised or vested and settled, as applicable, would result in the issuance of 1,871,219 shares of common stock. See “Prospectus Summary—The Offering” for additional information regarding the shares of common stock issuable upon exercise of such stock options and upon vesting and settlement of such RSUs. All of the shares of common stock issuable upon the exercise of stock options, and the shares reserved for future issuance under our equity incentive plans, will be registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance subject to existing lock-up or market standoff agreements and applicable vesting requirements.
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Further, based on shares outstanding as of November 30, 2021, holders of 53,036,022 shares of our common stock (including certain shares of common stock issuable upon exercise of stock options) will have rights after the completion of this offering, subject to certain conditions, to require us to file registration statements for the public resale of such shares or to include such shares in registration statements that we may file for us or other stockholders.
We anticipate incurring substantial stock-based compensation expense related to the Founder Award, which may have an adverse effect on our financial condition and results of operations and may result in substantial dilution.
In light of the long-term performance-based stock option award that we intend to grant to Isaac Oates, our Founder and Chief Executive Officer, in connection with this offering, which we refer to as the Founder Award, we anticipate that we will incur substantial stock-based compensation expense. The Founder Award covers 1,600,000 shares of Class A common stock and will be eligible to vest based on both (a) the achievement of pre-determined stock price goals, ranging from 1.2 to four times the initial public offering price per share of our Class A common stock, over a five-year period following this offering (the “Performance Condition”) and (b) Mr. Oates’ continued employment with the Company as Chief Executive Officer (the “Service Condition”).
The Performance Condition of the Founder Award will be satisfied in ten equivalent tranches (each consisting of 160,000 shares of Class A common stock covered by the Founder Award) upon the achievement of such stock price thresholds (measured based upon a volume-weighted average stock price over 60 days) prior to the fifth anniversary of this offering. To the extent the Performance Condition of any tranche is not satisfied by the fifth anniversary of this offering, it will be forfeited. The Service Condition of the Founder Award will be satisfied with respect to each tranche upon Mr. Oates’ continued employment as our Chief Executive Officer for a specified number of months following this offering.
Each tranche of the Founder Award will only vest upon achievement of both its Performance Condition and Service Condition. Mr. Oates will also be required to hold vested options (or, if exercised, the underlying shares of Class A common stock) for a one-year period commencing on the vesting date. The Founder Award is subject to certain acceleration terms, including in the event of a Change in Control (as defined below). Upon termination of Mr. Oates’ employment as our Chief Executive Officer for any reason, any unvested portion of the Founder Award will be forfeited. In the event of termination of Mr. Oates’ employment as our Chief Executive Officer by us without cause or by Mr. Oates for good reason or due to his disability or death, the one-year post-vesting holding requirement described above will be waived and will no longer apply, and the Founder Award will be subject to the terms and conditions of our Executive Severance Policy, as described in the section titled “Executive and Director Compensation.” In the event of termination of Mr. Oates’ employment as our Chief Executive Officer by us for cause, all of the options of the Founder Award, whether or not vested, will be forfeited.
We expect that the stock-based compensation expense related to the Founder Award will be at least $15.0 million and will be recognized over the period of time the Performance Condition for each tranche is expected to be satisfied (i.e., the derived service period). We expect the stock-based compensation expense relating to the Founder Award to adversely impact our future financial results. In addition, to the extent the Performance Conditions and Service Conditions of the Founder Award are satisfied, a potentially large number of shares of Class A common stock will be issuable upon the exercise of the applicable stock options, which would dilute your ownership interest in the Company. For additional information regarding the Founder Award, please see the section titled “Executive and Director Compensation.”
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The dual class structure of our common stock will have the effect of concentrating voting control with holders of our Class B common stock, including our Founder, for the foreseeable future, which will limit the ability of our other investors to influence corporate matters, including the election of directors and the approval of any change of control transaction.
Upon completion of this offering, our Class B common stock will have ten votes per share, and our Class A common stock will have one vote per share. Following this offering, and without giving effect to any purchases that may be made in this offering, the holders of our outstanding Class B common stock, which will include former holders of certain series of our preferred stock and our Founder, after giving effect to the Preferred Stock Conversion, will beneficially own approximately 69.2% of our outstanding capital stock and hold approximately 95.7% of the voting power of our outstanding capital stock (or 68.1% and 95.5%, respectively, if the underwriters exercise their option to purchase additional shares of our Class A common stock in full). Because of the ten-to-one voting ratio between our Class B common stock and Class A common stock, the holders of Class B common stock collectively will control over a majority of the combined voting power of all of our Class A common stock and Class B common stock and therefore will be able to control substantially all matters submitted to our stockholders for approval until a significant portion of such shares of outstanding Class B common stock have been converted to shares of Class A common stock as further described in “Description of Capital Stock.” This concentrated control will limit or preclude the ability of our other investors to influence corporate matters for the foreseeable future. For example, holders of our Class B common stock will have sufficient voting power to determine the outcome with respect to elections of directors, amendments to our certificate of incorporation, amendments to our bylaws that are subject to a stockholder vote, increases to the number of shares available for issuance under our equity incentive plans or adoption of new equity incentive plans, and approval of any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction requiring stockholder approval for the foreseeable future. In addition, this concentrated control may also prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders. This control may also adversely affect the market price of our Class A common stock.
Because the interests of the holders of our Class B common stock may differ from those of our other stockholders, actions that such holders take with respect to us, as significant stockholders, may not be favorable to our other stockholders, including holders of our Class A common stock who purchase shares in this offering.
The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with dual class or multi-class share structures in certain of their indexes. In July 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares of common stock from being added to these indices. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. As a result, our dual class capital structure would make us ineligible for inclusion in any of these indices, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our stock. These policies are still fairly new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Furthermore, we cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make our
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Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.
We are an “emerging growth company,” and our compliance with the reduced reporting and disclosure requirements applicable to “emerging growth companies” may make our Class A common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These provisions include, but are not limited to: requiring only two years of audited financial statements and only two years of related selected financial data and management’s discussion and analysis of financial condition and results of operations disclosures; being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved.
In addition, while we are an “emerging growth company,” we will not be required to comply with any new financial accounting standard until such standard is generally applicable to private companies. As a result, our financial statements may not be comparable to companies that are not “emerging growth companies” or elect not to avail themselves of this provision.
We may remain an “emerging growth company” until as late as May 31, 2027, the fiscal year-end following the fifth anniversary of the completion of this initial public offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including if (1) we have more than $1.07 billion in annual net revenues in any fiscal year, (2) we become a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year or (3) we issue more than $1.0 billion of non-convertible debt over a three-year period.
The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our Class A common stock less attractive to the extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may decline or become more volatile.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.
The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market, and our competitors. We do not have any control over these analysts. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our stock price and trading volume to decline.
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Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.
The assumed initial public offering price of our Class A common stock of $30.50 per share (which is the midpoint of the price range set forth on the cover page of this prospectus) is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our Class A common stock in this offering, you will incur immediate dilution of $26.29 in the pro forma as adjusted net tangible book value per share from the price you paid assuming that stock price. In addition, following this offering, purchasers who bought shares from us in this offering will have contributed 54% of the total consideration paid to us by our stockholders to purchase 7,000,000 shares of common stock in this offering, in exchange for acquiring approximately 11% of our total outstanding shares as of August 31, 2021, after giving effect to this offering. If the underwriters exercise their option to purchase additional shares, if we issue any additional stock options or warrants or any outstanding stock options are exercised, if RSUs are settled, or if we issue any other securities or convertible debt in the future, investors will experience further dilution.
We will have broad discretion in the use of the net proceeds we receive in this offering and may not use them in ways that prove to be effective.
We will have broad discretion in the application of the net proceeds we receive in this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use and it is possible that a substantial portion of the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, and results of operations could be harmed, and the market price for our Class A common stock could decline.
We do not intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not expect to declare or pay any dividends in the foreseeable future. Moreover, the terms of our existing credit facility restrict our ability to pay dividends, and any additional debt we may incur in the future may include similar restrictions. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock. As a result, stockholders 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 investment.
Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest more difficult, limit attempts by our stockholders to replace or remove our current management and depress the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that will become effective immediately prior to the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of us or tender offer that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our Class A common stock, thereby depressing the market price of our Class A common stock. In addition, 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. Because our board of directors is responsible for appointing the members of our
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management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include that:
•restrict the forum for certain litigation against us to Delaware or the federal courts, as applicable;
•subject to the rights of the holders of any series of our preferred stock to elect directors, our board of directors has the exclusive right to expand the size of our board of directors and to elect directors to fill newly created directorships and vacancies created by the death, disability, resignation, disqualification or removal of directors or from any other cause, which prevents stockholders from being able to fill vacancies on our board of directors;
•subject to the rights of the holders of any series of our preferred stock to elect directors, our board of directors is divided into three classes, Class I, Class II, and Class III, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;
•subject to the rights of the holders of any series of our preferred stock, our stockholders may not act by written consent, which requires all stockholder action to be taken at an annual or special meeting of our stockholders;
•a special meeting of stockholders may be called only by or at the direction of the chair of the board of directors, the chief executive officer, the lead independent director, or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
•our amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
•our board of directors may amend our bylaws without obtaining stockholder approval;
•the approval of the holders of at least two-thirds of the outstanding voting power of the shares entitled to vote generally at an election of directors, voting together as a single class, is required for stockholders to adopt, amend or repeal our amended and restated bylaws;
•the approval of the holders of at least two-thirds of the outstanding voting power of the shares entitled to vote generally at an election of directors, voting together as a single class, is required to amend certain provisions of our amended and restated certificate of incorporation, including provisions relating to the amendment of terms of our common stock, the classified board of directors, the size of our board of directors, the removal of directors, the filling of vacancies on our board of directors, the calling of special meetings of stockholders, actions by written consent of stockholders, limitation of liability of directors, indemnification of officers and directors, and the choice of forum relating to certain legal actions;
•stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and
•our board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”) which generally prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three
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years after the time of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Our amended and restated certificate of incorporation will provide that, subject to limited exceptions, the state and federal courts (as appropriate) located within the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, (A)(i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, other employees, or stockholders to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended or restated) or as to which the DGCL confers exclusive jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware, shall be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware, and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, the exclusive forum provision shall not apply to claims seeking to enforce any liability or duty created by the Exchange Act.
The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation. Our exclusive forum provision shall not relieve the Company of its duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules, and regulations.
We have identified a material weakness in our internal control over financial reporting. If we experience material weaknesses in the future or otherwise fail to implement and maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us, and as a result, the value of our Class A common stock.
As a privately-held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act (“Section 404”). As a public company, we will be subject to significant requirements for enhanced financial reporting and internal controls. The process of designing and implementing effective internal controls 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 system of internal controls that is adequate to satisfy our reporting obligations as a public company. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report following the completion of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies in internal control over
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financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis.
The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business. Once we are no longer an “emerging growth company,” our auditors will be required to issue an attestation report on the effectiveness of our internal controls on an annual basis.
In the course of preparing the financial statements that are included in this prospectus, management has determined that a material weakness exists within the internal controls over financial reporting. The material weakness identified relates to (i) information technology general controls, in the areas of user access and program change management, over our key accounting and reporting systems, and (ii) certain controls within our financial reporting processes supporting timely reconciliations, analysis of certain key accounts, the review of journal entries, as well as, controls to address segregation of certain accounting duties. We concluded that the material weakness in our internal control over financial reporting occurred because, prior to this offering, we were a private company and did not have the necessary business processes, systems, personnel, and related internal controls necessary to satisfy the accounting and financial reporting requirements of a public company.
In order to remediate the material weakness, we have hired additional accounting and finance resources with public company experience and intend to continue to hire additional resources. We have also implemented and intend to continue to implement additional review controls and processes that require timely account reconciliations and analyses; IT general controls to manage access and program changes within our IT environment; and processes and controls to better identify and manage risks associated with segregation of duties. Furthermore, we have engaged a third-party specialist to assist with evaluating and documenting the design and operating effectiveness of our internal controls over financial reporting and to generally assist with these remediation efforts, including implementation of new controls and processes.
We will not be able to fully remediate the identified material weakness until the ongoing steps described above have been completed and our internal controls have been operating effectively for a sufficient period of time. We believe we will make significant progress in our remediation plan within fiscal year 2023, but cannot assure you that we will be able to fully remediate the material weakness by such time. We also may incur significant costs to execute various aspects of our remediation plan but cannot provide a reasonable estimate of such costs at this time.
In accordance with the provisions of the JOBS Act, we and our independent registered public accounting firm were not required to, and did not, perform an evaluation of our internal control over financial reporting as of May 31, 2021 nor any period subsequent in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, we cannot assure you that we have identified all material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act after the completion of this offering.
In the future, it is possible that additional material weaknesses or significant deficiencies may be identified that we may be unable to remedy before the requisite deadline for these reports. Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. Any weaknesses or deficiencies or any failure to implement new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, or result in material misstatements in our consolidated financial statements, which could adversely affect our business and reduce our stock price.
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If we are unable to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404, our independent registered public accounting firm may not issue an unqualified opinion. If either we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our Class A common stock. 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.
General Risk Factors
Our management team has limited experience managing a public company, and the requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain qualified board members.
As a public company listed in the United States, we will incur significant additional legal, accounting, and other expenses. In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and Nasdaq, may increase legal and financial compliance costs, and make some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.
Most members of our management team have no experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. Furthermore, we are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to establish the corporate infrastructure required of a public company and to comply with evolving laws, regulations, and standards are likely to divert management’s time and attention away from revenue-generating activities to compliance activities, which may prevent us from implementing our business strategy and growing our business. Moreover, we may not be successful in implementing these requirements. If we do not effectively and efficiently manage our transition into a public company and continue to develop and implement the right processes and tools to manage our changing enterprise and maintain our culture, our ability to compete successfully and achieve our business objectives could be impaired, which could negatively impact our business, financial condition, and results of operations.
Additionally, as a public company, we may from time to time be subject to proposals by stockholders urging us to take certain corporate actions. If activist stockholder activity ensues, we may be required to incur additional costs to retain the services of professional advisors, management time and attention will be diverted from our core business operations, and perceived uncertainties as to our future direction, strategy or leadership may cause us to lose potential business opportunities and impair our brand and reputation, any of which could materially and adversely affect our business, financial condition, and results of operations.
In addition to increasing our legal and financial compliance costs, the additional rules and regulations described above might also make it more difficult for us to obtain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of our senior management team.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below the expectations of
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our investors and securities analysts, resulting in a decline in the trading price of our common stock.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on many factors, including historical experience and various other assumptions that we believe to be reasonable under the circumstances, as discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
Our reported financial results may be negatively impacted by changes in GAAP and financial reporting requirements.
GAAP and related financial reporting requirements are complex, continually evolving and may be subject to varied interpretation by the relevant authoritative bodies, including the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. FASB has in the past issued new or revised accounting standards that superseded existing guidance and significantly impacted the reporting of financial results. Any future change in GAAP and financial reporting requirements or interpretations could also have a significant effect on our reported financial results, and may even affect the reporting of past transactions completed before the announcement or effectiveness of a change if retrospective adoption is required. It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could negatively affect our reported results of operations.
We are, and may in the future be, subject to legal proceedings in the ordinary course of our business. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, financial condition, and results of operations.
We are subject to various litigation matters from time to time, the outcome of which could have a material adverse effect on our business, financial condition, and results of operations. Claims arising out of actual or alleged violations of law could be asserted against us by individuals, either individually or through class actions, by governmental entities in civil or criminal investigations and proceedings or by other entities. These claims could be asserted under a variety of laws, including but not limited to consumer finance laws, consumer protection laws, environmental laws, intellectual property laws, privacy laws, labor and employment laws, securities laws and employee benefit laws. Claims may also arise out of actual or alleged breaches of contract or other actual or alleged acts or omissions by or on behalf of us. These actions could expose us to adverse publicity and to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties, including but not limited to suspension or revocation of licenses to conduct business. Even if we are successful in defending against legal claims, litigation could result in substantial costs and demand on management resources. See “Business—Legal Proceedings.”
Failure to comply with anti-bribery, anti-corruption, anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.
If we further expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. Our business activities may be subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act and other anti-bribery and anti-money laundering laws in countries outside of the
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United States in which we conduct our activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. The FCPA generally prohibits companies and their employees and third party intermediaries from offering, promising, giving or authorizing the provision of anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments.
Any actual or alleged violation of the FCPA or other applicable anti-bribery, anti-corruption or anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, any of which would adversely affect our reputation, as well as our business, financial condition, results of operations, and growth prospects. Responding to any investigation or action would likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. In addition, the U.S. government may seek to hold us liable for successor liability for FCPA violations committed by companies in which we invest or that we acquire.
The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, or at all.
The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate. Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including as a result of any of the risks described in this prospectus.
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 customers covered by our market opportunity estimates will purchase our products at all or generate any particular level of revenue for us. In addition, our ability to expand in any of our target markets depends on a number of factors, including the cost, performance and perceived value associated with our products and traditional medical apparel. Even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.
Our insurance may not provide adequate coverage against claims.
We believe that we maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot or may not be insured against or that we believe are not economically reasonable to insure. Moreover, any loss incurred could exceed policy limits and policy payments made to us may not be made on a timely basis. In addition, some of our agreements with our suppliers may not indemnify us from product liability for a particular supplier’s merchandise or our suppliers may not have sufficient resources or insurance to satisfy their indemnity and defense obligations.
We will incur significant additional costs as a result of being a public company.
Upon completion of this offering, we expect to incur increased costs associated with corporate governance requirements that will become applicable to us as a public company, including rules and
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regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010, and the Exchange Act, as well as the rules of the Nasdaq. These rules and regulations are expected to significantly increase our accounting, legal and financial compliance costs and make some activities more time consuming. We expect such expenses to further increase after we are no longer an “emerging growth company.” We also expect these rules and regulations to make it more expensive for us to maintain directors’ and officers’ liability insurance. If we fail to maintain sufficient levels of such insurance, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We cannot predict or estimate the amount of additional costs we will incur as a public company or the timing of such costs.
Our business is subject to the risk of earthquakes, fire, power outages, floods, and other catastrophic events, and to interruption by man-made events such as terrorism.
Our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins, and similar events. The third-party systems and operations and suppliers and service providers we rely on are subject to similar risks. For example, a significant natural disaster, such as an earthquake, fire, or flood, could have an adverse effect on our business, financial condition, and results of operation, and our insurance coverage may be insufficient to compensate us for losses that may occur. Acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could also cause disruptions in our or our customers’ businesses or the economy as a whole. We may not have sufficient protection or recovery plans in some circumstances, such as natural disasters affecting locations that store significant inventory of our products. Any prolonged disruption of operations, whether due to technical, information systems, communication networks, strikes, accidents, weather conditions or other natural disasters, the COVID-19 pandemic or otherwise, whether short- or long-term, would materially and adversely affect our business, financial condition, and results of operations.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “goal,” “objective,” “seeks,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Risk Factors” and the following issues:
•SMBs may be unwilling to outsource their payroll administration and human resources support to a third-party service provider;
•our ability to compete successfully against existing and future competitors in the PEO industry;
•our ability to manage our growth effectively;
•our ability to maintain our company culture as we expand;
•pandemics, epidemics, or disease outbreaks, such as the COVID-19 pandemic;
•our ability to keep pace with technological and competitive developments and develop, or otherwise introduce new products and solutions and enhancements to our existing offerings;
•we may not be successful in our efforts to make acquisitions and successfully integrate newly acquired businesses or products in the future;
•risks associated with our co-employment relationship of worksite employees and the possible liability we may be subject to as a result of such relationships;
•our dependence on existing subscription customers, as well as our need to increase sales of our subscriptions to new customers;
•our dependence on our current management team and other key employees, and our inability to attract and retain highly skilled employees;
•our ability to develop and expand our marketing and sales capabilities and our ability to maintain consumer awareness of our brand;
•fluctuations in the sales prices of our products and solutions;
•the adequacy of our customer support;
•our need for and ability to obtain additional financing to achieve our goals;
•complying with new and existing state and federal laws, especially relating to laws and regulations that govern what it means to be an employer or an employee, and uncertainty as to the application of these laws to us and our customers;
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•losing recognition as an employer of worksite employees under federal and state laws and regulations, or for ERISA purposes;
•our reliance on third-party service providers that could experience a security breach, data loss, or other compromise, including if unauthorized parties obtain access to our customers’ data;
•our reliance on information technology systems, and any real or perceived bug, defect, security vulnerability, error, or other performance failure involving our platform, products or solutions;
•complying with laws and regulations relating to data privacy, data protection, advertising, and consumer protection;
•our ability to protect our proprietary technology, or to obtain, maintain, protect, and enforce sufficiently broad intellectual property rights therein;
•our reliance on third party software, including open source software, in our products and services;
•our dual class structure of our common stock; and
•risks related to our status as an emerging growth company.
Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.
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MARKET AND INDUSTRY DATA
This prospectus contains estimates, projections and other information concerning our industry and our business, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from sources which we paid for, sponsored or conducted, unless otherwise expressly stated or the context otherwise requires. While we have compiled, extracted and reproduced industry data from these sources, we have not independently verified the data. Forecasts and other forward-looking information with respect to industry, business, market and other data are subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this prospectus. See “Special Note Regarding Forward-Looking Statements.”
In particular, certain information identified in this prospectus is contained in the following independent industry publications or reports:
•Gartner Press Release, Gartner Says Millennials and Gen Z Customers Prefer Third-Party Customer Service Channels, April 2021
•MarketsandMarkets, Digital Workplace Market by Component (Solutions Unified Communication and Collaboration, Unified Endpoint Management, Enterprise Mobility and Management and Services), Deployment, Organization Size, Vertical, and Region - Global Forecast to 2026
The Gartner content described herein (the “Gartner Content”) represents research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. Gartner Content speaks as of its original publication date (and not as of the date of this prospectus), and the opinions expressed in the Gartner Content are subject to change without notice.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of approximately $195.1 million (or $225.1 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full), based on an assumed initial public offering price of $30.50 per share (which is the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease the net proceeds to us from this offering by approximately $6.6 million, assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1,000,000 share increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease the net proceeds to us from this offering by approximately $28.6 million, assuming that the initial public offering price per share remains at $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock, and enable access to the public equity markets for us and our stockholders. We intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. We may also use a portion of the net proceeds to acquire or make investments in businesses, products, offerings and technologies, although we do not have agreements or commitments for any material acquisitions or investments at this time.
The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions. We cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. Accordingly, our management will have broad discretion in applying the net proceeds of this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term investments, interest-bearing investments, investment-grade securities, government securities and money market funds.
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DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments. In addition, our Credit Agreement contains restrictions on our ability to pay cash dividends on our capital stock. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities” for additional information.
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CAPITALIZATION
The following table sets forth cash and cash equivalents and capitalization as of August 31, 2021, as follows:
•on an actual basis;
•on a pro forma basis, giving effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the completion of this offering, and (ii) the Preferred Stock Conversion; and
•on a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance of 7,000,000 shares of our Class A common stock in this offering at an assumed initial public offering price of $30.50 per share (which is the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The information below is illustrative only. Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and related notes, and the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.
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As of August 31, 2021
ActualPro FormaPro Forma As
Adjusted
(in millions, except share amounts
and par values)

(Unaudited)
Cash and cash equivalents
$109.9 $109.9 $306.1 
Long-term debt
14.8 14.8 14.8 
Redeemable convertible preferred stock, $0.0005 par value: 71,465,641 shares authorized, 40,577,516 shares issued and outstanding, actual; no shares authorized, issued, and outstanding, pro forma and pro forma as adjusted
147.1 — — 
Stockholders’ deficit:
Preferred stock, par value $0.0005 per share; no shares authorized, issued, and outstanding, actual; 20,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted
— — — 
Class A common stock, par value $0.0005 per share; 67,000,000 shares authorized, 3,387,693 shares issued and 3,341,371 shares outstanding, actual; 400,000,000 shares authorized, 13,208,657 shares issued and 13,162,335 shares outstanding, pro forma; 400,000,000 shares authorized, 20,208,657 shares issued and 20,162,335 shares outstanding, pro forma as adjusted
— — — 
Class B common stock, par value $0.0005 per share; 47,732,649 shares authorized, 11,351,737 shares issued and 11,246,898 shares outstanding, actual; 50,000,000 shares authorized, 42,108,289 shares issued and 42,003,450 shares outstanding, pro forma; 50,000,000 shares authorized, 42,108,289 shares issued and 42,003,450 shares outstanding, pro forma as adjusted
— — — 
Additional paid-in capital
28.7 175.8 370.9 
Accumulated deficit
(74.2)(74.2)(74.2)
Total stockholders’ deficit
(45.5)101.6 296.7 
Total capitalization
$226.3 $226.3 $617.6 
Each $1.00 increase or decrease in the assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ deficit, and total capitalization by approximately $6.6 million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1,000,000 share increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease, as applicable, the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ deficit, and total capitalization by $28.6 million, assuming that the initial public offering price per share remains at $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus), and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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DILUTION
If you invest in our Class A common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of Class A common stock and the pro forma as adjusted net tangible book value per share of Class A common stock immediately after this offering.
Our historical net tangible book value as of August 31, 2021 was negative $80.4 million or negative $5.51 per share. Our historical net tangible book value per share represents total tangible assets less total liabilities and convertible preferred stock, divided by the number of shares of our Class A common stock and Class B common stock outstanding as of August 31, 2021.
Our pro forma net tangible book value as of August 31, 2021 was $66.7 million, or $1.21 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of our shares of our Class A common stock and Class B common stock outstanding as of August 31, 2021, after giving effect to (i) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the completion of this offering and (ii) the Preferred Stock Conversion.
After giving further effect to receipt of the net proceeds from our issuance and sale of 7,000,000 shares of Class A common stock in this offering at an assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of August 31, 2021 would have been approximately $261.8 million, or $4.21 per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $3.00 per share to our existing stockholders and an immediate dilution of approximately $26.29 per share to new investors purchasing Class A common stock in this offering.
We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors for a share of Class A common stock. The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share of Class A common stock$30.50 
Historical net tangible book value per share as of August 31, 2021
$(5.51)
Increase per share attributable to the pro forma adjustments described above
$6.72 
Pro forma net tangible book value per share as of August 31, 2021
$1.21 
Increase in pro forma net tangible book value per share attributable to new investors purchasing Class A common stock in this offering
$3.00 
Pro forma as adjusted net tangible book value per share immediately after this offering$4.21 
Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering$26.29 
The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. Each $1.00 increase or decrease in the assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share after this offering by $0.11 per share and the dilution per share to new investors participating in this offering by $0.11 per share, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a 1,000,000 share increase in the number of shares of Class A common stock offered by us would increase the pro forma as adjusted net tangible book value after this offering by $0.39
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per share and decrease the dilution per share to new investors participating in this offering by $0.39 per share, and a 1,000,000 share decrease in the number of shares of Class A common stock offered by us would decrease the pro forma as adjusted net tangible book value by $0.40 per share, and increase the dilution per share to new investors in this offering by $0.40 per share, assuming that the assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus) remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise in full their option to purchase additional shares of Class A common stock from us, the pro forma as adjusted net tangible book value per share after giving effect to this offering would be $4.62 per share, and the dilution to investors participating in this offering would be $25.88 per share.
The following table summarizes, on the pro forma as adjusted basis described above, the differences between the number of shares purchased from us, the total consideration paid and the average price per share paid to us by existing stockholders and by investors purchasing shares in this offering at the assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page on this prospectus), before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:  
Shares PurchasedTotal ConsiderationAverage Price
NumberPercentAmountPercentPer Share
Existing stockholders55,165,785 89 %$179,537,125 46 %$3.25 
New investors7,000,000 11 %$213,500,000 54 %$30.50 
Total62,165,785 100 %$393,037,125 100 %
A $1.00 increase or decrease in the assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus) would increase or decrease, as applicable, the total consideration paid by new investors by $7.0 million and, in the case of an increase, would increase the percentage of total consideration paid by new investors to 55% and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors to 53%, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, a 1,000,000 share increase or decrease in the number of shares offered by us would increase or decrease, as applicable, the total consideration paid by new investors by $30.5 million and, in the case of an increase, would increase the percentage of total consideration paid by new investors to 58% and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors to 50%, assuming that the assumed initial public offering price per share of $30.50 (which is the midpoint of the price range set forth on the cover page of this prospectus) remains the same.
If the underwriters exercise their option to purchase additional shares of Class A common stock in full, our existing stockholders would own 87% and our new investors would own 13% of the total number of shares of our Class A common stock outstanding upon the completion of this offering.
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables summarize our consolidated financial and other data. The summary consolidated statements of operations data for the three months ended August 31, 2021 and 2020, and consolidated balance sheet data as of August 31, 2021 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have included, in our opinion, all adjustments necessary to state fairly our results of operations for these periods. We have prepared the unaudited consolidated financial statements on the same basis consistent with the presentation of our audited consolidated financial statements that are included elsewhere in this prospectus. The summary consolidated statements of operations data for the fiscal years ended May 31, 2021 and 2020, and consolidated balance sheet data as of May 31, 2021 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future and our results of operations for the three months ended August 31, 2021 are not necessarily indicative of the results that may be expected for the year ended May 31, 2022 or any other interim periods or any future year or period. You should read the summary consolidated financial and other data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
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Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions, except per share data)(Unaudited)
Consolidated Statements of Operations Data:
Revenue:
Subscription revenue$27.5 $19.9 $87.4 $68.4 
Benefits and insurance related revenue263.7 186.9 895.3 674.0 
Total revenue291.2 206.8 982.7 742.4 
Cost of revenue:
Benefits and insurance fees249.2 178.0 842.9 638.7 
Cost of providing services11.0 6.7 33.7 26.6 
Total cost of revenue260.2 184.7 876.6 665.3 
Gross profit31.0 22.1 106.1 77.1 
Operating expenses:
Sales and marketing12.9 8.7 37.8 49.2 
General and administrative expense15.8 7.8 39.9 38.0 
Product development6.2 3.0 15.6 11.2 
Total operating expenses34.9 19.5 93.3 98.4 
(Loss) income from operations
(3.9)2.6 12.8 (21.3)
Loss on extinguishment of debt(1.1)— — — 
Interest and other expense(0.1)(0.4)(2.2)(1.8)
Interest and other income— — 0.3 2.8 
Net (loss) income before taxes
(5.1)2.2 10.9 (20.3)
Income taxes— — — — 
Net (loss) income
$(5.1)$2.2 $10.9 $(20.3)
Per Share Data: (1)
Net (loss) income per share attributable to Class A and Class B common stockholders:
Basic$(0.35)$0.04 $0.20 $(1.52)
Diluted$(0.35)$0.04 $0.19 $(1.52)
Weighted average Class A and Class B common shares outstanding:
Basic14,544,37914,217,512 14,346,76313,407,274 
Diluted14,544,37956,864,729 56,860,07813,407,274 
Pro forma net income (loss) per share attributable to Class A and Class B common stockholders  (unaudited)
Basic$(0.09)$0.20 
Diluted$(0.09)$0.19 
Pro forma weighted average Class A and Class B common shares outstanding  (unaudited)
Basic55,121,895 54,924,279 
Diluted55,121,895 56,860,078 
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_______________
(1)See Note 3 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate historical basic and diluted net loss per share of common stock and the weighted average number of shares used in the computation of the per share amounts. Pro forma basic and diluted net income (loss) per share give effect, where applicable, to the conversion of the outstanding redeemable convertible preferred stock into 40,577,516 shares of common stock immediately prior to the closing of this offering.
August 31, 2021May 31, 2021May 31, 2020
(in millions)(Unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents$109.9 $101.0 $96.1 
Working capital (1)
$73.1 $67.9 $70.3 
Total assets$573.2 $454.3 $238.2 
Total liabilities$471.6 $352.3 $153.2 
Total redeemable convertible preferred stock and stockholders’ deficit$101.6 $102.0 $85.0 
_______________
(1)We define working capital as current assets less current liabilities. See our consolidated financial statements and related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
Non-GAAP Financial Measures
In addition to financial measures presented in accordance with GAAP, we monitor other non-GAAP financial measures that we use to manage our business, to make planning decisions, to allocate resources and to use as performance measures in our executive compensation plan. These key financial measures provide an additional view of our operational performance over the long-term and provide useful information that we use in order to maintain and grow our business.
These non-GAAP financial measures are supplemental measures of our performance, are not defined by or presented in accordance with GAAP, and should not be considered in isolation from, superior to or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.
Although we use these non-GAAP financial measures as described above, they have significant limitations as analytical tools. Some of these limitations include:
•adjusted gross profit and adjusted income (loss) from operations do not reflect the impact of stock-based compensation expense;
•although depreciation and amortization expense is a non-cash charge, the assets being depreciated and amortized will often have to be replaced in the future and adjusted gross profit and adjusted income (loss) does not reflect any cash requirements for such replacements;
•corporate free cash flow does not include cash provided by financing activities or changes in certain items considered cash and cash equivalents; and
•other companies in our industry may calculate such measures differently than we do, thereby limiting their usefulness as comparative measures.
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Non-GAAP Financial MeasureDefinitionHow We Use the Measure
Contribution profit
•Gross profit excluding cost of providing services
•Provides a comparable measure of profitability, including gross profit excluding associated business support costs, as included within cost of providing services. Contribution profit is presented excluding the impact of costs that are under direct control of the business, including payment and tax and customer success team-related expenses, in addition to depreciation and amortization of products acquired or built to grow and support the platform.
•Promotes an understanding of profit generated from direct fees, including those paid directly to third-parties for our insurance and benefits offerings. We internally evaluate our contribution profit as a way to measure the success of our third-party contractual relationships and determine the amount to commit to future internal support and investments, including those within cost of providing services.
•Provides a measure, among others, used in the determination of incentive compensation for management.
Adjusted gross profit
•Gross profit, excluding the effects of cost of providing services related to:
–Stock-based compensation expense
–Depreciation and amortization expense
•Provides a consistent measure of gross profit by excluding certain non-cash charges such as stock-based compensation and depreciation and amortization included within the cost of providing services financial statement line item, which are recognized based on the estimated fair values. We believe these charges are not directly resulting from our core operations or indicative of our ongoing operations.
Adjusted income (loss) from operations
•Income (loss) from operations, excluding the effects of:
–Stock-based compensation expense


•Provides period-to-period comparisons on a consistent basis and an understanding as to how our management evaluates the effectiveness of our business strategies by excluding certain non-cash charges such as stock-based compensation, which is recognized based on estimated fair values. We believe these charges are not directly resulting from our core operations or indicative of our ongoing operations.
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•Enhances comparisons to prior periods and, accordingly, facilitates the development of future projections and earnings growth prospects.
Corporate free cash flow
•Cash provided by (used in) operating and investing activities, excluding the effects of:
–Changes in co-employment assets
–Changes in restricted cash


•Provides a measure of liquidity that adjusts free cash flow to exclude changes in co-employment assets, and changes in restricted cash, which includes funds to be used for the payment of benefits and insurance fees and amounts reserved that are owed to our customers. We believe this measure provides clearer insight into how we collect and manage cash.
•Promotes an understanding of free cash flow associated with cash we maintain for general operations. We internally evaluate our cash movement based on this calculation.
•Facilitates the development of future cash flow projections and future investment prospects.
Reconciliation of GAAP to Unaudited Non-GAAP Financial Measures
The table below presents a reconciliation of gross profit to contribution profit:
Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions)(Unaudited)
Gross profit$31.0 $22.1 $106.1 $77.1 
Cost of providing services11.0 6.7 33.7 26.6 
Contribution profit$42.0 $28.8 $139.8 $103.7 
The table below presents a reconciliation of gross profit to adjusted gross profit:
Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions)(Unaudited)
Gross profit$31.0 $22.1 $106.1 $77.1 
Stock-based compensation expense (1)
0.6 0.1 0.7 0.5 
Depreciation and amortization (2)
0.2 0.1 0.6 0.5 
Adjusted gross profit$31.8 $22.3 $107.4 $78.1 
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The table below presents a reconciliation of (loss) income from operations to adjusted income (loss) from operations:
Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions)(Unaudited)
(Loss) income from operations$(3.9)$2.6 $12.8 $(21.3)
Stock-based compensation expense (1)
4.3 1.2 5.0 3.4 
Stock-based compensation tender offer (1)
— — — 12.6 
Adjusted income (loss) from operations$0.4 $3.8 $17.8 $(5.3)
________________
(1)Stock-based compensation expense included in the consolidated statements of operations for the periods presented below is as follows:
Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions)(Unaudited)
Cost of providing services$0.6 $0.1 $0.7 $0.5 
Sales and marketing0.6 0.3 0.8 0.7 
General and administrative2.0 0.5 2.5 14.0 
Product development1.1 0.3 1.0 0.8 
Stock-based compensation expense$4.3 $1.2 $5.0 $16.0 
(2)Depreciation and amortization expense included in cost of providing services in the consolidated statements of operations.
The table below presents a reconciliation of net cash provided by (used in) operating and investing activities to corporate free cash flow:
Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions)(Unaudited)
Net cash provided by (used in) operating activities$125.4 $25.1 $95.2 $(33.9)
Net cash (used in) provided by investing activities(1.9)(1.6)(9.4)7.8 
Less: change in co-employment assets127.5 22.6 41.1 (44.6)
Less: change in restricted cash(13.5)6.7 40.6 20.6 
Corporate free cash flow$9.5 $(5.8)$4.1 $(2.1)
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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 “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations 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 the section titled “Risk Factors” or in other parts of this prospectus. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Except as otherwise noted, all references to 2021 refer to the fiscal year ended May 31, 2021 and all references to 2020 refer to the fiscal year ended May 31, 2020.
OVERVIEW
Justworks is a cloud-based software platform that gives small and medium-sized businesses (“SMBs”) access to benefits, payroll, human resources (“HR”), and compliance support—all in one place. We drive economies of scale via co-employment, enabling attractive cost savings for our customers and providing them a richer suite of benefits for their employees. We believe we are the first provider to combine this powerful demand aggregation dynamic with a simple, intuitive user experience and 24/7 expert support—enabling entrepreneurs and SMBs to grow with confidence. That is why over 8,000 customers across all 50 U.S. states representing almost 140,000 worksite employees (“WSEs”), as of November 30, 2021, trust Justworks as their human capital management (“HCM”) platform.
We have achieved a number of key milestones in the following fiscal years, including:
•2012: Founded in New York.
•2013: Hired first corporate employees, defined Justworks’ core values, and launched pilot of Justworks to a small group of companies.
•2014: Surpassed 90 customers and 300 WSEs on the platform and built out our customer service function.
•2015: Surpassed 300 customers and 1,900 WSEs on the platform and rolled out the first Justworks ad campaign on the NYC subway.
•2016: Surpassed 1,000 customers and 8,000 WSEs on the platform, launched access to Aetna as a national health insurance provider, and teamed up with OneMedical to provide our customers with access to their offering.
•2017: Surpassed 1,600 customers and 17,000 WSEs on the platform, launched the Benefits Center in Justworks, 24/7 support, completed first SOC-1 audit, and certified by the IRS as a certified professional employer organization (“CPEO”).
•2018: Surpassed 2,900 customers and 37,000 WSEs on the platform and added HealthAdvocate as our Employee Assistance Program (“EAP”) provider.
•2019: Surpassed 5,000 customers and 69,000 WSEs on the platform, launched access to UnitedHealthcare in select markets, launched free harassment prevention and inclusion trainings and tools to all customers, teamed up with ClassPass to provide our customers with access to their offering, and accredited by the Employer Services Assurance Corporation (“ESAC”).
•2020: Surpassed 6,700 customers and 89,000 WSEs on the platform, launched access to Kaiser Permanente in select markets, completed first SOC-2 audit, and launched tools that enabled our customers to access critical COVID-19 relief programs.
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•2021: Surpassed 7,800 customers and 118,000 WSEs on the platform, acquired Boomr, a cloud-based time and attendance software company, teamed up with Talkspace to provide our customers with access to their offering, and launched native e-Signature functionality in Justworks.
OUR BUSINESS MODEL
We drive revenue by selling subscriptions to our HCM SaaS product and providing benefits to our PEO customers. We typically generate revenue on a per employee per month (“PEPM”) basis, whereby we charge our customers monthly, and in some cases annually, for our HCM SaaS products based on the number of employees our customers pay on our platform. In addition to this, our revenue includes insurance-related billings and administrative fees collected from customers. We internally set the fees we charge our customers based on the cost composition of the underlying insurance or benefit offering based on the amounts billed to us from third-party insurance and benefits providers and profit from their continued subscriptions to our HCM SaaS products and services.
Our revenue is largely recurring in nature. Our recurring revenue increases as we grow our customer base, as our customers expand their workforces, as the volume of payroll we process increases and as customers adopt incremental products on our platform.
We have a cost efficient go-to-market engine, combining an inside sales team for established SMBs and an automated self-enrollment funnel for emerging companies, which represented 15% of new business during the twelve months ended August 31, 2021. Additionally, we engage professional services providers such as insurance brokers and accountants to acquire more customers. This has enabled us to drive a lifetime value to customer acquisition cost ratio of 5.7x during our twelve months ended August 31, 2021.
COVID-19 UPDATE
During COVID-19, we instituted a number of service offerings and developed tools to assist customers in obtaining government provided tax credits, tax deferrals and loans while also providing resources that assisted customers in addressing the challenges faced by employers as a result of the pandemic. At the same time, cornerstone features of our platform, including self-service, tax processing, and multi-state compliance and online open enrollment for health insurance, continue to take on increased importance for our customers in an increasingly hybrid remote working-environment. During fiscal 2021, our total revenue grew by 32.4% compared to the same period in 2020, demonstrating both our ability to adapt and steer our business through an unprecedented economic downturn as well as the underlying strength of our customer base.
The extent to which our future results are affected by the COVID-19 pandemic will depend on various factors and consequences beyond our control, such as the scope, duration, and magnitude of the pandemic as well as additional actions by businesses and governments in response to the pandemic and the speed and effectiveness of responses to combat the virus and its variants.
IPO AWARDS
In connection with this offering, we intend to grant options and restricted stock unit awards under the 2022 Incentive Award Plan that can be exercised or settled for an aggregate of approximately 271,219 shares of our Class A common stock, based on an assumed initial public offering price of $30.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. The grant date fair value of these awards totals approximately $7.8 million, and the majority of stock-based compensation expense related to these grants will be recognized over a four-year period.
In connection with this offering, our board of directors is expected to approve a grant to our Founder and Chief Executive Officer, Isaac Oates, of 1,600,000 performance-based stock options (the “Founder Award”). The stock options will be eligible to vest based on both (a) the achievement of pre-determined
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stock price goals over a five-year period following this offering and (b) Mr. Oates’ continued employment as our Chief Executive Officer. See “Executive and Director Compensation” for additional details.
We are in the process of estimating the fair value of the Founder Award, in which the fair value of shares of Class A common stock will be used as an input to a Monte Carlo simulation used to estimate the fair value of the underlying stock options. We expect that the stock-based compensation expense related to the Founder Award will be at least $15.0 million. The stock-based compensation expense will be recognized using the accelerated attribution method over the period of time the performance condition for each tranche is expected to be met (i.e., the derived service period).
KEY OPERATING AND FINANCIAL METRICS
We use the following metrics to assess the progress of our business, make decisions on where to allocate capital, time and technology investments, and assess the near-term and long-term performance of our business.
Three Months Ended August 31, Year Ended May 31,
20212020% Change20212020% Change
(in millions)(Unaudited)
Income Statement Data:
Total revenue$291.2 $206.8 40.8 %$982.7 $742.4 32.4 %
Gross profit$31.0 $22.1 40.3 %$106.1 $77.1 37.6 %
(Loss) income from operations$(3.9)$2.6 NM$12.8 $(21.3)NM
Non-GAAP financial measures (1):
Contribution profit$42.0 $28.8 45.8 %$139.8 $103.7 34.8 %
Adjusted gross profit$31.8 $22.3 42.6 %$107.4 $78.1 37.5 %
Adjusted income (loss) from operations$0.4 $3.8 (89.5)%$17.8 $(5.3)NM
Three Months Ended August 31, Year Ended May 31,
2021202020212020
(in millions)(Unaudited)
Cash Flow Data:
Net cash provided by (used in) operating activities$125.4 $25.1 $95.2 $(33.9)
Net cash (used in) provided by investing activities$(1.9)$(1.6)$(9.4)$7.8 
Net cash (used in) provided by financing activities$(0.6)$0.4 $0.8 $51.1 
Non-GAAP financial measures (1):
Corporate free cash flow$9.5 $(5.8)$4.1 $(2.1)
_______________
(1)See “Selected Consolidated Financial Data—Non-GAAP Financial Measures” for the definitions of each unaudited non-GAAP financial measure listed above and for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP.
KEY FACTORS AFFECTING OUR PERFORMANCE
Our financial performance has been, and we expect our financial performance in the future to be, driven by our ability to:
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Maintain or Increase the Number of Customers Using Our Platform
We have built a cost efficient go-to-market engine with robust and diversified sales channel strategies. Our Account Executives and Sales Development teams target SMBs with less than 100 employees on average. We also operate a broad sales channel program that establishes relationships with partners who cater to our market and generate lead flow. Additionally, our seamless automated self-enrollment funnel for emerging companies is a highly cost effective and scalable sales channel, representing 15% of new business during the twelve months ended August 31, 2021.
We expect to increase sales and marketing spend in both current markets and new markets in order to capture new qualified opportunities. For the twelve months ended August 31, 2021, 53% of our customer base existed in the New York City area. We believe there is substantial opportunity to broaden our geographic footprint. We expect to increase the size of our inside sales organization to target additional large metropolitan statistical areas with high concentrations of companies with less than 100 employees.
The value our customers receive from Justworks and our efficient customer acquisition engine is evidenced by our lifetime value to customer acquisition cost ratio of 5.7x for the twelve months ended August 31, 2021. We calculate our lifetime value to customer acquisition cost ratio for a particular year by dividing (i) the change in adjusted gross profit year-over-year divided by one minus our customer gross retention rate over the same period by (ii) total sales and marketing expense excluding stock-based compensation over the same period.
Increase Monetization of Existing Customers
Our strategy is to grow alongside our customers, in particular those with less than 100 employees who find legacy service providers cumbersome, complex and often high cost, and to focus on our core market, which we believe has been underserved by legacy PEO service providers. This strategy is successful as the number of their employees grows, as the volume of payroll increases and as customers adopt incremental products on our platform. We believe our ability to retain and grow revenue from existing customers is evidenced by our subscription revenue net retention rate, which was 138% and 117% in the fiscal years ended 2020 and 2021, respectively, and increased slightly to 119% for the twelve months ended August 31, 2021. Due to the fact that new business is partially realized in the year customers are acquired, with a full year’s impact in the following year, we believe that net retention rates will begin to stabilize as new business becomes a smaller percentage of the installed base. Additionally, these rates can trend lower during our second and third fiscal quarters due to increased customer churn during health insurance renewal periods and transition to the new calendar year.
We calculate our subscription revenue net retention rate by taking (i) subscription revenue from the previous fiscal year, adding upsells and expansion less contraction and cancellations during the current fiscal year, excluding subscription revenue from new customers, and dividing by (ii) subscription revenue from the previous fiscal year.
Our success depends on our platform’s ability to scale alongside customers and support their growth. We also increase our monetization as customers’ payroll volume increases, specifically as WSEs’ overall compensation increases over time. As a result, our other revenue lines are highly correlated to our subscription revenue. As highlighted below, we have experienced increasing subscription revenue annual recurring revenue (“ARR”) on each customer cohort since 2016. Our subscription revenue ARR has been slightly impacted by COVID-19-related business contraction and closures during the fourth fiscal quarter of 2020, but has since rebounded.
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Subscription Revenue ARR by Annual Customer Cohort
keyfactorsaffectingperform.jpg
For each annual cohort, we measure the subscription revenue for the last month in each quarter and annualize it. We refer to the resulting measure as subscription revenue ARR. This metric includes recurring, monthly subscriptions so long as the Company does not have any indication that the customer has canceled or intends to cancel its subscription and we continue to generate revenue from such customer. We note that monthly subscription rates are subject to auto-renewal unless a customer affirmatively cancels their subscription. There is, however, no guarantee that this revenue will be realized in future periods.
Continuing to Innovate and Expand Our Core Capabilities
We believe that our product features and functionality are a key differentiator of our offerings. We intend to continue to invest in research and development to sustain and advance our product leadership, as evidenced by over 50 product enhancements launched during the year ended May 31, 2021. As we continue to add more features and benefits offerings to the Justworks platform, we may make changes to our existing pricing plans. Our ability to innovate and introduce competitive new products is dependent on our ability to recruit and retain top technical talent and invest in research and development initiatives.
COMPONENTS OF OUR RESULTS OF OPERATIONS
Revenue and Cost of Revenue
Subscription revenue. Subscription revenue consists of the fees charged to customers for access to our cloud-based software that facilitates the processing of payroll-related transactions on their behalf, access to our HR expertise, employment and benefit law compliance services, and other HR-related services.
Benefits and insurance related revenue. Benefits and insurance related revenue consists of insurance-related billings and administrative fees collected from customers related to health insurance plans provided by insurance carriers, workers’ compensation, state unemployment insurance, and other employee benefits. The largest component of benefits and insurance related revenue consists of medical, dental, vision and other insurance related amounts charged to customers, and is generally non-risk
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bearing in nature with the majority of this revenue passed on to insurance carriers and other benefits vendors in the form of benefits and insurance fees.
Benefits and insurance fees. Benefits and insurance fees consist of health insurance-related charges paid to insurance carriers, workers’ compensation claims and premiums, state unemployment insurance taxes and other employee benefit fees that directly support both subscription and benefits and insurance related revenue. The largest components of benefits and insurance fees are direct amounts payable to third parties that include charges for medical, dental, vision and other insurance-related fees and are generally non-risk bearing in nature. Certain benefits and insurance fees, including workers’ compensation and state unemployment insurance taxes, may fluctuate based on actual claims activity and changes to remittance rates applied by the states, respectively.
Cost of providing services. Cost of providing services consists primarily of employee-related costs, including stock-based compensation costs, related to our customer service and payroll and benefits operations teams. Cost of providing services also includes costs associated with the operation and maintenance of the Justworks platform including our cloud-based hosting and bandwidth services, amortization and other expenses related to the underlying infrastructure utilized by customer service and payroll and benefits operations teams, and website maintenance and security, including employee-related costs and stock-based compensation costs for technology operations teams.
Operating Expenses
Operating expenses include sales and marketing, general and administrative, and product development expenses.
Sales and marketing. Sales and marketing expenses consist primarily of targeted advertising campaigns and employee-related costs, including stock-based compensation, associated with our sales, marketing and insurance pricing teams. Sales and marketing expenses also include professional service fees associated with public relations, communications, and other marketing-related activities. We expect sales and marketing expense to continue to increase in absolute dollars as we continue to invest in our sales and marketing efforts, but we expect sales and marketing expense to remain relatively consistent as a percentage of gross profit and contribution profit in the long-term.
General and administrative. General and administrative expenses consist primarily of employee-related costs, including stock-based compensation, associated with our employees supporting finance, legal, strategy, business operations, people, diversity equity and inclusion, workplace, and IT functions. Additional general and administrative expenses include rent and other overhead costs, depreciation of property and equipment, professional service fees, software, and other corporate-related administrative costs. We anticipate that we will incur additional costs for personnel and related expenses and third-party professional fees related to the preparation to operate as a public company and expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business and enhance our systems, processes and internal controls, but we expect general and administrative expense to decrease as a percentage of gross profit and contribution profit in the long-term.
Product development. Product development expenses consist primarily of employee-related costs, including stock-based compensation, associated with our product, engineering, and design teams. Additional product development expenses include costs associated with product research and development and the amortization of capitalized software associated with building out new website features and enhancements. We expect our product development expenses to continue to increase in absolute dollars as we continue our strategy to develop new product offerings, and we expect that our product development expenses may fluctuate as a percentage of gross profit and contribution profit from period to period and increase as a percentage of gross profit and contribution profit in the long-term.
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Net Interest and Other (Expense) Income
Net interest and other (expense) income consists primarily of interest expense and amortization of deferred financing costs associated with our long-term debt agreements, and interest income associated with investments in money market funds and short-term investments.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended August 31, 2021 and 2020
(Unaudited)
WSEs and Customers
Total WSEs increased by 35,778, or 37.2%, to 131,956 as of August 31, 2021, from 96,178 as of August 31, 2020. These increases were due to new customers joining our platform as well as net expansion from our existing customer base. We had 7,014 customers on our platform as of August 31, 2020 compared to 8,188 customers on our platform as of August 31, 2021, which represents a 16.7% increase year-over-year.
Revenue and Cost of Revenue
In addition to focusing on growing our WSEs, we also continued to focus on pricing strategies to expand our revenue opportunities. Average gross profit per employee per month (“PEPM”) increased 3.8% for the three months ended August 31, 2021 compared to the same period in 2020, from $78 to $81. Average contribution profit PEPM, a measure used to monitor the success of our pricing strategies, resulted in an average PEPM of $109 for the three months ended August 31, 2021 compared to $102 for the same period ended 2020, an increase of 6.9%. This increase is the result of an improved margin of our benefits and insurance plans and higher subscription revenue PEPM.
The table below presents a breakdown of revenue and cost of revenue:
Three Months Ended
August 31,
(in millions)20212020% Change
Revenue:
Subscription revenue$27.5 $19.9 38.2 %
Benefits and insurance related revenue263.7 186.9 41.1 
Total revenue291.2 206.8 40.8 
Cost of Revenue:
Benefits and insurance fees249.2 178.0 40.0 
Cost of providing services11.0 6.7 64.2 
Total cost of revenue260.2 184.7 40.9 
Gross profit
$31.0 $22.1 40.3 %
Total revenue increased by $84.4 million, or 40.8%, to $291.2 million for the three months ended August 31, 2021, from $206.8 million for the three months ended August 31, 2020. This increase in total revenue was due to an increase in subscription revenue of 38.2% and an increase in benefits and insurance related revenue of 41.1% for the three months ended August 31, 2021 as compared to the same period in 2020.
The increase in subscription revenue of $7.6 million was largely due to the increase in WSEs compounded by an increase in subscription fees per WSE, attributable to a more advantageous customer and pricing mix.
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Gross profit increased by $8.9 million, or 40.3%, to $31.0 million for the three months ended August 31, 2021, from $22.1 million for the three months ended August 31, 2020. In addition to increases related to revenue growth discussed above, the remaining change was driven primarily from the following:
•Increase in workers’ compensation revenue less expenses of $4.8 million, or 103.0%, due to continued volume growth of payroll processed coupled with a decrease in premiums and processing costs per member.
•Increase in state unemployment insurance revenue less expenses of $1.8 million due to new customer growth and higher volume of payroll processed in addition to a higher proportion of WSEs in states with favorable SUI rates and pricing strategy improvements.
The above increases to gross profit were partially offset by an increase in cost of providing services of $4.3 million primarily due to higher compensation costs of $2.9 million and an increase in hosting and bandwidth costs of $1.2 million.
Operating Expenses
Operating expenses include sales and marketing, general and administrative and product development expenses.
At August 31, 2021, we had approximately 768 full-time corporate employees based out of our headquarters location in New York City. Our corporate employees’ compensation-related expenses represent the highest percentage of our total operating expenses. Compensation costs for our corporate employees include payroll, payroll taxes, stock-based compensation, bonuses, commissions and other payroll and benefits-related costs. The percentage of compensation-related expenses to operating expense was 56.3% in the three months ended August 31, 2021 increased from 55.7% in the same period in 2020 due to increased headcount, expansion of our executive team, and compensation adjustments.
The table below presents a breakdown of operating expenses:
Three Months Ended
August 31,
(in millions)20212020% Change
Sales and marketing$12.9 $8.7 48.3 %
General and administrative15.8 7.8 102.6 
Product development6.2 3.0 106.7 
Total operating expenses
$34.9 $19.5 79.0 %
Operating expenses increased by $15.4 million, or 79.0%, to $34.9 million for the three months ended August 31, 2021, from $19.5 million for the three months ended August 31, 2020. Specific costs varied as follows:
•Sales and marketing increased by $4.2 million for the three months ended August 31, 2021. The increase was primarily a result of an increase in advertising of $1.9 million and an increase in compensation costs of $1.8 million.
•General and administrative increased by $8.0 million for the three months ended August 31, 2021. The increase was largely due to an increase in compensation costs of $4.5 million, higher rent expense related to the commencement of the new corporate headquarters lease in July 2020 of $1.4 million, and an increase in legal and professional services fees of $1.4 million.
•Product development increased by $3.2 million for the three months ended August 31, 2021, which was primarily related to higher compensation costs of $2.7 million resulting from
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engineering and product team headcount growth as we continued to commit to our investment in technology throughout the period.
Net Interest and Other Expense
We recognized net interest and other expense of $1.2 million for the three months ended August 31, 2021, compared to net interest expense of $0.4 million for the three months ended August 31, 2020. The change is attributed to the extinguishment of debt costs recognized in the three months ended August 31, 2021 related to the termination of our Loan and Security Agreement with Silicon Valley Bank (the “Loan and Security Agreement”).
The table below presents a breakdown of net interest and other expense:
Three Months Ended
August 31,
(in millions)20212020% Change
Loss on extinguishment of debt$(1.1)$— NM
Interest and other expense(0.1)(0.4)(75.0)%
Net interest and other expense
$(1.2)$(0.4)200.0 %
RESULTS OF OPERATIONS
Comparison of the Years Ended May 31, 2021 and 2020
WSEs and Customers
Total WSEs increased by 28,990, or 32.2%, to 118,916 as of May 31, 2021, from 89,926 as of May 31, 2020. These increases were due to new customers joining our platform as well as net expansion from our existing customer base, the former of which resulted in approximately 70% of the total WSE expansion. We had 6,731 customers on our platform as of May 31, 2020 compared to 7,861 customers on our platform as of May 31, 2021, which represents a 16.8% increase year-over-year.
Revenue and Cost of Revenue
In addition to focusing on growing our WSEs, we also continued to focus on pricing strategies to expand our revenue opportunities. Average gross profit per employee PEPM increased 13.3% for the year ended May 31, 2021 compared to the same period in 2020, from $75 to $85. Average contribution profit PEPM, a measure used to monitor the success of our pricing strategies, resulted in an average PEPM of $113 for the year ended May 31, 2021 compared to $101 for the year ended May 31, 2020, an increase of 11.9%. This increase is the result of an improved margin of our benefits and insurance plans and higher subscription revenue PEPM.
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The table below presents a breakdown of revenue and cost of revenue:
Year Ended
May 31,
(in millions)20212020% Change
Revenue:
Subscription revenue$87.4 $68.4 27.8 %
Benefits and insurance related revenue895.3 674.0 32.8 
Total revenue982.7 742.4 32.4 
Cost of Revenue:
Benefits and insurance fees842.9 638.7 32.0 
Cost of providing services33.7 26.6 26.7 
Total cost of revenue876.6 665.3 31.8 
Gross profit
$106.1 $77.1 37.6 %
Total revenue increased by $240.3 million, or 32.4%, to $982.7 million for the year ended May 31, 2021, from $742.4 million for the year ended May 31, 2020. This increase in total revenue was due to an increase in subscription revenue of 27.8% and an increase in benefits and insurance related revenue of 32.8% for the year ended May 31, 2021 as compared to the same period in 2020.
The increase in subscription revenue of $19.0 million was largely due to the increase in WSEs compounded by an increase in subscription fees per WSE, attributable to a more advantageous customer and pricing mix.
Gross profit increased by $29.0 million, or 37.6%, to $106.1 million for the year ended May 31, 2021, from $77.1 million for the year ended May 31, 2020. In addition to increases related to revenue growth discussed above, the remaining change was driven primarily from the following:
•Increase in workers’ compensation revenue less expenses of $8.1 million due to continued volume growth of payroll processed in conjunction with lower than anticipated workers’ compensation claims.
•Increase in state unemployment insurance revenue less expenses of $6.9 million due to new customer growth and higher volume of payroll processed in addition to favorable SUI rates enacted during the fourth quarter.
The above increases to gross profit were partially offset by an increase in cost of providing services of $7.1 million primarily due to higher compensation costs of $3.4 million, an increase in hosting and bandwidth costs of $3.4 million, and an increase in professional service fees of $0.5 million to support process improvements.
Operating Expenses
Operating expenses include sales and marketing, general and administrative and product development expenses.
At May 31, 2021, we had approximately 681 full-time corporate employees based out of our headquarters location in New York City. Our corporate employees’ compensation-related expenses represent the highest percentage of our total operating expenses. Compensation costs for our corporate employees include payroll, payroll taxes, stock-based compensation, bonuses, commissions and other payroll and benefits-related costs. The percentage of compensation-related expenses to operating expense was 56.6% in the year ended May 31, 2021 from 59.0% in the same period in 2020.
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The table below presents a breakdown of operating expenses:
Year Ended
May 31,
(in millions)20212020% Change
Sales and marketing$37.8 $49.2 (23.2)%
General and administrative39.9 38.0 5.0 
Product development15.6 11.2 39.3 
Total operating expenses
$93.3 $98.4 (5.2)%
Operating expenses decreased by $5.1 million, or 5.2%, to $93.3 million for the year ended May 31, 2021, from $98.4 million for the year ended May 31, 2020. Specific costs varied as follows:
•Sales and marketing decreased by $11.4 million for the year ended May 31, 2021. The decrease was primarily a result of discretion in advertising spend, resulting in a decrease of $7.8 million, lower compensation costs of $1.0 million, and decreased travel and entertainment expenses of $0.7 million.
•General and administrative increased by $1.9 million for the year ended May 31, 2021. The increase was largely due to higher rent expense related to the commencement of the new corporate headquarters lease in July 2020 of $7.7 million and higher professional services and other third-party fees to implement process improvements of $1.9 million. The increase was partially offset by a reduction in salaries and benefits expense of $7.3 million as a result of a tender offer in fiscal year 2020 with no corresponding charge to stock based compensation expense in the current period, as well as lower depreciation expense of $0.4 million.
•Product development increased by $4.4 million for the year ended May 31, 2021, which was primarily related to higher compensation costs resulting from engineering and product team headcount growth as we continued to commit to our investment in technology throughout fiscal year 2021.
Net Interest and Other (Expense) Income
We recognized net interest expense of $1.9 million for the year ended May 31, 2021, compared to net interest income of $1.0 million for the year ended May 31, 2020. The full year change is attributed to the movement of funds out of money market funds and other short-term investments and into cash over the last fiscal year.
The table below presents a breakdown of net interest and other (expense) income:
Year Ended
May 31,
(in millions)20212020% Change
Interest and other expense$(2.2)$(1.8)22.2 %
Interest and other income0.32.8(89.3)%
Net interest and other (expense) income
$(1.9)$1.0 NM
SEASONALITY AND QUARTERLY TRENDS
The following tables summarize our unaudited quarterly results of operations for each of the nine quarters of the period ended August, 31, 2021. We have prepared the unaudited consolidated financial statements on the same basis consistent with the presentation of our audited consolidated financial statements that are included elsewhere in this prospectus. We have included, in our opinion, all adjustments necessary to state fairly our results of operations for these periods. Our quarterly results of
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operations financial data will vary in the future. These quarterly operating results are not necessarily indicative of our operating results for any future quarter or fiscal year.
Three Months Ended
August
31,		November
30,		February
29,		May
31,		August
31,		November
30,		February
28,		May
31,		August
31,
201920192020202020202020202120212021
Revenue:    
Subscription revenue$15.4 $16.3 $17.4 $19.3 $19.9 $21.2 $22.1 $24.2 $27.5 
Benefits and insurance related revenue137.1 152.5 198.9 185.5 186.9 201.7 264.1 242.6 263.7 
Total revenue
152.5 168.8 216.3 204.8 206.8 222.9 286.2 266.8 291.2 
Cost of revenue:
Benefits and insurance fees130.0 144.9 186.0 177.8 178.0 193.0 247.3 224.6 249.2 
Cost of providing services5.4 6.5 7.8 6.9 6.7 8.1 9.4 9.5 11.0 
Total cost of revenue135.4 151.4 193.8 184.7 184.7 201.1 256.7 234.1 260.2 
Gross profit
17.1 17.4 22.5 20.1 22.1 21.8 29.5 32.7 31.0 
Operating expenses:
Sales and marketing13.5 16.1 9.9 9.7 8.7 9.8 9.3 10.0 12.9 
General and administrative5.4 6.2 7.6 18.8 7.8 9.3 10.2 12.6 15.8 
Product development2.5 2.7 2.9 3.1 3.0 3.9 4.2 4.5 6.2 
Total operating expenses
21.4 25.0 20.4 31.6 19.5 23.0 23.7 27.1 34.9 
(Loss) income from operations
(4.3)(7.6)2.1 (11.5)2.6 (1.2)5.8 5.6 (3.9)
Loss on extinguishment of debt— — — — — — — — (1.1)
Interest and other expense(0.4)(0.4)(0.3)(0.7)(0.4)(0.8)(0.7)(0.2)(0.1)
Interest and other income0.6 0.7 0.8 0.7 — 0.1 0.1 — — 
Net (loss) income before taxes
(4.1)(7.3)2.6 (11.5)2.2 (1.9)5.2 5.4 (5.1)
Income taxes— (0.1)0.1 — — — — — — 
Net (loss) income
$(4.1)$(7.4)$2.7 $(11.5)$2.2 $(1.9)$5.2 $5.4 $(5.1)
Our revenue is seasonal. Quarterly seasonality arises from potential churn related to health insurance renewals during the second quarter of our fiscal year, the timing of companies switching large payroll systems during the third quarter of our fiscal year (beginning of the calendar year), state unemployment insurance (“SUI”) revenue related to the resetting of the wage base during the third quarter of our fiscal year, and workers’ compensation revenue impacted by the seasonality of WSEs payroll, including year-end bonuses and other variable compensation payments. Due to these factors, the third quarter of our fiscal year is typically our highest revenue-generating quarter. Benefits and insurance fees are generally aligned with the seasonal trend in revenue.
Operating expenses are less seasonal in nature and tend to increase in line with the increase in corporate employee headcount. Excluding the impact of stock-based compensation expense, operating expenses decreased beginning in the three months ended May 31, 2020 due to a decrease in hiring and overall spend as a direct result of the COVID-19 pandemic. Overall operating expenses did not come back in line with historic trends until the second quarter of fiscal year 2021. Operating expenses were further impacted by a one-time charge to stock-based compensation expense associated with the tender offer during the three months ended May 31, 2020.
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our consolidated balance sheets include assets and liabilities related both directly and indirectly with our PEO business model, including payroll and payroll-related taxes and withholdings, health insurance, and other insurance and benefits programs. We designate funds to ensure that we have adequate current assets to satisfy our current co-employment obligations. We manage our payroll and benefits obligations through collections of payments from our customers, which generally occurs one-to-three days in advance of a customer’s payroll date. We regularly review our short-term co-employment obligations and designate funds required to fulfill these short-term obligations. Additionally, our cash and cash equivalents balance includes funds reserved for insurance and other payments in addition to our corporate operating cash.
The following table summarizes our cash and cash equivalents, co-employment assets, restricted cash, and working capital:
August 31,May 31,
202120212020
(in millions)(Unaudited)
Cash and cash equivalents$109.9 $101.0 $96.1 
Restricted cash $81.8 $95.3 $54.7 
Co-employment assets$216.5 $89.0 $47.9 
Noncurrent restricted cash$0.3 $0.3 $0.3 
Current assets$415.1 $296.1 $205.0 
Current liabilities342.0 228.2 134.7 
Working capital$73.1 $67.9 $70.3 
Since our inception, we have financed our operations primarily through net cash provided by operating activities, the net proceeds we have received from sales of equity securities, and borrowings under our long-term debt arrangements. Our principal sources of liquidity following this offering are expected to be our cash and cash equivalents and borrowings available under our Credit Agreement (as defined below).
In June 2021, we entered into a credit agreement (as amended, the “Credit Agreement”) with JP Morgan Chase Bank, N.A., which provides for a term loan in the aggregate principal amount of up to $20.0 million (the “Term Loan”), $15.2 million of which was funded on the closing date, and an undrawn revolving credit facility of up to $30 million (the “Revolving Credit Facility”). The proceeds of the Term Loan were used to repay all outstanding amounts under the Loan and Security Agreement, including transaction fees and expenses. In connection with our entry into the Credit Agreement, we transferred the outstanding letters of credit over from the Loan and Security Agreement to the Revolving Credit Facility.
We believe that our existing corporate operating cash, positive working capital, and availability under our Credit Agreement will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, including the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, and the continuing market adoption of our platform. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies. If necessary, we may borrow funds under our Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we
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continue to execute our business strategy, we anticipate that they will be obtained through equity or debt financings. In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial condition.
Cash Flows
The following table presents our cash flow activities for the stated periods:
Three Months EndedYear Ended
August 31,May 31,
2021202020212020
(in millions)(Unaudited)
Net cash provided by (used in)    
Operational activities$125.4 $25.1 $95.2 $(33.9)
Investing activities(1.9)(1.6)(9.4)7.8 
Financing activities(0.6)0.4 0.851.1 
Net increase in cash and cash equivalents, co-employment assets, and restricted cash$122.9 $23.9 $86.6 $25.0 
Cash and cash equivalents, co-employment assets, and restricted cash    
Beginning of period$285.6 $199.0 $199.0 $174.0 
End of period$408.5 $222.9 $285.6 $199.0 
Operating Activities
Components of net cash used in operating activities are as follows:
Three Months EndedYear Ended
August 31,May 31,
2021202020212020
(in millions)(Unaudited)
Net (loss) income$(5.1)$2.2 $10.9 $(20.3)
Depreciation and amortization1.2 0.8 3.9 3.4 
Stock-based compensation expense4.3 1.2 5.0 16.0 
Other non-cash adjustments3.3 2.0 10.4 7.1 
Changes in operating assets2.0 (2.5)(11.1)(8.6)
Changes in operating liabilities119.7 21.4 76.1 (31.5)
Net cash provided by (used in) operating activities$125.4 $25.1 $95.2 $(33.9)
Quarter-over-quarter fluctuations in net cash provided by operating activities for the three months ended August 31, 2021 compared to August 31, 2020 was primarily driven by the change in net (loss) income, in addition to the timing of payments of payroll and payroll-related taxes, as reflected by the increase in change in operating liabilities.
Year-over-year fluctuations in net cash provided by (used in) operating activities for the years ended May 31, 2021 compared to May 31, 2020 was primarily driven by the change in net income (loss), in
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addition to the timing of payments of payroll and payroll-related taxes, as reflected by the increase in change in operating liabilities.
Investing Activities
Net cash used in investing activities in the three months ended August 31, 2021 primarily consisted of the capitalization of internally developed software of $1.7 million. For the three months ended August 31, 2020, cash used in investing activities primarily consisted of construction of our new corporate headquarters totaling $0.8 million and capitalization of internally developed software of $0.8 million.
Net cash used in investing activities in the year ended May 31, 2021 primarily consisted of the acquisition of Boomr, net of cash acquired of $2.8 million, continued construction of our new corporate headquarters totaling $2.0 million, and the capitalization of internally developed software of $4.6 million. For the year ended May 31, 2020, net cash provided by investing activities primarily consisted of net proceeds from marketable securities of $15.0 million, offset by capital expenditures related to the build-out of the new corporate headquarters of $3.9 million, and capitalization of internally developed software of $3.3 million.
Our primary objectives when investing cash include the preservation of principal and maintenance of liquidity to meet cash flow requirements. These objectives are consistent with our investment policy and general liquidity obligations. We review our cash flow requirements on a regular basis to determine the amount of liquidity required for working capital and analyze the results compared to benchmarks to ensure expectations are met.
Financing Activities
Net cash provided by financing activities for the three months ended August 31, 2021 consisted of proceeds from the issuance of long-term debt, net of financing costs of $14.7 million and proceeds from the exercise of stock options of $0.3 million. These influxes were offset by the repayment of debt under the Loan and Security Agreement of $15.0 million and cash paid for the early extinguishment of debt for $0.6 million. For the three months ended August 31, 2020, cash provided by financing activities consisted of the exercise of stock options of $0.4 million.
Net cash provided by financing activities in the year ended May 31, 2021 consisted of proceeds from the exercise of stock options of $0.8 million. For the year ended May 31, 2020, cash provided by financing activities consisted of proceeds from the issuance of preferred shares, net of issuance costs, of $49.9 million in addition to proceeds from the exercise of stock options of $1.2 million.
Credit Facilities
In June 2021, we entered into a credit agreement with JP Morgan Chase Bank, N.A. that provides for a term loan in the aggregate principal amount of up to $20.0 million, $15.2 million of which was funded on the closing date, along with an undrawn revolving credit facility of up to $30.0 million. The Term Loan and Revolving Credit Facility mature on June 4, 2025 and June 4, 2024, respectively.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to the London Inter-bank Offered Rate (“LIBOR”), or the Applicable Margin Rate, plus a Benchmark Spread of 2.50% or 3.50% depending on our EBITDA for the trailing twelve month period.
Borrowings under the Credit Agreement are secured by substantially all of our assets (excluding, among other things, deposit accounts used exclusively as escrow, fiduciary, withholding, tax payment or trust accounts). Subject to certain terms of the Credit Agreement, we may prepay borrowings under the Credit Agreement without premium or penalty prior to maturity. The Credit Agreement contains certain customary affirmative and negative covenants that, among other things, limit our ability to: incur indebtedness; grant liens on assets; enter into certain investments; consummate fundamental change transactions; engage in mergers or acquisitions or dispose of assets; enter into certain transactions with
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affiliates; make changes to our fiscal year; enter into certain restrictive agreements; and make certain restricted payments (including for dividends and stock repurchases, which are generally prohibited, except in a few circumstances and/or up to specified amounts). Each of these limitations are subject to various conditions.
The Term Loan is subject to an interest only period which lasts until December 4, 2022. Commencing December 4, 2022 through and including December 4, 2024, the outstanding principal balance of the Term Loan will be subject to equal quarterly payments of principal based on a 5% per annum amortization schedule, and thereafter a 10% per annum amortization schedule until maturity. Scheduled principal amortization of the Term Loan is $0.2 million per quarter, commencing on March 4, 2023 until December 4, 2024, and is $0.4 million for the remaining two quarters.
The Credit Agreement provides for a $25 million sub-limit for letters of credit. In connection with our entry into the Credit Agreement, we transferred outstanding letters of credit over from the Loan and Security Agreement to the Revolving Credit Facility.
As of August 31, 2021, the Company had $15.2 million outstanding under its Term Loan. The Company had approximately $21.0 million in letters of credit under its Revolving Credit Facility, including $7.2 million in connection with its obligations to its workers’ compensation carrier and $13.8 million in connection with certain lease obligations.
The foregoing summary describes the material provisions of our credit agreements, but may not contain all information that is important to you. We urge you to read the provisions of the Credit Agreement, which has been filed as an exhibit to the registration statement of which this prospectus forms a part.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available-for-sale debt securities at the amounts expected to be collected. The new guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021, and early adoption is permitted. The early adoption of ASU 2016-13 on June 1, 2020 did not have a material effect on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies the treatment of intraperiod tax allocation in certain circumstances, eliminating an exception to recognizing deferred tax liabilities for outside basis differences for foreign equity method investments and foreign subsidiaries when ownership or control changes, and modifying interim period tax calculations when a loss is forecast. In addition, this ASU also requires that enacted changes in tax laws or rates be included in the annual effective rate determination in the period that includes the enactment date and clarifies the tax accounting of a step-up in the tax basis of goodwill. The new guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, and early adoption is permitted. The early adoption of ASU 2019-12 on June 1, 2020 did not have a material effect on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the discontinuation of a reference rate such as LIBOR because of reference rate reform. The ASU is effective for all entities as of March 12, 2020 through December 31,
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2022. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.
CONTRACTUAL OBLIGATIONS
The following table summarizes our significant contractual obligations at May 31, 2021 associated with our debt obligations, insurance contracts and lease agreements for our corporate office:
(in millions)Total20222023202420252026 and after
Debt obligations$15.0 $5.0 $5.0 $5.0 $— $— 
Insurance commitments$8.5 $8.5 $— $— $— $— 
Operating leases$173.4 $8.5 $8.8 $13.1 $15.3 $127.7 
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without significant penalty are not included in the table above.
In addition, subsequent to May 31, 2021, we (i) repaid all amounts under our Loan and Security Agreement and terminated all outstanding commitments thereunder and (ii) entered into a new credit agreement providing for the Term Loan and Revolving Credit Facility, which are described above under “—Liquidity and Capital Resources—Credit Facilities.” Other than this transaction, there were no material changes to the contractual obligations table as of August 31, 2021.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS
Revenue recognition
Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer (“transaction price”). To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price.
At contract inception, we assess the services promised in our contracts with customers and identify a performance obligation for each distinct promise to transfer to the customer a service or bundle of services. Contracts with customers contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation or using the variable consideration allocation exception if the required criteria are met.
The majority of our customers are subject to month-to-month contractual arrangements. Remaining customers are subject to annual contractual arrangements. Subscription revenue is typically billed to customers and collected in the month in which the service is performed. Customers subject to annual contracts are billed based on an annualized usage for the number of existing users in the month the contract is executed. The majority of benefits and insurance related revenue is billed to customers in the month prior to the service being performed and collected from customers prior to the processing of payroll
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for the applicable billing period. Either party may generally terminate the contract upon thirty days’ prior written notice without penalty.
Our revenue recognition policies summarizing the nature, amount, timing, and uncertainty associated with each major source of revenue from contracts with customers are described below.
Subscription revenue
Subscription Revenue represents fees charged to customers for accessing our cloud-based HR administration solution for employee payroll and benefits management, recruiting, and onboarding. The solution facilitates payroll and payroll tax processing, which includes filing and remitting federal, state, and local payroll taxes on behalf of our customers, and benefits administration services related to Company-sponsored health benefit plans. The transaction price is determined based on the number of WSEs and the fixed per employee per month (“PEPM”) rate. Subscription revenue is recognized over the time in which the customer has access to the solution for payroll and benefit processing, recruiting, and onboarding using an output method. Although the transaction price includes variable consideration, as these services qualify as a series of distinct services, we apply the variable consideration allocation exception and allocate the fees to each distinct service period (i.e. each pay period).
Subscription revenue is stated net of the gross payroll and payroll tax amounts funded by our customers. Although we assume the responsibilities to process and remit the payroll and payroll related obligations, we do not assume employment-related responsibilities including determining the amount of the payroll and related payroll obligations, and the worksite employer remains the common law employer of its WSEs. As a result, we are the agent in the arrangement for revenue recognition purposes.
Benefits and insurance related revenue
Benefits and insurance related revenues consist of insurance-related amounts collected from customers and withheld from covered employees for risk-based and non-risk based insurance plans primarily provided through third-party insurance carriers, including employee health insurance benefits and workers’ compensation insurance. Our performance obligation is to provide access to our sponsored health benefits and insurance coverage through insurance policies provided by third-party insurance carriers under its benefits and insurance related revenue consisting of state unemployment insurance (“SUI”), workers’ compensation insurance, and health insurance benefits provided to WSEs under our sponsored plans.
SUI revenue is recognized over the monthly period using an output method in which the control of the promised services is considered transferred when a customer’s payroll is processed over the contract period. For workers’ compensation insurance and health insurance benefits, we recognize revenue over the monthly period of time that the customer and WSEs are covered under our sponsored insurance policies.
The transaction price for SUI is based on the payroll costs of WSEs serviced and the applicable state’s tax rate. For workers’ compensation insurance, the transaction price is determined as a percentage of payroll processed by us. The transaction price for our health insurance benefits is based on the number of WSEs serviced, the individual benefits elected by the WSEs, and the fees established by us for the various benefits. Although the transaction price for these performance obligations are variable, as these services qualify as a series of distinct services, we apply the variable consideration allocation exception and allocate the fees to each distinct service period.
Benefits and insurance related revenue is recorded on a gross basis as we are considered the principal for each of the performance obligations noted above as we control payment for SUI, along with the selection of workers’ compensation and health benefit coverage made available.
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Disaggregation of revenue
Substantially all of our revenues relate to services transferred over time and we do not recognize any significant revenue for products and services transferred at a point in time.
Deferred revenue
Deferred revenue represents advance payments received from customers for PEO services, which include payroll, human resources, and compliance support, and are deferred and recognized as revenue over the contract period as the performance obligations are satisfied. In instances where the timing of revenue recognition differs from the timing of advance payments, we have determined our contracts do not include a significant financing component as the related performance obligations are generally satisfied within one year. As of May 31, 2021 and May 31, 2020, the balance of deferred revenue was $86.8 million and $67.4 million, respectively. The majority of our deferred revenue balance is collected from customers one month preceding the month of revenue recognition and relates mainly to benefits and insurance-related revenue. Approximately $60.1 million of the deferred revenue balance as of May 31, 2020 was recognized into revenue during the first quarter of fiscal year 2021.
Costs to obtain revenue contracts
Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions are deferred and amortized on a straight-line basis over the estimated average customer life which we have determined to be approximately seven years. Deferred sales commissions were $21.2 million and $18.7 million at May 31, 2021 and May 31, 2020, respectively. During fiscal year 2021, we capitalized $6.5 million of sales commissions compared to $7.5 million in fiscal year 2020. We amortized $4.0 million in sales commissions during fiscal year 2021 compared to $3.1 million in fiscal year 2020, which is included in sales and marketing expenses in the accompanying consolidated statements of operations.
Leases
At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement including the use of an identified asset(s) and our control over the use of that identified asset. We have elected, as allowed under ASC Topic 842, Leases, to not recognize on our consolidated balance sheets leases with a lease term of one year or less. Leases with a term greater than one year are recognized on the consolidated balance sheets as right-of-use assets and current and noncurrent operating lease liabilities, as applicable.
We evaluate the classification of our leases as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or (v) the leased asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease. A lease is classified as an operating lease if it does not meet any of these criteria. Currently, all of our leases are classified as operating leases.
Operating lease liabilities and their corresponding operating lease right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received or paid. We typically only include the initial lease term in our assessment of a lease arrangement. Options to extend a lease are not included in our assessment unless there is reasonable certainty that it will renew. We monitor our plans to renew our material leases based on current economic factors and as circumstances may change.
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The interest rate implicit in our leases is typically not readily determinable. As a result, we utilize our incremental borrowing rate, which reflects the fixed rate at which we could borrow, on a collateralized basis, the amount of the lease payments in a similar economic environment over the lease term.
Lease cost for operating leases is recognized on a straight-line basis over the lease term as an operating expense. We elected to combine lease and non-lease components and there is $5.3 million due to tenant improvements included in the right of use asset balance. Variable lease costs are expensed as incurred as an operating expense.
Workers’ compensation costs
Our workers’ compensation coverage has been provided through an arrangement with an insurance carrier since 2016. The insurance carrier is a fully insured policy whereby it has the responsibility to pay all claims incurred regardless of whether we satisfy our responsibilities. Under the plan, and through May 31, 2021, we bear the economic burden for the first $0.5 million layer of claims per occurrence. As of June 1, 2021, the deductible threshold was increased to $1.0 million. The insurance carrier bears the economic burden for all claims in excess of this level.
Because we bear the economic burden for claims up to the levels noted above, such claims are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.
We consult with a third-party actuarial service to assist with establishing actuarial reserving methods to arrive at a range of ultimate loss indications by policy period, from which we select the ultimate loss development rate. These factors are based on overall workers’ compensation industry trends as well as geographic locations, industry segments, and payroll classifications within our program, in addition to actual claims activity processed by the insurance carrier. We consider these rates to be reasonable.
At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (claim funds). The level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Our estimate of incurred claim costs expected to be paid within one year are included in accrued expenses and other current liabilities while the estimate of incurred claim costs expected to be paid beyond one year are included in other noncurrent liabilities on our consolidated balance sheets. Expenses associated with both liabilities are recorded in benefits and insurance fees within the consolidated statements of operations. The breakout between short-term and long-term workers’ compensation liabilities can be seen below:
(in millions)May 31, 2021May 31, 2020
Accrued workers’ compensation short-term$2.1 $2.0 
Accrued workers’ compensation long-term$4.1 $2.9 
For the years ended May 31, 2021 and 2020, the undiscounted workers’ compensation costs for claims and premiums were $22.1 million and $18.0 million, respectively.
Stock-based compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employees. We measure stock-based compensation cost at grant date, based on the estimated fair value of the award, and recognize the expense straight-lined over the employee’s requisite service period. Compensation expense associated with stock options are based on the estimated grant date fair value method using the Black-Scholes option pricing model. Expense is recognized using a straight-line
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amortization method over the respective vesting period, with adjustments to expense recognized in the period in which forfeitures occur.
Key Assumptions
Our Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of our common stock, risk-free interest rates, the expected term of the option, and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
•Fair Value of Our Common Stock. Because our stock is not publicly traded, we must estimate the fair value of our common stock, as discussed in “—Common Stock Valuations” below.
•Expected Volatility. As we have not been a public company and do not have a trading history for our common stock, the expected stock price volatility for our common stock is estimated by taking the average historical price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers, which we have selected, consist of several public companies in the industry similar in size, stage of life cycle, and financial leverage. These industry peers are also used in our common stock valuations. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock 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 is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.
•Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, we base our expected term for awards issued to employees or members of our board of directors on the simplified method, which represents the average period from vesting to the expiration of the stock option.
•Expected Dividend Yield. We have never declared or paid any cash dividends to common stockholders and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero.
Common Stock Valuations
Prior to this offering, given the absence of a public trading market for our common stock, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised its reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of fair value of our common stock, including:
•contemporaneous valuations of our common stock performed at periodic intervals by independent third-party valuation firm;
•the prices of recent preferred stock sales by us to investors in arm’s-length transactions;
•the price of sales of our common stock and preferred stock in secondary transactions by existing stockholders to investors;
•our capital resources and financial condition;
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•our historical operating and financial performance as well as our estimates of future financial performance;
•valuations of comparable companies;
•the liquidation preferences, rights, and privileges of our preferred stock classes relative to our common stock;
•the likelihood and timing of achieving a liquidity event, such as an initial public offering or sale of the Company;
•macroeconomic trends and conditions and our industry outlook;
•the relative lack of marketability of our common stock; and
•additional objective and subjective factors relating to our business.
In valuing our common stock, absent an arm’s-length pending or recent round of financing, the fair value of our business, or equity value, was determined using both the income approach and market approach. The income approach estimates the fair value of a company based on the present value of the company’s future estimated cash flows and the residual value of the company beyond the projection period. These estimated future cash flows are discounted to their present values using a discount rate that reflects the risks inherent in the company achieving these estimated cash flows, as well as the time value of money. The market approach estimates value based on a comparison of a subject company to comparable public companies in a similar line of business. From the comparable companies, representative market value multiples are determined and then applied to the subject company’s financial results to estimate the value of such company.
The resulting equity value was then allocated to each share class using an Option Pricing Model (“OPM”). Under the OPM, preferred and common stock are treated as a series of call options, with preferred stock having an exercise price based on the liquidation preference of the respective preferred share. The OPM operates through a series of Black-Scholes option pricing models, with the exercise prices of the options representing the upper and lower bounds of the proceed ranges that a security holder would receive upon a liquidity event. The strike prices occur at break points where the allocation of firm value changes among the various security holders. The shares of common stock are presumed to have value only if funds available for distribution to shareholders exceed the value of the respective liquidation preferences at the time of a liquidity event.
Beginning in July 2021, a separate analysis for an initial public offering was incorporated into the above approach. An OPM was built that assumed the conversion of preferred shares and calculated break points according to the allocation of proceeds at the liquidity event. In light of our expected near-term initial public offering, a fully-diluted analysis was then conducted, whereby our common stock was considered economically equivalent to our preferred stock.
For each valuation date, after the common stock value was determined, a discount for lack of marketability (“DLOM”) was applied to arrive at the fair value of the common stock on a non-marketable basis. A DLOM is a concept used in the valuation field to acknowledge that ownership in a private company is more difficult to sell than ownership in a publicly-held company whose shares are traded in an established market. A market participant purchasing such an ownership interest would generally recognize the illiquidity associated with such interest, which would reduce its overall fair value. As such, a DLOM is applied to reflect its lack of liquidity and ready market.
For each valuation date, our board of directors also, to the extent applicable, considered secondary transactions involving our capital stock, including tender offers and preferred series financings. In its evaluation of such transactions, our board of directors considered the facts and circumstances of each
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transaction to determine the extent to which they represented a fair value exchange. Factors considered included:
•transaction volume;
•proximity in time to other transactions as well as the valuation date;
•frequency of similar transactions;
•whether the transactions occurred between willing and unrelated parties; and
•whether the transactions involved parties with sufficient access to our financial; information from which to make an informed decision on price.
Application of the above approaches involved the use of highly complex and subjective estimates, judgments, and assumptions, such as those regarding our expected future revenue, expenses, future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events.
Following this offering, our common stock will be publicly traded, and we will rely on the closing price of our common stock as reported on the date of grant to determine the fair value of our common stock.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of exposure to potential changes in interest rates. 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.
Interest Rate Risk
Our primary market risk exposure is changing interest rates in connection with our credit facilities. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors, and other factors beyond our control. As of August 31, 2021, we had outstanding floating debt obligations of $15.2 million (consisting, in each case, of the principal balance under our existing credit facilities). A hypothetical 10% change in interest rates during the years presented would have resulted in changes to interest expense of $0.1 million for the years ended August 31, 2021.
Our cash and cash equivalents as of August 31, 2021 consisted of 109.9 million in cash which includes an immaterial amount of money-market funds. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash and cash equivalents.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition, or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases or other corrective measures. Our inability or failure to do so could harm our business, financial condition, and results of operations.
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BUSINESS
Overview
Justworks is a cloud-based software platform that gives small and medium-sized businesses (“SMBs”) access to benefits, payroll, human resources (“HR”), and compliance support—all in one place. We drive economies of scale via co-employment, enabling attractive cost savings for our customers and providing them a richer suite of benefits for their employees. We believe we are the first provider to combine this powerful demand aggregation dynamic with a simple, intuitive user experience and 24/7 expert support—enabling entrepreneurs and SMBs to grow with confidence. That is why over 8,000 customers across all 50 U.S. states representing almost 140,000 worksite employees (“WSEs”), as of November 30, 2021, trust Justworks as their human capital management (“HCM”) platform.
For SMBs, particularly those with less than 100 employees who collectively represent over 40 million people in the United States, the vast majority of HCM tasks are manual or paper-based. These tasks can require an outsized amount of time for managers, distracting them from what matters most—running their businesses. Given their size, SMBs also often struggle to attract and retain top talent due to the relative cost of securing benefits packages in-line with what larger organizations are able to offer. Meanwhile, regulations often place a disproportionate burden on SMBs, particularly those with geographically distributed teams, forcing them to deal with complex compliance hurdles they are ill-equipped to handle.
Justworks modernizes nearly every aspect of people management for SMBs through our all-in-one and highly-scalable, cloud-based software. We combine a modern HCM platform that is purpose-built for entrepreneurs and emerging businesses with payroll and tax processing services, compliance solutions, and access to comprehensive employee benefits. We are able to sponsor and maintain a broad range of attractive benefits plans by aggregating employees from many small businesses into a single large entity known as a professional employer organization (“PEO”).
Our platform is designed for SMBs with under 100 employees, a typically underserved portion of the market, yet we often retain larger customers as they scale. Our product-market fit, award-winning support, and brand affinity within this segment of the SMB market has enabled us to establish a 5-year historical average Net Promoter Score® (“NPS”) of 58% for the fiscal year ended May 31, 2021, as compared to a 5-year historical average HR services industry NPS of around 16%, according to the ClearlyRated 2021 NPS Benchmarks for HR Service Providers.
We built our entire platform from the ground up for our customers with a focus on ease-of-use, while obsessing over our product design and brand. Together with our investments in self-service, simple user experience, and automation, our approachable identity is a key part of what enabled us to drive a subscription revenue net retention rate of 117% for the last fiscal year.
We have a cost efficient go-to-market engine, combining an inside sales team for established SMBs and an automated self-enrollment funnel for emerging businesses. This funnel represented 15% of new business during the twelve months ended August 31, 2021. Additionally, we engage with professional services providers such as insurance brokers and accountants to acquire more customers. This has enabled us to drive a lifetime value to customer acquisition cost ratio of 5.7x during the twelve months ended August 31, 2021.
Our team is led by our founder and CEO, Isaac Oates, and a deep bench of leaders with highly relevant industry experience, averaging 24 years. We thrive in a founder-led and entrepreneurial culture, allowing us to adjust to market changes with agility and make strategic decisions decisively. Justworks is also consistently ranked as a top place to work. In 2021, our team won the Gold and Silver Stevie® Awards for Sales & Customer Service, including for our COVID-19 response; we secured a top-three placement in Selling Power’s “50 Best Companies to Sell For” rankings for the fourth consecutive year; and we were recognized by Fortune Magazine and Great Place to Work® as one of the “Best Workplaces in NYC” for the fourth time.
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Our business has experienced significant historical growth, has strong margins, is highly capital efficient, and enjoys a significant degree of predictability. For the fiscal years ended May 31, 2021 and 2020, we generated:
•Total revenue of $982.7 million and $742.4 million, respectively, representing 32.4% year-over-year growth;
•Gross profit of $106.1 million and $77.1 million, respectively;
•Contribution profit of $139.8 million and $103.7 million, respectively;
•Adjusted gross profit of $107.4 million and $78.1 million, respectively;
•Income from operations of $12.8 million and loss from operations of $21.3 million, respectively; and
•Adjusted income from operations of $17.8 million and adjusted loss from operations of $5.3 million, respectively.
Contribution profit, adjusted gross profit, and adjusted income from operations are non-GAAP financial measures. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on our non-GAAP financial measures.
Industry Background
Human capital management is critical to the success of every organization. Labor costs, which include wages, benefits, taxes, onboarding, training, time and attendance, and performance management, are often the biggest costs of doing business. In addition to the expense, many of these items also require compliance with federal, state, and local employment laws, which can be a significant burden on management’s time and focus.
As a result, the HCM market is large, growing, and highly fragmented. It is comprised of various software and service providers who range from offering point solutions to fully outsourced HR services. Companies of different sizes often approach HCM in a variety of ways based on their geographic footprints, available resources, internal expertise, and other company-specific needs and factors.
Entrepreneurs and SMBs, in particular, are disproportionately affected by the time and resources required to handle these administrative tasks, which can distract them from focusing on their core business. While software-based point solutions can streamline and centralize the HR workflow, these solutions still require the SMBs to manage and integrate the software themselves.
Alternatively, SMBs can have their HR function managed by a provider through a PEO model which provides access to payroll, benefits, compliance and risk management, among other aspects of the HR workflow, all in one solution.
We believe the PEO model represents an attractive component of the HCM industry as it helps businesses manage the full HR workflow, navigate rising regulatory complexities, and offload the significant administrative burden—allowing companies to focus on their core operations.
PEO Model Overview
In a PEO model, SMBs engage in a contractual relationship with the PEO provider known as co-employment. This allows the provider to aggregate many WSEs at their customers’ businesses under a single federal employer identification number (“EIN”) and file employment taxes on a consolidated basis. It also provides WSEs access to more attractive benefits and insurance plans that come with the scale of a larger employee base. The PEO model also involves managing certain employment-related and insurance risks.
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The PEO model helps SMBs by outsourcing HR functions including:
•Payroll. Process automated payroll deposits and other types of one-off payments and handle related payroll taxes.
•Benefits. Handle all aspects of employee benefits administration, such as facilitating plan selection, claims support, and other benefits-related paperwork. The PEO model also provides WSEs access to a wider variety of medical, dental, and vision coverage at more affordable rates than what an SMB would be able to provide.
•HR. Allow businesses to manage their people via tools to handle onboarding, training, tracking paid time off, time and attendance, and performance management.
•Compliance. Assist businesses with their employer-related compliance needs including new hire reporting, workers’ compensation coverage, employment payroll tax filings, W-2 processing, Employment Practices Liability Insurance (“EPLI”), and State Unemployment Insurance (“SUI”) filings.
Industry Trends
Operating a small business is getting increasingly harder—seemingly requiring more time to stay on top of HR-related tasks and regulations each year. We believe that several key trends are converging to create opportunity for Justworks to capture market share from other HCM providers:
•Millennial and Gen Z populations prefer a self-service model with limited touch points. According to the Department of Labor, the Millennial and Gen Z population is projected to comprise 46% of the total workforce in 2021 and 56% of the total workforce by 2026. Meanwhile, as reported in a Gartner survey, “of more than 4,500 customers conducted in December 2020 revealed that most millennials (62%) and Gen Z customers (75%) report they would use noncompany guidance to self-resolve their issues either all or most of the time, even when they have the option of contacting customer service. This is a significant difference from the 19% of baby boomers and 43% of Gen X customers who report they would do the same.” For more information on the Gartner Content, see the section titled “Market and Industry Data”.
•Businesses are using more digital work processes. Companies are increasingly adopting digital solutions to create efficiencies in the workplace and improve the overall employee experience. According to MarketsandMarkets, the global digital workplace market is expected to grow from $22.7 billion in 2020 to $72.2 billion in 2026, representing a 21% compound annual growth rate. Digital work processes also allow companies to attract and retain employees, mitigate risks, and adhere to regulatory requirements.
•Businesses are increasingly geographically distributed. In recent years, the workforce has become more geographically distributed, a trend that has only been further accelerated by COVID-19. Companies are becoming more flexible as to where their employees work geographically. According to the May 2020 “Survey of Business Uncertainty” conducted by the Atlanta Federal Reserve, 5-6% of employee working days were spent at home prior to the pandemic. This figure is expected to settle to around 16% post-pandemic—a threefold increase over the pre-COVID-19 status quo.
•Regulation of employee benefits are becoming increasingly complex and expensive, making PEOs more attractive. There are currently more than 180 federal employment laws. This does not include the large and growing number of regulations that businesses need to comply with on a state and local level. For example, together, New York and California passed more than 35 new employment laws that took effect in 2020 and 2021. Moreover, regulation at the federal, state, and local levels can change materially and suddenly with the introduction of a major new piece of regulation, such as the Affordable Care Act (“ACA”). At the same time, small-
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group insurance premiums have been rising quickly and consistently. According to a survey conducted by Aon, the average medical plan premium has increased approximately 8% annually over the past 10 years. This complexity and expense has made PEO services more attractive. Research by the National Association of Professional Employer Organizations (“NAPEO”) showed average annual health benefits cost savings of 37% per employee for businesses using a PEO versus those that do not. In addition, the complexity of assembling a diverse range of plans and options for employees makes utilizing a PEO model increasingly attractive for SMBs.
•Talent acquisition and retention is becoming increasingly more competitive. The market for hiring quality talent has become increasingly competitive. According to a survey by the Society for Human Resource Management (“SHRM”), 46% of respondents said health insurance was either the deciding factor or a positive influence in choosing their current job. Further, the three main drivers in evaluating their satisfaction with the plan were coverage, cost, and choice. As companies seek to hire and retain talent, it is critical that they are able to provide comprehensive insurance, benefits coverage, and health and wellness perks that meet the expectations of the modern workforce.
Key Challenges Our Customers Are Facing
There are several key challenges SMBs face, particularly those with less than 100 employees, when managing their HCM needs, including:
•SMBs often struggle to manage critical HCM needs in an efficient and comprehensive manner. Small businesses often lack the internal resources and experience necessary to effectively and cost-efficiently address all of their HCM needs. Point solutions may solve individual needs of organizations but are often time consuming and difficult to integrate with other products, minimizing their effectiveness. Meanwhile, many legacy PEO service providers do not offer cloud-native solutions and are often disparate and labor-intensive to administer, driving up costs.
•Many legacy service providers offer cumbersome solutions while lacking self-service options. Many legacy PEO service providers’ solutions are complex and confusing, ultimately impacting the customer and employee experience. Everyday HCM tasks, from adding or removing an employee to the platform to requesting benefits enrollment changes, often require interaction with the PEO via a phone call or email.
•Managers often lack the time, experience, and resources necessary to handle personal and time-consuming employee issues. Benefits enrollment, payroll taxes, and related changes can be highly personal and complicated. Employees are often uncomfortable going to their manager to discuss private, sensitive, and health-related benefits questions. Furthermore, managers often do not have the time or expertise to deal with these issues. Legacy PEO service providers’ customer service teams are frequently unauthorized or unable to directly address and resolve employee questions and requests.
•Pricing tends to be opaque and counterintuitive. Many legacy PEO service providers do not publish their pricing models and have opaque invoices, often causing significant customer frustration. This lack of transparency can ultimately lead to higher costs with less money available for employee benefits.
•Lack of scale can be a barrier to access high-quality, cost-effective benefits. SMBs, particularly those with less than 100 employees, are disadvantaged relative to larger businesses with the scale and resources to secure quality benefits options, especially health insurance. Ultimately, this can impact an SMB’s ability to recruit and retain high quality talent.
•The complex web of regulations creates a disproportionate burden on small businesses. Regulations often overlap and vary significantly across states and counties, making it difficult for
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companies, and specifically SMBs, to keep up and ensure compliance. This complexity has only been exacerbated with more companies operating with distributed teams across multiple jurisdictions. Additionally, SMBs are often ill-equipped to monitor and react to sudden and material changes in the regulatory environment. Over the past several years, these changes have included the ACA and the Coronavirus Aid, Relief, and Economic Security Act (“CARES”).
The Benefits of Our Differentiated Platform
Our PEO platform modernizes the HCM functionality most critical for SMBs with less than 100 employees through our cloud-based solution, with the following key benefits:
•All-in-one cloud-based software platform that we built for our customers from the ground up. We are a scalable 100% cloud-based software platform, supporting over 8,000 customers across all 50 U.S. states and almost 140,000 WSEs as of November 30, 2021. We enable HCM managers and employees alike to quickly and securely access benefits, payroll, and other HR functionality from anywhere, anytime. Our cloud-based software platform maintains structural cost advantages from onboarding to operating and servicing our customers. Furthermore, our in-house tech stack allows us to efficiently build and integrate solutions as we continually refine our product offering through continuous software updates.
•Intuitive self-service user experience. 71% of our WSEs are Millennials or from Gen Z, who often prefer to handle issues themselves using modern and straightforward software. With an interface that is intuitive, easy-to-use, and automated, our platform was built to be self-service first. Whether it is the CEO adding a new hire or the HR manager choosing to offer new benefits for their employees, it just works, whether at night, over a weekend, or on a holiday. Our reporting tools also enable our customers to make real-time data-driven decisions. Our approachable and easy-to-use software platform is a key part of what has enabled us to create and sustain an experience that we believe our customers and their employees love.
•Direct high-value employee engagement. Our software makes many payroll, benefits, HR, and compliance tasks manageable via self-service, empowering our customer support team to focus on more complex topics and challenges that our customers and their employees may face. This means that the conversations that our customers and their employees have with our team are typically higher value interactions. Although our core customer demographic prefers self-service solutions, which also keep costs low for us, when they need incremental help, they expect support from someone who is empathetic, knowledgeable, competent, and available. We provide this to our customers with a staff that is available 24 hours a day, seven days a week.
•Transparent pricing delivering significant value to our customers. Our transparent pricing structure is published on our website and charged on a per employee basis with no hidden costs, ensuring customers know exactly what they are buying. By cutting through the pricing complexity of legacy PEO solutions, we are able to create customer trust, satisfaction, and loyalty.
•Comprehensive and integrated benefits options. We offer various curated benefits packages to our customers and their employees. These include access to national health insurance from three major carriers at competitive rates. We also offer access to dental and vision coverage, 401(k), Flexible Spending Accounts (“FSAs”), and Health Savings Accounts (“HSAs”), and many other types of benefits with offerings in-line with larger organizations. We believe this ultimately allows our SMB customers to attract and retain high quality talent. Our software also enables us to streamline the benefits selection and enrollment process with greater transparency, education, and self-service features, making the new employee onboarding process seamless and integrated for our customers.
•Frictionless compliance. With numerous, multi-layered regulations that vary significantly across states and counties, we provide compliance and reporting services that are constantly updated and integrated into our platform. Ultimately, this enables our customers to minimize risk and the
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cost of non-compliance, allowing them to focus on running their core business. As new regulations are created and the workforce becomes more geographically distributed, our customers are able to stay in compliance and access new government programs. For example, through November 30, 2021 we were able to help customers identify and secure over $149 million of relief throughout the COVID-19 pandemic via the CARES Act and the Families First Coronavirus Relief Act (“FFCRA”).
Our founder-led and entrepreneurial culture is a critical differentiating factor when our customers select our platform. We strive to foster an environment that allows our employees to thrive, and in turn, provide what we believe to be a world-class customer experience. Ultimately, this engenders significant customer loyalty, as reflected by our 5-year historical average NPS of 58% for the fiscal year ended May 31, 2021.
Our Opportunity
Our cloud-based software platform was purpose-built for our customers, and we believe we are well positioned to serve our target market of SMBs with less than 100 employees as a result. Our product is designed to be used across various industries, with a core set of tools designed to assist our customers in growing their business. This simultaneously allows us to scale without incremental support costs driven by industry specification, or unique needs that arise when customers reach a significant size.
We estimate our current annual addressable market size to be $40 billion. To calculate this estimation, we identified that there are approximately 40 million employees working at companies with less than 100 employees, our target customer size, in the United States, according to the U.S. Bureau of Labor Statistics (“BLS”). Within this segment, our core target market also excludes certain industries. To account for this, we cited the total employment statistics from BLS for 2020, which are available on a per industry basis. Using this data, we identified that there are approximately 97 million employees working at companies of any size excluding the agriculture, state and local government, federal government, educational services, mining, construction, and manufacturing sectors. This represented 74% of the total employees reported by BLS for 2020, excluding state, local, and federal government employees. We then applied this same ratio to the approximately 40 million employees working at companies with less than 100 employees in the United States to estimate that there are roughly 29 million addressable employees in our core target market.
We then applied our annualized average contribution profit per employee per month (“PEPM”) of $113 for the fiscal year ended May 31, 2021 to derive our approximate addressable market size.
Our Growth Strategy
We are dedicated to continuing to differentiate ourselves as the leader in integrated benefits, payroll, HR, and compliance support for SMBs with less than 100 employees across the United States. Key elements of our growth strategy include:
Acquiring newly formed and rapidly growing businesses as customers. Our platform is aimed at addressing the complexity of providing payroll and benefit services to newly formed and growing businesses. Given our estimated addressable market size of $40 billion, we believe our current customer base represents a small portion of the SMB market that could benefit from our platform. To further penetrate this market, we will continue to invest in sales and marketing initiatives and focus on large metropolitan statistical areas with high concentrations of digitally-native businesses. As evidence of our compelling value proposition, our lifetime value to customer acquisition cost ratio during the twelve months ended August 31, 2021 was 5.7x.
Growing and scaling with our existing customers. As of November 30, 2021, we served over 8,000 customers across all 50 states representing almost 140,000 WSEs. Our customer base is largely comprised of businesses in high growth industries such as technology and professional services. As our customers grow and add additional WSEs, our comprehensive cloud-based software platform is able to
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scale alongside them and support their growth. We achieved a subscription revenue net retention rate of 117% for the last fiscal year.
Continuing to innovate and expand our core capabilities. We work with our customers to innovate and expand our core capabilities to make the HR experience for SMBs better and more accessible. For example, we launched Benefits Lab which provides additional integrated benefits such as access to health facilities and digital mental health providers to customers on our Plus plan, as described below. We also recently introduced native e-Signature to increase customer efficiency by allowing them to upload their own HR documents and request signatures from their employees directly in our platform. In the fiscal year ended May 31, 2021, we launched and deployed over 50 product updates, and we will continue investing in our technology to sustain and increase our product leadership and deliver increased value to customers.
Pursuing strategic M&A. Our M&A strategy centers on delivering additional value to our target market of SMBs with under 100 employees through expanded product capabilities and service offerings. For example, in October 2020, we acquired and successfully integrated Boomr, a leading cloud-based time and attendance solution that simplifies and automates the process of tracking employees’ work hours. We will continue to selectively execute M&A to enhance our platform, add new service offerings, and expand into different markets to capture additional share in the SMB market and augment our organic growth.
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Our Platform
Our cloud-based software platform gives SMBs access to benefits, payroll, HR, and compliance support—all in one place. Our simple, easy-to-use software has everything entrepreneurs and small businesses need to run their business with confidence.
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Automated payroll and tax processing. We simplify payroll and one-off payments for employees—whether they are salaried, hourly, full-time, or part-time. Additionally, we file payroll taxes at the federal level, across all 50 states, and in over 2,000 tax localities. We support numerous tax credit programs on behalf of our customers. We also process payments for vendors and contractors.
Time and attendance (Justworks Hours). With Justworks Hours, we bring automation to Time and Attendance to make employers more efficient and compliant, and provide management with tools to track employee productivity. With seamless time tracking for employees and powerful tools like geo-fencing, shift tracking, and automated overtime calculations, customers can save time, stay compliant, and make better decisions.
Access to benefits. We integrate with major health insurance carriers like Aetna, MetLife, Kaiser Permanente, and UnitedHealthcare to give employees access to the type of high-quality medical, dental, and vision plans typically only available in the large employer market. We also offer 401(k) plans, disability insurance, supplemental life insurance, FSAs and HSAs, as well as other plans. In addition to traditional benefits, we also offer modern health and wellness perks like One Medical, Health Advocate, and Talkspace. All of our medical insurance premiums are for policies where our carriers set the premiums and we are not responsible for any deductible.
Workers’ compensation insurance. We provide workers’ compensation coverage to customers, where allowed, through a negotiated contract with one of the top-tier, A-rated insurance carriers. We limit our risk by utilizing a structure which sets financial liability to Justworks at $1 million per occurrence and is currently capped at $16.3 million annually. Our underwriting team reviews the risk profile for potential customers to assess acceptability and applicable charges. We manage the risk of this program by completing regular claims reviews with third party adjusters and conducting internal customer audits. We utilize a third party actuarial firm to assist us in the projection of claims liabilities on a quarterly basis.
HR tools and support. We enable seamless online onboarding for new employees, paid time off management, and powerful pre-built reports with real-time metrics and data. From company handbooks to employment contracts, teams can securely store and send documents for electronic signature with automated reminders. In addition, our team of SHRM- and HR Certification Institute (“HRCI”)- certified HR consultants provide tailored guidance and best practices to customers around managing their people.
Compliance support. We make employment-related compliance and filings seamless including: new hire reporting, EEO-1, and ACA filings, especially for multi-jurisdiction teams. We also provide access to online compliance training and tracking tools which empower our customers to create harassment- and discrimination-free workplaces.
Self-enrollment. For smaller companies, including those hiring employees for the first time, we have built a seamless self-enrollment funnel that enables expedited onboarding. New entrepreneurs can take themselves through the enrollment process necessary to become a Justworks customer without the need to talk to a salesperson.
Self-service software. Our platform empowers employers and employees to accomplish administrative-related tasks on their own. For example, employers can add and terminate employees, generate reports, configure company holidays and time-off policies, and select which benefits to offer employees. Similarly, employees can easily choose their benefits, request time off, and make updates following a qualifying life event, such as getting married, moving, or having a baby.
24/7 support, for employers and their employees. When our customers and their employees need to speak with someone, we offer 24/7 full-service support by phone, email, chat, Slack, or SMS. We help our customers navigate complex employment issues including payroll, taxes, and benefits. Our team also helps our customers’ employees understand their pay stubs and tax withholdings, as well as address more challenging issues including health care insurance and claims. This helps take the burden off of our customers and their employees.
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Pricing plans. We offer our customers two pricing plans, Basic and Plus, to utilize our software. Both plans charge our customers on a per employee per month basis and the details are clearly displayed on our website to ensure transparency.
Our Basic plan costs our customers between $39.00 and $49.00 per employee per month, depending upon how many employees the customer has. Our Basic package includes payroll and payments, HR consulting, 24/7 support, employer tax forms, and filings, workers’ compensation coverage, employment practices liability insurance, 401(k) retirement services, life insurance plans, pre-tax commuter benefits, fitness memberships, and access to our comprehensive HR tools and resources.
Our Plus plan costs our customers between $79.00 and $99.00 per employee per month depending upon how many employees the customer has. Our Plus package includes everything in our Basic package, plus enhanced services, such as employee access to medical, dental, and vision insurance along with HSA and FSA accounts.
The total cost of both our Basic and Plus plans is capped at a maximum of approximately $14,000 per customer per month. Less than 1% of our customer base has reached this cap as of August 31, 2021.
Our Customers
As of November 30, 2021, we served a highly diversified base of 8,000 customers across all 50 U.S. states and had approximately 140,000 WSEs on our platform. Our target customers are businesses with less than 100 employees and our customer base is largely comprised of digitally-native businesses in high growth industries such as technology and professional services. We believe our unique value proposition has allowed us to scale with our customers, as evidenced by our subscription revenue net retention rate of 117% for the last fiscal year.
Case Studies
The examples below illustrate the benefits our customers have experienced as a result of choosing Justworks as their HCM platform.
Shine
Customer since: 2018
Industry: Healthcare Technology
Situation: Shine’s co-founders wanted to give people access to the same support they found in each other as friends. Together, they created an app that acts as a self-care program to help users navigate stress and anxiety. The Shine team started off by sending motivational messages with research-backed content about confidence, happiness, mental health, and productivity. The app officially launched in April 2016 and today helps millions of consumers with daily meditations, motivational messages, and a supportive digital community. While Shine was previously using a legacy PEO, we believe the provider’s complexity, cumbersome user experience, and opaque pricing drove it to look for a better option. As Shine and its community grew, the co-founders needed a solution that would help them to focus more on their business goals and enhance the way they were using their time.
Why Justworks: Shine chose Justworks for our all-in-one platform that was purpose-built for companies of its size. Shine’s co-founders were looking to empower their team with self-service software tools to manage things like time off and track important company documents. They wanted a provider who could not only provide access to medical, dental, and vision insurance but other modern health and wellness benefits too. It was also important to them that Justworks aligned with their modern and inclusive culture and was able to help them speak to what they offered their employees—to ensure the team was taking advantage of all their new benefits.
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Benefit: Justworks provided an easy and seamless way for Shine’s employees to access their benefits and manage time off, as well as make it simple for Shine’s co-founders to manage the administrative details that go into running a business. They also felt more confident knowing that Justworks gave employees a clear sense of their available benefits. Above all, their favorite thing about Justworks was the amount of time they got back. Now, they’re able to use their time more effectively and focus on all the great work Shine is doing surrounding self-care.
Shine onboarded to Justworks with seven employees. As of August 31, 2021, it had 18.
Cultivate Advisors
Customer since: 2019
Industry: Professional Services
Situation: Cultivate was born when its co-founders realized that they shared a passion for helping businesses grow. The company offers tailored advising, access to resources, and a community of small business owners to help entrepreneurs grow their companies. Over time, their firm of advisors grew from just two people to a large, diverse community of professionals who share that same passion. Like many small business owners, the founders spent a lot of time on HR. Cultivate was already using a legacy PEO, but found it labor-intensive to manage. They wanted a modern solution that could help them get that time back, as well as continue to manage the complexity of hiring remote employees across states.
Why Justworks: Cultivate’s co-founders knew they could not settle for just any PEO—they needed one whose commitment to small businesses matched their own. In Justworks, they found a mutual commitment to entrepreneurs and a platform built to serve companies of a similar size as their clients.
Benefit: Justworks provided Cultivate with access to attractive benefits that would appeal to top talent, as well as the means to onboard new hires using a modern, user-friendly platform. In addition, Justworks helped Cultivate navigate complex compliance requirements across multiple states. Our ability to provide compliance support via our PEO, while also providing a modern, easy-to-use platform for employees was a big differentiator for Cultivate. After having a positive experience with Justworks for its own company, Cultivate went on to become part of our channel sales program—leveraging its role as an advisor to other small businesses to recommend Justworks.
Cultivate Advisors onboarded to Justworks with 26 employees. As of August 31, 2021, it had over 50.
Little Cinema Digital
Customer since: 2020
Industry: Digital Media
Situation: Since 2016, Little Cinema has produced bespoke visionary experiences that connect people. Prior to the ongoing COVID-19 pandemic, these were largely for in-person events like theatrical productions and performance art pieces. However, in light of the pandemic, the company decided to pivot its core business model to the building of immersive virtual experiences and became Little Cinema Digital. At the start of this transition, the company did not have a payroll provider and was implementing HR systems on an ad-hoc basis. Little Cinema Digital needed a platform that could handle payroll for employees and freelancers, as well as ensure the company was complying with multi-state employee regulations.
Why Justworks: Prior to joining Little Cinema, Little Cinema’s COO had used our platform in roles at two previous companies that were Justworks customers. In looking to bring more infrastructure and process to HR and compliance in this new leadership role, he was able to easily sign up for Justworks online using our self-enrollment funnel. Once Little Cinema was onboarded, Justworks provided the
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management team with an easy-to-use platform with all the HR tools they needed in one place. They also liked that Justworks provided direct access and support to their employees.
Benefit: Justworks helped Little Cinema Digital quickly scale its team remotely while navigating the compliance challenges of hiring in new states. Justworks also provided the company’s employees access to a benefits package with national coverage, giving them the peace of mind that comes with having access to in-network care regardless of where they are.
Little Cinema onboarded to Justworks with six employees. As of August 31, 2021, it had over 30.
Trainual
Customer since: 2020
Industry: Technology
Situation: Trainual helps growing businesses build interactive training manuals, test employee knowledge, and build scalable processes. After raising its initial Series A funding in 2019, the company wanted to hire top talent from larger technology companies to help support the company’s growth plans. Trainual was already using a modern point solution for its payroll and this same provider’s brokerage network for access to health insurance. To expand its team successfully, Trainual’s Head of People Ops knew that low-quality, high-cost plans would not cut it. This drove Trainual to look for a platform that could help it meet a simple goal: offer more comprehensive benefit plans to its employees without breaking the bank.
Why Justworks: Justworks’ PEO enabled Trainual to create a high-quality benefits offering for its employees. When comparing the plans available through Justworks to those offered by its existing point solution’s brokerage, quality was not the only difference—the cost savings Trainual could pass on to its employees was substantial. Trainual’s Head of People Ops had used Justworks at a former company and loved the ease of use, which helped seal the deal.
Benefit: With Justworks, Trainual was able to offer competitive benefits and a seamless onboarding process for new hires as it grew after raising its Series A. Its employees also got access to a modern platform that allowed them to pick plans and view all their benefits information in one place. Most importantly, Justworks provided Trainual a sense of relief in knowing that its employees had access to high-quality coverage. The team’s positive feedback and satisfaction with the new benefits plans turned out to be a great tool for recruiting new hires.
Trainual onboarded to Justworks with 18 employees. As of August 31, 2021, it had over 50.
Mamava
Customer since: 2018
Industry: Healthcare Technology
Situation: Mamava was founded to make nursing easier for working moms everywhere. The company designs and builds freestanding lactation suites that can be found in airports, offices, event spaces, and other locations across the country. As Mamava began to scale, its administrative challenges grew too. The company wanted to continue offering competitive benefits to its growing team, which included remote employees. Mamava knew it needed a cloud-based solution to help them manage payroll, benefits, HR, and compliance in one place.
Why Justworks: Mamava chose Justworks for its cloud-based platform, which helped it streamline payroll, benefits, and HR for its growing remote team instead of relying on multiple providers. In doing so, Justworks allowed Mamava to focus on its core business operations. In running the numbers,
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management also found that going with Justworks’ all-in-one offering for Mamava’s payroll and benefits was actually going to save them money.
Benefit: Mamava was able to transition many disparate aspects of managing its team to one simple login. Justworks also made it easier to onboard and manage the company’s remote employees across the country and provided the team with access to high-quality health insurance. With Justworks, Mamava is also able to ensure that employees’ W-2s are properly filed and that its people have on-demand access to information about their available benefits. The company also tracks time for its hourly workforce using Justworks Hours, which makes running payroll for employees in multiple states and time zones seamless.
Mamava onboarded to Justworks with 17 employees. As of August 31, 2021, it had over 30.
Customer Success
Our Customer Success (“CS”) team aims to help entrepreneurs and their employees at every stage of the customer lifecycle. This holistic approach has solidified our service brand and reputation as an industry leader in customer support. Our team is U.S.-based and takes a consultative and solution-oriented approach, which is a core part of our unique value proposition as a partner to small businesses.
New customers benefit from a dedicated customer onboarding manager who acts as their single point of contact to help them get the most out of Justworks from day one. After onboarding, larger customers will also work with a dedicated Account Manager who acts as an extension of their team to deliver long-term value of our solutions. All customers, regardless of their size, also have access to our SHRM- and HRCI-certified HR consultants.
Customer Board
The Justworks Customer Board is a select group of Justworks customers who provide valuable input on Justworks’ product and business on an ongoing basis. The board is composed of employers across a broad range of markets, industries, and company sizes that Justworks serves. Through in-person and virtual meetings, the board serves as a valuable stakeholder in the product development and go-to-market process, weighing in on key milestones and overall strategy.
NPS and Closed-Loop Customer Feedback
Customer satisfaction is a priority, as evidenced by our subscription revenue net retention rate of 117% for the last fiscal year and our 5-year historical average NPS score of 58% for the fiscal year ended May 31, 2021. Furthermore, we achieved our highest-ever NPS of 66% during the early months of the pandemic, representing the trust that customers place in our team—especially during times of crisis. We respond to all customer surveys and share key insights across the company, which helps to create a feedback loop of improvement across product, marketing, and sales.
Award-winning Team
For four years running, our CS team has been recognized as a Silver award winner in the highly competitive “Customer Service Department of the Year” category in the annual Stevie® Awards for Sales & Customer Service. In 2021, our team was acknowledged for its quality assurance function, continued investment in Floor Coaching, innovative approach to health insurance renewals, and its new anti-harassment policy implemented as part of the company’s BLM commitments. In prior years, our CS team has been recognized for its employee development opportunities, the launch of 24/7 support, and omni-channel availability.
Quality Assurance
We employ a quality assurance team which is focused on the continuous improvement of our Customer Service capabilities. This team ensures that our representatives consistently provide our customers and their employees with a differentiated experience.
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HR Expertise
We have a team of SHRM- and HRCI-certified HR consultants that partner with our customers to ensure they receive specialized HR guidance on sensitive employee-related issues. We also aim to provide the broader SMB community with expert advice to support their businesses. For example, we launched a new webinar series called “Ask an Expert” where various industry leaders provide guidance and advice to small business owners and managers. Past topics have included managing distributed teams, navigating mental health at work, financial planning, and picking health insurance during a pandemic. To accompany the webinar series, we run customer workshops where customers can share advice and stories.
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Sales and Marketing
To drive depth in key markets and bring newly formed and growing businesses onto our platform at scale, we built an efficient and differentiated customer acquisition engine. Throughout the prospect journey, we lead with compassion, integrity, simplicity, and transparency. Our transparent pricing can be easily found on our website, which is an important step in building trust with small business leaders.
Our sales experience is consultative, providing prospects with clear insights into what it means to be a Justworks customer. To consistently achieve this at scale, all sales representatives go through a robust 12-week training program covering our products and services, how we solve key business issues for our customers, and how to take a value-driven approach in the sales process. We focus on the best ways to educate our customers, build deep relationships in the sales process, and the mission-critical nature of our product. For example, sales representatives learn how to guide prospects in building a benefits strategy that meets the needs of their business and team.
We also offer a seamless online self-enrollment funnel that enables expedited onboarding. New entrepreneurs can take themselves through the enrollment process necessary to become a Justworks customer without the need to speak with a sales representative, including health insurance and workers compensation quoting.
Our sales and marketing department is aligned geographically with our key markets. We invest in high-impact advertising and other brand building efforts to drive awareness, trust, and interest where our sales representatives are prospecting. We believe it is critical to have a diversified demand channel strategy in order to calibrate effectively in response to real-time developments in the broader SMB market.
We drive customer acquisition through four main channels:
Account Executives (“AEs”). AEs are responsible for building an ecosystem of referral channels and deep relationships that enable them to source highly qualified opportunities through outbound efforts and their networks. Junior AEs start with a narrow focus on a specific territory and expand their footprint as they become more tenured.
Sales development. Our Sales Development team is responsible for creating highly qualified opportunities and revenue pipeline. Representatives utilize an outbound sales approach in strategic markets comprised of outreach via email, phone, social media, and events. We have a training program in place for high-performing representatives to become AEs.
Channel sales programs. Our broad channel sales program involves establishing relationships with providers who cater to our target market. This team develops and nurtures relationships with insurance brokers, accountants, and investment firms in order to drive lead flow for our sales team. This is in addition to the referral networks developed by our AEs.
Integrated marketing. We execute integrated inbound campaigns leveraging paid, owned, and earned channels to generate demand. Our data-driven marketing function is focused on driving cost-efficient lead volume through continuous optimization and experimentation of paid advertising programs, as well as scaling organic search and referrals.
Our Team and Culture
As of November 30, 2021, we had a total of 855 U.S.-based corporate employees. We hire people who are intelligent, creative, optimistic, and have a high work ethic. We strive to maintain a culture of belonging and acceptance where people can be themselves, work together, trust each other, innovate, learn, laugh, and have fun. As we work towards our mission, our own people learn, grow, and develop as they realize their potential. We are at our best when we are helping others to be at their best. Even as our
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people leave Justworks and move onto the next leg of their journey, they take with them skills, experience, and confidence.
Our Values
We are united by shared goals and shared motivations at Justworks. These are best summed up in our company values, which are reflected in our products and in our team.
•Camaraderie. We work together towards a higher purpose while having fun.
•Openness. We share information, understand other perspectives, and consider new possibilities.
•Grit. We have the courage to commit and persevere.
•Integrity. We do the right thing and match our words with our actions.
•Simplicity. We make things easy for everyone to understand and do.
Our values guide how we recruit talent, develop employees and managers, design our work environment, structure our organization, foster well-being, and recognize performance.
Diversity, Equity, and Inclusion
We work hard to reflect the world we want to see by leading with diversity, equity, and inclusion principles, a guiding mission and vision, and follow-through.
We strive to create a workplace where diversity of identity, culture, and life experience is the norm and is celebrated authentically and respected consistently, while committing to addressing and tearing down systemic barriers to create a safe, fair, and equitable workplace for all. Our goal is to have a respectful and supportive workplace that enables us to attract and retain diverse talent that represents our customers and community, and to create a workplace where people of all life experiences feel welcomed, supported, and empowered to be a part of the Justworks team.
One way we celebrate our sense of inclusion and community at Justworks is through our Employee Resource Groups (“ERGs”). Like our company as a whole, our ERG program has expanded and evolved over the years. What has remained consistent from the outset, however, is that ERGs are a vital part of the fabric that makes Justworks a great place to work. They give our employees more ways to connect with their peers, learn about and celebrate our differences, and feel supported and included. We offer rewards and recognition to our ERG leaders, commensurate with their additional responsibilities and accountabilities.
We also maintain external partnerships to provide learning, development, and recruitment opportunities to groups that are typically underrepresented in our industry.
Justworks.org
Entrepreneurship is at the heart of the American dream—and the American economy. Each new business creates jobs, spurs innovation, and strengthens its community. Yet starting and running a business in America is akin to navigating an obstacle course. Entrepreneurs have to raise financing, build products, find customers, and ultimately deliver revenues and profits.
This endeavor is challenging enough on its own, but inequities in opportunity along race, gender, and other socioeconomic lines make access to these fundamentals a major obstacle for many entrepreneurs in realizing their potential.
At Justworks, we are driven by our mission to help entrepreneurs and businesses grow with confidence. We know that in order for this to truly and consistently take place, there must be equitable access to resources and opportunities. The charter of Justworks.org is to create equitable access to entrepreneurship. We aim to build on our mission and level the playing field by removing unfair barriers to
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up-and-coming entrepreneurs. To this end, we have reserved 675,180 shares of our Class A common stock for future issuance to Justworks.org to fund and support our social impact initiatives. We plan to issue 67,518 of these shares within 30 days after the closing of this offering and an additional 67,518 of these shares in 2022 (after the initial issuance) and in each year starting in 2023 through 2030. We pledge to donate 1% of our profits going forward to increase equitable access to entrepreneurship.
Technology Infrastructure and Operations
We offer our solutions on a cloud-based platform and a multi-tenant SaaS framework that modernizes nearly every aspect of people management for SMBs and allows customers to access our solutions all in one place. This gives us an advantage over many obsolete and disparate legacy systems which are less adaptable and require longer, costly development and upgrade cycles. Our technology is powered by a cloud configuration leveraging a highly scalable and fault tolerant design offered by our public cloud provider. Our platform is designed to be flexible, scalable, and highly configurable. It is built on a layer of cloud-native services that support integration with other technologies in our customers’ digital ecosystems.
We maintain internal security policies related to network security, logical access, credentialing, passwords, and data classification. We have security controls in our cloud server environment to help ensure that access to hosted data is restricted to appropriate personnel. We also leverage a host of other data security best practices to protect sensitive data (e.g., two-factor authentication, virtual private network, firewalls, patching, vulnerability scans, and tokenization) and validate our internal controls via SOC-1 and SOC-2 audits.
Competition
The market for HCM and payroll processing solutions is fragmented, highly competitive, and rapidly evolving with the onset of new technology. HCM and payroll processing are mission-critical functions of any business and typically require significant investments. Our competitors vary across different markets and range from highly-specialized point solution software packages to a full-suite of integrated HCM solutions from legacy PEO providers and payroll processors such as ADP, Paychex, TriNet, and Insperity, SMB-focused payroll processors such as Intuit and Gusto, cloud-based HCM and payroll software providers such as Paycom, Paylocity, and Paycor, smaller regional PEOs and payroll processors, and other in-house solutions that offer limited functionality and/or scalability.
While we offer a broad set of solutions on a unified SaaS platform for SMBs, many companies offer technologies that compete with certain aspects of our platform. We routinely are compared to competing solutions on a number of aspects or features, including, but not limited to:
•Focus and ability to serve small-to-medium sized organizations;
•Breadth and depth of product availability and functionality, including employee benefits;
•Ease of use;
•Ability to innovate and respond to customers’ needs rapidly;
•Cloud-based technology platform and scalability;
•Product pricing and contract terms;
•Domain expertise in payroll and HCM;
•Quality of implementation and customer service;
•Real-time web-based payroll processing; and
•Integration with a wide variety of third-party applications and systems.
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We believe that we compete favorably on these factors within the SMB market. Our ability to remain competitive will depend on the success of our continued investment in sales and marketing, research and development, and implementation and customer services.
Intellectual Property
Intellectual property is an important aspect of our business and we seek protection for our intellectual property rights as appropriate. To establish and protect our proprietary rights, we rely on a combination of copyright, trade secret and trademark laws, know-how and continuing innovation, and contractual restrictions such as confidentiality agreements, licenses, and intellectual property assignment agreements.
We pursue the registration of our domain names, trademarks, copyrights, and service marks in the United States. To protect our brand, we file trademark registrations in the United States. As of November 30, 2021, we owned six registered trademarks in the United States.
We generally seek to enter into confidentiality agreements and proprietary rights agreements with our employees to control access to, and distribution of, our proprietary information. Our agreements with consultants also contain confidentiality terms. However, we cannot guarantee that all applicable parties have executed such agreements. Such agreements can also be breached, and we may not have adequate remedies for such breach.
Intellectual property laws, procedures, and restrictions provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed, misappropriated or otherwise violated. Furthermore, the laws of certain countries do not protect intellectual property and proprietary rights to the same extent as the laws of the United States, and we therefore may be unable to protect our proprietary technology in certain jurisdictions.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or obtain and use our technology to develop products and services with the same functionality as our platform. Policing unauthorized use of our technology is difficult. Our competitors could also independently develop technologies like ours, and our intellectual property rights may not be broad enough for us to prevent competitors from selling products and services incorporating those technologies. For more information regarding the risks relating to intellectual property, see “Risk Factors—Risks Related to Our Intellectual Property.”
Data Privacy & Security
The protection of identifiable information about individuals, or personal data, that we collect is important for ensuring trust with our stakeholders. In the course of operations, we collect and process a variety of personal data from interactions with customers and visitors, individuals’ use of our websites and/or applications, social media, and advertisements, or individuals’ communications with us relating to any services we offer. We also collect personal data from job applicants, employees and independent contractors, and employees of certain companies with which we work.
We are subject to a variety of data privacy and security laws and regulations across multiple jurisdictions. Such laws and regulations include, but are not limited to:
•Section 5(a) of the FTC Act and state-level Unfair and Deceptive Acts and Practices laws;
•Telephone Consumer Protection Act;
•Controlling the Assault of Non-Solicited Pornography and Marketing Act;
•California Consumer Privacy Act, as amended by the California Privacy Rights Act;
•State-level data security and breach notification laws; and
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•State-level employee email and Internet monitoring laws.
The laws and regulations included above set forth a variety of compliance requirements related to the collection and processing of personal data.
In order to ensure compliance with such requirements, we maintain and continuously develop our privacy program that covers, among other things, training and awareness; vendor management; privacy impact assessment; policy management; and incident management.
We maintain internal security policies related to network security, network security, logical access, credentialing, passwords, and data classification. We have security controls in our cloud environment to help ensure that access to hosted data is restricted to appropriate personnel. We also leverage a host of other data security best practices to protect sensitive data (e.g., two-factor authentication, virtual private network, firewalls, patching, vulnerability scans, and tokenization) and validate our internal controls via SOC-1 and SOC-2 audits. We store, protect, use and transmit personal data in accordance with our online privacy policy and internal data security and data handling policies and procedures, in addition to a variety of industry-standard technical, administrative, and physical measures. We also employ a variety of measures designed to comply with our legal obligations in relation to the collection and processing of personal data and promote the use of fair information practice principles to protect personal data. For more information regarding the risks relating to data privacy and cybersecurity, see “Risk Factors—Risks Related to Technology, Data Privacy, and Security.”
Regulatory Landscape
We are subject to a wide variety of laws, rules, and regulations enforced by both governments and private organizations. The operations for our PEO services are affected by numerous federal and state laws relating to tax, employment and related matters. By entering into co-employer relationships with our WSEs, we assume certain obligations and responsibilities of an employer under these federal and state laws. Because many of these federal and state laws were enacted prior to the development of nontraditional employment relationships, such as PEOs, temporary employment and outsourcing arrangements, many of these laws do not specifically address the obligations and responsibilities of nontraditional employers. Currently, the federal government and 38 states have passed laws that recognize PEOs or require licensing, registration or certification requirements for PEOs, and several others are considering such regulation. The Small Business Efficiency Act established a voluntary IRS certification program and created a federal regulatory framework for the payment of wages to WSEs and for the reporting and remittance of federal payroll taxes on those wages paid by certified PEOs. Many of these rules and regulations are constantly evolving. If we are unable to comply with them, we could be subject to penalties, revocation, or suspension of our licenses or other adverse actions. We may also be required to modify or discontinue some or all of our offerings, and our ability to grow our business and our reputation may be harmed. See “Risk Factors” for a discussion of our regulatory risks.
Facilities
Our headquarters are located in New York, New York, where we lease 236,545 square feet of office space pursuant to a lease expiring in June 2034. We believe that our current facilities are adequate to meet our current needs for the immediate future.
Legal Proceedings
From time to time, we are involved in various legal proceedings arising from the normal course of business activities. We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees. We may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurances that favorable final outcomes will be obtained. See “Risk Factors” for a discussion of our litigation risks.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information for our executive officers and directors, and their ages as of the date of this prospectus.
Name
Age
Position(s)
Executive Officers:
Isaac Oates
41
Founder, Chief Executive Officer, Director
Michael Seckler
48
President, Chief Operating Officer
Aida Sukys
59
Senior Vice President, Chief Financial Officer
Non-Employee Directors:

Charles Berg(1)(3)
64
Director
Matthew Harris(1)
49
Director
Kristina Leslie(1)(2)
57
Director
Karen Magee*(2)(3)
60
Director
Jared Weinstein(2)(3)
42
Director
______________
*Lead Independent Director
(1)Member of the audit committee.
(2)Member of the compensation and leadership development committee.
(3)Member of the nominating and corporate governance committee.
Executive Officers
Isaac Oates. Mr. Oates founded Justworks in 2012 and has since served as our Chief Executive Officer and Chair of our board of directors. Prior to founding Justworks, Mr. Oates served as Vice President, Special Projects at Etsy, Inc., an online retail company, from December 2009 to December 2012. He co-founded and served as the Chief Operating Officer of Adtuitive, Inc., an advertising technology company, from December 2008 to December 2009. Prior to co-founding Adtuitive, Mr. Oates was a Product Manager at Amazon.com, Inc., a multinational Internet company, from June 2007 to December 2008 and a Software Development Engineer from June 2002 to March 2005. Mr. Oates served in the Army National Guard and the United States Army Reserve from February 1998 to May 2010, completing his service as a military intelligence captain. Mr. Oates holds a Bachelor of Science in Computer Science from the University of Illinois at Urbana-Champaign and a Master of Business Administration from Cornell University. We believe Mr. Oates’ experience and perspective as our founder and Chief Executive Officer, as well as his extensive experience with online services platforms, qualifies him to serve as a member of our board of directors.
Michael Seckler. Mr. Seckler has served as our President since June 2021 and Chief Operating Officer since September 2019. He also served as a member of our board of directors from May 2015 to September 2019. He is a co-founder of and has served as a managing member of Euclidean Technologies, an investment management firm, since 2008. Mr. Seckler previously served as a division vice president at ADP, after the firm’s acquisition of Employease, an HR SaaS company that he co-founded in 1996 and built for over a decade. Mr. Seckler holds a Bachelor of Arts from Williams College.
Aida Sukys. Ms. Sukys has served as our Senior Vice President and Chief Financial Officer since February 2021. Prior to joining us, Ms. Sukys held various financial roles at Willis Towers Watson PLC since 1991, including Group Chief Financial Officer and Global Head of Financial Business Services from July 2018 to January 2021, and Head of Investor Relations from January 2012 to July 2018. Ms. Sukys holds a Bachelor of Science from Northeastern University and a Master of Business Administration from George Washington University.
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Non-Employee Directors
Charles Berg. Mr. Berg has served on our board of directors since May 2016. Since March 2007, Mr. Berg has been a director of DaVita Inc., an international dialysis provider, and between 2016 and 2017 he served as the Executive Chair of DaVita Medical Group. Mr. Berg currently sits on the board of directors of CareCentrix, Inc., a care management provider to health plan members who require post-acute or home care services, since June 2020, and Talkspace, Inc., an online therapy services provider, since June 2021. Mr. Berg also currently serves as a member of the Operating Council & Senior Advisory Board of Consonance Capital Partners, a private equity firm. From 2008 to 2013, Mr. Berg served as Executive Chairman of WellCare Health Plans, Inc., a provider of managed care services for government-sponsored healthcare programs. Prior to his role at WellCare Health Plans, Inc., Mr. Berg held various executive positions, including Chief Executive Officer, with Oxford Health Plans, Inc., a health benefit plan provider. Mr. Berg holds a Bachelor of Arts from Macalester College and a Juris Doctorate from Georgetown University Law Center. We believe that Mr. Berg’s leadership experience throughout the healthcare industry qualifies him to serve on our board of directors.
Matthew Harris. Mr. Harris has served on our board of directors since July 2015. Mr. Harris joined Bain Capital Ventures in September 2012 to lead the New York City office, where he currently serves as a Partner. Mr. Harris focuses on business services companies, with a particular interest in financial services. Mr. Harris has served as a member of the board of directors of BTRS Holdings Inc. (f/k/a Factor Systems, Inc. (dba Billtrust)), a provider of cloud-based software and integrated payment processing solution, since January 2021, and prior to this, he served as director of Factor Systems, Inc. (d/b/a Billtrust) since November 2012. Mr. Harris has also served as a member of the board of directors of Flywire Corporation, a global payments enablement and software company, since January 2015, and of AvidXchange Holdings, Inc, a provider of accounts payable automation software and payment solutions for middle market businesses and their suppliers, since July 2015. Prior to joining Bain Capital Ventures, Mr. Harris founded Village Ventures, Inc., an early stage venture capital firm focused on the media and financial services sectors, and served as Managing Director from January 2000 to September 2012. Mr. Harris holds a Bachelor of Arts from Williams College. We believe Mr. Harris’ extensive experience as an investor and board member of a variety of fintech companies qualifies him to serve on our board of directors.
Kristina Leslie. Ms. Leslie has served on our board of directors since April 2019. Ms. Leslie previously served as the Chief Financial Officer of DreamWorks Animation SKG, Inc., a multimedia animation company, from 2004 to 2007. Ms. Leslie has previously sat on the board of directors of many publicly listed companies, including Pico Holdings Inc., a holding company with principal assets in water resource and storage, from 2009 to 2016, and Orbitz Worldwide Inc. from 2011 to 2015. She has served as a director of Sunstone Hotel Investors, Inc., since April 2021, Rover Group Inc., since March 2021, and CVB Financial Corp., since August 2015, and is Chair of the board of directors of Blue Shield of California, where she has served since 2013. Ms. Leslie holds a Bachelor of Arts from Bucknell University and a Master of Business Administration from Columbia University. We believe Ms. Leslie’s extensive experience serving on public company boards, as well as her professional experience as Chief Financial Officer of a large public company, qualifies her to serve on our board of directors.
Karen Magee. Ms. Magee has served on our board of directors since June 2018. Ms. Magee previously served as the Executive Vice President & Chief Human Resources Officer at Time Warner Inc., a media and entertainment conglomerate, from January 2011 to August 2018. Ms. Magee holds a Bachelor of Science in Engineering from Princeton University and a Master of Business Administration from The Wharton School of the University of Pennsylvania. We believe Ms. Magee’s extensive professional human resources and management-level experience qualifies her to serve on our board of directors.
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Jared Weinstein. Mr. Weinstein has served on our board of directors since November 2015. Mr. Weinstein has served as Partner and Chief Operating Officer of Thrive Capital Management, LLC, since September 2011. Mr. Weinstein also serves on the board of directors of several other private and non-profit entities. Mr. Weinstein holds a Bachelor of Arts from Duke University and a Master of Business Administration from Stanford University. We believe Mr. Weinstein’s extensive investment management and financial experience qualifies him to serve on our board of directors.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Composition and Election of Directors
Our board of directors currently consists of six members. Pursuant to our amended and restated certificate of incorporation as in effect prior to the completion of this offering and our fourth amended and restated voting agreement, our directors were elected as follows: (i) Jared Weinstein was elected by the holders of our Series A preferred stock and/or Series A-1 preferred stock, as the designee of Thrive Capital Partners III, L.P., (ii) Matthew Harris was elected by the holders of our Series B preferred stock and/or Series B-1 preferred stock, as the designee of Bain Capital Venture Fund 2014, L.P., (iii) Karen Magee was elected by the holders of our Class B common stock, as the designee of our founder and Chief Executive Officer, Isaac Oates, (iv) Charles Berg was elected by the holders of a majority of our Class A common stock and Class B common stock, voting as a single class, (v) Isaac Oates was elected by the holders of our capital stock, and (vi) Kristina Leslie was elected by the holders of our capital stock, as an independent director designated by the majority of the foregoing directors. The provisions of our amended and restated certificate of incorporation and the fourth amended and restated voting agreement by which the directors are currently elected will terminate in connection with this offering and there will be no contractual obligations regarding the election of our directors following this offering.
Following this offering, the number of directors will be fixed by our board of directors, subject to the rights of the holders of any series of our preferred stock to elect directors and further subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws that will become effective immediately prior to the completion of this offering. Each of our current directors will continue to serve until the annual meeting at which such director’s term expires and until the election and qualification of his or her successor, or his or her earlier death, resignation, disqualification, or removal.
Director Independence
We have applied to list our Class A common stock on the Nasdaq. Under the rules of the Nasdaq, independent directors may comprise a majority of a listed company’s board of directors within one year following the listing date of the company’s securities. Under the rules of the Nasdaq, a director will only qualify as an “independent director” if that that company’s board of directors affirmatively determines that such person does not have a relationship with the company that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has undertaken a review of the independence of each director and, based on the information provided by each director concerning his or her background, employment and affiliations, our board of directors has determined that Charles Berg, Matthew Harris, Kristina Leslie, Karen Magee, and Jared Weinstein qualify as independent directors in accordance with the Nasdaq rules. Our board of directors has made a subjective determination as to each independent director that no relationships exists that, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board of directors reviewed and discussed information provided by the directors and us with regard to each director’s relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each director, and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”
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Classified Board of Directors
In accordance with our amended and restated certificate of incorporation that will go into effect immediately prior to the closing of this offering, our board of directors will be divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors will be divided among the three classes as follows:
•the Class I directors will be Isaac Oates and Charles Berg, and their terms will expire at our first annual meeting of stockholders following this offering;
•the Class II directors will be Matthew Harris and Karen Magee, and their terms will expire at our second annual meeting of stockholders following this offering; and
•the Class III directors will be Kristina Leslie and Jared Weinstein, and their terms will expire at the third annual meeting of stockholders following this offering.
Our amended and restated certificate of incorporation that will go into effect immediately prior to the closing of this offering will provide that the authorized number of directors may be changed only by resolution of the board of directors, subject to the rights of holders of any series of our preferred stock to elect directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of our capital stock representing a majority of the voting power of all of the then outstanding shares of our capital stock entitled to vote thereon, voting together as a single class.
Lead Independent Director
Our board of directors will adopt, effective prior to the completion of this offering, corporate governance guidelines that provide that one of our independent directors may serve as our lead independent director. Our board of directors has appointed Karen Magee to serve as our lead independent director. As lead independent director, Ms. Magee will preside over periodic meetings of our independent directors, serve as a liaison between the Chief Executive Officer, chair of our board of directors, and the independent directors, and perform such additional duties as our board of directors may otherwise determine and delegate.
Role of the Board of Directors in Risk Oversight Process
Risk assessment and oversight are an integral part of our governance and management processes. Our board of directors encourages management to promote a culture that incorporates risk management into our corporate strategy and day-to-day business operations. Management discusses strategic and operational risks at regular management meetings, and conducts specific strategic planning and review sessions during the year that include a focused discussion and analysis of the risks facing us. Throughout the year, senior management reviews these risks with the board of directors at regular board meetings as part of management presentations that focus on particular business functions, operations, or strategies, and presents the steps taken by management to mitigate or eliminate such risks.
Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. While our board of directors has a fiduciary duty to monitor and assess strategic risk exposure, our audit committee is responsible for overseeing our major financial risk exposures and the steps our management has taken to monitor and control these exposures, overseeing cybersecurity risks and assisting the board of directors in its oversight over enterprise risk management. The audit committee
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also approves or disapproves any related person transactions. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines and manages risks associated with the independence of the board of directors. Our compensation and leadership development committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
Committees of the Board of Directors
Our board of directors has established an audit committee, a compensation and leadership development committee, and a nominating and corporate governance committee. Our board of directors may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each committee intends to adopt a written charter that satisfies the applicable rules and regulations of the SEC and Nasdaq, which we will post on our website at www.justworks.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.
Audit Committee
Our audit committee oversees our corporate accounting and financial reporting process. Among other matters, the audit committee’s responsibilities include:
•appointing, approving the compensation of, and assessing the independence of our registered public accounting firm;
•overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm;
•assisting the board of directors in its oversight of enterprise risk management;
•reviewing and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related disclosures;
•reviewing our internal control over financial reporting and code of business conduct and ethics and the procedures in place to enforce the code;
•discussing our risk management policies;
•meeting independently with our internal auditing staff, registered public accounting firm, and management;
•reviewing and approving or ratifying any related person transactions; and
•preparing the audit committee report required by SEC rules.
Upon the completion of this offering, our audit committee will consist of Charles Berg, Matthew Harris, and Kristina Leslie, with Ms. Leslie serving as chair. We intend to rely on the phase-in rules of Rule 10A-3 under the Exchange Act and Nasdaq rules with respect to the requirement that the audit committee be composed entirely of members of our board of directors who satisfy the standards of independence established for independent directors under Nasdaq rules and the additional independence standards applicable to audit committee members established pursuant to Rule 10A-3 under the Exchange Act. Our board of directors has determined that each of Mr. Berg and Ms. Leslie is independent under the Nasdaq rules and Rule 10A-3 under the Exchange Act. Our board of directors has also determined that each of Messrs. Berg and Harris and Ms. Leslie is an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K. Our board of directors has also determined that each
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member of our audit committee can read and understand fundamental consolidated financial statements and meets the “financial literacy” requirement for audit committee members under the Nasdaq rules.
Compensation and Leadership Development Committee
Our compensation and leadership development committee oversees policies relating to the compensation and benefits of our officers and employees. Among other matters, the compensation and leadership development committee’s responsibilities include:
•reviewing and setting, or making recommendations to our board of directors regarding the compensation of our Chief Executive Officer and our other executive officers;
•making recommendations to our board of directors regarding the compensation of our directors;
•reviewing and approving or making recommendations to our board of directors regarding our incentive compensation and equity-based plans and arrangements;
•overseeing and reviewing with management the company’s strategies, policies and practices with respect to human capital management and management development; and
•appointing and overseeing any compensation consultants.
Upon the completion of this offering, our compensation and leadership development committee will consist of Kristina Leslie, Karen Magee, and Jared Weinstein, with Ms. Magee serving as chair. Each member of our compensation and leadership development committee meets the requirements for independence under the Nasdaq rules, including the Nasdaq rules specific to membership on a compensation committee. Each of Mses. Leslie and Magee and Mr. Weinstein is a non-employee director, as defined in Rule 16b-3 under the Exchange Act.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee oversees and assists our board of directors in reviewing and recommending nominees for election as directors. Among other matters, our nominating and corporate governance committee’s responsibilities include:
•identifying individuals qualified to become board members;
•recommending to our board of directors the persons to be nominated for election as directors and to each board committee;
•reviewing periodically the succession planning for the Chief Executive Officer and other executive officers;
•developing and recommending to our board of directors corporate governance guidelines, and reviewing and recommending to our board of directors proposed changes to our corporate governance guidelines from time to time;
•ensuring that the board of directors is providing regular oversight with respect to the Company’s strategy, policies and ongoing initiatives concerning corporate social responsibility, including environmental and social matters; and
•overseeing a periodic evaluation of our board of directors.
Upon the completion of this offering, our nominating and corporate governance committee will consist of Charles Berg, Karen Magee, and Jared Weinstein, with Mr. Berg serving as chair. Our board of directors has determined that all members of the nominating and corporate governance committee are independent under the Nasdaq rules.
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Compensation and Leadership Development Committee Interlocks and Insider Participation
No member of our compensation and leadership development committee is currently, or has been at any time, one of our executive officers or employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or on our compensation and leadership development committee.
Board of Directors Review and Selection
Our nominating and corporate governance committee will be responsible for reviewing with the board of directors, on an annual basis, the appropriate characteristics, skills, and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, may take into account many factors, including but not limited to the following:
•personal and professional integrity;
•ethics and values;
•experience in corporate management, such as serving as an officer or former officer of a publicly-held company;
•professional and academic experience relevant to our industry;
•experience as a board member of another publicly-held company;
•strength of leadership skills;
•experience in finance and accounting and/or executive compensation practices;
•ability to devote the time required for preparation, participation, and attendance at board of directors meetings and committee meetings, if applicable;
•background, gender, age, and ethnicity;
•conflicts of interest; and
•ability to make mature business judgments.
Our board of directors will evaluate each individual in the context of the board of directors as a whole, with the objective of ensuring that the board of directors, as a whole, has the necessary tools to perform its oversight function effectively in light of our business and structure.
Code of Ethics and Code of Conduct
We have adopted a written code of business conduct and ethics that applies to all of our directors, officers, and employees, including those officers responsible for financial reporting. The full text of our code of business conduct and ethics will be posted on our website at www.justworks.com. Any amendments to the code, or any waivers of its requirements, that are required to be disclosed by SEC or Nasdaq rules will be disclosed on our website. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.
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EXECUTIVE AND DIRECTOR COMPENSATION
Executive Compensation
This section discusses the material components of the executive compensation program for our executive officers who are named in the “2021 Summary Compensation Table” below. For the fiscal year ended May 31, 2021, our “named executive officers” and their positions were as follows:
•Isaac Oates, Chief Executive Officer;
•Michael Seckler, President and Chief Operating Officer; and
•Aida Sukys, Senior Vice President and Chief Financial Officer.
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of the IPO may differ materially from the currently planned programs summarized in this discussion. As an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies.
2021 Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for our fiscal year ended May 31, 2021.
Name and Principal PositionYearSalary ($)Bonus ($)
Option Awards ($) (1)
Non-Equity Incentive Plan Compensation ($)Total
Isaac Oates2021$325,109 $— $38,275 $270,000 $633,384 
Chief Executive Officer
Michael Seckler2021$364,409 $— $45,813 $360,000 $770,222 
President and Chief Operating Officer
Aida Sukys (2)
2021$103,796 $50,000 
(3)
$1,324,950 $90,000 $1,568,746 
Senior Vice President and Chief Financial Officer
______________
(1)Amounts reflect the full grant-date fair value of stock options granted during 2021 computed in accordance with ASC Topic 718, Compensation—Stock Compensation rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all stock option awards made to executive officers in Note 2 to our consolidated financial statements appearing elsewhere in this prospectus.
(2)Ms. Sukys commenced services with the Company on February 22, 2021.
(3)This amount represents a portion of Ms. Sukys’ signing bonus that was payable in March 2021, which remains subject to a partial clawback upon certain terminations of employment, as further described in “—Executive Compensation Arrangements—Aida Sukys” below.
2021 Salaries
The named executive officers receive a base salary to compensate them for services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role, and responsibilities. Ms. Sukys’ annual base salary for 2021 equaled $380,000 and the amount set forth above reflects the amount
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of base salary paid to her from the date she commenced services with the Company, February 22, 2021, through May 31, 2021.
2021 Cash Incentive Compensation
In 2021, we implemented an executive bonus program for certain of our management employees, including our named executive officers. The bonuses were determined based on the achievement of three performance metrics for the Company’s 2021 fiscal year: (1) free cash flow, (2) worksite employees, and (3) Aetna medical loss ratio. Eighty percent (80%) of the annual bonus opportunity (the “Cash Flow/WSE Bonus”) is determined based on free cash flow and worksite employees metrics. If the Company attained its free cash flow target, then the Cash Flow/WSE Bonus was to be paid at 0% to 200% of target based on its level achievement of the worksite employee metric. Twenty percent (20%) of the annual bonus opportunity (the “MLR Bonus”) was determined based on the Aetna medical loss ratio. If the Company attained its Aetna medical loss ratio target, then the MLR Bonus was to be paid at 100% of target. For the Company’s 2021 fiscal year, Mr. Oates had a target bonus payment equal to $150,000, Mr. Seckler had a target bonus payment equal to $200,000 and Ms. Sukys had a target bonus payment equal to $200,000, pro-rated for her days of service in the 2021 fiscal year and such target bonuses were allocated to the Cash Flow/WSE Bonus and MLR Bonus as described above. All three metrics were measured as of the end of the Company’s 2021 fiscal year and the compensation and leadership development committee of the board of directors determined whether each performance metric was achieved. The compensation and leadership development committee determined that the Company achieved the free cash flow and worksite employee metrics at 200% of target and the Company achieved the Aetna medical loss ratio accounts at 100% of target. As a result, each of the named executive officers received annual bonuses under the executive bonus program at 180% of target bonus opportunity for the 2021 fiscal year (prorated for Ms. Sukys). The actual annual cash bonuses awarded to each named executive officer for 2021 performance are set forth above in the Summary Compensation Table in the column entitled “Non-Equity Incentive Plan Compensation.”
In connection with Ms. Sukys’ commencement of employment, she received a signing bonus in the amount of $100,000, payable in two installments, as described below in “Executive Compensation Arrangements – Aida Sukys.”
Equity Compensation
Our named executive officers currently hold stock options, which were granted pursuant to our Second Amended and Restated 2018 Stock Plan, which is summarized below. Specifically, in 2021, Messrs. Oates and Seckler and Ms. Sukys were granted 11,140, 13,334, and 300,000 stock options, respectively, as set forth below. The stock options granted to Messrs. Oates and Seckler were fully vested upon grant. One-fifth of the stock options granted to Ms. Sukys will vest on February 21, 2022 and thereafter, the remaining stock options vest in equal monthly installments, subject to Ms. Sukys’ continued employment with the Company through each applicable date.
The following table sets forth the stock options granted to our named executive officers in the 2021 fiscal year.
Named Executive Officer2021 Stock Options Granted
Isaac Oates.11,140 
Michael Seckler13,334 
Aida Sukys300,000 
Following the end of the 2021 fiscal year, we granted Ms. Sukys two stock option grants, each covering 120,000 shares, in June 2021, and granted Mr. Seckler two stock option grants, each covering 200,000 shares, in July 2021. With respect to each of Ms. Sukys and Mr. Seckler’s grants, 0.833% of the
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stock option will vest after each of the initial 12 months of continuous service (such that 10% of the stock option will be vested after the 12th month of continuous service) and thereafter, the remaining portion of each stock option will vest in equal monthly installments of 2.5% over each of the next 36 months of continuous service. In the event of a change in control, the foregoing vesting schedule will be replaced with the following: 25% of each stock option grant will vest upon one year of continuous service, and the remaining portion of the stock option will vest in equal monthly installments over the subsequent three-year period, subject to continued service. Each of Ms. Sukys’ and Mr. Seckler’s stock option grants was granted at an exercise price of $11.06.
We have adopted the 2022 Incentive Award Plan in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers), and consultants of our company and certain of its affiliates and to enable our company and certain of its affiliates to obtain and retain services of these individuals, which we believe is essential to our long-term success. The 2022 Incentive Award Plan will be effective prior to the effectiveness of this offering. For additional information about the 2022 Incentive Award Plan, please see the section titled “New Incentive Plans” below.
Other Elements of Compensation
Executive Severance Policy
The Company currently sponsors an executive severance policy (the “Executive Severance Policy”), pursuant to which certain employees who have a title of vice president and above are eligible to participate. The Executive Severance Policy is administered by the Company’s board of directors or, if authorized by the board of directors, a committee thereof. In the event a participant in the Executive Severance Policy is terminated without Cause or resigns for Good Reason (each, as defined below), he or she will be entitled to receive, subject to the execution and revocation of a general release of claims and compliance with any applicable restrictive covenants, the following: (a) cash severance payments with an aggregate value equal to the product of (i) fifty percent and (ii) the sum of the participant’s annual base salary and target bonus in effect of the time of termination, payable in six equal monthly installments, (b) a pro-rated target bonus for the fiscal year in which the termination occurs, payable in a lump sum, (c) a $10,000 benefits stipend, payable in a lump sum, (d) for participants in the United States, reimbursement of the participant’s COBRA premiums for the six month period following termination, and (e) an extension of the post-termination exercise period for all outstanding stock options (other than incentive stock options outstanding on September 15, 2020) until the earlier of (i) the two-year anniversary of the participant’s termination date and (ii) the expiration of the option. Further, in the event that the participant’s termination without Cause or due to resignation for Good Reason occurs within three months prior to, or twenty-four months following a Change in Control (as defined in the Executive Severance Policy) (such period, the “CIC Protection Period”), all outstanding equity awards, as of the date of such termination, will vest and become exercisable.
Mr. Oates does not currently participate in the Executive Severance Policy, but will become a participant (and become eligible for payments thereunder) following this initial public offering. Mr. Seckler participates in the Executive Severance Policy and is entitled to the payments described above, except (a) that the CIC Protection Period includes the six month period prior to, and any time following, a Change in Control and (b) as otherwise noted in the section entitled “Executive Compensation Arrangements” below. Ms. Sukys participates in the Executive Severance Policy and is eligible for the payments described above.
For purposes of the Executive Severance Policy, “Cause” means (a) a conviction of, a plea of nolo contendere, or a guilty plea (i) to an act of fraud, misappropriation, or embezzlement or (ii) to a felony which is materially injurious to the Company, (b) an act of gross negligence or willful misconduct which the administrator of the Executive Severance Policy reasonably determines to the materially injurious to the Company, (c) a material breach of any agreement between the participant and the Company or failure to comply with the Company’s material policies or rules, (d) an unauthorized use or disclosure of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the
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Company, or (e) a continuing failure to perform assigned duties after receiving written notification of the failure from the administrator of the Executive Severance Policy.
For purposes of the Executive Severance Policy, “Good Reason” means a separation as a result of a participant’s resignation from employment after one of the following conditions has come into existence without the participant’s consent: (a) a material diminution by the Company in the nature or scope of the participant’s responsibilities, duties or authority with the Company (at the time of the termination); provided that, following a change in control, a material diminution in the participant’s responsibilities, duties or authority shall not exist if, following such change in control, the participant has substantially the same responsibilities, duties, and authority with respect to the subsidiary, division or business unit represented by the Company’s business as the participant had prior to such change in control, (b) the Company’s material failure to provide the participant with the compensation and benefits in accordance with the terms and conditions of the participant’s employment offer letter, or (c) the participant’s reassignment to a principal place of employment more than 50 miles away from the closer of the Company’s principal place of employment and the participant’s residence. A participant’s resignation will not be considered a resignation for Good Reason unless the participant gives the Company written notice of the condition constituting grounds for a resignation for Good Reason within 90 days after the condition comes into existence, the Company fails to remedy the condition within 30 days after receiving the participant’s written notice and the participant’s resignation is effective within 30 days after expiration of the cure period.
Retirement Plans
We maintain a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. The Internal Revenue Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan, and making matching and non-elective contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.
Employee Benefits and Perquisites
Health/Welfare Plans. All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, including:
a.medical, dental, and vision benefits;
b.medical and dependent care flexible spending accounts;
c.short-term and long-term disability insurance;
d.life insurance;
e.commuter benefits; and
f.an employee assistance program.
We believe the benefits described above are necessary and appropriate to provide a competitive compensation package to our employees, including our named executive officers. During the year ended May 31, 2021, we did not provide any perquisites to our employees.
No Tax Gross-Ups
We do not make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation or benefits paid or provided by our Company.
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Outstanding Equity Awards at 2021 Fiscal Year-End
The following table summarizes the number of Incentive Units underlying outstanding equity incentive plan awards for each named executive officer as of May 31, 2021.
Option Awards
NameGrant DateNumber of Securities Underlying Unexercised Options (#) ExercisableNumber of Securities Underlying Unexercised Options (#) UnexercisableOption Exercise Price ($)Option Expiration Date
Isaac Oates7/27/2011,140 
(1)
— 6.417/26/2030
5/12/171,600,000 
(2)
400,000 10.005/11/2027
Michael Seckler7/27/2013,334 
(1)
— 6.417/26/2030
9/24/19333,855 
(2)
687,800 5.289/23/2029
Aida Sukys3/16/21— 
(3)
300,000 8.393/15/2031
______________
(1)The option was fully vested as of the date of grant.
(2)The option vests over a five-year period, with 1/60th of the shares vesting upon the completion of each continuous month of service, minus one day.
(3)The option vests over a five-year period, with 20% of the shares vesting on February 22, 2022, and 1/48th of the remaining shares vesting upon the completion of each continuous month of service thereafter.
Executive Compensation Arrangements
Our named executive officers’ existing individual employment arrangements are described below.
Isaac Oates
Mr. Oates is not party to an offer letter or employment agreement. He is subject to certain restrictive covenants and confidentiality and invention assignment obligations pursuant to a confidential information and invention assignment agreement, including a one-year post-termination non-compete and non-solicit of employees and customers and a perpetual non-disparagement provision in favor of the Company.
Michael Seckler
Mr. Seckler is a party to an offer letter with the Company, dated as of August 24, 2019 (the “Seckler Offer Letter”), providing for his position as Senior Vice President and Chief Operating Officer of the Company. Mr. Seckler was subsequently appointed as President and Chief Operating Officer of the Company in June 2021. Mr. Seckler’s employment with the Company is at-will and either party may terminate Mr. Seckler’s employment at any time for any reason. The Seckler Offer Letter provides that Mr. Seckler is entitled to a base salary of $350,000 per year (which has been increased to $360,000 for 2022) and a target annual cash bonus opportunity of $200,000 per year (which has been increased to $210,000 for 2022).
Mr. Seckler is eligible for certain severance payments and benefits under the Seckler Offer Letter and through his participation in the Executive Severance Policy (as described above). Specifically, in the event of a termination by the Company without Cause or by Mr. Seckler for Good Reason, (a) Mr. Seckler is entitled to receive the greater of (i) the cash severance payments set forth in the Executive Severance Policy and (ii) the following cash severance payments: (A) continued base salary payments for a period of twelve months, (B) a pro-rated target bonus for the year in which termination occurs, payable in a lump sum, (C) payment of his target bonus, payable in twelve monthly installments, and (D) reimbursement of his COBRA premiums until the earliest of (x) the twelve month anniversary of his termination, (y) the expiration of the continuation coverage period under COBRA, or (z) the date on which he becomes eligible to substantially equivalent health insurance coverage in connection with new employment or self-employment, (b) Mr. Seckler’s September 24, 2019 stock option grant will immediately vest and become
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exercisable as if he had remained employed for an additional 12 months and (c) Mr. Seckler will be provided with an extension of the post-termination exercise period for all outstanding stock options until the earlier of (i) the two-year anniversary of Mr. Seckler’s termination date and (ii) the expiration of the option; provided that, the period over which such payments and benefits described herein in subsection (a)(ii) and (b) (other than pro-rated target bonus in subsection (a)(ii)(B)) are made or calculated shall be reduced by three months for each year Mr. Seckler was in service with the Company after his employment start date, but in no event shall such period be reduced to less than two months.
Mr. Seckler is also subject to certain restrictive covenants and confidentiality and inventions assignment obligations pursuant to a separate confidential information and invention assignment agreement, including perpetual confidentiality and a one-year post-termination non-compete and non-solicit of employees and customers and a perpetual non-disparagement provision in favor of the Company.
Aida Sukys
Ms. Sukys is a party to an offer letter with the Company, dated as of February 8, 2021 (the “Sukys Offer Letter”), providing for her position as Senior Vice President and Chief Financial Officer of the Company. Ms. Sukys’ employment with the Company is at-will and either party may terminate Ms. Sukys’ employment at any time for any reason. The Sukys Offer Letter provides that Ms. Sukys is entitled to a base salary of $380,000 per year and a target annual cash bonus opportunity of $200,000, pro-rated for the year in which she commenced employment. In connection with the commencement of her employment, Ms. Sukys is entitled to a signing bonus of $100,000, payable in two equal installments, with $50,000 paid in March 2021 and $50,000 to be paid in March 2022. In the event that Ms. Sukys resigns from the Company or is terminated for Cause (as defined above in “—Executive Severance Policy”), within 12 months of the commencement of her employment, she is responsible for reimbursing the Company a pro-rated portion of the first payment and in the event that Ms. Sukys resigns from the Company or is terminated for Cause after the 12 month anniversary of the commencement of her employment and prior to the two-year anniversary of the commencement of her employment, she will be responsible for reimbursing the Company a pro-rated portion of the second payment.
Director Compensation
In connection with service as a director, each of our non-employee directors is eligible to receive certain grants of stock options. In the fiscal year ended May 31, 2021, one of our former directors, Gabrielle Sulzberger received a grant of stock options to purchase shares of our common stock, one-quarter of which vested on July 27, 2021, with the remaining three-quarters eligible to vest in equal monthly installments over a three-year period thereafter, subject to Ms. Sulzberger’s continued service with the Company. Ms. Sulzberger stepped down from her services on October 4, 2021. None of our other non-employee directors received any compensation in the fiscal year ended May 31, 2021 for their services as a director.
Name
Option Awards ($)(1)
Total ($)
Charles Berg$— $— 
Matthew Harris$— $— 
Kristina Leslie$— $— 
Karen Magee$— $— 
Gabrielle Sulzberger$652,663 $652,663 
Jared Weinstein$— $— 
_______________
(1)Amounts reflect the full grant-date fair value of stock options granted during 2021 computed in accordance with ASC Topic 718, Compensation—Stock Compensation rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all stock option
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awards made to executive officers in Note 2 to our consolidated financial statements appearing elsewhere in this prospectus.
The table below shows the aggregate numbers of option awards (exercisable and unexercisable) held as of May 31, 2021 by each non-employee director who was serving as of May 31, 2021.
NameOptions Outstanding at Fiscal Year End
Charles Berg— 
Matthew Harris— 
Kristina Leslie175,000 
Karen Magee175,000 
Gabrielle Sulzberger175,000 
Jared Weinstein— 
In addition, on July 8, 2021, Mr. Berg and Mses. Leslie, Magee and Sulzberger were each granted 10,000 stock options. One-quarter of the respective stock options will vest on July 8, 2022 and thereafter, the remaining three-quarters of the stock options will vest in equal monthly installments over a three-year period, subject to the respective director’s continued service with the Company.
In connection with this offering, we adopted a non-employee director compensation policy.
Pursuant to this policy, each eligible non-employee director will be entitled to certain cash fees, including an annual retainer of $32,000. In addition, the non-employee director serving as the chair of the board will receive an additional retainer of $25,000 and the non-employee director serving as the lead director of the board will receive an additional annual retainer of $15,000. Further, non-employee directors serving on one or more committees of our board of directors will receive the following additional annual fees, each earned on a quarterly basis: (a) the chair of our audit committee and compensation committee will each receive an additional annual fee of $20,000, and other members of our audit and compensation committee will each receive an additional annual fee of $10,000; and (b) the chair of our nominating and governance committee will receive an additional annual fee of $8,000, and other members of our nominating and governance committee will receive an additional annual fee of $4,000.
Pursuant to this policy, each eligible non-employee director will also be entitled to certain equity-based compensation. In connection with this offering, each non-employee director serving at the time of this offering will receive a one-time restricted stock unit award with a grant date value of the product of (a) $155,000 and (b) a fraction, the numerator of which is the expected number of days from the pricing date to the Company’s first annual shareholder meeting following this offering and the denominator of which is 365, which will vest on the first annual meeting of stockholders following this offering. Following this offering, eligible non-employee directors who are engaged in their role for at least six months as of the date of any annual shareholder meeting (or otherwise since this offering) will also receive an annual restricted stock unit award with a grant date value of $155,000, which will generally vest in full on the earlier of (i) the day immediately preceding the first annual shareholder meeting immediately following the date of grant, and (ii) the first anniversary of the date of grant, subject to the non-employee director continuing in service through such date. Lastly, each non-employee director who is elected or appointed to the board after this offering will receive, on the date of the initial election or appointment, a one-time restricted stock unit award with a grant date value of $310,000, which will vest ratably over three years on the each of the first, second and third anniversaries of the date of grant, subject to the non-employee director continuing in service through such date. In the event of a Change in Control (as defined in the 2022 Plan), the equity awards granted pursuant to this policy will accelerate and vest in full.
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Equity Compensation Plans
Second Amended and Restated 2018 Stock Plan
We currently maintain our Second Amended and Restated 2018 Stock Plan (the “2018 Plan”). The 2018 Plan provides our employees (including the named executive officers), consultants, non-employee directors, and other service providers and those of our affiliates the opportunity to participate in the equity appreciation of our business through the receipt of stock options to purchase shares of our common stock and restricted stock. We believe that such awards encourage a sense of proprietorship and stimulate interest in our development and financial success. The summary of the 2018 Plan below is qualified in its entirety by reference to the complete text of the 2018 Plan.
The 2018 Plan and 2012 Stock Plan (as defined below) will no longer be available for use for the grant of future awards following this offering, but will continue to govern the terms of awards granted before this offering that remain outstanding.
Eligibility and Administration
Our employees, consultants and non-employee directors are eligible to receive awards under the 2018 Plan. The 2018 Plan provides that it will be administered by our board of directors (the “Board”), which may delegate its duties and responsibilities to one or more committees of its directors or, in certain cases, one or more officers of the Company, subject to the limitations imposed under the 2018 Plan and applicable stock exchange rules and other applicable laws. The Board has the authority to take any actions it deems necessary or advisable for the administration of the 2018 Plan.
Shares Available for Awards
Our 2018 Plan will not be used for awards granted after this offering. Any shares subject to awards previously granted under the 2018 Plan that are forfeited will not be available for further issuance under the 2018 Plan.
Awards
The 2018 Plan provides for the grant of stock options, including stock options which are intended to qualify as “incentive stock options” under Section 422 of the Code (“ISOs”) and nonqualified stock options (“NSOs”) and the right to purchase or receive our Class A common stock. Certain awards under the 2018 Plan may constitute or provide for payment of “nonqualified deferred compensation” under Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. All awards under the 2018 Plan will be evidenced by award agreements, which will detail the terms and conditions of awards, including any applicable vesting, settlement and payment terms, and post-termination exercise limitations.
a.Stock Options. Stock options provide for the purchase of shares of our common stock in the future at an exercise price set on the grant date. ISOs, in contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. The exercise price of a stock option may not be less than 100% of the fair market value of the underlying share on the grant date (or 110% in the case of ISOs granted to certain significant stockholders), except with respect to NSOs that are in compliance with Section 409A of the Code and certain substitute awards granted in connection with a merger or other corporate transaction. The term of a stock option may not be longer than ten years (or five years in the case of ISOs granted to certain significant stockholders).
b.Stock. Stock are nontransferable shares of our common stock that may be subject to certain vesting conditions and other restrictions. Unless otherwise determined by the Board, any right to
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purchase shares of our common stock shall automatically expire if not exercised within 30 days after the grant of such right was communicated to the purchaser by the Company.
Tax Withholdings
Each holder shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with awards to such holder no later than the date of the event creating the tax liability. Notwithstanding the foregoing, to the extent permitted by the Board, with regard to tax withholding obligations arising in connection with awards under the 2018 Plan, the Board may, in its discretion, permit participants to satisfy all or part of his or her tax, withholding or any other required deductions or payments by cashless exercise or by surrendering shares, as permitted by applicable law. Except as otherwise provided with respect to a specific award in the applicable award agreement, the Company may, to the extent permitted by applicable laws, deduct any such tax obligations from any payment of any kind otherwise due to a holder.
Certain Transactions
The Board has broad discretion to take action under the 2018 Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting our common stock, such as stock splits, reverse stock splits, stock dividends, combinations, consolidations, and reclassifications. In addition, in the event of certain non-reciprocal transactions, extraordinary dividends, recapitalizations, rights offerings, reorganizations, mergers, spin-offs, split-ups, or similar changes in corporate structure, the Board will make equitable adjustments to the 2018 Plan and outstanding awards.
Plan Amendment and Termination
Our Board may amend or terminate the 2018 Plan at any time; however, no amendment may materially and adversely affect the rights of any participant under an outstanding 2018 Plan award without the consent of the affected participant. No awards may be granted under the Plan after its termination.
Transferability
Awards under the 2018 Plan are generally non-transferrable, except by will or the laws of descent and distribution, or pursuant to a domestic relations order, and are generally exercisable only by the participant.
Awards Granted Under the 2018 Plan
As of November 30, 2021, there were 9,627,727 shares of Class A common stock subject to outstanding options under the 2018 Plan. It is anticipated that any unvested stock options granted pursuant to the 2018 Plan will remain outstanding and continue to vest in accordance with their terms upon and following the completion of this offering.
2012 Stock Incentive Plan
On December 26, 2012, our Board adopted and our stockholders approved the 2012 Stock Incentive Plan, or the 2012 Stock Plan. The 2012 Stock Plan provides our employees (including the named executive officers), consultants, non-employee directors, and other service providers and those of our affiliates the opportunity to participate in the equity appreciation of our business through the receipt of stock options to purchase shares of our common stock and restricted stock.
In connection with the adoption of our 2018 Stock Plan, we ceased granting awards under the 2012 Plan; however, outstanding awards under the 2012 Stock Plan continue to be governed by its existing terms.
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Administration
Our employees, consultants and non-employee directors are eligible to receive awards under the Plan. The Plan provides that it will be administered by the Board, which may delegate its duties and responsibilities to one or more committees of its directors or, in certain cases, one or more officers of the Company, subject to the limitations imposed under the Plan and applicable stock exchange rules and other applicable laws. The Board has the authority to take any actions it deems necessary or advisable for the administration of the 2012 Stock Plan.
Awards
The 2012 Stock Plan provides that the administrator may grant or issue options, including ISOs and NSOs to purchase our Class B common stock and restricted stock to employees, consultants and directors; provided that only employees may be granted ISOs.
•Stock options. The 2012 Stock Plan provides for the grant of ISOs or NSOs. ISOs may be granted only to employees. NSOs may be granted to employees, directors or consultants. The exercise price of ISOs granted to employees who at the time of grant own stock representing more than 10% of the voting power of all series of our common stock may not be less than 110% of the fair market value per share of our common stock on the date of grant, and the exercise price of ISOs granted to any other employees may not be less than 100% of the fair market value per share of our common stock on the date of grant.
•Restricted stock awards. The 2012 Stock Plan provides for the grant of restricted stock awards. Each restricted stock award will be governed by a restricted stock award agreement, which will detail the restrictions on transferability, risk of forfeiture and other restrictions the administrator approves. In general, restricted stock may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered until restrictions are removed or expire. Holders of restricted stock, unlike recipients of other equity awards, will have voting rights and will have the right to receive dividends, if any, prior to the time when the restrictions lapse.
Certain Transactions
The Board has broad discretion to take action under the 2018 Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting our common stock, such as stock splits, reverse stock splits, stock dividends, combinations, consolidations and reclassifications. In addition, in the event of certain non-reciprocal transactions, extraordinary dividends, recapitalizations, rights offerings, reorganizations, mergers, spin-offs, split-ups or similar changes in corporate structure, the Board will make equitable adjustments to the 2018 Plan and outstanding awards.
Amendment and Termination
The Board may amend or terminate the 2012 Stock Plan at any time, subject to stockholder approval as required by applicable law. In connection with the adoption of our 2018 Plan, we ceased granting awards under the 2012 Stock Plan.
Awards Granted Under 2012 Plan
As of November 30, 2021, there were 3,386,010 shares of Class B common stock subject to outstanding options under the 2012 Stock Plan. It is anticipated that any unvested stock options granted pursuant to the 2012 Stock Plan will remain outstanding and continue to vest in accordance with their terms upon and following the completion of this offering.
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New Incentive Plans
2022 Incentive Award Plan
In connection with this offering, we adopted the 2022 Incentive Award Plan, or the 2022 Plan, effective as of the date prior to trading of our common stock. Under the 2022 Plan, we may grant cash and equity incentive awards to directors, employees (including our named executive officers) and consultants in order to attract, motivate and retain the talent for which we compete. The material terms of the 2022 Plan are set forth below.
Eligibility
Any individual who is an employee of the Company or any of its subsidiaries, or any person who provides services to the Company or its affiliates, including consultants and members of the Board, is eligible to receive awards under the 2022 Plan at the discretion of the Administrator (as defined below).
Shares Subject to the 2022 Plan
Overall Share Limit. The overall share limit, or the maximum aggregate number of shares of Class A common stock authorized for issuance as awards under the 2022 Plan shall not exceed the sum of (i) 8,517,981 shares of Class A common stock and (ii) annual increases beginning June 1, 2022 and ending on and including June 1, 2031 of 5% of the aggregate number of shares of Class A common stock outstanding on the last day of the preceding calendar year (or a lesser number determined by the Board prior to the date of the annual increase).
Share Recycling. The unused shares subject to awards granted under the 2022 Plan that expire, lapse or are terminated, exchanged for or settled in cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring shares covered by the award at a price not greater than the price (as adjusted pursuant to the 2022 Plan) paid by the participant for such shares or not issuing any shares covered by the award, will, as applicable, become or again be available for award grants under the 2022 Plan. The payment of dividend equivalents in cash in conjunction with any outstanding awards will not count against the overall share limit.
ISO Limit. The maximum number of Shares of Class A common stock that may be issued on the exercise of incentive stock options under the 2022 Plan is 8,517,981 shares.
Substitute Awards. Awards granted under the 2022 Plan upon the assumption of, or in substitution or exchange for, awards authorized or outstanding under a qualifying equity plan maintained by an entity with which the Company enters into a merger, consolidation, acquisition or similar corporate transaction will not reduce the shares available for grant under the 2022 Plan.
Non-Employee Director Compensation Limit. The 2022 Plan provides that the Administrator may establish compensation for non-employee directors from time to time subject to the 2022 Plan’s limitations. The Administrator may establish the terms, conditions and amounts of all such non-employee director compensation in its discretion and in the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time; provided that the aggregate value of all compensation granted or paid to any non-employee director with respect to any calendar year, including awards granted and cash fees paid to such non-employee director, will not exceed $750,000, increased to $1,000,000 for a non-employee director’s initial fiscal year of service as a non-employee director, calculating the value of any equity awards in accordance with the terms of the 2022 Plan. The Administrator may make exceptions to these limits for individual non-employee directors in extraordinary circumstances, as the Administrator may determine in its discretion; provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving non-employee directors.
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Plan Administration
The Board, or a duly authorized committee thereof, will administer the 2022 Plan and is referred to as the “Administrator” herein. The Administrator may also delegate to one or more committees consisting of the Company’s executive officers and/or directors the authority to (1) designate employees (other than officers) to receive specified stock awards and (2) determine the number of shares subject to such stock awards, subject to certain limitations that maybe imposed under the 2022 Plan, Section 16 of the Exchange Act and/or stock exchange rules, as applicable. Under the 2022 Plan, the Administrator has the authority to determine award recipients, grant dates, the numbers and types of stock awards to be granted, the applicable fair market value, the provisions of each stock award, including the period of exercisability and the vesting schedule applicable to a stock award which could provide for the surrender or cancellation, transfer, or reduction or increase of exercise price, of outstanding awards, subject to the limitations provided for in the 2022 Plan. The Administrator’s determinations under the 2022 Plan are in its sole discretion and will be final and binding on all persons having or claiming any interest in the 2022 Plan or any award thereunder.
Type of Awards
The following types of awards may be made under the 2022 Plan. All awards under the 2022 Plan will be set forth in award agreements and will be subject to the conditions, limitations, restrictions, exercise price, vesting and forfeiture provisions determined by the Administrator, in its sole discretion, subject to such limitations as are provided in the 2022 Plan. In addition, subject to the limitations provided in the 2022 Plan and in accordance with applicable law, the Administrator may accelerate or defer the vesting or payment of awards, cancel or modify outstanding awards, and waive any conditions or restrictions imposed with respect to awards.
Non-Qualified Stock Options. An award of a non-qualified stock option grants a participant the right to purchase a certain number of shares of Class A common stock during a specified term in the future, after a vesting period, at an exercise price equal to at least 100% of the fair market value of our shares on the grant date. The term of a non-qualified stock option may not exceed ten years from the date of grant. The Company may (i) modify, extend, or renew outstanding stock options or accept the cancellation of options in return for the grant of new options or a different award or cash or (ii) offer to buy out for a payment in cash or cash equivalents a non-qualified stock option previously granted. Options may be awarded in combination with SARs, and the award may provide that options will not be exercisable unless the related SARs are forfeited.
Incentive Stock Options. An ISO is a stock option that is intended to meet the requirements of Section 422 of the Code, which include an exercise price of no less than 100% of fair market value on the grant date, a term of no more than ten years, and that the option be granted from a plan that has been approved by the stockholders of the Company. Notwithstanding the foregoing, if granted to a participant who owns shares representing more than 10% of the voting power of all classes of shares of the Company or one of its subsidiaries, an ISO must have a term of not more than five years and an exercise price of not less than 110% of fair market value on the grant date.
Stock Appreciation Rights. A stock appreciation right (“SAR”) entitles the participant to receive an amount equal to the difference between the fair market value of the shares of Class A common stock on the exercise date and the exercise price of the SAR (which may not be less than 100% of the fair market value of a share on the grant date), multiplied by the number of shares subject to the SAR.
Restricted Shares. A restricted share award is an award of shares of Class A common stock that does not vest until after a specified period of time, or satisfaction of other vesting conditions as determined by the committee, and which may be forfeited if conditions to vesting are not met. At the discretion of the Administrator, participants may be credited with dividends and other distributions that will be paid to the holder only when unvested restricted shares vest. Participants are also generally entitled to the same voting rights as other holders of shares of Class A common stock.
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Restricted Stock Units. A restricted stock unit is an award denominated in shares that may be settled either in shares or cash, or a combination of both, subject to terms and conditions determined by the committee. Participants may carry the right to dividend equivalents, in the Administrator’s discretion.
Other Stock and Cash Based Awards. Subject to limits in the 2022 Plan, the Administrator may issue awards of unrestricted shares, cash awards or other awards valued wholly or partially in referenced to or otherwise based on the shares of the Class A common stock or other property of the Company to any participant in such number or amount, and subject to such conditions, that the Administrator may determine.
Performance Criteria. Awards granted under the 2022 Plan may be subject to specified performance criteria or other criteria the Administrator may determine, which may or may not be objectively determinable. The Administrator may utilize any performance criteria selected by it in its sole discretion to establish performance goals. When determining performance criteria, the Administrator may provide for exclusion of the impact of an event or occurrence which the Administrator determines should appropriately be excluded, including, without limitation, non-recurring charges or events, acquisitions or divestitures, changes in the corporate or capital structure, events not directly related to the business or outside of the reasonable control of management, foreign exchange gains or losses, and legal, regulatory, tax or accounting changes.
Deferrals
Subject to compliance with Section 409A of the Code (“Section 409A”), the Administrator in its sole discretion may permit or require participants to defer certain amounts or shares paid or issued in respect of awards.
Equity Restructuring
In the event of a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of shares of Class A common stock (or other Company securities) or the share price of the Class A common stock (or other Company securities) and causes a change in the per share value of the Class A common stock underlying outstanding awards, the Administrator may make appropriate and equitable adjustments which may include: (i) adjusting the number and type of securities covered by each outstanding award; (ii) adjusting the exercise or grant price (if applicable) of any outstanding award; (iii) granting new awards to participants; or (iv) making cash payments to participants.
Corporate Transactions
In the event of any dividend or other distribution (whether in the form of cash, shares of Class A common stock, other securities, or other property), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Class A common stock or other securities of the Company, Change in Control (as defined below), issuance of warrants or other rights to purchase Class A common stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any applicable laws or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the award or by action taken prior to the occurrence of such transaction or event may take such actions as it deems appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the 2022 Plan or with respect to any Award granted or issued under the 2022 Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles, including: (i) assuming or settling outstanding awards, (ii) substituting similar stock awards for outstanding awards, (iii) accelerating the vesting of outstanding awards, (iv) making an adjustments to the number of type of shares of Class A common stock, (v) cancelling outstanding awards in exchange for an equal amount of cash of property or (vi) terminating the
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outstanding award. The Administrator may treat awards differently. In connection with the above, the Administrator may refuse to permit the exercise of any award for up to sixty days before or after such transaction.
For purposes of the 2022 Plan, a “Change in Control” means and includes each of the following:
a.a transaction or series of transactions whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company or its subsidiaries or any employee benefit plan maintained by the Company or any of its subsidiaries (or any group which includes such persons) or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, us) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of the Company’s securities possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
b.the consummation by the Company (whether directly or indirectly) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
i.which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent either by remaining outstanding or by being converted into or exchanged for voting securities of the company or the person that, as a result of the transaction, controls, directly or indirectly, the company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the Company’s business, directly or indirectly, at least a majority of the combined voting power of the successor entity’s outstanding voting securities immediately after the transaction, and
ii.after which no person or group (or any group which includes any such persons) beneficially owns voting securities representing 50% or more of the combined voting power of the successor entity; provided, however, that no person or group shall be treated as beneficially owning 50% or more of the combined voting power of the successor entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
Foreign Participants, Claw-back Provisions, and Transferability
With respect to foreign participants, the Administrator may modify award terms, establish sub plans and/or adjust other terms and conditions of awards, subject to the share limits described above. All awards will be subject to the provisions of any claw-back policy implemented by the Company to the extent set forth in such claw-back policy or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the 2022 Plan are generally non-transferable prior to vesting and are exercisable only by the participant.
Plan Amendment or Termination
The Administrator has the authority to amend, suspend, or terminate the 2022 Plan at any time; provided that no amendment (other than an increase to the overall share limit), materially impairs the existing rights of any participant in a manner disproportional or other similarly-situated awards without the affected participant’s written consent. Certain material amendments also require approval of the Company’s stockholders under applicable law. No stock awards may be granted under the 2022 Plan while it is suspended or after it is terminated.
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Material U.S. Federal Income Tax Consequences
The following is a summary of the principal U.S. federal income tax consequences to participants and the Company with respect to participation in the 2022 Plan. No awards were issued under the 2022 Plan prior to the effective date of this offering. This summary is not intended to be exhaustive and does not discuss the income tax laws of any local, state or foreign jurisdiction in which a participant may reside. The information is based upon current U.S. federal income tax rules and therefore is subject to change when those rules change. Because the tax consequences to any participant may depend on his or her particular situation, each participant should consult the participant’s tax adviser regarding the federal, state, local and other tax consequences of the grant or exercise of an award or the disposition of stock acquired under the 2022 Plan. The 2022 Plan is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of ERISA. To the extent required by law, any amounts included in a participant’s taxable income will be subject to withholding taxes.
Non-Qualified Stock Options. There is generally no taxation upon the grant of non-qualified stock options. Upon exercise, a participant will recognize ordinary income equal to the excess, if any, of the fair market value of the underlying stock on the date of exercise of the stock option over the exercise price. The participant’s tax basis in those shares will be equal to their fair market value on the date of exercise of the stock option, and the participant’s capital gain holding period for those shares will begin on the day after they are transferred to the participant. Subject to any deduction limits under the Code, the Company will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.
Incentive Stock Options. The 2022 Plan provides for the grant of stock options that are intended to qualify as “incentive stock options,” as defined in Section 422 of the Code. Under the Code, a participant generally is not subject to ordinary income tax upon the grant or exercise of an ISO. If the participant holds a share received upon exercise of an ISO for more than two years from the date the stock option was granted and more than one year from the date the stock option was exercised, which is referred to as the required holding period, the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the participant’s tax basis in that share will be long-term capital gain or loss. If, however, a participant disposes of a share acquired upon exercise of an ISO before the end of the required holding period, which is referred to as a disqualifying disposition, the participant generally will recognize ordinary income in the year of the disqualifying disposition equal to the excess, if any, of the fair market value of the share on the date of exercise of the stock option over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the stock option, the amount of ordinary income recognized by the participant will not exceed the gain, if any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair market value of the share on the date of exercise of the stock option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year. For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired upon exercise of an ISO exceeds the exercise price of the stock option generally will be an adjustment included in the participant’s alternative minimum taxable income for the year in which the stock option is exercised. If, however, there is a disqualifying disposition of the share in the year in which the stock option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to that share. In computing alternative minimum taxable income, the tax basis of a share acquired upon exercise of an ISO is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the stock option is exercised. The Company is not allowed a tax deduction with respect to the grant or exercise of an ISO or the disposition of a share acquired upon exercise of an ISO after the required holding period. If there is a disqualifying disposition of a share, however, the Company will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the participant.
Stock Appreciation Rights. Generally, the recipient of a stock appreciation right will recognize ordinary income equal to the fair market value of the stock or cash received upon such exercise and, the
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Company will be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock appreciation right.
Restricted Stock Awards. Generally, the recipient of a restricted stock award will recognize ordinary income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however, the stock is subject to restrictions constituting a substantial risk of forfeiture when it is received (for example, if the employee is required to work for a period of time in order to have the right to transfer or sell the stock), the recipient generally will not recognize income until the restrictions constituting a substantial risk of forfeiture lapse, at which time the recipient will recognize ordinary income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock. A recipient may, however, file an election with the Internal Revenue Service, within 30 days following the date of grant, to recognize ordinary income, as of the date of grant, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient for the stock. The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from a restricted stock award will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the restrictions constituting a substantial risk of forfeiture lapse. The Company will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the restricted stock award.
Restricted Stock Unit Awards. Generally, the recipient of a restricted stock unit award will recognize ordinary income at the time the stock is delivered equal to the excess, if any, of (i) the fair market value of the stock received over any amount paid by the recipient in exchange for the stock or (ii) the amount of cash paid to the participant. The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from a restricted stock unit award will be the amount paid for such shares plus any ordinary income recognized when the stock is delivered, and the participant’s capital gain holding period for those shares will begin on the day after they are transferred to the participant. The Company will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the restricted stock unit award.
Other Stock and Cash Based Awards. An Incentive Award Plan participant will not recognize taxable income and the Company will not be entitled to a tax deduction upon the grant of other stock or cash-based awards until cash or shares are paid or distributed to the participant. At that time, any cash payments or the fair market value of shares that the participant receives will be taxable to the participant at ordinary income tax rates and the Company should be entitled to a corresponding tax deduction for compensation expense. Payments in shares will be valued at the fair market value of the shares at the time of the payment. Upon the subsequent disposition of the shares, the participant will recognize a short-term or long-term capital gain or loss in the amount of the difference between the sales price of the shares and the participant’s tax basis in the shares.
Section 409A of the Code. Section 409A imposes an additional 20% tax and interest on an individual receiving non-qualified deferred compensation under a plan that fails to satisfy certain requirements. For purposes of Section 409A, “non-qualified deferred compensation” could include equity-based incentive programs, including certain stock options, stock appreciation rights and RSUs. Generally speaking, Section 409A does not apply to incentive stock options, non-discounted non-qualified stock options and stock appreciation rights if no deferral is provided beyond exercise, or restricted stock. The awards made pursuant to the 2022 Plan are expected to be designed in a manner intended to be exempt from, or comply with, the requirements of Section 409A of the Code. However, if the 2022 Plan or any award thereunder fails to be maintained and administered in compliance with Section 409A, a participant could be subject to the additional taxes and interest.
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Tax Consequences to the Company
The Company’s ability to realize the benefit of any tax deductions described below depends on The Company’s generation of taxable income as well as the requirement of reasonableness and the satisfaction of The Company’s tax reporting obligations.
Compensation of Covered Employees. The ability of the Company to obtain a deduction for amounts paid under the 2022 Plan could be limited by Section 162(m) of the Code. Section 162(m) of the Code limits the Company’s ability to deduct compensation, for U.S. federal income tax purposes, paid during any year to a “covered employee” (within the meaning of Section 162(m) of the Code) in excess of $1 million.
Golden Parachute Payments. The ability of the Company (or the ability of one of its subsidiaries) to obtain a deduction for future payments under the 2022 Plan could also be limited by the golden parachute rules of Section 280G of the Code, which prevent the deductibility of certain “excess parachute payments” made in connection with a change in control of an employer-corporation.
IPO Awards
In connection with this offering, we intend to grant options and restricted stock unit awards to certain of our newly-hired and/or promoted employees, under the 2022 Plan. We intend to grant, in the aggregate, equity awards with an aggregate value of approximately $7,826,300, which will result in awards covering an aggregate of approximately 271,219 shares of our Class A common stock, based on an assumed initial public offering price of $30.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.
In addition to such awards to newly-hired and/or promoted employees, in connection with this offering, we intend to grant a long-term performance-based stock option award covering 1,600,000 shares of Class A common stock to Mr. Oates. The Founder Award will be eligible to vest based on both the Performance Condition and the Service Condition: (a) the achievement of pre-determined stock price goals over a five-year period following this offering and (b) Mr. Oates’ continued employment with the Company as Chief Executive Officer.
The Founder Award is intended to retain and incentivize Mr. Oates to lead the Company to sustained, long-term financial and operational performance. We believe the Founder Award further aligns Mr. Oates’ interest with those of our long-term stockholders because the vesting, in addition to the value Mr. Oates may realize from the Founder Award, if any, will depend on the creation of significantly enhanced stockholder value over the five years following the date of this offering. We currently expect that the Founder Award will be in lieu of any other equity awards that we otherwise would have awarded to Mr. Oates during the five years following this offering. However, nothing in the Founder Award or otherwise limits the Company’s ability to make future grants to Mr. Oates, including during such five-year period.
The Performance Condition of the Founder Award will be satisfied in ten equivalent tranches (each consisting of 160,000 shares covered by the Founder Award) upon the achievement of ten specified stock price thresholds (measured based upon a volume-weighted average stock price over 60 days) prior to the fifth anniversary of this offering. The stock price thresholds are represented as multiples of the initial public offering price in this offering, as set forth in the table below. To the extent the Performance Condition of any tranche is not satisfied by the fifth anniversary of this offering, it will be forfeited.
The Service Condition of the Founder Award will be satisfied with respect to each tranche described above upon Mr. Oates’ continued employment as Chief Executive Officer of the Company for a specified number of months following this offering, as set forth in the table below.
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Tranche (Each Covering 160,000 Shares)Required Service Period to Satisfy the Service Condition (# of Months Following This Offering)Stock Price Multiple of IPO Price to Satisfy Performance Condition
Tranche 1121.2x
Tranche 2121.3x
Tranche 3181.5x
Tranche 4241.7x
Tranche 5302.0x
Tranche 6362.3x
Tranche 7422.6x
Tranche 8483.0x
Tranche 9543.5x
Tranche 10604.0x
Each tranche of the Founder Award will vest upon achievement of both its Performance Condition and Service Condition. Further, Mr. Oates generally is required to hold vested options (or, if exercised, the underlying shares of Class A common stock) for a one-year period commencing on the vesting date.
Upon termination of Mr. Oates’ employment as Chief Executive Officer of the Company for any reason, any unvested portion of the Founder Award will be forfeited. In the event of termination of Mr. Oates’ employment as Chief Executive Officer of the Company by us without cause or by Mr. Oates for good reason or due to his disability or death, the one-year post-vesting holding requirement (as described above) is waived and will no longer apply, and the Founder Award will be subject to the terms and conditions of the Executive Severance Policy (as described above). In the event of termination of Mr. Oates’ employment as Chief Executive Officer of the Company by us for cause, all of the options, whether or not vested, of the Founder Award will be forfeited.
In the event of a Change in Control (as defined above for purposes of the 2022 Plan), the Performance Condition of any unvested stock options will be deemed satisfied based on the price per share received by or payable with respect to each share of Class A common stock in connection with such Change in Control, pro-rated to reflect a price per share that falls between two stock price thresholds, and any unvested stock options for which the Performance Condition is not satisfied will be forfeited. Following any such Change in Control, the Service Condition will continue to apply and each remaining unvested tranche will not vest until its Service Condition is satisfied; provided that, upon a termination of Mr. Oates’ employment by us without cause or by him for good reason at any time following a Change in Control, the Service Condition shall be deemed satisfied in respect of all remaining tranches of the Founder Award.
2022 Employee Stock Purchase Plan
In connection with this offering, we adopted the 2022 Employee Stock Purchase Plan (the “ESPP”), effective as of the date prior to trading of our common stock. The ESPP is intended to provide an avenue through which the Company may assist the Company’s eligible employees in acquiring a stock ownership interest in the Company, and may help our eligible employees provide for their future security and encourage them to remain in their employment. The Company does not have any obligation, however, to implement the ESPP and may do so (or refrain from doing so) in its sole discretion. The material terms of the ESPP are set forth below.
Description of the Material Terms of the ESPP
This subsection of the prospectus describes the material terms of the ESPP but does not purport to describe all of the provisions of the ESPP. The following summary is qualified in its entirety by reference
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to the complete text of the ESPP, a copy of which is attached as an exhibit and incorporated by reference in its entirety. You are urged to read the ESPP in its entirety for more complete and detailed information about the terms and conditions of the ESPP.
General Components
The ESPP includes two components: a 423 Component and a Non-423 Component. The Company intends that the 423 Component will satisfy the requirements to be an “employee stock purchase plan” as that term is defined in Section 423(b) of the Code. The Non-423 Component authorizes the ability to establish a separate offering that does not meet all of the requirements of Section 423 of the Code.
Shares Subject to the ESPP
The maximum number of shares of Class A common stock that may be issued under the ESPP is 1,245,189 shares. Additionally, the number of shares of Class A common stock reserved for issuance under the ESPP will automatically increase on June 1 of each year, beginning on June 1, 2022 and continuing through and including June 1, 2031, by the lesser of (i) 1% of the total number of shares of Class A common stock outstanding on December 31st of the preceding calendar year, or (ii) such lesser number of shares of the Company as determined by the Board. Shares subject to purchase rights granted under the ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under the ESPP.
Plan Administration
Unless otherwise determined by the Board, the ESPP Administrator shall be the Compensation Committee of the Board (or another committee or a subcommittee of the Board to which the Board delegates administration of the ESPP) (the “ESPP Administrator”). The board of directors may at any time vest in the board of directors any authority or duties for administration of the administration of the ESPP. The ESPP Administrator may delegate administrative tasks under the ESPP to the services of an agent or employees to assist in the administration of the ESPP, including establishing and maintaining an individual securities account under the ESPP for each participant.
Eligibility
The Company employees and the employees of any of its designated subsidiaries, as designated by the ESPP Administrator, will be eligible to participate in the ESPP, provided the ESPP Administrator may require that an employee must satisfy one or more of the following service requirements before participating in the ESPP: (i) customary employment for more than 20 hours per week, (ii) customary employment for five or more months per calendar year, or (iii) satisfaction of a designated service requirement pursuant to Section 423(b)(4)(A) of the Code for a minimum period of time not to exceed two years. Directors who are not employees are not eligible to participate. Employees who choose not to participate, or are not eligible to participate at the start of an offering period but who become eligible thereafter, may enroll in any subsequent offering period In addition, the ESPP Administrator may also exclude from participation in the ESPP or any offering, employees who are “highly compensated employees” (within the meaning of Section 423(b)(4)(D) of the Code) or a subset of such highly compensated employees.
An employee may not be granted rights to purchase stock under the Section 423 Component (a) if such employee immediately after the grant would own stock possessing 5% or more of the total combined voting power or value of all classes of Company stock and other securities of the Company, or a parent or subsidiary corporation of the Company, or (b) to the extent that such rights would accrue at a rate that exceeds $25,000 worth of the Company stock for each calendar year that the rights remain outstanding.
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Offering Periods
The 423 Component is intended to qualify as an employee stock purchase plan under Section 423 of the Code. Stock will be offered under the ESPP during the offering periods. The ESPP Administrator may specify offerings with a duration of not more than 27 months, and may specify one or more shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of Class A common stock will be purchased for the employees who are participating in the offering. The ESPP Administrator, in its discretion, will determine the terms of offering periods under the ESPP. The ESPP Administrator has the discretion to structure an offering so that if the fair market value of a share of Class A common stock on any purchase date during the offering period is less than or equal to the fair market value of a share of Class A common stock on the first day of the offering period, then that offering will terminate immediately, and the participants in such terminated offering will be automatically enrolled in a new offering that begins immediately after such purchase date.
Payroll Deductions
The ESPP permits participants to purchase shares of Class A common stock through payroll deductions of a specified percentage or a fixed dollar amount of their eligible compensation, which, in either event, may not be less than 1% and may not be more than the maximum percentage specified by the plan administrator for the applicable offering period or purchase period. In the absence of a contrary designation, such maximum percentage will be 20%. The ESPP Administrator will establish a maximum number of shares that may be purchased by a participant during any offering period or purchase period. In addition, no employee will be permitted to accrue the right to purchase stock under the Section 423 Component at a rate in excess of the maximum fair market value of shares in accordance with Section 423(b)(8) of the Code, during any calendar year during which such a purchase right is outstanding (based on the fair market value per share of Class A common stock as of the first day of the offering period). As of the date of this prospectus, the maximum fair market value under Section 423(b)(8) of the Code is $25,000. Payroll deductions for each offering period under the ESPP will commence for a participant on the first regular payday following the applicable enrollment date of an offering period and will end on the last such payday in the offering period to which such participant’s authorization is applicable, unless sooner terminated or suspended by the participant or ESPP Administrator under the ESPP. ESPP Administrator may, in its discretion, modify the terms of future offering periods. In non-U.S. jurisdictions where participation in the ESPP through payroll deductions is prohibited, the plan administrator may provide that an eligible employee may elect to participate through contributions to the participant’s account under the ESPP in a form acceptable to the ESPP Administrator in lieu of or in addition to through payroll deductions. Unless otherwise determined by the ESPP Administrator, the purchase price of the shares will be 85% of the lower of the fair market value of shares of Class A common stock on the first day of an offering or on the date of purchase. Participants may end their participation at any time during an offering and will be paid their accrued contributions that have not yet been used to purchase shares, without interest.
Withdrawal
Participants may withdraw from an offering by delivering a withdrawal form to the Company and terminating their contributions. Such withdrawal may be elected at any time prior to the end of an offering, except as otherwise provided by the ESPP Administrator. Upon such withdrawal, The Company will distribute to the employee his or her accumulated but unused contributions without interest, and such employee’s right to participate in that offering will terminate. However, an employee’s withdrawal from an offering does not affect such employee’s eligibility to participate in any other offerings under the ESPP.
Once a participant ceases to be an eligible employee for any reason, such participant is deemed to have elected to withdraw from the ESPP. Participation ends automatically upon termination of employment with the Company and its related corporations.
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Assignability
A participant may not transfer purchase rights under the ESPP other than by will, the laws of descent and distribution, or as otherwise provided under the ESPP.
Changes in Capitalization
In the event of certain specified significant corporate transactions, such as a reorganization, recapitalization, merger, consolidation, change in control or other similar corporate transaction or event, that effects the shares of Class A common stock, the ESPP Administrator shall make equitable adjustments to reflect such changes with respect to (a) the aggregate number and type of shares of Class A common stock (or other securities or property) that may be issued under the ESPP (including, but not limited to, adjustments of the limitations on the maximum number of Shares that may be purchased); (b) the class(es) and number of shares of Class A common stock and price per share subject to outstanding rights; and (c) the purchase price with respect to any outstanding rights. In the event of the specified significant corporate transactions, the ESPP Administrator may also take certain actions it deems appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the ESPP or with respect to any right under the ESPP, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles, including: (i) requiring a successor corporation to assume, continue, or substitute each outstanding purchase right; (ii) terminating an outstanding right in exchange for cash or other rights or property; (iii) providing that participants’ accumulated payroll deductions may be used to purchase shares prior to the next occurring purchase date on such date as the ESPP Administrator determines in its sole discretion and terminating the participants’ rights under the ongoing offering period(s); and (iv) terminating all outstanding rights shall terminate without exercise.
Amendment and Termination
The ESPP Administrator has the authority to amend, suspend, or terminate the ESPP, at any time and for any reason, provided certain types of amendments will require the approval of the Company stockholders. However, shareholder approval will be obtained for any amendment that increases the aggregate number or changes the type of shares that may be sold pursuant to rights under the ESPP, in excess of the initial pool and annual increase as described above, changes the classes of corporations whose employees are eligible to participate in the ESPP or to the extent required under applicable law, taking into account the terms hereof. Any benefits, privileges, entitlements and obligations under any outstanding purchase rights granted before an amendment, suspension or termination of the ESPP will not be materially impaired by any such amendment, suspension or termination except (i) with the consent of the person to whom such purchase rights were granted, (ii) as necessary to facilitate compliance with any laws, listing requirements, or governmental regulations, or (iii) as necessary to obtain or maintain favorable tax, listing, or regulatory treatment. The ESPP will remain in effect until terminated by the ESPP Administrator in accordance with the terms of the ESPP.
Material U.S. Federal Income Tax Consequences
The following is a summary of the principal U.S. federal income tax consequences to participants and the Company with respect to participation in the ESPP. This summary is not intended to be exhaustive and does not discuss the income tax laws of any local, state or foreign jurisdiction in which a participant may reside. The information is based upon current U.S. federal income tax rules and therefore is subject to change when those rules change. Because the tax consequences to any participant may depend on his or her particular situation, each participant should consult the participant’s tax adviser regarding the federal, state, local, and other tax consequences of the grant or exercise of a purchase right or the sale or other disposition of shares of Class A common stock acquired under the ESPP. The ESPP is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of ERISA.
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423 Component of the ESPP. Rights granted under the 423 Component of the ESPP are intended to qualify for favorable U.S. federal income tax treatment associated with rights granted under an employee stock purchase plan which qualifies under the provisions of Section 423 of the Code.
A participant will be taxed on amounts withheld for the purchase of shares of Class A common stock as if such amounts were actually received. Otherwise, no income will be taxable to a participant as a result of the granting or exercise of a purchase right until a sale or other disposition of the acquired shares. The taxation upon such sale or other disposition will depend upon the holding period of the acquired shares.
If the shares are sold or otherwise disposed of more than two years after the beginning of the offering period and more than one year after the shares are transferred to the participant, then the lesser of the following will be treated as ordinary income: (i) the excess of the fair market value of the shares at the time of such sale or other disposition over the purchase price; or (ii) the excess of the fair market value of the shares as of the beginning of the offering period over the purchase price (determined as of the beginning of the offering period). Any further gain or any loss will be taxed as a long-term capital gain or loss. If the shares are sold or otherwise disposed of before the expiration of either of the holding periods described above, then the excess of the fair market value of the shares on the purchase date over the purchase price will be treated as ordinary income at the time of such sale or other disposition. The balance of any gain will be treated as capital gain. Even if the shares are later sold or otherwise disposed of for less than their fair market value on the purchase date, the same amount of ordinary income is attributed to the participant, and a capital loss is recognized equal to the difference between the sales price and the fair market value of the shares on such purchase date. Any capital gain or loss will be short-term or long-term, depending on how long the shares have been held.
Non-423 Component. A participant will be taxed on amounts withheld for the purchase of Shares of Class A common stock as if such amounts were actually received. Under the Non-423 Component, a participant will recognize ordinary income equal to the excess, if any, of the fair market value of the underlying stock on the date of exercise of the purchase right over the purchase price. If the participant is employed by the Company or one of designated subsidiaries, that income will be subject to withholding taxes. The participant’s tax basis in those shares will be equal to their fair market value on the date of exercise of the purchase right, and the participant’s capital gain holding period for those shares will begin on the day after they are transferred to the participant.
There are no U.S. federal income tax consequences to the Company by reason of the grant or exercise of rights under the ESPP. The Company is entitled to a deduction to the extent amounts are taxed as ordinary income to a participant for shares sold or otherwise disposed of before the expiration of the holding periods described above (subject to the requirement of reasonableness, the deduction limits under Section 162(m) of the Code and the satisfaction of tax reporting obligations).
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements discussed in the sections titled “Management” and “Executive Compensation,” the following is a description of each transaction since June 1, 2018 and each currently proposed transaction in which:
•we have been or are to be a participant;
•the amount involved exceeds or will exceed $120,000; and
•any of our directors, executive officers, or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.
Equity Financings
Preferred Stock Financings
Series E. In January 2020, we issued and sold to investors in a private placement, an aggregate of 2,941,176 shares of Series E preferred stock, at a purchase price of $17.00 per share, for aggregate consideration of approximately $50 million.
The following table summarizes the participation in the foregoing transactions by our directors, executive officers, and holders of more than 5% of our capital stock:
Participants(1)
Shares of Series E Preferred Stock
Aggregate 
Purchase Price
Entities affiliated with Bain Capital Ventures(2)
217,646$3,699,982 
Entities affiliated with Index176,471$3,000,007 
Entities affiliated with Redpoint 294,118$5,000,006 
Entities affiliated with Thrive Capital(3)
176,471$3,000,007 
_______________
(1)Additional details regarding these stockholders and their equity holdings are provided in this prospectus under the caption “Principal Stockholders.”
(2)Matthew Harris, a member of our board of directors, currently serves as a Partner of Bain Capital Ventures.
(3)Jared Weinstein, a member of our board of directors, currently serves as Partner and Chief Operating Officer of Thrive Capital Management, LLC.
Investors Rights Agreement
In January 2020, we entered into a Fourth Amended and Restated Investors’ Rights Agreement (the “IRA”), with certain investors, including entities affiliated with Thrive Capital, Index Ventures, Redpoint, and Bain Capital Ventures, each of which currently holds more than 5% of our capital stock. Isaac Oates, our Chief Executive Officer, and/or certain entities affiliated with Mr. Oates are also parties to the IRA. The IRA imposes certain affirmative obligations on us and also grants certain rights to holders, including certain registration rights with respect to the securities held by them, as well as certain information and observer rights. The rights and obligations under the IRA will terminate in connection with this offering, except for the registration rights granted thereunder, as more fully described in “Description of Capital Stock—Registration Rights,” and certain rights to indemnification (which will survive unless such rights are superseded by the provisions of an underwriting agreement entered into in connection with an underwritten public offering of the registrable securities).
Voting Agreement
In January 2020, we entered into a Fourth Amended and Restated Voting Agreement (the “Voting Agreement”), with certain investors, including entities affiliated with Thrive Capital, Index Ventures,
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Redpoint, and Bain Capital Ventures, each of which currently holds more than 5% of our capital stock. Isaac Oates, our Chief Executive Officer, and/or certain entities affiliated with Mr. Oates are also parties to the Voting Agreement. Pursuant to the Voting Agreement, certain holders of our capital stock had agreed as to the manner in which they would vote their shares on certain matters, including with respect to the election or designation of members of our board of directors. Upon the completion of this offering, the Voting Agreement will terminate and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors.
Right of First Refusal and Co-Sale Agreement
In January 2020, we entered into a Fourth Amended and Restated Right of First Refusal and Co-Sale Agreement (the “ROFR Agreement”) with certain investors, including entities affiliated with Thrive Capital, Index Ventures, Redpoint, and Bain Capital Ventures, each of which currently holds more than 5% of our capital stock. Isaac Oates, our Chief Executive Officer, and/or certain entities affiliated with Mr. Oates are also parties to the ROFR Agreement. Pursuant to the ROFR Agreement, we or our assignees and certain holders of our capital stock have a right to purchase shares of our capital stock which holders of our capital stock proposed to sell to other parties. Upon the completion of this offering, the ROFR Agreement will terminate and we nor such holders will not have the right to purchase shares of our capital stock that our stockholders propose to sell to other parties.
Third-Party Tender Offer
In January 2020, our board of directors authorized a tender offer for select investors to purchase up to $25 million of our outstanding capital stock, including outstanding options exercised in connection with the transaction, from certain existing stockholders and option holders. Such equity holders were granted the option to sell a certain percentage of their eligible shares as part of the transaction.
We entered into an agreement with certain stockholders, including Isaac Oates, our Founder and Chief Executive officer, and Michael Seckler, our Chief Operating Officer, pursuant to which we agreed to waive certain transfer restrictions in connection with the transaction.
An aggregate of 1,470,588 shares of our capital stock were successfully tendered pursuant to the tender offer, of which Isaac Oates, our Founder and Chief Executive Officer, successfully tendered 90,483 shares of Class A common stock, and Michael Seckler, our President and Chief Operating Officer, successfully tendered 53,375 shares of Class A common stock.
Employment Arrangements
We have entered into offer letters with certain of our executive officers. See “Executive and Director Compensation—Executive Compensation Arrangements” for a further discussion of these arrangements.
Director and Officer Indemnification and Insurance
Our amended and restated certificate of incorporation and amended and restated bylaws will provide indemnification and advancement of expenses for our directors and officers to the fullest extent permitted by the DGCL, subject to certain limited exceptions. We have entered into separate indemnification agreements with each of our directors and executive officers. We have also purchased directors’ and officers’ liability insurance for each of our directors and executive officers. See “Description of Capital Stock— Limitations on Liability and Indemnification Matters.”
Directed Share Program
At our request, the underwriters have reserved for sale at the initial public offering price up to 5% of the shares of Class A common stock offered by us in this offering, to certain individuals or entities, including our directors and employees and certain other individuals or entities identified by them.
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Policies and Procedures for Related Party Transactions
Our board of directors intends to adopt a written related person transaction policy, to be effective upon the completion of this offering, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest, including, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by us of a related person. Under the policy, the Company’s finance team is primarily responsible for developing and implementing processes and procedures to obtain information regarding related persons with respect to potential related person transactions and then determining, based on the facts and circumstances, whether such potential related person transactions do, in fact, constitute related person transactions requiring compliance with the policy. If the Company’s finance team determines that a transaction or relationship is a related person transaction requiring compliance with the policy, the chief financial officer is required to present to the audit committee all relevant facts and circumstances relating to the related person transaction. The audit committee must review the relevant facts and circumstances of each related person transaction, including if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and the extent of the related person’s interest in the transaction, take into account the conflicts of interest and corporate opportunity provisions of the Company’s code of business conduct and ethics, and either approve or disapprove the related person transaction. If advance audit committee approval of a related person transaction requiring the audit committee’s approval is not feasible, then the transaction may be preliminarily entered into by management upon prior approval of the transaction by the chair of the audit committee subject to ratification of the transaction by the audit committee at the audit committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. If a transaction was not initially recognized as a related person transaction, then upon such recognition the transaction will be presented to the audit committee for ratification at the audit committee’s next regularly scheduled meeting; provided, that if ratification is not forthcoming, management will make all reasonable efforts to cancel or annul the transaction. Management will update the audit committee as to any material changes to any approved or ratified related person transaction and will provide a status report at least annually of all then current related person transactions. No director may participate in approval of a related person transaction for which he or she is a related person.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of our Class A common stock and Class B common stock as of November 30, 2021, as adjusted to reflect the Preferred Stock Conversion, the sale of Class A common stock offered by us in this offering and assuming no exercise of the underwriters’ option to purchase additional shares, by:
•each of our named executive officers;
•each of our directors;
•all of our directors and executive officers as a group; and
•each person or entity know by us to own beneficially more than 5% of our Class A common stock and Class B common stock.
The number of shares beneficially owned by each stockholder is determined under rules issued by the SEC. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. Except as indicated in the footnotes below, we believe, based on the information furnished to us, that the individuals and entities named in the table below have sole voting and investment power with respect to all shares beneficially owned by them, subject to any applicable community property laws.
We have based percentage ownership of our common stock before this offering on 13,291,988 shares of our Class A common stock and 42,135,392 shares of our Class B common stock, in each case, outstanding as of November 30, 2021, after giving effect to the Preferred Stock Conversion and including 76,840 shares of Class A common stock and 91,091 shares of Class B common stock that were subject to our right of repurchase as of November 30, 2021. For purposes of calculating percentage ownership of our common stock before this offering, we have not included the effect of any voting agreements that terminate in connection with this offering. Percentage ownership of our common stock after this offering also assumes the issuance and sale of 7,000,000 shares of our Class A common stock in this offering and does not assume the exercise of the underwriters’ option to purchase 1,050,000 additional shares of Class A common stock from us. In addition, the table below excludes any purchases that may be made through our directed share program or otherwise in this offering. See “Underwriting.”
In computing the number of shares beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares of Class A common stock and Class B common stock subject to options held by the person that are currently exercisable, or would become exercisable or would vest based on service-based vesting conditions within 60 days of November 30, 2021. However, except as described above, we did not deem such shares outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Justworks, Inc. 55 Water Street, New York, New York 10041.
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Name of Beneficial Owner Shares Beneficially
Owned
Before this Offering 
% of Voting Power Before this Offering
(1)
Shares Beneficially
Owned
After this Offering
% of Voting Power After this Offering
(1)
Class AClass BClass AClass B
Shares%Shares%Shares%Shares%
5% Stockholders:
Entities affiliated with Thrive Capital(2)
1,167,883 8.8 %9,378,386 22.3 %21.8 %1,167,883 5.8 %9,378,386 22.3 %21.5 %
Entities affiliated with Bain Capital Ventures(3)
1,165,576 8.8 %8,967,068 21.3 %20.9 %1,165,576 5.7 %8,967,068 21.3 %20.6 %
Entities affiliated with Redpoint(4)
1,881,594 14.2 %6,297,594 14.9 %14.9 %1,881,594 9.3 %6,297,594 14.9 %14.7 %
Entities affiliated with Index Ventures(5)
718,619 5.4 %5,128,532 12.2 %12.0 %718,619 3.5 %5,128,532 12.2 %11.8 %
Entities affiliated with Spark Capital(6)
2,731,092 20.5 %— — %*2,731,092 13.5 %— — %*
Entities affiliated with FirstMark(7)
2,243,408 16.9 %— — %*2,243,408 11.1 %— — %*
Entities affiliated with Meritech Capital(8)
1,176,471 8.9 %— — %*1,176,471 5.8 %— — %*
Entities affiliated with USV(9)
1,176,471 8.9 %— — %*1,176,471 5.8 %— — %*
Named Executive Officers and Directors:
Isaac Oates(10)
11,140 *9,246,084 20.9 %20.3 %11,140 *9,246,084 20.9 %20.0 %
Michael Seckler(11)
1,444,989 9.8 %231,340 **1,444,989 6.7 %231,340 **
Aida Sukys(12)
540,000 3.9 %— — %*540,000 2.6 %— — %*
Charles Berg(13)
10,000 *285,795 **10,000 *285,795 **
Jared Weinstein(14)
— — %— — %— %— — %— — %— %
Karen Magee(15)
185,000 1.4 %— — %*185,000 *— — %*
Kristina Leslie(16)
185,000 1.4 %— — %*185,000 *— — %*
Matthew Harris(17)
— — %— — %— %— — %— — %— %
All Executive Officers and Directors as a Group (individuals):
2,376,129 15.2 %9,763,219 22.1 %21.9 %2,376,129 10.5 %9,763,219 22.1 %21.6 %
_______________
*Represents less than one percent (1%).
(1)Percentage of voting power represents voting power with respect to all shares of our Class A common stock and Class B common stock, held beneficially as a single class. The holders of our Class B common stock will be entitled to ten votes per share, and holders of our Class A common stock will be entitled to one vote per share. For additional information about the voting rights of our Class A common stock and Class B common stock, see “Description of Capital Stock—Common Stock.”
(2)Consists of (i) 170,697 shares of Class A common stock and 9,071,542 shares of Class B common stock held by Thrive Capital Partners III, L.P. (“Thrive III”), (ii) 991,412 shares of Class A common stock held by Thrive Capital Partners III-A, LLC (“Thrive III-A”), and (iii) 5,774 shares of Class A common stock and 306,844 shares of Class B common stock held by Claremount TW, L.P. (“Claremount TW” and, together with Thrive III and Thrive III-A, the “Thrive Capital Funds”). Thrive Partners III GP, LLC is the general partner of each of Thrive III and Claremount TW. Thrive Capital Holdings, LLC (together with Thrive Partners III GP, LLC, the “Thrive General Partners”) is the general partner of Thrive Capital Management Holdings, L.P., which is the sole member of Thrive Capital Management, LLC, the sole manager of Thrive III-A. Joshua Kushner is the sole managing member of each of the Thrive General Partners, and, in his capacity as managing member, has voting and investment power over the shares held by each of the Thrive Capital Funds. The principal business address of each of the foregoing entities is c/o Thrive Capital, 295 Lafayette Street, Suite 701, New York, New York 10012.
(3)Consists of (i) 1,051,199 shares of Class A common stock and 8,087,126 shares of Class B common stock held by Bain Capital Venture Fund 2014, L.P. (“BCV Fund 2014”), (ii) 107,688 shares of Class A common stock and 828,478 shares of Class B common stock held by BCIP Venture Associates (“BCIP Venture”), and (iii) 6,689 shares of Class A common stock and 51,464 shares of Class B common stock held by BCIP Venture Associates-B (“BCIP Venture-B” and, together with BCV Fund 2014 and BCIP Venture, the “Bain Capital Venture Entities”). Bain Capital Venture Investors, LLC (“BCVI”), the Executive Committee of which consists of Enrique Salem and Ajay Agarwal, is the ultimate general partner of BCV Fund 2014 and governs the investment strategy and decision-making process with respect to investments held by BCIP Venture and BCIP Venture-B. By virtue of the
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relationships described in this footnote, each of BCVI, Mr. Salem, and Mr. Agarwal may be deemed to share voting and dispositive power over the shares held by the Bain Capital Venture Entities. The principal business address of each of the foregoing entities is c/o Bain Capital Ventures, L.P., 200 Clarendon Street, Boston, Massachusetts 02116.
(4)Consists of (i) 1,825,145 shares of Class A common stock and 6,108,668 shares of Class B common stock held by Redpoint Omega II, LP (“RO II”) and (ii) 56,449 shares of Class A common stock and 188,926 shares of Class B common stock held by Redpoint Omega Associates II, LLC (“ROA II” and, together with RO II, the “Redpoint Omega Funds”). Redpoint Omega II, LLC (“RO II LLC”) is the sole general partner of RO II. Voting and investment decisions with respect to the shares held by the Redpoint Omega Funds are made by the following members of RO II LLC and ROA II: W. Allen Beasley, Jeffrey D. Brody, Satish Dharmaraj, R. Thomas Dyal, Elliot Geidt, Timothy M. Haley, Christopher B. Moore, Scott C. Raney, John L. Walecka, and Geoffrey Y. Yang. The principal business address of each of the foregoing entities is 2969 Woodside Road, Woodside, California 94062.
(5)Consists of (i) 695,595 shares of Class A common stock and 4,964,226 shares of Class B common stock held by Index Ventures VI (Jersey), L.P. (“Index VI”), (ii) 14,041 shares of Class A common stock and 100,202 shares of Class B common stock held by Index Ventures VI Parallel Entrepreneur Fund (Jersey), L.P. (“Index VI Parallel”), and (iii) 8,983 shares of Class A common stock and 64,104 shares of Class B common stock held by Yucca (Jersey) SLP. (“Yucca”). Index Venture Associates VI Limited (“IVA VI”) is the managing general partner of Index VI and Index VI Parallel and may be deemed to have voting and dispositive power over the shares held by such funds. Yucca is the administrator of the Index co-investment vehicles that are contractually required to mirror the relevant Index funds’ investment, and IVA VI may be deemed to have voting and dispositive power over their respective allocation of shares held by Yucca. David Hall, Philip Balderson, Nigel Greenwood, and Brendan Boyle are the members of the board of directors of IVA VI, and investment and voting decisions with respect to the shares over which IVA VI may be deemed to have voting and dispositive power are made by such directors collectively. The principal business address of each of the foregoing entities except for Yucca is 5th Floor, 44 Esplanade, St Helier, Jersey JE1 3FG, Channel Islands. The principal business address of Yucca is 44 Esplanade, St. Helier, Jersey JE4 9WG, Channel Islands.
(6)Consists of (i) 2,700,766 shares of Class A common stock held by Spark Capital Growth Fund II, L.P. (“SCGF II”) and (ii) 30,326 shares of Class A common stock held by Spark Capital Growth Founders’ Fund II, L.P. (“SCGFF II” and, together with SCGF II, the “Spark Growth II Funds”). Spark Growth Management Partners II, LLC (“Spark Growth II GP”) is the sole general partner of each of the Spark Growth II Funds and may be deemed to have sole voting and dispositive power over the shares held by each of the Spark Growth II Funds. Any action by the Spark Growth II Funds with respect to shares of the Company’s Class A common stock, including voting and dispositive decisions, requires at least a majority vote of the managing members of Spark Growth II GP, who are Jeremy Philips, Santo Politi, Bijan Sabet, and Paul Conway. Under the so-called “rule of three,” because voting and dispositive decisions are made by a majority of the managing members, no individual managing member of Spark Growth II GP has voting or dispositive power over such shares and no individual managing member is deemed to be a beneficial owner of the Spark Growth II Funds’ shares of the Company’s Class A common stock. The principal business address of each of the foregoing entities is 200 Clarendon Street, 59th Floor, Boston, Massachusetts 02116.
(7)Represents 2,243,408 shares of Class A common stock held by FirstMark Capital OF II, L.P. (“FMC OF II”). FirstMark Capital OF II GP, LLC is the general partner of FMC OF II. Richard Heitzmann and Amish Jani are the managers of FirstMark Capital OF II GP, LLC and hold voting and dispositive power over the shares held by FMC OF II. The principal business address of each of the foregoing entities is 100 Fifth Ave, 3rd Floor, New York, New York 10011.
(8)Consists of (i) 1,130,941 shares of Class A common stock held by Meritech Capital Partners VI L.P. (“MC Partners VI”), (ii) 30,236 shares of Class A common stock held by Meritech Capital Affiliates VI L.P. (“MC AFF VI”), and (iii) 15,294 shares of Class A common stock held by Meritech Capital Entrepreneurs VI L.P. (“MC Entrepreneurs VI”). Meritech Capital Associates VI L.L.C. is the general partner of each of MC Partners VI, MC AFF VI, and MC Entrepreneurs VI and may be deemed to have indirect beneficial ownership of such shares. Each of Paul Madera, Rob Ward, George Bischof, Craig Sherman, Max Motschwiller, Alex Kurland, and Alex Clayton, directly and/or indirectly through one or more estate-planning vehicles, has voting and/or dispositive power over such shares. The principal business address of each of the foregoing entities and individuals is Meritech Capital Partners, 245 Lytton Ave, Suite 125, Palo Alto, California 94301.
(9)Consists of (i) 1,123,677 shares of Class A common stock held by USV Opportunity 2019, LP (“USV Opportunity 2019 Fund”) and (ii) 52,794 shares of Class A common stock held by USV Opportunity Investors 2019, LP (“USV Opportunity Investors 2019 Fund” and, together with USV Opportunity 2019 Fund, the “Union Square Ventures”). USV Opportunity 2019 GP, LLC (“USV Opportunity 2019”), is the general partner of each of the Union Square Ventures and has sole voting and investment power with regard to the shares held by the Union Square Ventures. Fred Wilson, Brad Burnham, Albert Wenger, John Buttrick, Andy Weissman, and Rebecca Kaden are partners at Union Square Ventures and, therefore, may be deemed to have shared voting and investment power
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with regard to the shares held directly by Union Square Ventures. Shares held by each of these entities include shares that may be subsequently sold by each of Fred Wilson, Brad Burnham, Albert Wenger, John Buttrick, Andy Weissman, and Rebecca Kaden following in-kind distributions of shares by these entities. The principal business address of each of the foregoing entities is 915 Broadway, 19th Floor, New York, New York.
(10)Consists of: (i) 6,076,042 shares of Class B common stock held by Mr. Oates, (ii) 170,042 shares of Class B common stock held by a family trust, of which Jerry Colonna serves as trustee and over which Mr. Oates claims beneficial ownership, (iii) 1,000,000 shares of Class B common stock held by a family trust, of which Jerry Colonna serves as trustee and Mr. Oates serves as investment advisor, (iv) 11,140 shares of Class A common stock underlying options to purchase Class A common stock held by Mr. Oates that are currently exercisable or would be exercisable within 60 days of November 30, 2021, and (v) 2,000,000 shares of Class B common stock underlying options to purchase Class B common stock held by Mr. Oates that are currently exercisable or would be exercisable within 60 days of November 30, 2021. Jerry Colonna may be deemed to share voting and dispositive power with respect to the shares held by Mr. Oates’ family trusts.
(11)Consists of: (i) 10,000 shares of Class A common stock held by Mr. Seckler, (ii) 231,340 shares of Class B common stock (including 34,645 shares subject to repurchase by us within 60 days of November 30, 2021) held by Mr. Seckler, and (iii) 1,434,989 shares of Class A common stock underlying options to purchase Class A common stock held by Mr. Seckler that are currently exercisable or would be exercisable within 60 days of November 30, 2021.
(12)Represents 540,000 shares of Class A common stock underlying options to purchase Class A common stock held by Ms. Sukys that are currently exercisable or would be exercisable within 60 days of November 30, 2021.
(13)Consists of: (i) 285,795 shares of Class B common stock (including 47,637 shares subject to repurchase by us within 60 days of November 30, 2021) held by Charles G. Berg 2016 Family Trust, for which Kathleen C. Berg, Mr. Berg’s spouse, serves as trustee, and (ii) 10,000 shares of Class A common stock underlying options to purchase Class A common stock held by Mr. Berg that are currently exercisable or would be exercisable within 60 days of November 30, 2021. Kathleen C. Berg may be deemed to share voting and dispositive power with respect to the shares held by Charles G. Berg 2016 Family Trust.
(14)Does not include the shares held by the Thrive Capital Funds. Mr. Weinstein is a Partner and the Chief Operating Officer of Thrive Capital Management, LLC. See footnote 2 above. The address of Mr. Weinstein is c/o Thrive Capital, 295 Lafayette Street, Suite 701, New York, New York 10012.
(15)Represents 185,000 shares of Class A common stock underlying options to purchase Class A common stock held by Ms. Magee that are currently exercisable or would be exercisable within 60 days of November 30, 2021.
(16)Represents 185,000 shares of Class A common stock underlying options to purchase Class A common stock held by Ms. Leslie that are currently exercisable or would be exercisable within 60 days of November 30, 2021.
(17)Does not include the shares held by the Bain Capital Venture Entities. Mr. Harris is a Managing Director of BCVI. As a result, by virtue of the relationships described in footnote 3 above, Mr. Harris may be deemed to share beneficial ownership of such securities held by the Bain Capital Venture Entities. The address of Mr. Harris is c/o Bain Capital Ventures, L.P., 200 Clarendon Street, Boston, Massachusetts 02116.
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DESCRIPTION OF CAPITAL STOCK
The following summary describes our capital stock and the material provisions of our amended and restated certificate of incorporation and our amended and restated bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws that will be in effect at the closing of this offering. Copies of these documents will be filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part.
General
Upon the completion of this offering, our authorized capital stock will consist of:
•400,000,000 shares of our Class A common stock, par value $0.0005 per share,
•50,000,000 shares of our Class B common stock, par value of $0.0005 per share, and
•20,000,000 shares of undesignated preferred stock, par value $0.0005 per share.
As of November 30, 2021, assuming (1) the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering, and (2) the Preferred Stock Conversion, which will occur prior to the filing and effectiveness of our amended and restated certificate of incorporation, there were 13,291,988 shares of our Class A common stock outstanding, held by approximately 272 stockholders of record (including 76,840 shares of Class A common stock that were subject to our right of repurchase), and 42,135,392 shares of our Class B common stock outstanding, held by approximately 244 stockholders of record (including 91,091 shares of Class B common stock that were subject to our right of repurchase).
Common Stock
Upon completion of this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except with respect to voting, conversion and transfer rights.
Voting Rights
Holders of our Class A common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, and holders of our Class B common stock are entitled to 10 votes for each share held on all matters submitted to a vote of stockholders. The holders of our Class A common stock and Class B common stock will vote together as a single class, unless otherwise required by law or our amended and restated certificate of incorporation. Delaware law could require holders of our Class A common stock or Class B common stock to vote separately as a single class in the following circumstances:
•if we were to seek to amend our amended and restated certificate of incorporation to increase or decrease the par value of a class of our capital stock, then that class would be required to vote separately to approve the proposed amendment; and
•if we were to seek to amend our amended and restated certificate of incorporation in a manner that alters or changes the powers, preferences or special rights of a class of our capital stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment.
The holders of our Class A common stock and Class B common stock will not have cumulative voting rights in the election of directors.
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Dividend Rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. Dividends may not be declared or paid in respect of any of the Class A common stock or Class B common stock unless they are declared or paid in the same amount in respect of the other class of common stock. With respect to stock dividends, holders of Class A common stock must receive Class A common stock, and holders of Class B common stock must receive Class B common stock. See the section titled “Dividend Policy” for additional information.
Right to Receive Liquidation Distributions
Upon our liquidation, dissolution or winding up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our Class A common stock and Class B common stock and any participating preferred stock outstanding at that time, subject to the prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any shares of preferred stock outstanding at that time.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not subject to redemption or sinking fund provisions. The rights, preferences and privileges of the holders of our common stock will be subject to and may be adversely affected by the rights of the holders of shares of any series of our preferred stock that we may designate in the future.
Fully Paid and Nonassessable
All of our outstanding shares of Class A common stock and Class B common stock are, and the shares of Class A common stock to be issued in this offering will be, fully paid and nonassessable.
Change of Control Transactions
In the case of any distribution or payment in respect of the shares of our Class A common stock or Class B common stock upon a merger or consolidation with or into any other entity, or other substantially similar transaction, the holders of our Class A common stock and Class B common stock will be treated equally and identically with respect to shares of Class A common stock or Class B common stock owned by them, unless the only difference in the per share distribution to the holders of the Class A common stock and Class B common stock is that any securities distributed to the holder of a share of Class B common stock have 10 times the voting power of any securities distributed to the holder of a share of Class A common stock, or such merger, consolidation or other transaction is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting as a separate class.
Subdivisions and Combinations
If we subdivide or combine in any manner outstanding shares of Class A common stock or Class B common stock, the outstanding shares of the other class will be subdivided or combined in the same manner, unless different treatment of the shares of each class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting as a separate class.
Conversion
Each outstanding share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, which
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occurs after the completion of this offering, except for certain permitted transfers described in our amended and restated certificate of incorporation, including transfers to trusts solely for the benefit of the stockholder or their family members, and partnerships, corporations and other entities under the sole dispositive control and exclusive voting control of the stockholder or certain entities affiliated with such stockholder. Once converted or transferred and converted into Class A common stock, the Class B common stock may not be reissued.
All outstanding shares of our Class B common stock will convert automatically into shares of our Class A common stock upon the tenth year anniversary of the completion of this offering. Following such conversion, each share of Class A common stock will have one vote per share and the rights of the holders of all outstanding common stock will be identical. Once converted into Class A common stock, the Class B common stock may not be reissued.
Upon the conversion of all shares of Class B common stock into shares of Class A common stock, the rights of the holders of all outstanding common stock will be identical.
Preferred Stock
Following the completion of this offering, and pursuant to the provisions of our amended and restated certificate of incorporation that will be in effect thereafter, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations, or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plans to issue any shares of preferred stock.
Warrants
As of November 30, 2021, there were warrants to purchase 53,000 shares of our Class A common stock and 87,500 shares of our Class B common stock. Upon the closing of this offering, certain of these warrants may remain outstanding.
Stock Options
As of November 30, 2021, we had outstanding options to purchase an aggregate of 3,386,010 shares of our Class B common stock under our 2012 Plan, with a weighted-average exercise price of $6.36 per share. As of November 30, 2021, we had outstanding options to purchase an aggregate of 9,627,727 shares of our Class A common stock under our 2018 Plan, with a weighted-average exercise price of $8.67 per share. In addition, in connection with this offering, we intend to grant the Founder Award and the IPO Options, which will become effective immediately following the determination of the initial public offering price per share of our Class A common stock and will have a per share exercise price equal to the initial public offering price. Up to 1,600,000 shares of our Class A common stock will be issuable upon the exercise of the Founder Award, and based on an assumed initial public offering price of $30.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, 26,531 shares of our Class A common stock will be issuable upon the exercise of the IPO Options. See “Executive and Director Compensation” for additional information regarding the Founder Award and IPO Options.
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Restricted Stock Units
As of November 30, 2021, we had no outstanding RSUs. In connection with this offering, we intend to grant the IPO RSUs, which will become effective immediately following the determination of the initial public offering price per share of our Class A common stock. Based on an assumed initial public offering price of $30.50 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, 206,754 shares of our Class A common stock will be issuable upon the vesting and settlement of the IPO RSUs. See “Executive and Director Compensation” for additional information regarding the IPO RSUs.
Registration Rights
Upon the completion of this offering, subject to the lock-up agreements entered into in connection with this offering, the holders of certain outstanding shares of our common stock will be entitled to rights with respect to the registration of these shares under the Securities Act. These rights are provided under the terms of our IRA, and include demand registration rights, Form S-3 registration rights and piggyback registration rights. The registration of shares of our common stock by the exercise of registration rights described below would enable the holders to sell these shares without restriction under the Securities Act when the applicable registration statement is declared effective. The registration rights set forth in the IRA terminate upon the earlier to occur of (i) five years following the completion of this offering, (ii) a Deemed Liquidation Event (as defined in the IRA) and (iii) with respect to any particular stockholder, such time such stockholder is able to sell all of its Registrable Securities (as defined in the IRA), without restriction pursuant to Rule 144 or another similar exemption during any three-month period. We will pay the registration expenses (other than any underwriting discounts and selling commissions) of the holders of the shares registered for sale pursuant to the registrations described below, including the reasonable fees of one counsel for the selling holders not to exceed $50,000. However, we will not be required to bear the expenses in connection with the exercise of the demand registration rights of a registration if the request is subsequently withdrawn at the request of the selling stockholders holding a majority of securities to be registered. In an underwritten public offering, the underwriters have the right, subject to specified conditions, to limit the number of shares such holders may include.
Demand Registration Rights
Upon the completion of this offering, the holders of up to 53,036,022 shares of our Class A common stock (including certain shares of Class A common stock issued or issuable upon the conversion of Class B common stock and/or exercise of stock options) will be entitled to certain demand registration rights. Under the terms of the IRA, at any time after 180 days following the effective date of this prospectus, the holders of at least a majority of these shares then outstanding can request that we register the offer and sale of their shares on a registration statement on Form S-1 if we are eligible to file a registration statement on Form S-1 so long as the request covers at least 30% of the shares having registration rights then outstanding. We are obligated to effect only two such registrations. If we determine that it would be materially detrimental to us and our stockholders to effect such a demand registration, we have the right to defer such registration, not more than once in any 12-month period, for a period of up to 120 days. In addition, we will not be required to effect a demand registration during the period beginning 60 days prior to our good faith estimate of the date of the filing of and ending on a date 180 days following the effectiveness of a registration statement initiated by us.
Form S-3 Registration Rights
Upon the completion of this offering, the holders of up to 53,036,022 shares of our Class A common stock (including certain shares of Class A common stock issued or issuable upon the conversion of Class B common stock and/or exercise of stock options) will be entitled to certain Form S-3 registration rights. The holders of at least 30% of these shares then outstanding may make a written request that we register the offer and sale of their shares on a registration statement on Form S-3 if we are eligible to file a registration statement on Form S-3 so long as the request covers at least that number of shares with an
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anticipated offering price, net of underwriting discounts and commissions, of at least $2.0 million. These stockholders may make an unlimited number of requests for registration on Form S-3; however, we will not be required to effect a registration on Form S-3 if we have effected two such registrations within the 12-month period preceding the date of the request. If we determine that it would be materially detrimental to us and our stockholders to effect such a registration, we have the right to defer such registration, not more than once in any 12-month period, for a period of up to 120 days. In addition, we will not be required to effect a demand registration during the period beginning 30 days prior to our good faith estimate of the date of the filing of and ending on a date 90 days following the effectiveness of a registration statement initiated by us.
Piggyback Registration Rights
Upon the completion of this offering, if we propose to register the offer and sale of our Class A common stock under the Securities Act in connection with the public offering of such common stock, the holders of up to 53,036,022 shares of our Class A common stock (including certain shares of Class A common stock issued or issuable upon the conversion of Class B common stock and/or exercise of stock options) will be entitled to certain “piggyback” registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations, which, in the case of an underwritten offering, will be in the sole discretion of the underwriters. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to (i) a registration related to the sale of securities to employees or a subsidiary pursuant to a company stock plan, (ii) a registration relating to a corporate reorganization or transaction under Rule 145 of the Securities Act, (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the public offering of our common stock, or (iv) a registration in which the only common stock being registered is common stock issuable upon the conversion of debt securities that are also being registered, the holders of these shares are entitled to notice of the registration and have the right, subject to certain limitations, to include their shares in the registration.
Anti-Takeover Provisions
The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws, as we expect they will be in effect upon the completion of this offering, could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.
Delaware Law
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, DGCL Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder unless:
•prior to the time of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
•the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock
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plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
Generally, a “business combination” includes a merger, asset or stock sale, or other transaction, or series of transactions together resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that DGCL Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaw Provisions
Our amended and restated certificate of incorporation and our amended and restated bylaws will include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our management team, including the following:
•Board of Directors Vacancies. Our amended and restated certificate of incorporation and amended and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats, subject to the rights of the holders of any series of our preferred stock to elect directors. In addition, subject to the rights of the holders of any series of our preferred stock to elect directors, the number of directors constituting our board of directors is permitted to be set only by a resolution adopted by the board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management.
•Classified Board. Our amended and restated certificate of incorporation and amended and restated bylaws will provide that our board of directors will be classified into three classes of directors. The existence of a classified board of directors could discourage a third party from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See the section titled “Management—Board Composition and Election of Directors—Classified Board of Directors” for additional information.
•Directors Removed Only for Cause. Our amended and restated certificate of incorporation will provide that, subject to the rights of the holders of any series of our preferred stock to elect directors, stockholders may remove directors only for cause and by the affirmative vote of the holders of our capital stock representing a majority of the voting power of all of the then outstanding shares of our capital stock entitled to vote thereon, voting together as a single class.
•Supermajority Requirements for Amendments of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws. Our amended and restated certificate of incorporation will further provide that the affirmative vote of holders of at least two-thirds of the voting power of all of the then outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class, will be required to amend, repeal, or adopt certain provisions of our amended and restated certificate of incorporation, including provisions relating to the amendment of terms of our common stock, the classified board, the size of the board, the removal of directors, the filling of vacancies on our board of directors, the calling
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of special meetings of stockholders, actions by written consent of stockholders, limitation of liability of directors, indemnification of officers and directors, and the choice of forum relating to certain legal actions. The affirmative vote of holders of at least 662/3% of the voting power of all of the then outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class, will be required for the stockholders to adopt, amend, alter, or repeal our amended and restated bylaws, although our amended and restated bylaws may be amended by a simple majority vote of our board of directors.
•Stockholder Action; Special Meeting of Stockholders. Our amended and restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, holders of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws. Further, our amended and restated certificate of incorporation and amended and restated bylaws will provide that special meetings of our stockholders may be called only by a resolution of our board of directors or by or at the direction of the chair of our board of directors, our lead independent director, or our chief executive officer, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders to take any action, including the removal of directors.
•Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our amended and restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our amended and restated bylaws will also specify certain requirements regarding the form and content of a stockholder’s notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
•No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation and amended and restated bylaws will not provide for cumulative voting.
•Issuance of Undesignated Preferred Stock. After the filing of our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to 20,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock enables our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or other means.
•Choice of Forum. Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, (A)(i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, other employees, or stockholders to us, or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended or restated) or as to which the DGCL confers exclusive jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware, shall be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter
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jurisdiction thereof, the federal district court of the State of Delaware, and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, the exclusive forum provision shall not apply to claims seeking to enforce any liability or duty created by the Exchange Act. Our amended and restated certificate of incorporation will also provide that, to the fullest extent permitted by law, any person, or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the foregoing. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
•Dual Class Stock. As described above in the section titled “—Common Stock—Voting Rights,” our amended and restated certificate of incorporation will provide for a multi-class common stock structure pursuant to which holders of our Class B common stock will have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of all outstanding shares of our common stock, including the election of directors and significant corporate transactions, such as a merger, or other sale of our company or our assets. Current investors, executives, and employees will have the ability to exercise significant influence over those matters.
Limitations on Liability and Indemnification Matters
Our amended and restated bylaws, which will become effective immediately prior to the closing of this offering, will provide that we will indemnify each of our directors and executive officers to the fullest extent permitted by the DGCL, subject to limited exceptions. We have entered into indemnification agreements with each of our directors and executive officers that may, in some cases, be broader than the specific indemnification provisions contained under Delaware law. Further, pursuant to our indemnification agreements and directors’ and officers’ liability insurance, our directors and executive officers are indemnified and insured against the cost of defense, settlement, or payment of a judgment under certain circumstances. In addition, as permitted by Delaware law, our amended and restated certificate of incorporation will include provisions that eliminate the personal liability of our directors for monetary damages resulting from breaches of certain fiduciary duties as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of fiduciary duties as a director.
These provisions may be held not to be enforceable for violations of the federal securities laws of the United States.
Transfer Agent and Registrar
Upon the completion of this offering, the transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company, LLC.
Listing
We have applied to list our Class A common stock on the Nasdaq under the symbol “JW.”
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our Class A common stock, and a liquid trading market for our Class A common stock may not develop or be sustained after this offering. Sales of substantial amounts of our Class A common stock in the public market after this offering, or the perception that such sales could occur, could adversely affect the trading price of our Class A common stock and may make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.
Upon the completion of this offering, based on the number of shares of our capital stock outstanding as of November 30, 2021, we will have an aggregate of 20,291,988 shares of Class A common stock and 42,135,392 shares of Class B common stock outstanding. All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, except for any shares purchased by our “affiliates,” as that term is defined in Rule 144, whose sales would be subject to the Rule 144 resale restrictions described below, other than the holding period requirement. Shares of our Class B common stock are convertible into an equivalent number of shares of our Class A common stock and generally convert into shares of our Class A common stock upon transfer.
The remaining outstanding shares of Class A common stock and Class B common stock, and shares of common stock subject to stock options or warrants will be on issuance, deemed “restricted securities,” as that term is defined in Rule 144. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below. We expect that substantially all of these shares will be subject to the 180-day lock-up period, subject to certain exceptions and certain provisions that provide for the automatic early release of certain shares, under the lock-up agreements described below.
Lock-Up Agreements and Market Stand-Off Provisions
We and all directors and executive officers and certain other record holders that together represent substantially all of our shares of capital stock are subject to lock-up agreements agreeing that, subject to certain exceptions, without the prior written consent of the representatives, we and they will not, and will not publicly disclose an intention to, during the period ending 180 days after the date of this prospectus:
•offer, sell, contract to sell, pledge, grant any option to purchase, lend or otherwise dispose of any shares of our common stock, or any options or warrants to purchase any shares of our common stock, or any securities convertible into, exchangeable for or that represent the right to receive shares of our common stock;
•file any registration statement with the SEC relating to the offering of any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or
•enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock;
whether any such transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise.
The holders of outstanding options to purchase our common stock and holders of our common stock issued pursuant to option exercises are subject to market stand-off provisions in agreements with us that impose similar restrictions.
Notwithstanding the foregoing restrictions, certain shares may automatically be released pursuant to the following conditions:
•if a holder is a current or former employee, contractor, or consultant of us or any of our subsidiaries (excluding any current officer or director of the Company and any entity through
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which any current officer or director of the Company beneficially owns shares of our common stock) (an “Employee Stockholder”), subject to compliance with applicable securities laws, including, without limitation, Rule 144, the holder may sell in the public market, for a six-consecutive trading day period (or such fewer number of consecutive trading days as we may determine) beginning at the commencement of trading on the first trading day on which our Class A common stock is traded on Nasdaq, up to 1,000, in the aggregate, of the shares of common stock and derivative instruments held by the holder as of the date of this prospectus for which all vesting conditions have been satisfied as of the date of this prospectus (the “First Window Eligible Shares”) (up to approximately 474,028 shares of our common stock held by such holders may be released pursuant to this provision);
•subject to compliance with applicable securities laws, including, without limitation, Rule 144, a holder (excluding any current officer or director of the Company and any entity through which any current officer or director of the Company beneficially owns shares of our common stock) may sell in the public market, beginning at the commencement of trading on the second trading day after our public release of financial results for the third quarter of fiscal 2022 (which, for this purpose, shall not include “flash” numbers or preliminary, partial earnings) (the “Third Fiscal Quarter Earnings Date”), a number of shares not in excess of (A) 20% of the holder’s shares of common stock and derivative instruments, which percentage shall be calculated based on the number of shares of common stock and derivative instruments held by the holder as of the date of this prospectus (including any securities held by the holder for which all vesting conditions have been satisfied as of the date of this prospectus, but excluding any securities that have not vested as of the date of this prospectus) plus (B) any remaining First Window Eligible Shares in the event that the holder is an Employee Stockholder who did not sell all of its First Window Eligible Shares pursuant to the clause set forth immediately above (up to approximately 10,624,777 of our common stock held by such holders may be released pursuant to this provision); and
•if a holder is a current officer or director of the Company or an entity through which any current officer or director of the Company beneficially owns shares of our common stock, subject to compliance with applicable securities laws, including, without limitation, Rule 144, the holder may sell in the public market, beginning at the commencement of trading on the second trading day immediately following the Third Fiscal Quarter Earnings Date, a number of shares not in excess of 5% of the holder’s shares of common stock and derivative instruments, which percentage shall be calculated based on the number of shares of common stock and derivative instruments held by the holder as of the date of this prospectus (including any securities held by the holder for which all vesting conditions have been satisfied as of the date of this prospectus, but excluding any securities that have not vested as of the date of this prospectus); provided that the last reported closing price of our Class A common stock on the Nasdaq shall at least be equal to the initial public offering price per share set forth on the cover page of this prospectus for 10 trading days out of any 15-consecutive trading day period ending on or after the Third Fiscal Quarter Earnings Date (up to approximately 515,332 shares of our common stock held by such holders may be released pursuant to this provision).
The restrictions on our executive officers, directors, and other record holders set forth above are subject to certain exceptions, including with respect to transfers of our common stock or securities convertible into, exchangeable for or that represent the right to receive shares of our common stock: (i) as a bona fide gift or gifts or charitable contribution, or for bona fide estate planning purposes; (ii) to any trust for the direct or indirect benefit of such holder or the immediate family of such holder, or if such holder is a trust, to a trustor or beneficiary of the trust or to the estate of the beneficiary of such trust; (iii) if such holder is a corporation, to any wholly-owned subsidiary of such corporation; (iv) in connection with the sale or other transfer of such holder’s shares of common stock or other securities acquired from the underwriters in this offering or in open market transactions after the completion of this offering; (v) upon death, by will or intestacy; (vi) to any immediate family member; (vii) to a partnership, limited liability company or other entity of which such holder or the immediate family members of such holder are the legal and beneficial owner(s) of all of the outstanding equity securities or similar interests; (viii) by
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operation of law or pursuant to a qualified domestic order or in connection with a divorce settlement, separation agreement or any related court order; (ix) as part of a distribution, transfer or disposition without consideration by such holder to its limited or general partners, members or equity holders, or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control or management with such holder or its affiliates; (x) in connection with the conversion or reclassification of our outstanding capital stock as described in this prospectus; (xi) in connection with a bona fide third-party merger, consolidation, tender offer or other similar transaction involving a change of control that is approved by our board of directors, provided that if such transaction is not completed, all such securities would remain subject to the restrictions set forth above; (xii) to us pursuant to contractual arrangements under which we have, in connection with the termination of service of such holder, (A) the option to repurchase such shares common stock or derivative instruments or (B) a right of first refusal with respect to transfers of such shares of common stock or derivative instruments; provided that in the case of clauses (A) and (B) above, (1) such contractual arrangement (or form thereof) is described in this prospectus or filed as an exhibit to the registration statement and (2) such contractual arrangement is in effect on the date of this prospectus; (xiii) to us in connection with the vesting or settlement of restricted stock units or the exercise of options or other rights to purchase shares of common stock (including, in each case, by way of “net” or “cashless” exercise), including any transfer to us for the payment of exercise price, tax withholdings or remittance payments due as a result of the vesting, settlement or exercise of such restricted stock units, options or other rights, in all such cases, pursuant to equity awards granted under a stock incentive plan or other equity award plan that is described in this prospectus; or (xiv) with the prior written consent of the representatives on behalf of the underwriters.
The lock-up restrictions described above do not apply to us with respect to certain transactions, including in connection with (1) the sale of our Class A common stock to the underwriters pursuant to the underwriting agreement; (2) any shares of our common stock issued upon the reclassification, conversion and/or exchange of convertible or exchangeable securities (including preferred stock and warrants) outstanding as of the date of the underwriting agreement and described elsewhere in this prospectus; (3) any shares of our common stock or any securities or other awards convertible into, exercisable for, or that represent the right to receive, shares of our common stock pursuant to any of our stock option plans, incentive plans or stock purchase plans or otherwise in equity compensation arrangements described elsewhere in this prospectus or any shares of common stock issuable upon the exercise, conversion or settlement of such awards, provided that (a) any directors or officers who are the recipient thereof have provided to the representatives a signed lock-up agreement and (b) any employees who are the recipient thereof after the first time of delivery of the shares in this offering have provided to the representatives a signed lock-up agreement or have otherwise received securities that are subject to market standoff provisions that we agree we will not waive or amend (other than to permit a transfer of securities that would be permissible if such securities were subject to the terms of such lock-up agreement) without the prior written consent of the representatives; (4) the issuance by us of shares of our Class A common stock upon the conversion of shares of our Class B common stock; (5) the filing by us of any registration statement on Form S-8 or a successor form thereto relating to any of our stock plans described elsewhere in this prospectus or any assumed employee benefit plan contemplated by clause (6); and (6) any shares of our common stock or any securities convertible into or exchangeable for, or that represent the right to receive, shares of our common stock issued in connection with any joint venture, commercial or collaborative relationship or the acquisition or license by us of the securities, businesses, property or other assets of another person or entity or pursuant to any employee benefit plan assumed by us in connection with any such acquisition, provided that in the case of clause (6), the aggregate number of shares that we may sell or issue or agree to sell or issue pursuant to clause (6) shall not exceed 10.0% of the total number of shares of capital stock issued and outstanding immediately following the completion of this offering.
Rule 144
In general, under Rule 144, as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person
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who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares of our common stock proposed to be sold for at least six months is entitled to sell those shares without complying with the manner of sale, volume limitation, or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
In general, Rule 144 provides that our affiliates or persons selling shares of our common stock on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described in this prospectus, within any three-month period, a number of shares of common stock that does not exceed the greater of:
•1% of the number of shares of our Class A common stock then outstanding; or
•the average weekly trading volume in shares of our Class A common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
Sales made in reliance upon Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 generally allows a stockholder who acquired shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, notice, or other provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701. Moreover, substantially all Rule 701 shares are subject to lock-up agreements as described above and under the section titled “Underwriting” and will not become eligible for sale until the expiration of those agreements.
Equity Incentive Plans
We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of our Class A common stock issuable or reserved for issuance under our 2012 Plan, 2018 Plan, 2022 Plan, and 2022 ESPP. We expect to file the registration statement covering shares offered pursuant to our plans shortly after the date of this prospectus, permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act and the sale by affiliates in the public market, subject to compliance with the resale provisions of Rule 144.
Registration Rights
We have granted demand, Form S-3 and piggyback registration rights to certain of our stockholders to sell our Class A common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See the section titled “Description of Capital Stock—Registration Rights” for additional information.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK
The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership, and disposition of our Class A common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local, or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the U.S. federal tax consequences of the purchase, ownership, and disposition of our Class A common stock.
This discussion is limited to Non-U.S. Holders that hold our Class A common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a Non-U.S. Holder’s particular circumstances, including the impact of the Medicare contribution tax on net investment income and the alternative minimum tax. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:
•U.S. expatriates and former citizens or long-term residents of the United States;
•persons holding our Class A common stock as part of a hedge, straddle, or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
•banks, insurance companies, and other financial institutions;
•brokers, dealers, or traders in securities;
•“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;
•partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);
•tax-exempt organizations or governmental organizations;
•persons deemed to sell our Class A common stock under the constructive sale provisions of the Code;
•persons who hold or receive our Class A common stock pursuant to the exercise of any employee stock option or otherwise as compensation;
•tax-qualified retirement plans; and
•“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds.
If an entity (or arrangement) treated as a partnership for U.S. federal income tax purposes holds our Class A common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our Class A common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
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THIS DISCUSSION IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL, OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a “Non-U.S. Holder” is any beneficial owner of our Class A common stock that is neither a “U.S. person” nor an entity (or arrangement) treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
•an individual who is a citizen or resident of the United States;
•a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia;
•an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
•a trust that (i) is subject to the primary supervision of a U.S. court and all substantial decisions of which are subject to the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (ii) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
Distributions
As described in the section entitled “Dividend Policy,” we have never declared or paid any cash dividends on our capital stock, and we do not anticipate declaring or paying any dividends in the foreseeable future. However, if we do make distributions of cash or property on our Class A common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holder’s adjusted tax basis in its Class A common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “—Sale or Other Taxable Disposition.”
Subject to the discussion below regarding effectively connected income, FATCA (as defined herein), and backup withholding, dividends paid to a Non-U.S. Holder of our Class A common stock will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate to the applicable withholding agent prior to the payment of dividends). A Non-U.S. Holder that does not timely furnish the required documentation to the applicable withholding agent, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment or fixed base in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above, provided certain certification requirements are satisfied. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that
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the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular rates in the same manner as if the Non-U.S. Holder were a U.S. person as defined under the Code. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Sale or Other Taxable Disposition
Subject to the discussion below regarding FATCA and backup withholding, a Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our Class A common stock unless:
•the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment or fixed base in the United States to which such gain is attributable);
•the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or
•our Class A common stock constitutes a U.S. real property interest (“USRPI”) by reason of our status as a U.S. real property holding corporation (“USRPHC”) for U.S. federal income tax purposes.
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular rates as if the Non-U.S. Holder were a U.S. person as defined under the Code. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
A Non-U.S. Holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on gain realized upon the sale or other taxable disposition of our Class A common stock, which may be offset by certain U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests, if any, and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition of our Class A common stock by a Non-U.S. Holder will not be subject to U.S. federal income tax if our Class A common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, and such Non-U.S. Holder owned, actually and constructively, 5% or less of our Class A common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holder’s holding period.
Non-U.S. Holders should consult their tax advisors regarding any applicable income tax treaty that may provide for different rules.
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Information Reporting and Backup Withholding
Payments of dividends on our Class A common stock held by a Non-U.S. Holder will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the Non-U.S. Holder is a U.S. person and the Non-U.S. Holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E, or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any distributions on our Class A common stock paid to the Non-U.S. Holder, regardless of whether such distributions constitute dividends or whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our Class A common stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such Non-U.S. Holder is a U.S. Person, or the Non-U.S. Holder otherwise establishes an exemption. Proceeds of a disposition of our Class A common stock conducted through a non-U.S. office of a non-U.S. broker that does not have certain enumerated relationships with the United States generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”)), on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of, our Class A common stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (i) the foreign financial institution undertakes certain diligence and reporting obligations, (ii) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (i) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our Class A common stock. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition of stock on or after January 1, 2019, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our Class A common stock.
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UNDERWRITING
We and the underwriters named below have entered into an underwriting agreement with respect to the shares of our Class A common stock being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and BofA Securities, Inc. are the representatives of the underwriters.
UnderwritersNumber of Shares of Class A Common Stock
Goldman Sachs & Co. LLC
J.P. Morgan Securities LLC
BofA Securities, Inc.
Robert W. Baird & Co. Incorporated
Piper Sandler & Co.
Raymond James & Associates, Inc.
Stifel, Nicolaus & Company, Incorporated
William Blair & Company, L.L.C.
Siebert Williams Shank & Co., LLC
Total
7,000,000
The underwriters are committed to take and pay for all of the shares of our Class A common stock being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
The underwriters have an option to buy up to an additional 1,050,000 shares of our Class A common stock from us to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase 1,050,000 additional shares.
Paid by Us
No ExerciseFull Exercise
Per Share$$
Total$$
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $          per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.
We and our officers, directors, and holders of substantially all of our shares of capital stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their shares of our common stock or securities convertible into or exchangeable for shares of our common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, subject to certain exceptions and certain provisions that provide for the automatic early release of certain shares, except with the prior written consent of Goldman Sachs & Co. LLC, J.P. Morgan
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Securities LLC and BofA Securities, Inc. See “Shares Eligible for Future Sale” for a discussion of certain early release provisions and other exceptions to transfer restrictions that would allow for sales during this 180-day period.
Prior to this offering, there has been no public market for shares of our Class A common stock. The initial public offering price has been negotiated among the company and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be the company’s historical performance, estimates of the business potential and earnings prospects of the company, an assessment of the company’s management and the consideration of the above factors in relation to market valuation of companies in related businesses.
We have applied to list our Class A common stock on the Nasdaq under the symbol “JW.”
In connection with this offering, the underwriters may purchase and sell shares of Class A common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A “covered short position” is a short position that is not greater than the amount of additional shares for which the underwriters’ option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. “Naked” short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of this offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the company’s stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on Nasdaq, in the over-the-counter market or otherwise.
We estimate that our share of the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $5,100,000. We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority, in an amount not to exceed $40,000. In addition, the underwriters are expected to reimburse us for certain expenses in connection with this offering.
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
At our request, the underwriters have reserved for sale at the initial public offering price up to 5% of the shares of Class A common stock offered by us in this offering, to certain individuals or entities,
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including our directors and employees and certain other individuals or entities identified by them, through a directed share program. If purchased by these individuals or entities, these shares will be subject to a lock-up restriction for a period of 180 days from the date of this prospectus. The number of shares of Class A common stock available for sale to the general public will be reduced by the number of reserved shares sold to these individuals or entities. Any reserved shares not purchased by these individuals or entities will be offered by the underwriters to the general public on the same terms as the other shares of Class A common stock offered under this prospectus. We have agreed to indemnify the underwriters and their affiliates against certain liabilities and expenses, including liabilities under the Securities Act, in connection with the sale of the shares reserved for the directed share program. Raymond James & Associates, Inc. will administer our directed share program.
European Economic Area
In relation to each EEA Member State (each a Relevant Member State), no shares of our Class A common stock have been offered or will be offered pursuant to the offering to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Regulation, except that the shares may be offered to the public in that Relevant Member State at any time:
a.to any legal entity which is a qualified investor as defined under Article 2 of the Prospectus Regulation;
b.to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the Prospectus Regulation) subject to obtaining the prior consent of the representatives for any such offer; or
c.in any other circumstances falling within Article 1(4) of the Prospectus Regulation;
provided that no such offer of the shares shall require the company and/or selling stockholders or any underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an ‘offer to the public’ in relation to the shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
Each person in a Relevant Member State who receives any communication in respect of, or who acquires any shares under, the offering contemplated hereby will be deemed to have represented, warranted, and agreed to with each of the underwriters and their affiliates and the Company that:
a.it is a qualified investor within the meaning of the Prospectus Regulation; and
b.in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 5 of the Prospectus Regulation, (i) the shares acquired by it in the offering have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Regulation, or have been acquired in other circumstances falling within the points (a) to (d) of Article 1(4) of the Prospectus Regulation and the prior consent of the representatives has been given to the offer or resale; or (ii) where the shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those shares to it is not treated under the Prospectus Regulation as having been made to such persons.
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The Company, the underwriters and their affiliates, and others will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement. Notwithstanding the above, a person who is not a qualified investor and who has notified the representative of such fact in writing may, with the prior consent of the representative, be permitted to acquire shares in the offering.
United Kingdom
This prospectus and any other material in relation to the shares described herein is only being distributed to, and is only directed at, and any investment or investment activity to which this prospectus relates is available only to, and will be engaged in only with persons who are (i) persons having professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “FPO”); or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the FPO; (iii) outside the United Kingdom (the “UK”); or (iv) persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (as amended, “FSMA”)) in connection with the issue or sale of any shares may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as Relevant Persons). The shares are only available in the UK to, and any invitation, offer or agreement to purchase or otherwise acquire the shares will be engaged in only with, the Relevant Persons. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other person in the UK. Any person in the UK that is not a Relevant Person should not act or rely on this prospectus or any of its contents.
No shares have been offered or will be offered pursuant to the offering to the public in the United Kingdom prior to the publication of a prospectus in relation to the shares which has been approved by the Financial Conduct Authority, except that the shares may be offered to the public in the United Kingdom at any time:
a.to any legal entity which is a qualified investor as defined under Article 2 of the UK Prospectus Regulation;
b.to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the UK Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or
c.in any other circumstances falling within Section 86 of the FSMA;
provided that no such offer of the shares shall require the company and/or any underwriters or any of their affiliates to publish a prospectus pursuant to Section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation. For the purposes of this provision, the expression an “offer to the public” in relation to the shares in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares and the expression “UK Prospectus Regulation” means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.
Each person in the UK who acquires any shares in the offering or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the company, the underwriters and their affiliates that it meets the criteria outlined in this section.
Canada
The shares may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any
170

resale of the shares must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this document (including any amendment thereto) contains a misrepresentation; provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (Companies (Winding Up and Miscellaneous Provisions) Ordinance) or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (Securities and Futures Ordinance), or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the SFA)) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for six months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section
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276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore (Regulation 32)
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for six months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.
Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended) (the “FIEA”). The shares may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities, or instruments and may at any time hold, or recommend to customers that they should acquire, long and/or short positions in such assets, securities, and instruments.
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LEGAL MATTERS
The validity of the shares of our Class A common stock offered hereby will be passed upon for us by Latham & Watkins LLP. Skadden, Arps, Slate, Meagher & Flom LLP has acted as counsel for the underwriters in connection with certain legal matters related to this offering.
EXPERTS
The consolidated financial statements of Justworks, Inc. at May 31, 2021 and 2020, and for each of the two years in the period ended May 31, 2021, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our Class A common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the Class A common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance, we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. The SEC maintains a website that contains reports, proxy, and information statements, and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements, and other information with the SEC. These periodic reports, proxy statements, and other information will be available for inspection and copying at the SEC’s public reference facilities and the website of the SEC referred to above. We also maintain a website at www.justworks.com. Upon the completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The inclusion of our website address in this prospectus is an inactive textual reference only. The information contained in or accessible through our website is not part of this prospectus or the registration statement of which this prospectus forms a part, and investors should not rely on such information in making a decision to purchase our Class A common stock in this offering.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Audited Consolidated Financial Statements for the Year Ended May 31, 2021
Unaudited Consolidated Financial Statements for the Three Months Ended August 31, 2021
F-1

Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Justworks, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Justworks, Inc. and subsidiaries (the Company) as of May 31, 2021 and 2020, the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' deficit, and cash flows for each of the two years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years then ended in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
New York, NY
September 17, 2021
F-2

JUSTWORKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
May 31, 2021 and 2020
(In millions, except share and per share data)
20212020
ASSETS:
Current assets:
Cash and cash equivalents$101.0 $96.1 
Restricted cash95.3 54.7 
Prepaid expenses and other current assets10.8 6.3 
Co-employment assets89.0 47.9 
Total current assets296.1 205.0 
Cost to obtain revenue contracts, net21.2 18.7 
Operating lease right of use asset, net118.7 0.3 
Property and equipment, net6.0 5.5 
Intangible assets, net11.5 6.8 
Goodwill0.5 — 
Noncurrent restricted cash0.3 0.3 
Other noncurrent assets— 1.6 
Total assets
$454.3 $238.2 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT:
Current liabilities:
Accounts payable$0.5 $2.1 
Accrued expenses and other current liabilities38.5 17.2 
Deferred revenue86.8 67.4 
Co-employment liabilities89.2 47.6 
Current portion of operating lease liability8.2 0.4 
Current portion of long-term debt5.0 — 
Total current liabilities228.2 134.7 
Operating lease liability108.8 — 
Long-term debt, net9.6 14.4 
Other noncurrent liabilities5.7 4.1 
Total liabilities
352.3 153.2 
Commitments and contingencies (see Note 11)
Redeemable convertible preferred stock, $.0005 par value, authorized 71,465,641 shares; issued and outstanding 40,577,516 shares at May 31, 2021 and 2020 (see Note 8)
147.1 147.1 
Stockholders' deficit:
Class A common stock, $.0005 par value, authorized 67,000,000 shares; issued 3,341,472 and 3,268,478 shares; outstanding 3,296,401 and 3,189,592 shares at May 31, 2021 and 2020, respectively— — 
Class B common stock, $.0005 par value, authorized 47,732,649 shares; issued 11,318,201 and 11,034,438 shares; outstanding 11,198,197 and 10,826,093 shares at May 31, 2021 and 2020, respectively— — 
Treasury stock, at cost, 2,751,580 shares at May 31, 2021 and 2020— — 
Additional paid-in capital24.0 17.9 
Accumulated deficit(69.1)(80.0)
Total stockholders’ deficit
(45.1)(62.1)
Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit
$454.3 $238.2 
See accompanying notes to consolidated financial statements.
F-3

JUSTWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended May 31, 2021 and 2020
(In millions, except share and per share data)
20212020
Revenue:  
Subscription revenue$87.4 $68.4 
Benefits and insurance related revenue895.3 674.0 
Total revenue982.7 742.4 
Cost of Revenue:
Benefits and insurance fees842.9 638.7 
Cost of providing services33.7 26.6 
Total cost of revenue876.6 665.3 
Gross profit
106.1 77.1 
Operating expenses:
Sales and marketing37.8 49.2 
General and administrative39.9 38.0 
Product development15.6 11.2 
Total operating expenses93.3 98.4 
Income (loss) from operations
12.8 (21.3)
Interest and other expenses(2.2)(1.8)
Interest and other income 0.3 2.8 
Net income (loss) before taxes
10.9 (20.3)
Income taxes— — 
Net income (loss)
$10.9 $(20.3)
Net income (loss) per share attributable to Class A and Class B common stockholders (see Note 3):
Basic$0.20 $(1.52)
Diluted$0.19 $(1.52)
Weighted average Class A and Class B common shares outstanding (see Note 3):
Basic14,346,76313,407,274 
Diluted56,860,07813,407,274 
See accompanying notes to consolidated financial statements.
F-4

JUSTWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Years ended May 31, 2021 and 2020
(In millions, except for share data)

Redeemable Convertible Preferred  Stock		Class A
Common Stock		Class B
Common Stock		Treasury StockAdditional
paid-in
 capital		Accumulated
deficit		Total
stockholders’
deficit
SharesAmountShares  AmountShares  Amount  Shares  Amount    
Balance, May 31, 201937,636,340 $97.2 994,943 $— 12,024,482 $— 2,751,580 $— $0.6 $(74.4)$(73.8)
Cumulative effect of adoption of ASC 606— — — — — — — — — 14.7 14.7 
Proceeds from issuance of preferred shares, net of issuance costs2,941,176 49.9 — — — — — — — — 
Conversion of common stock— — 1,990,746 — (1,990,746)— — — — — — 
Exercise of stock options— — 150,957 — 704,946 — — — 1.1 — 1.1 
Exercise of warrants— — 52,946 — 87,411 — — — — — — 
Stock-based compensation — — — — — — — — 16.2 — 16.2 
Net loss— — — — — — — — — (20.3)(20.3)
Balance, May 31, 202040,577,516 $147.1 3,189,592 $— 10,826,093 $— 2,751,580 $— $17.9 $(80.0)$(62.1)
Exercise of stock options— — 106,809 — 372,104 — — — 0.9 — 0.9 
Stock-based compensation — — — — — — — — 5.2 — 5.2 
Net income— — — — — — — — — 10.9 10.9 
Balance, May 31, 202140,577,516 $147.1 3,296,401 $— 11,198,197 $— 2,751,580 $— $24.0 $(69.1)$(45.1)
See accompanying notes to consolidated financial statements.
F-5

JUSTWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended May 31, 2021 and 2020
(In millions)
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income (loss) $10.9 $(20.3)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 3.9 3.4 
Amortization of cost to obtain revenue contracts 4.0 3.1 
Non-cash lease expense 5.5 3.9 
Stock-based compensation 5.0 16.0 
Non-cash interest expense 0.2 0.2 
Interest income on marketable securities — (0.1)
Loss from write-off of noncurrent assets0.7 — 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (4.6)(1.1)
Cost to obtain revenue contracts (6.5)(7.5)
Accounts payable (1.6)(2.7)
Accrued expenses and other liabilities 22.5 3.9 
Deferred revenue 19.3 16.2 
Co-employment liabilities 41.6 (44.3)
Operating lease liabilities (5.7)(4.6)
Net cash provided by (used in) operating activities 95.2 (33.9)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2.0)(3.9)
Business acquisition, net of cash acquired (2.8)— 
Capitalization of software(4.6)(3.3)
Purchase of marketable securities — (5.0)
Maturity of marketable securities — 20.0 
Net cash (used in) provided by investing activities (9.4)7.8 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred shares, net of issuance costs — 49.9 
Proceeds from exercise of stock options, including early exercises 0.8 1.2 
Proceeds from debt issuance — 15.0 
Repayment of debt — (15.0)
Net cash provided by financing activities 0.8 51.1 
Net increase in cash, cash equivalents, co-employment assets, and restricted cash86.6 25.0 
Cash, cash equivalents, co-employment assets, and restricted cash at beginning of period 199.0 174.0 
Cash, cash equivalents, co-employment assets, and restricted cash at end of period $285.6 $199.0 
F-6

20212020
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid for interest$1.3 $1.3 
Cash paid for taxes$— $— 
NON-CASH ACTIVITY:
Increase in accounts payable related to the purchase of property and equipment$— $1.1 
Capitalized stock-based compensation$0.2 $0.2 
Early exercises as of prior year that vested this year$0.2 $0.1 
20212020
SUPPLEMENTAL SCHEDULE OF CASH, CASH EQUIVALENTS, CO-EMPLOYMENT ASSETS, AND RESTRICTED CASH
Cash and cash equivalents$101.0 $96.1 
Restricted cash95.3 54.7 
Co-employment assets89.0 47.9 
Noncurrent restricted cash0.3 0.3 
Cash, cash equivalents, co-employment assets, and restricted cash at end of period$285.6 $199.0 
See accompanying notes to consolidated financial statements.
F-7
Justworks, Inc.
Notes to Consolidated Financial Statements
1. Organization and description of business
Justworks, Inc., a Delaware corporation founded on October 5, 2012, is a cloud-based software platform that gives small and medium-sized businesses (“SMBs”) access to benefits, payroll, HR, and compliance support—all in one place. Justworks, Inc. and its wholly-owned subsidiaries (“Justworks” or the “Company”) leverages economies of scale via co-employment, which can drive attractive cost savings for customers, as well as enable them to provide a richer suite of benefits for their people and compete with larger businesses to attract top talent. Justworks combines this powerful demand aggregation dynamic with simple, easy-to-use software and 24/7 expert support, empowering entrepreneurs and businesses to grow with confidence. Core offerings include access to high-quality benefits, universal payments from one place, streamlined HR with cloud-native tools, and on-demand expertise and compliance support. The Company is able to sponsor and maintain a broad range of attractive benefits plans by aggregating employees from many small businesses into a single large entity known as a professional employer organization (“PEO”).
2. Summary of significant accounting policies
Emerging growth company status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.
The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. As a result, the Company’s consolidated financial statements may not be comparable to financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards based on public company effective dates.
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company. All intercompany balances and transactions have been eliminated upon consolidation. The Company does not have other comprehensive income (loss) for the year ended May 31, 2021, and the other comprehensive loss for the year ended May 21, 2020 was immaterial.
Use of estimates
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 Company’s consolidated financial statements and accompanying notes. The Company bases its estimates and assumptions on historical experience and various other assumptions that management believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s consolidated balance sheets and the amounts of revenue and expenses reported in the Company’s consolidated statements of operations for the periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for useful lives of property and equipment, capitalized software, accrual for workers’ compensation claims, income taxes, the valuation of common stock and determination of stock-based compensation, stock warrants, present value of lease obligations, recoverability of long-lived assets, the valuation of goodwill and other intangibles, and the amortization period for costs to obtain revenue contracts. Actual results could differ from those estimates.
F-8
Justworks, Inc.
Notes to Consolidated Financial Statements
COVID-19
During COVID-19, the Company instituted a number of service offerings and developed tools to assist customers in obtaining government-provided tax credits, tax deferrals, and loans as well as to provide guidance to assist customers addressing the challenges faced by employers as a result of the pandemic. At the same time, cornerstone features of our platform, including self-service, tax processing and multi-state compliance, and online open enrollment for health insurance, continue to take on increased importance for our customers in an increasingly hybrid remote working-environment.
Segment Data
The Company identifies operating segments as components of an entity for which discrete financial information is available and is regularly reviewed by the chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and performance assessment. The Company defines the term “chief operating decision maker” to be its chief executive officer. The Company has determined it operates in one operating segment and one reportable segment, as its chief operating decision maker reviews financial information presented on only a consolidated basis for purposes of allocating resources and evaluating financial performance.
Cash, cash equivalents, and restricted cash
The Company considers all cash investments available with original maturities of three months or less to be cash equivalents. Cash and cash equivalents relates to cash generally available for use in operations in the amounts of $101.0 million and $96.1 million as of May 31, 2021 and 2020, respectively.
Restricted cash includes funds held to be used for the payment of benefits and insurance fees, which are pass-through in nature as they relate to charges paid covering medical, dental, vision, and other insurance-related coverage in the amounts of $95.3 million and $54.7 million as of May 31, 2021 and 2020, respectively. The Company does not have any contractual obligations to hold such cash as restricted.
Marketable securities
During the year ended 2020, the Company had investments in marketable debt securities which were sold by May 31, 2020 and did not have investments in marketable debt securities during the year ended 2021. The Company determines the appropriate classification of our investments at the date of purchase and reevaluates the classifications at the balance sheet date. Marketable debt securities with maturities of 12 months or less are classified as short-term. Marketable debt securities with maturities greater than 12 months are classified as long-term. The Company’s marketable securities are accounted for as available for sale and reported at fair value.
Accounts receivable
The Company requires its customers to prefund payroll and related liabilities before payroll is processed or due for payment. If a customer fails to fund payroll or misses the funding cut-off, at its sole discretion, the Company may pay the payroll and the resulting amounts due to us are recognized as accounts receivable. Accounts receivable as of May 31, 2021 and 2020 is not material and is presented within prepaid expenses and other current assets on the consolidated balance sheets. Accounts receivable is recorded at net realizable value consisting of the carrying amount less the allowance for uncollectible accounts, as needed.
Co-employment assets and liabilities
Co-employment assets includes cash held in accounts for payroll and payroll tax-related funds collected and held for remittance to worksite employees (“WSEs”) and the respective government agencies, as well as healthcare, benefit, and 401(k) contribution funds collected and held for remittance to the associated plans. The Company collects payroll taxes from customers and remits them to the
F-9
Justworks, Inc.
Notes to Consolidated Financial Statements
federal government and other respective government agencies where the customers’ business and employees reside. Unremitted payroll taxes are shown in the consolidated balance sheets as co-employment assets with the associated liabilities reported as co-employment liabilities. The Company collects state unemployment taxes from customers and remits them to states based on taxable wages and remit rates. In some cases, estimated remit rates are used to calculate the remittance and the subsequent payment is made in the relevant period.
Property and equipment, net
Property and equipment, net is recorded at cost less accumulated depreciation and is depreciated using the straight-line method over the estimated useful lives. Expenditures for maintenance and repairs are charged to expense in the period incurred. The current useful lives being used by the Company are as follows:
Computer equipment3 years
Furniture and fixtures7 years
Leasehold improvements
Shorter of the
useful life or the lease term
When items of property and equipment are retired or otherwise disposed of, loss or income on disposal is recorded for the difference between the net book value and proceeds received.
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is considered impaired if the carrying amount exceeds the undiscounted future net cash flows the asset is expected to generate. An impairment charge is recognized for the amount by which the carrying amount of the assets exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less selling costs.
Intangible assets, net and goodwill
The Company capitalizes internal and external costs incurred to develop internal-use computer software and website costs during the application development stage as intangible assets, net on the consolidated balance sheets. Application development stage costs include software configuration, and coding and installation, which are accounted for in accordance with ASC Topic 350-40, Internal Use Software.
Capitalized software is amortized on a straight-line basis over the estimated useful life, typically five years, commencing when the software is placed into service. The Company expenses costs incurred during the preliminary project stage, as well as general and administrative, overhead, maintenance and training costs, and costs that do not add functionality to existing systems. Internally developed software costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Intangible assets with finite useful lives are amortized over their respective estimated useful lives ranging from one year to five years using the straight-line method. Intangible assets are reviewed for indicators of impairment at least annually and evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Based on the results of the qualitative analysis performed, the Company determined that there was no impairment loss recognized in the results of operations for the years ended May 31, 2021 and 2020.
In accordance with ASC Topic 350, Intangibles—Goodwill and Other, goodwill is tested at least annually for impairment, or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. Assets to be
F-10
Justworks, Inc.
Notes to Consolidated Financial Statements
disposed of are reported at the lower of the carrying amount or fair value, less selling costs. The measurement date of the Company's annual goodwill impairment test is March 1st. Based on the results of the qualitative analysis performed, the Company determined that there was no impairment loss recognized in the results of operations for the year ended May 31, 2021.
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities as of May 31, 2021 and 2020 was $38.5 million and $17.2 million, respectively, and included $19.0 million and $0.3 million, respectively, of amounts due to customers mainly pertaining to COVID-related tax credits to be passed back to our customers. Expense accruals are recognized based on our estimate of the timing of services provided by a vendor or supplier.
Revenue recognition
Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price.
At contract inception, the Company assesses the services promised in our contracts with customers and identifies a performance obligation for each distinct promise to transfer to the customer a service or bundle of services. Contracts with customers contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation or using the variable consideration allocation exception if the required criteria are met.
The majority of the Company’s customers are subject to month-to-month contractual arrangements. Remaining customers are subject to annual contractual arrangements. Subscription revenue is typically billed to customers and collected in the month in which the service is performed. Customers subject to annual contracts are billed based on an annualized usage for the number of existing users in the month the contract is executed. The majority of benefits and insurance related revenue is billed to customers in the month prior to the service being performed and collected from customers prior to the processing of payroll for the applicable billing period. Either party may generally terminate the contract upon thirty days' prior written notice without penalty.
The Company’s revenue recognition policies summarizing the nature, amount, timing, and uncertainty associated with each major source of revenue from contracts with customers are described below.
Subscription revenue
Subscription revenue represents fees charged to customers for accessing the Company’s cloud-based HR administration solution for employee payroll and benefits management, recruiting, and onboarding. The solution facilitates payroll and payroll tax processing, which includes filing and remitting federal, state, and local payroll taxes on behalf of our customers, and benefits administration services related to Company-sponsored health benefit plans. The transaction price is determined based on the number of WSEs and the fixed per employee per month (“PEPM”) rate. Subscription revenue is recognized over the time in which the customer has access to the solution for payroll and benefit processing, recruiting, and onboarding using an output method. Although the transaction price includes variable consideration, as these services qualify as a series of distinct services, the Company applies the variable consideration allocation exception and allocates the fees to each distinct service period (i.e. each pay period).
Subscription revenue is stated net of the gross payroll and payroll tax amounts funded by our customers. Although the Company assumes the responsibilities to process and remit the payroll and
F-11
Justworks, Inc.
Notes to Consolidated Financial Statements
payroll related obligations, it does not assume employment-related responsibilities including determining the amount of the payroll and related payroll obligations, and the worksite employer remains the common law employer of its WSEs. As a result, the Company is the agent in the arrangement for revenue recognition purposes.
Benefits and insurance related revenue
Benefits and insurance related revenues consist of insurance-related amounts collected from customers and withheld from covered employees for risk-based and non-risk based insurance plans primarily provided through third-party insurance carriers, including employee health insurance benefits and workers’ compensation insurance. The Company’s performance obligation is to provide access to the Company’s sponsored health benefits and insurance coverage through insurance policies provided by third-party insurance carriers under its benefits and insurance related revenue consisting of state unemployment insurance (“SUI”), workers’ compensation insurance, and health insurance benefits provided to WSEs under Company-sponsored plans.
SUI revenue is recognized over the monthly period using an output method in which the control of the promised services is considered transferred when a customer’s payroll is processed over the contract period. For workers’ compensation insurance and health insurance benefits, the Company recognizes revenue over the monthly period of time that the customer and WSEs are covered under the Company-sponsored insurance policies.
The transaction price for SUI is based on the payroll costs of WSEs serviced and the applicable state’s tax rate. For workers’ compensation insurance, the transaction price is determined as a percentage of payroll processed by the Company. The transaction price for the Company’s health insurance benefits is based on the number of WSEs serviced, the individual benefits elected by the WSEs, and the fees established by the Company for the various benefits. Although the transaction price for these performance obligations are variable, as these services qualify as a series of distinct services, the Company applies the variable consideration allocation exception and allocates the fees to each distinct service period.
Benefits and insurance related revenue is recorded on a gross basis as the Company is considered the principal for each of the performance obligations noted above as the Company controls payment for SUI, along with the selection of workers' compensation and health benefit coverage made available.
Disaggregation of revenue
Substantially all of the Company’s revenues relate to services transferred over time and it does not recognize any significant revenue for products and services transferred at a point in time.
Deferred revenue
Deferred revenue represents advance payments received from customers for professional employer organizations services, which include payroll, human resources, and compliance support, and are deferred and recognized as revenue over the contract period as the performance obligations are satisfied. In instances where the timing of revenue recognition differs from the timing of advance payments, the Company has determined its contracts do not include a significant financing component as the related performance obligations are generally satisfied within one year. As of May 31, 2021 and May 31, 2020, the balance of deferred revenue was $86.8 million and $67.4 million, respectively. The majority of the Company’s deferred revenue balance is collected from customers one month preceding the month of revenue recognition and mainly relates to benefits and insurance-related revenue. Approximately $60.1 million of the deferred revenue balance as of May 31, 2020 was recognized into revenue during the first quarter of fiscal year 2021.
F-12
Justworks, Inc.
Notes to Consolidated Financial Statements
Costs to obtain revenue contracts
Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions are deferred and amortized on a straight-line basis over the estimated average customer life which the Company has determined to be approximately seven years. Deferred sales commissions were $21.2 million and $18.7 million at May 31, 2021 and May 31, 2020, respectively. During fiscal year 2021, the Company capitalized $6.5 million of sales commissions compared to $7.5 million in fiscal year 2020. The Company amortized $4.0 million in sales commissions during fiscal year 2021 compared to $3.1 million in fiscal year 2020, which is included in sales and marketing expenses in the accompanying consolidated statements of operations.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement including the use of an identified asset(s) and the Company’s control over the use of that identified asset. The Company has elected, as allowed under ASC Topic 842, Leases, to not recognize on its consolidated balance sheets leases with a lease term of one year or less. Leases with a term greater than one year are recognized on the consolidated balance sheets as right-of-use assets and current and noncurrent operating lease liabilities, as applicable.
The Company evaluates the classification of our leases as either finance leases or operating leases. A lease is classified as a finance lease if any one of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or (v) the leased asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease. A lease is classified as an operating lease if it does not meet any of these criteria. Currently, all of our leases are classified as operating leases.
Operating lease liabilities and their corresponding operating lease right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received or paid. The Company typically only includes the initial lease term in our assessment of a lease arrangement. Options to extend a lease are not included in our assessment unless there is reasonable certainty that it will renew. The Company monitors its plans to renew its material leases based on current economic factors and as circumstances may change.
The interest rate implicit in our leases is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow, on a collateralized basis, the amount of the lease payments in a similar economic environment over the lease term.
Lease cost for operating leases is recognized on a straight-line basis over the lease term as an operating expense. The Company elected to combine lease and non-lease components and there is $5.3 million due to tenant improvements included in the right of use asset balance. Variable lease costs are expensed as incurred as an operating expense.
Insurance fees
The Company provides group health insurance coverage to its WSEs through partnerships with prominent healthcare providers covering medical, dental, vision, and other insurance benefits. The Company currently operates under guaranteed-cost policies, which means their carriers establish the premiums and there is no deductible. Monthly premiums are paid to the insurance providers for medical, dental, vision, and other benefits and associated amounts are collected from customers one month prior to the month of benefit.
F-13
Justworks, Inc.
Notes to Consolidated Financial Statements
Workers’ compensation costs
The Company’s workers’ compensation coverage has been provided through an arrangement with an insurance carrier since 2016. The insurance carrier is a fully-insured policy whereby it has the responsibility to pay all claims incurred regardless of whether the Company satisfies its responsibilities. Under the plan, and through May 31, 2021, the Company bears the economic burden for the first $0.5 million layer of claims per occurrence. As of June 1, 2021, the deductible threshold was increased to $1.0 million. The insurance carrier bears the economic burden for all claims in excess of this level.
Because the Company bears the economic burden for claims up to the levels noted above, such claims are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.
The Company consults with a third-party actuarial service to assist with establishing actuarial reserving methods to arrive at a range of ultimate loss indications by policy period, from which the Company selects the ultimate loss development rate. These factors are based on overall workers’ compensation industry trends as well as geographic locations, industry segments, and payroll classifications within our program, in addition to actual claims activity processed by the insurance carrier. The Company considers these rates to be reasonable.
At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (claim funds). The level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. The Company’s estimate of incurred claim costs expected to be paid within one year are included in accrued expenses and other current liabilities while the estimate of incurred claim costs expected to be paid beyond one year are included in other noncurrent liabilities on our consolidated balance sheets. Expenses associated with both liabilities are recorded in benefits and insurance fees within the consolidated statements of operations. The breakout between short-term and long-term workers’ compensation liabilities can be seen below:
(in millions)May 31, 2021May 31, 2020
Accrued workers’ compensation short-term$2.1 $2.0 
Accrued workers’ compensation long-term$4.1 $2.9 
For the years ended May 31, 2021 and 2020 the undiscounted workers’ compensation costs for claims and premiums were $22.1 million and $18.0 million, respectively.
Advertising costs
The Company expenses the costs of producing advertisements at the time production occurs, and expenses the cost of running advertisements in the period in which the advertising space or airtime is ran. Advertising costs are reflected in sales and marketing expense. Advertising costs were $6.7 million and $14.4 million for the years ended May 31, 2021 and 2020, respectively. Advertising costs do not include internal expenses.
Income taxes
The Company accounts for its income taxes using the asset and liability method. Under the asset and liability method, deferred taxes are recognized for differences between the carrying values and tax bases of assets and liabilities. The Company also recognizes net operating loss carry forwards that are available to offset future taxable income as deferred tax asset. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
F-14
Justworks, Inc.
Notes to Consolidated Financial Statements
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Stock-based compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employees. The Company measures stock-based compensation cost at grant date, based on the estimated fair value of the award, and recognizes the expense straight-lined over the employee’s requisite service period. Compensation expense associated with stock options are based on the estimated grant date fair value method using the Black-Scholes option pricing model. Expense is recognized using a straight-line amortization method over the respective vesting period, with adjustments to expense recognized in the period in which forfeitures occur.
Key Assumptions
The Company’s Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of the Company’s common stock, risk-free interest rates, the expected term of the option, and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future.
•Fair Value of the Company’s Common Stock. Because the Company’s stock is not publicly traded, it must estimate the fair value of its common stock.
•Expected Volatility. As the Company has not been a public company and does not have a trading history for its common stock, the expected stock price volatility for its common stock is estimated by taking the average historical price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers, which the Company has selected, consist of several public companies in the industry similar in size, stage of life cycle and financial leverage. These industry peers are also used in the Company’s common stock valuations. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of its own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to it, 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 is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.
•Expected Term. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, it bases its expected term for awards issued to employees or members of its board of directors on the simplified method, which represents the average period from vesting to the expiration of the stock option.
•Expected Dividend Yield. The Company has never declared or paid any cash dividends to common stockholders and does not presently plan to pay cash dividends in the foreseeable future. Consequently, it uses an expected dividend yield of zero.
F-15
Justworks, Inc.
Notes to Consolidated Financial Statements
Common stock subject to repurchase
Option holders are allowed to exercise stock options to purchase common stock prior to vesting. The Company has the right to repurchase at the original purchase price any unvested but outstanding common shares upon termination of service of the option holder. The consideration received for an early exercise of a stock option is considered to be a deposit of the exercise price and the related amount is recorded as a liability. While such shares have been issued, they are not considered outstanding for accounting purposes until they vest and are therefore excluded from shares used in determining income per share until the repurchase right lapses and the shares are no longer subject to the repurchase feature. The liability is reclassified into common stock and additional paid-in capital as the shares vest and the repurchase right lapses.
Accordingly, the Company has recorded the unvested portion of the early exercise proceeds of $0.4 million and $0.7 million as of May 31, 2021 and 2020, respectively, within other noncurrent liabilities in the consolidated balance sheets.
Legal proceedings
In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss.
Concentration of credit risk
Financial instruments that may be subject to concentration of credit risk include cash, cash equivalents, co-employment assets, and restricted cash. The Company maintains cash balances at a financial institution which is insured by the Federal Deposit Insurance Corporation up to two hundred and fifty thousand dollars per account.
The Company’s customer service agreement requires that customers timely pay their fees due under the agreement, which include, among other things, administrative fees, wage payments, payroll taxes, and other PEO service fees, and any other amounts that may accrue or may become outstanding relating to services provided by the Company. The Company generally requires payment from its customers on or before the applicable payroll date.
No customer accounted for more than 1% of total revenues in the years ended May 31, 2021 and 2020. The Company made payments to an insurance provider that represents approximately 80% of payments made to suppliers for the years ended May 31, 2021 and 2020.
Recent accounting pronouncements
Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available-for-sale debt securities at the amounts expected to be collected. The new guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021, and early adoption is permitted. The early adoption of ASU 2016-13 on June 1, 2020 did not have a material effect on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies the treatment of intraperiod tax allocation in certain circumstances, eliminating an exception to recognizing deferred tax liabilities for outside basis differences
F-16
Justworks, Inc.
Notes to Consolidated Financial Statements
for foreign equity method investments and foreign subsidiaries when ownership or control changes, and modifying interim period tax calculations when a loss is forecast. In addition, this ASU also requires that enacted changes in tax laws or rates be included in the annual effective rate determination in the period that includes the enactment date and clarifies the tax accounting of a step-up in the tax basis of goodwill. The new guidance is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022, and early adoption is permitted. The early adoption of ASU 2019-12 on June 1, 2020 did not have a material effect on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the discontinuation of a reference rate such as the London Inter-bank Offered Rate (“LIBOR”) because of reference rate reform. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.
Subsequent events
The Company has assessed subsequent events through September 17, 2021, the date the consolidated financial statements were issued, and has determined that no additional subsequent events occurred that would require recognition or disclosure in these consolidated financial statements.
3. Income (loss) per share
The Company computes income (loss) per share of Class A common stock and Class B common stock using the two-class method required due to the participating nature of both the redeemable convertible preferred stock (see Note 8), and the unvested stock options that have been early exercised by option holders (see Note 2). The rights, including the liquidation and dividend rights, of the Class A common stock and Class B common stock are substantially identical, other than voting rights. Accordingly, the Class A common stock and Class B common stock share in the Company’s net income (loss). The weighted-average number of shares outstanding utilized in diluted income per share is computed using the weighted-average number of common shares outstanding plus the number of common shares that would be issued assuming exercise and conversion of all potentially dilutive instruments. The dilutive effect of the securities that are issuable under the Company’s equity incentive plans (see Note 9) are reflected in diluted income per share by application of the treasury stock method.
F-17
Justworks, Inc.
Notes to Consolidated Financial Statements
For the year ended May 31, 2021 and 2020, basic and diluted income (loss) per share was as follows:
Year Ended May 31,
(in millions, except share and per share amounts)20212020
Numerator:
Net income (loss)$10.9 $(20.3)
Less: net income allocated to participating securities(8.0)— 
Net income (loss) attributable to common stockholders —basic2.9 (20.3)
Add: reallocation of net income attributable to participating securities8.0— 
Net income (loss) attributable to common stockholders—diluted$10.9 $(20.3)
Denominator:
Weighted-average common shares outstanding—basic14,346,763 13,407,274 
Dilutive effect of assumed conversion of redeemable convertible preferred stock40,577,516 — 
Dilutive effect of assumed conversion of stock options1,795,490 — 
Dilutive effect of assumed conversion of warrants140,309 — 
Weighted-average common shares outstanding—diluted56,860,078 13,407,274 
Income (loss) per share: (1)
Net income (loss) per share attributable to common stockholders—basic$0.20 $(1.52)
Net income (loss) per share attributable to common stockholders—diluted$0.19 $(1.52)
______________
(1)Income (loss) per share amounts may contain summation differences due to rounding.
Dilutive securities having an anti-dilutive effect on diluted net income per share are excluded from the calculation. For the year ended May 31, 2020, our diluted and basic loss per share attributable to common stockholders is the same as the Company was in a net loss position.
The following weighted-average outstanding shares of potentially dilutive securities were excluded from the calculation of diluted income (loss) per share, as they are anti-dilutive for the periods presented:
Year Ended May 31,
20212020
Redeemable convertible preferred stock— 38,737,272 
Stock options6,158,900 7,271,526 
Warrants— 228,792 
Total anti-dilutive securities6,158,900 46,237,590 
4. Lease commitments
The Company is party to non-cancelable operating lease agreements that have original lease periods expiring between 2023 and 2034. The Company does not assume renewals in the determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Effective July 2020, the Company entered into a 12-year operating lease agreement for approximately 236,545 square feet of office space on 55 Water Street for its Corporate headquarters. In October 2020, the Company deferred rental payments for one floor by three years and extended the operating lease to 14 years. The Company's current lease agreements do not contain any material residual value guarantees, nor material restrictive covenants.
F-18
Justworks, Inc.
Notes to Consolidated Financial Statements
For the years ended May 31, 2021 and 2020, the components of lease expense are as follows:
Year Ended May 31,
(in millions)20212020
Operating lease expense$11.9 $4.1 
Variable and short-term lease expense0.4 0.3 
Total lease expense$12.3 $4.4 
As of May 31, 2021 and 2020, the weighted average lease-term and discount rate of the Company's leases are as follows:
Other information:May 31, 2021May 31, 2020
Weighted average remaining lease term (in years)13.10.10
Weighted average discount rate6.20 %6.92 %
As of May 31, 2021, scheduled future maturities of the Company’s lease liabilities are as follows:
(in millions)May 31, 2021
2022$8.5 
20238.8 
202413.1 
202515.3 
2026 and after127.7 
Total undiscounted cash flows173.4 
Less: imputed interest(56.4)
Present value of lease liabilities$117.0 
For the years ended May 31, 2021 and 2020, supplemental cash flow information related to leases is as follows:
(in millions)May 31, 2021May 31, 2020
Cash paid for amounts included in the measurement of lease liabilities$12.1 $4.8 
Right-of-use assets obtained in exchange for lease liabilities$123.9 $4.3 
5. Property and equipment, net
Property and equipment, net as of May 31, 2021 and 2020 consists of the following:
(in millions)May 31, 2021May 31, 2020
Computer equipment$4.0 $1.7 
Furniture and fixtures3.9 0.1 
Construction in progress— 5.5 
Leasehold improvements0.3 1.3 
8.2 8.6 
Less accumulated depreciation(2.2)(3.1)
Property and equipment, net$6.0 $5.5 
Depreciation expense was $1.4 million and $1.7 million for the years ended May 31, 2021 and 2020, respectively, and is included in general and administrative in the consolidated statements of operations.
F-19
Justworks, Inc.
Notes to Consolidated Financial Statements
Write-off of furniture and fixtures resulted in a $0.1 million and $0.0 million loss for the years ended May 31, 2021 and 2020, respectively.
6. Intangible assets, net and goodwill
Boomr acquisition
On October 2, 2020, the Company acquired, through a wholly owned subsidiary, a 100% interest in Boomr, LLC (the “Boomr Acquisition”) for a total purchase price of $3.5 million, which consisted of $2.8 million paid in cash and $0.7 million payable on October 2, 2021. Further, there was a contingent consideration of up to a maximum of $1.0 million based on the achievement of specified measurement targets over a one-year period following completion of the acquisition. As the contingent consideration is dependent on employment, it is expensed on a straight-line basis over the twelve month service period in general and administrative on the consolidated statements of operations. Boomr, LLC is a time and attendance platform that allows employers to track hours worked by their employees, which will integrate with the Company’s stand-alone platform. In accordance with ASC Topic 805, Business Combinations, the Company determined that the Boomr Acquisition constituted the purchase of a business. For the year ended May 31, 2021, the Company incurred transaction-related expenses of $0.3 million in connection with the acquisition, which are recorded in general and administrative in the consolidated statements of operations. Revenues of Boomr, LLC totaled 0.03% of the Company’s consolidated financial statements for the year ended May 31, 2021.
The fair value of the acquired software of $2.9 million and customer relationships of $0.1 million were determined as of October 2, 2020, and acquired software was determined using the replacement cost approach (Level 3 measurement). The amount of the purchase price in excess of the fair value of the net assets acquired was recorded as goodwill in the amount of $0.5 million and primarily relates to intangible assets that do not qualify for separate recognition, including assembled workforce and synergies.
Intangible assets, net
Intangible assets, net, as of May 31, 2021 and 2020 consists of the following:
(in millions)Amortization period (in years)May 31, 2021May 31, 2020
Gross amount:
Capitalized software5$14.6 $10.7 
Acquired software53.0 — 
Customer relationships50.1 — 
Total gross amount
$17.7 $10.7 
Accumulated amortization:
Capitalized software$(5.8)$(3.9)
Acquired software(0.4)— 
Customer relationships— — 
Total accumulated amortization
$(6.2)$(3.9)
Intangible assets, net:
Capitalized software8.8 6.8 
Acquired software2.6 — 
Customer relationships0.1 — 
Intangible assets, net
$11.5 $6.8 
Amortization expense of $2.5 million and $1.5 million for the years ended May 31, 2021 and 2020, respectively, is included in cost of providing services and product development in the consolidated
F-20
Justworks, Inc.
Notes to Consolidated Financial Statements
statements of operations. As of May 31, 2021 and 2020, intangible assets with a carrying amount of $1.4 million and $1.8 million, respectively, are included in the gross amount of capitalized software, and have not commenced amortization, as they are not ready for their intended use.
Write-off of capitalized software resulted in a $0.6 million and $0.0 million loss for the years ended May 31, 2021 and 2020, respectively. This loss is recorded in interest and other expenses on the consolidated statements of operations.
As of May 31, 2021, estimated amortization expense related to the Company's intangible assets for the next 5 years is expected to be as follows (1) :
(in millions)May 31, 2021
2022$2.4 
20232.4 
20242.4 
20252.4 
20261.9 
Total$11.5 
_______________
(1)The Company is estimating that capitalized software that has not yet commenced amortization, mentioned above, will amortize ratably over the next five years.
Goodwill
Goodwill represents the cost in excess of fair value of net assets acquired in a business combination. As of May 31, 2021, the total balance of goodwill was $0.5 million, which is deductible for tax purposes, and is a result of the Boomr Acquisition.
7. Long-term debt, net
Long-term debt, net consists of the following:
(in millions)May 31, 2021May 31, 2020
Principal amount$15.0 $15.0 
Less: Unamortized debt financing costs0.4 0.6 
Long-term debt, net$14.6 $14.4 
Less: Current portion of long-term debt5.0 — 
Long-term debt, net (noncurrent)$9.6 $14.4 
SVB Credit Agreement
The Company has an amended and restated loan and security agreement with Silicon Valley Bank (“SVB”), dated May 31, 2019, as amended on June 1, 2020, and March 11, 2021 (“Loan and Security Agreement”).
According to the Loan and Security Agreement, the Company may borrow up to $20.0 million upon closing and up to an additional $5.0 million upon achieving certain milestone events, on a revolving line facility. The floating interest rate for the revolving line facility was amended to the higher of (1) Wall Street Journal Prime Rate + 0.75%, floating and (2) 5.50%. Interest is payable on the last day of each month; the first principal payment is due on June 1, 2021. As of May 31, 2021, the Company had outstanding letters of credit of approximately $21.0 million, including $7.1 million in connection with its obligations to its workers’ compensation carrier and certain lease obligations.     
F-21
Justworks, Inc.
Notes to Consolidated Financial Statements
Also, according to the Loan and Security Agreement, the Company may borrow up to $15.0 million upon closing on a term loan facility. The floating interest rate for the capital growth advance is the higher of (1) Wall Street Journal Prime Rate + 3%, floating and (2) 8.25%, which was 8.50% for the period ended May 31, 2020. The loan principal is due in 36 equal monthly installments, amended to commence on June 1, 2021. 
As of May 31, 2021, the Company had $15.0 million outstanding under the term loan facility and is in compliance with all debt covenants.
Warrants
In connection with the Loan and Security Agreement, the Company issued warrants to purchase stock (see Note 8).
The warrants were valued using the Black-Scholes option-pricing model upon issuance and recorded as a reduction of the debt outstanding. For the years ended May 31, 2021 and 2020, non-cash warrant expense was $0.1 million. These amounts have been recorded as interest and other expenses in the consolidated statements of operations.
Maturities
As of May 31, 2021, scheduled future maturities of the long-term debt are as follows:
(in millions)May 31, 2021
2022$5.0 
20235.0 
20245.0 
Total$15.0 
Fair Value
As of May 31, 2021, the fair value of long-term debt is considered to approximate its carrying value. The fair value assessment represents a Level 2 measurement.
JPM Credit Agreement
On June 4, 2021 (the “Closing Date”), the Company entered into a credit agreement (the “Credit Agreement”) by and among, Justworks, Inc., and JP Morgan Chase Bank, N.A., as administrative agent, sole bookrunner, and sole lead arranger. The Credit Agreement provides for a term loan in the aggregate principal amount of up to $20.0 million, $15.2 million of which was funded on the Closing Date (the “Term Loan”), along with an undrawn revolving credit facility of up to $30.0 million (the “Revolving Credit Facility”). The Term Loan and Revolving Credit Facility mature on June 4, 2025 and June 4, 2024, respectively.
The proceeds of the Term Loan were used to repay all outstanding amounts under the Loan and Security Agreement, including transaction fees and expenses. Borrowings under the Credit Agreement bear interest at a rate per annum equal to LIBOR, or the Applicable Margin Rate, plus a Benchmark Spread of 2.50% or 3.50% depending on the Company’s EBITDA for the trailing twelve month period.
Borrowings under the Credit Agreement are secured by substantially all of the assets of Justworks, Inc. (excluding, among other things, deposit accounts used exclusively as escrow, fiduciary, withholding, tax payment, or trust accounts). Subject to certain terms of the Credit Agreement, the Company may prepay its borrowings under the Credit Agreement without premium or penalty prior to maturity. The Credit Agreement contains certain customary affirmative and negative covenants.
F-22
Justworks, Inc.
Notes to Consolidated Financial Statements
The Term Loan is subject to an interest-only period (payable monthly) which lasts until December 4, 2022. Commencing December 4, 2022 through and including December 4, 2024, the outstanding principal balance of the Term Loan will be subject to equal quarterly payments of principal based on a 5% per annum amortization schedule, and thereafter a 10% per annum amortization schedule until maturity. Scheduled principal payments of the Term Loan are $0.2 million per quarter, commencing on March 4, 2023 until December 4, 2024, and are $0.4 million for the remaining two quarters.
The Credit Agreement provides for a $25.0 million sub-limit for letters of credit. As of June 4, 2021, the Company transferred its outstanding letters of credit over from the Loan and Security Agreement to the Revolving Credit Facility.
8. Redeemable convertible preferred stock and stockholders’ deficit
All classes of redeemable convertible preferred stock are optionally convertible by the holder into shares of Series A common stock at the then applicable conversion price. See below for further discussion of conversion. In the event of liquidation of the Company (including certain events outside of the Company’s control such as a change in control), the holders of redeemable convertible preferred stock are entitled to a liquidation preference equal to the respective original issue price plus declared and unpaid dividends ahead of the classes of common stock described below. The aggregate preferential amount for all classes of redeemable convertible preferred stock was $147.1 million as of May 31, 2021and May 31, 2020.
The liquidation preference for each series of redeemable convertible preferred stock as of May 31, 2021 and 2020 is as follows:
Authorized sharesShares outstandingLiquidation preference (per share)Par value (per share)Redeemable convertible preferred stock (in millions)
Series A10,926,405 10,847,580 $0.8700 $0.0005 $9.5 
Series A-112,157,378 1,309,798 $0.8700 $0.0005 $1.1 
Series B9,142,892 9,090,144 $1.4200 $0.0005 $12.9 
Series B-19,142,892 52,748 $1.4200 $0.0005 $0.1 
Series C10,818,828 10,818,828 $3.1000 $0.0005 $33.5 
Series C-110,818,828 — $3.1000 $0.0005 $— 
Series D5,517,242 5,517,242 $7.2500 $0.0005 $40.0 
Series E2,941,176 2,941,176 $17.0000 $0.0005 $50.0 
Redeemable convertible preferred shares71,465,641 40,577,516 $147.1 
On January 16, 2020, the Company issued 2,941,176 shares of Series E redeemable convertible preferred stock for total proceeds of $50.0 million.
The Principal terms for redeemable convertible preferred stock are as follows:
(i) Dividends
The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to that dividend per share of Preferred Stock as would equal the product of (i) the dividend payable on each share of such class or series of Preferred Stock determined, if applicable, as if all shares of such class or series of Preferred Stock had been converted into Class A Common Stock or Class B Common Stock, as applicable, and (ii) the number of shares of Class A Common Stock or Class B Common Stock,
F-23
Justworks, Inc.
Notes to Consolidated Financial Statements
as applicable, issuable upon conversion of a share of such series of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend.
(ii) Liquidation Preference
In the event of any voluntary or involuntary liquidation, dissolution or winding up, merger or asset sale, each class or series of Preferred Stock then outstanding, on a pari passu basis, shall be entitled to be paid out of the assets available for distribution to the Company’s stockholders before any payment to holders of the Common Stock, an amount equal to the respective original issue price of such class or series of Preferred Stock plus any dividends declared but unpaid thereon. If upon any such liquidation, dissolution or winding up the assets of the Company available for distribution are insufficient to pay the holders of shares of Preferred Stock the full amount which they shall be entitled under the Certificate of Incorporation, the holders of Preferred Stock shall share ratably in any distribution of the assets of the Company available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
(iii) Voting
Holders of Series A, B and C Preferred Stock vote together with the Class B Common Stock on an as-converted basis except as otherwise provided by law or by the provisions of the Certificate of Incorporation, and holders of Series A-1, B-1, C-1, D, and E Preferred Stock vote together with the Class A Common Stock on an as-converted basis except as otherwise provided by law or by the provisions of the Certificate of Incorporation.
(iv) Conversion Rights
Holders of Preferred Stock have the right to convert into Class A Common Stock or Class B Common Stock, as applicable, at the holders’ discretion on a one-for-one basis, subject to appropriate adjustment in the event of any stock dividend, stock split, or similar recapitalization and subject to adjustments in accordance with anti-dilution provisions. Each series of Preferred Stock is subject to mandatory conversion on (i) the closing date of a Qualified Initial Public Offering at least $50.0 million of proceeds, or (ii) upon the written consent or, vote of the holders of a majority of the then outstanding shares of Preferred Stock, voting together as a single class on an as converted basis. The conversion price is equal to the redemption price.
Common Stock
Holders of Class A Common Stock are entitled to one vote per share with dividend and liquidation rights subject to and qualified by the rights and preferences of the holders of the preferred stock, and holders of Class B Common Stock are entitled to ten votes per share with dividend and liquidation rights subject to and qualified by the rights and preferences of the holders of the preferred stock. So long as the Preferred Stock is outstanding, the Company is required to reserve from its authorized stock the number of shares sufficient to affect the conversion of all outstanding Preferred Stock.
Tender Offer
On January 28, 2020, the Company’s Board of Directors authorized a tender offer for select investors to purchase up to $25.0 million of outstanding capital stock (including outstanding options exercised in connection with the transaction) from certain existing stockholders and option holders commencing January 29, 2020 and ending March 6, 2020. Such equity holders were granted the option to sell a certain percentage of their eligible shares as part of the transaction.
Following the tender offer, the Company waived the applicable transfer restrictions to allow several direct secondary transactions between certain existing equity holders (including current and former employees of the Company) and a third-party purchaser.
F-24
Justworks, Inc.
Notes to Consolidated Financial Statements
During the year ended May 31, 2020, these transactions resulted in the conversion of 1,990,746 shares of Class B Common Stock to Class A Common Stock, 78,825 shares of Series A Preferred Stock to Series A-1 Preferred Stock and 52,748 shares of Series B Preferred Stock to Series B-1 Preferred Stock.
Warrants
In connection with the Loan and Security Agreement (see Note 7), in May 2019, the Company issued two warrants to purchase common stock (each with an expiration date of May 2029). These warrants provide for an aggregate of 106,000 shares of Class A Common Stock at an exercise price of $0.01 per share. On January 30, 2020, SVB net exercised one of the warrants for 52,946 shares, with a warrant to purchase 53,000 shares remaining outstanding as of May 31, 2021.
Also, in June 2017, the Company issued a warrant to purchase common stock (with an expiration date on the fifth anniversary of an initial public offering by the Company) to TriplePoint Capital. This warrant provides for 175,000 shares of Class B Common Stock at an exercise price of $0.01 per share. On March 6, 2020, TriplePoint Capital partially exercised the warrant for 87,411 shares, with 87,500 shares remaining issuable pursuant to the exercise of the warrant as of May 31, 2021.
9. Stock-based compensation
On December 26, 2012, the Company’s Board of Directors approved the adoption of the 2012 Stock Incentive Plan (the “2012 Plan”). Under the 2012 Plan, the Company grants stock options and restricted stock awards for its Class B Common Stock to employees, directors, consultants, and other individuals who provide services to the Company. As of May 31, 2021, the Company had 7,572,277 Class B Common Stock shares authorized for the issuance of equity awards under the 2012 Plan.
On February 21, 2018, the Company’s Board of Directors approved the adoption of the 2018 Stock Plan (the “2018 Plan”), as the successor of the 2012 Plan. Under the 2018 Plan, the Company grants stock options and restricted stock awards for Class A Common Stock to employees, directors, consultants, and other individuals who provide services to the Company. Following the adoption of the 2018 Plan, no additional stock awards will be granted under the 2012 Plan. As of May 31, 2021, the Company had 6,830,341 Class A Common Stock shares authorized for equity awards under the 2018 Plan.
All options granted during the years ended May 31, 2021 and 2020 were under the 2018 Plan. All future grants will be granted under the 2018 Plan.
Stock‑based compensation represents the cost related to stock-based awards granted to employees and third-party service providers in lieu of monetary payment. As discussed in Note 2, the compensation costs for such awards are accounted for in accordance with ASC Topic 718, Compensation—Stock Compensation. Accordingly, the Company measures stock-based compensation cost at the date of grant, based on the fair value of the award, and recognizes the expense straight-lined over the employee’s requisite service period.
Vesting Schedule
All options expire the day prior to the 10 year anniversary from the date of award. Almost all outstanding stock options vest according to one of the following three schedules:
(i)25% after 12 months of continuous service, with 1/48 of total shares vesting monthly for each month of continuous service thereafter, or
(ii)5% after 12 months of continuous service, 1.25% after each of the following 12 months of continuous service (for a total of 15% with respect to months 13-24 of continuous service), and the balance vesting in equal monthly installments of 3.33% over each of the next 24 months of continuous service thereafter (for a total of 80% with respect to months 25-48), or
F-25
Justworks, Inc.
Notes to Consolidated Financial Statements
(iii)0.83% after each of the first 12 months of continuous service (for a total of 10% with respect to months 1-12 of continuous service) and 2.5% after each of the following 36 months of continuous service thereafter (for a total of 90% with respect to months 13-48 of continuous service).
The Company grants stock options with an early exercise feature to its employees pursuant to the terms of the 2012 Plan and the 2018 Plan, respectively. Under the provisions of the 2012 Plan and 2018 Plan, the Company has the option to repurchase all forfeited shares of common stock that are unvested from the early exercised options from its employees upon termination at the price equal to its original purchase price. Those repurchased shares are then available for future reissuance.
For the years ended May 31, 2021 and 2020, the Company allocated stock-based compensation expense to the following accounts in the consolidated financial statements:
(in millions)May 31, 2021May 31, 2020
Cost of providing services$0.7 $0.5 
Sales and marketing0.8 0.7 
General and administrative 2.5 14.0 
Product development1.2 1.0 
Stock-based compensation$5.2 $16.2 
Capitalized in intangible assets(0.2)(0.2)
Stock-based compensation expense$5.0 $16.0 
The key assumptions utilized to calculate the grant-date fair values using the Black-Scholes option pricing model for these awards are summarized below:
Year Ended May 31, 2021 Year Ended May 31, 2020
March 16, 2021December 12, 2020June 27, 2020 through October 24, 2020September 24, 2019June 19, 2019
Expected life (years)6.23 6.25 6.08 6.57 6.58 
Expected volatility55.0 %55.0 %65.0 %80.0 %80.0 %
Risk-free rate1.10 %0.56 %0.39 %1.58 %1.89 %
Grant date fair value of common stock $8.39 $6.71 $6.41 $5.28 $5.28 
To estimate the expected life of stock options, the Company has used the simplified method. Expected volatility is based on historical volatility of a group of peer entities. Dividend yields were determined to be $0.00. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.
F-26
Justworks, Inc.
Notes to Consolidated Financial Statements
For the years ended May 31, 2021 and 2020, the activity related to stock options was as follows:
Number of
options		Weighted
average
exercise price		Weighted
average
remaining
contractual life (years)		Weighted
average
grant-date
fair value		Aggregate intrinsic value (in millions)
Outstanding as of May 31, 20196,837,781 $4.27 8.04$1.11 $6.7 
Granted2,608,055 $5.28 9.22 $3.49 
Exercised(855,903)$1.35 6.36 $0.91 $4.9 
Forfeited and expired(884,662)$3.23 8.06 $2.32 
Outstanding as of May 31, 20207,705,271 $5.06 7.73 $1.80 $10.4 
Granted3,396,795 $6.93 9.37 $3.87 
Exercised(478,913)$1.87 6.17 $1.29 $1.9 
Forfeited and expired(768,321)$4.83 7.95 $2.46 
Outstanding as of May 31, 20219,854,832 $5.88 7.57 $2.49 $51.0 
Exercisable as of May 31, 20214,587,328 $5.41 6.41 $1.48 $25.9 
For the years ended May 31, 2021 and 2020, the activity related to unvested balance of stock options was as follows:
Number of
options		Weighted
average
grant-date
fair value
Unvested as of May 31, 20194,500,424$1.37 
Granted2,608,055$3.49 
Forfeited (865,930)$2.29 
Vested(1,706,154)$1.51 
Unvested as of May 31, 20204,536,395$2.35 
Granted3,396,795$3.87 
Forfeited(692,702)$2.54 
Vested(1,972,984)$2.17 
Unvested as of May 31, 20215,267,504$3.37 
As of May 31, 2021, unrecognized stock-based compensation expense associated with the unvested stock options granted under the 2012 Plan and 2018 Plan is $14.2 million, which is expected to be recognized over a weighted average period of 2.95 years.
For the year ended May 31, 2020, there was $12.6 million of stock-based compensation expense related to the Company’s tender offer transactions, $6.5 million of which was calculated as the excess of purchase price over fair value for the sale of employee shares to third parties as part of the secondary market transactions.
10. Income taxes
There were no U.S. federal taxes incurred for the years ended May 31, 2021 and 2020. There was an immaterial amount of state and local taxes incurred for the years ended May 31, 2021 and 2020, primarily in separate reporting states. The difference between the income tax recorded and the amounts computed
F-27
Justworks, Inc.
Notes to Consolidated Financial Statements
by applying the U.S. federal income tax rate of 21% to the pretax income (loss) is primarily due to nondeductible expenses and the valuation allowance recorded in the current year.
For the years ended May 31, 2021 and 2020, reconciliation of the Company’s effective tax rate to the U.S. corporate statutory income tax rate is as follows:
Year ended May 31,
(in millions)20212020
Expected tax at statutory rate$2.3 21.0 %$(4.6)21.0 %
Rate change0.2 1.4 — — 
Deferred only - federal0.5 4.6 — (0.1)
Valuation allowance(3.1)(28.2)4.2 (20.6)
Other0.1 1.3 0.4 (1.9)
Total income tax expense$— — %$— — %
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) are as follows:
Year ended May 31,
(in millions)20212020
Deferred tax assets:
Net operating loss carryforward$24.4 $28.0 
Share-based compensation3.1 1.5 
Lease liability36.6 0.1 
Interest expense limitation (163j)— 0.5 
Accrued expenses2.4 1.6 
Deferred payroll tax0.4 — 
Other0.1 0.3 
Total deferred tax assets67.0 32.0 
Less valuation allowance(20.1)(25.8)
Net deferred tax asset$46.9 $6.2 
Deferred tax liabilities:    
Depreciation and amortization$(3.2)$— 
Operating lease, right of use assets(37.1)(0.2)
Deferred commission(6.6)(6.0)
Total deferred tax liabilities(46.9)(6.2)
Total
$— $— 
The Company is subject to federal and state income taxes in the United States. For the years ended May 31, 2021 and 2020, there was no current or deferred income tax expense.
Deferred tax assets are primarily composed of net operating loss carryforwards and basis differences for financial reporting and tax purposes of certain assets and liabilities. Management reviews the recognition of deferred tax assets to determine if realization of such assets is more likely than not. The Company has been in a three-year cumulative loss position from inception to the period ending in May 31, 2021 for book purposes. For purposes of assessing the realization of the deferred tax assets, this cumulative taxable loss position, along with the evaluation of all sources of taxable income available to realize the deferred tax asset, has caused management to conclude that the Company will not be able to
F-28
Justworks, Inc.
Notes to Consolidated Financial Statements
fully realize the deferred tax assets in the future. Accordingly, the Company has provided a valuation allowance against its deferred tax assets.
As of May 31, 2021 and 2020, the Company has net operating loss carryforwards for federal income tax purposes of approximately $82.9 million and $86.9 million, respectively. Of the federal net operating loss available as of May 31, 2021, $50.6 million will begin to expire in 2033 and later, if not utilized. The federal net operating losses generated for taxable years ending May 31, 2019 and after can be carried forward indefinitely, but are subject to certain limitations upon utilization. As of May 31, 2021 and 2020, the Company has net operating loss carryforwards for state income tax purposes of approximately $116.9 million and $135.5 million, respectively. Of the state net operating loss carryforwards available as of May 31, 2021, $0.1 million will begin to expire in 2025, if not utilized, while other states are unlimited.
The Internal Revenue Code and state tax codes and regulations contain provisions that limit the annual utilization of net operating loss carryforwards if there has been an ownership change, as defined in Section 382 of the Internal Revenue Code. If such an ownership change occurs, it may substantially limit the Company’s ability to utilize its net operating loss carryforwards on an annual basis. To the extent that any single year limitation is not utilized to the full amount of the limitation, such unused amounts are carried over to subsequent years until the earlier of its utilization or the expiration of the relevant carry forward period.
Consistent with the provisions of ASC Topic 740, Income Taxes, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company has not taken any tax position for which the associated benefit has not been recorded in the consolidated financial statements.
The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Tax years 2016 and forward remain open for examination for federal tax purposes and tax years 2015 and forward remain open for examination for the Company’s more significant state tax jurisdictions.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, 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. The Company has evaluated the impact of the CARES Act on its 2021 tax provision and determined it is not material to the consolidated financial statements.
11. Commitments and Contingencies
Legal proceedings
The Company is not currently a party to any legal proceeding, investigation, or claim which, in the opinion of management, is likely to have a material adverse effect on the business, financial condition, results of operations, or cash flows. Legal fees associated with such legal proceedings are expensed as incurred. The Company reviews legal proceedings and claims on an ongoing basis and follows the appropriate accounting guidance, including ASC Topic 450, Contingencies when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the occurrence of a loss is probable and can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the consolidated financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.
F-29
Justworks, Inc.
Notes to Consolidated Financial Statements
In addition, the Company may be involved in litigation from time to time in the ordinary course of business. It is the opinion of the Company's management that the ultimate resolution of any such matters currently pending will not have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows. However, the results of such matters cannot be predicted with certainty and there can be no assurance that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.
In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss.
12. Related Party Transactions
The Company processes payroll in the normal course of business for certain investors. The revenue generated from these service agreements is not considered material.
F-30

JUSTWORKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
August 31, 2021 and May 31, 2021
(In millions, except share and per share data)
(Unaudited)
August 31, 2021May 31, 2021
ASSETS:
Current assets:
Cash and cash equivalents$109.9 $101.0 
Restricted cash81.8 95.3 
Prepaid expenses and other current assets6.9 10.8 
Co-employment assets216.5 89.0 
Total current assets415.1 296.1 
Cost to obtain revenue contracts, net21.8 21.2 
Operating lease right of use asset, net117.1 118.7 
Property and equipment, net5.8 6.0 
Intangible assets, net12.6 11.5 
Goodwill0.5 0.5 
Noncurrent restricted cash0.3 0.3 
Total assets
$573.2 $454.3 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT:
Current liabilities:
Accounts payable$1.7 $0.5 
Accrued expenses and other current liabilities23.4 38.5 
Deferred revenue92.1 86.8 
Co-employment liabilities216.3 89.2 
Current portion of operating lease liability8.5 8.2 
Current portion of long-term debt— 5.0 
Total current liabilities342.0 228.2 
Operating lease liability108.4 108.8 
Long-term debt, net14.8 9.6 
Other noncurrent liabilities6.4 5.7 
Total liabilities
471.6 352.3 
Commitments and contingencies (see Note 9)
Redeemable convertible preferred stock, $.0005 par value, authorized 71,465,641 shares; issued and outstanding 40,577,516 shares at August 31, 2021 and May 31, 2021 (see Note 6)
147.1 147.1 
Stockholders' deficit:
Class A common stock, $.0005 par value, authorized 67,000,000 shares; issued 3,387,693 and 3,341,472 shares; outstanding 3,341,371 and 3,296,401 shares at August 31, 2021 and May 31, 2021, respectively— — 
Class B common stock, $.0005 par value, authorized 47,732,649 shares; issued 11,351,737 and 11,318,201 shares; outstanding 11,246,898 and 11,198,197 shares at August 31, 2021 and May 31, 2021, respectively— — 
Treasury stock, at cost, 2,751,580 shares at August 31, 2021 and May 31, 2021 — — 
Additional paid-in capital28.7 24.0 
Accumulated deficit(74.2)(69.1)
Total stockholders’ deficit
(45.5)(45.1)
Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit
$573.2 $454.3 
See accompanying notes to consolidated financial statements.
F-31

JUSTWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended August 31, 2021 and 2020
(In millions, except share and per share data)
(Unaudited)
Three Months Ended August 31,
20212020
Revenue:  
Subscription revenue$27.5 $19.9 
Benefits and insurance related revenue263.7 186.9 
Total revenue291.2 206.8 
Cost of Revenue:
Benefits and insurance fees249.2 178.0 
Cost of providing services11.0 6.7 
Total cost of revenue260.2 184.7 
Gross profit
31.0 22.1 
Operating expenses:
Sales and marketing12.9 8.7 
General and administrative15.8 7.8 
Product development6.2 3.0 
Total operating expenses34.9 19.5 
(Loss) income from operations(3.9)2.6 
Loss on extinguishment of debt(1.1)— 
Interest and other expense(0.1)(0.4)
Net (loss) income before taxes(5.1)2.2 
Income taxes— — 
Net (loss) income$(5.1)$2.2 
Net (loss) income per share attributable to Class A and Class B common stockholders (see Note 3):
Basic$(0.35)$0.04 
Diluted$(0.35)$0.04 
Weighted average Class A and Class B common shares outstanding (see Note 3):
Basic14,544,37914,217,512 
Diluted14,544,37956,864,729 
See accompanying notes to consolidated financial statements.
F-32

JUSTWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit
Three Months Ended August 31, 2021 and 2020
(In millions, except share data)
(Unaudited)

Redeemable Convertible Preferred  Stock		Class A
Common Stock		Class B
Common Stock		Treasury StockAdditional
paid-in
 capital		Accumulated
deficit		Total
stockholders’
deficit
SharesAmountShares  AmountShares  Amount  Shares  Amount    
Balance, May 31, 202040,577,516 $147.1 3,189,592 $— 10,826,093 $— 2,751,580 $— $17.9 $(80.0)$(62.1)
Exercise of stock options— — 33,257 — 241,980 — — — 0.4 — 0.4 
Stock-based compensation— — — — — — — — 1.2 — 1.2 
Net income— — — — — — — — — 2.2 2.2 
Balance, August 31, 202040,577,516 147.1 3,222,849 $— 11,068,073 $— 2,751,580 $— $19.5 $(77.8)$(58.3)
Balance, May 31, 202140,577,516 147.1 3,296,401 $— 11,198,197 $— 2,751,580 $— $24.0 $(69.1)$(45.1)
Exercise of stock options— — 44,970 — 48,701 — — — 0.2 — 0.2 
Stock-based compensation— — — — — — — — 4.5 — 4.5 
Net loss— — — — — — — — — (5.1)(5.1)
Balance, August 31, 202140,577,516 $147.1 3,341,371 $— 11,246,898 $— 2,751,580 $— $28.7 $(74.2)$(45.5)
See accompanying notes to consolidated financial statements.
F-33

JUSTWORKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended August 31, 2021 and 2020
(In millions)
(Unaudited)
Three Months Ended August 31,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income$(5.1)$2.2 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization1.2 0.8 
Amortization of cost to obtain revenue contracts1.2 0.9 
Non-cash lease expense1.6 0.9 
Stock-based compensation4.3 1.2 
Non-cash interest expense— 0.1 
Loss from write-off of noncurrent assets— 0.1 
Non-cash loss on extinguishment of debt0.5 — 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets3.8 (1.1)
Cost to obtain revenue contracts(1.8)(1.4)
Accounts payable1.3 (1.0)
Accrued expenses and other liabilities(14.0)(0.8)
Deferred revenue5.4 0.5 
Co-employment liabilities127.1 23.3 
Operating lease liabilities(0.1)(0.6)
Net cash provided by operating activities125.4 25.1 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment(0.2)(0.8)
Capitalization of software(1.7)(0.8)
Net cash used in investing activities(1.9)(1.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options, including early exercises0.3 0.4 
Proceeds from issuance of long-term debt, net of debt financing costs14.7 — 
Repayment of debt(15.0)— 
Cash paid for extinguishment of debt(0.6)— 
Net cash (used in) provided by financing activities(0.6)0.4 
Net increase in cash, cash equivalents, co-employment assets, and restricted cash122.9 23.9 
Cash, cash equivalents, co-employment assets, and restricted cash at beginning of period285.6 199.0 
Cash, cash equivalents, co-employment assets, and restricted cash at end of period$408.5 $222.9 
F-34

20212020
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid for interest$0.1 $0.1 
Cash paid for taxes$— $— 
NON-CASH ACTIVITY:
Capitalized stock-based compensation$0.1 $— 
Early exercises as of prior year that vested this year$0.1 $— 
20212020
SUPPLEMENTAL SCHEDULE OF CASH, CASH EQUIVALENTS, CO-EMPLOYMENT ASSETS, AND RESTRICTED CASH
Cash and cash equivalents$109.9 $90.6 
Restricted cash81.8 61.4 
Co-employment assets216.5 70.6 
Noncurrent restricted cash0.3 0.3 
Cash, cash equivalents, co-employment assets, and restricted cash at end of period$408.5 $222.9 
See accompanying notes to consolidated financial statements.
F-35
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
1. Organization and description of business
Justworks, Inc., a Delaware corporation founded on October 5, 2012, is a cloud-based software platform that gives small and medium-sized businesses (“SMBs”) access to benefits, payroll, HR, and compliance support—all in one place. Justworks, Inc. and its wholly-owned subsidiaries (“Justworks” or the “Company”) leverages economies of scale via co-employment, which can drive attractive cost savings for customers, as well as enable them to provide a richer suite of benefits for their people and compete with larger businesses to attract top talent. Justworks combines this powerful demand aggregation dynamic with simple, easy-to-use software and 24/7 expert support, empowering entrepreneurs and businesses to grow with confidence. Core offerings include access to high-quality benefits, universal payments from one place, streamlined HR with cloud-native tools, and on-demand expertise and compliance support. The Company is able to sponsor and maintain a broad range of attractive benefits plans by aggregating employees from many small businesses into a single large entity known as a professional employer organization (“PEO”).
2. Summary of significant accounting policies
Emerging growth company status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.
The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. As a result, the Company’s consolidated financial statements may not be comparable to financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards based on public company effective dates.
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company. All intercompany balances and transactions have been eliminated upon consolidation. The Company does not have other comprehensive income (loss) for three months ended August 31, 2021 and 2020.
Unaudited interim financial information
In the opinion of the Company’s management, the financial statements reflect all adjustments, consisting only of a normal recurring nature, necessary to present fairly the Company’s balance sheet at August 31, 2021, statements of operations, statements of redeemable convertible preferred stock and stockholders’ deficit, and statements of cash flows for the three months ended August 31, 2021 and 2020. Certain notes and other information have been condensed or omitted from the interim financial statements. Therefore, these financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended May 31, 2021.
There have been no significant changes in accounting policies during the three months ended August 31, 2021 and 2020, from those disclosed in the annual consolidated financial statements for the year ended May 31, 2021 and the related notes.
Use of estimates
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 Company’s consolidated financial
F-36
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
statements and accompanying notes. The Company bases its estimates and assumptions on historical experience and various other assumptions that management believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s consolidated balance sheets and the amounts of revenue and expenses reported in the Company’s consolidated statements of operations for the periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for useful lives of property and equipment, capitalized software, accrual for workers’ compensation claims, income taxes, the valuation of common stock and determination of stock-based compensation, stock warrants, present value of lease obligations, recoverability of long-lived assets, the valuation of goodwill and other intangibles, and the amortization period for costs to obtain revenue contracts. Actual results could differ from those estimates.
Cash, cash equivalents, and restricted cash
The Company considers all cash investments available with original maturities of three months or less to be cash equivalents. Cash and cash equivalents relates to cash generally available for use in operations in the amounts of $109.9 million and $101.0 million as of August 31, 2021 and May 31, 2021, respectively.
Restricted cash includes funds held to be used for the payment of benefits and insurance fees, which are pass-through in nature as they relate to medical, dental, vision, and other insurance-related coverage in the amounts of $81.8 million and $95.3 million as of August 31, 2021 and May 31, 2021, respectively. The Company does not have any contractual obligations to hold such cash as restricted.
Co-employment assets and liabilities
Co-employment assets includes cash held in accounts for payroll and payroll tax-related funds collected and held for remittance to worksite employees (“WSEs”) and the respective government agencies, as well as healthcare, benefit, and 401(k) contribution funds collected and held for remittance to the associated plans. The Company collects payroll taxes from customers and remits them to the federal government and other respective government agencies where the customers’ business and employees reside. Unremitted payroll taxes are shown in the consolidated balance sheets as co-employment assets with the associated liabilities reported as co-employment liabilities. The Company collects state unemployment taxes from customers and remits them to states based on taxable wages and remit rates. In some cases, estimated remit rates are used to calculate the remittance and the subsequent payment is made in the relevant period.
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities as of as of August 31, 2021 and May 31, 2021 was $23.4 million and $38.5 million, respectively, and included $0.6 million and $19.0 million, respectively, of amounts due to customers mainly pertaining to COVID-related tax credits to be passed back to our customers. Expense accruals are recognized based on our estimate of the timing of services provided by a vendor or supplier.
Revenue recognition
Revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which generally occurs when, or as, control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price.
At contract inception, the Company assesses the services promised in our contracts with customers and identifies a performance obligation for each distinct promise to transfer to the customer a service or bundle of services. Contracts with customers contain multiple performance obligations. For such
F-37
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation or using the variable consideration allocation exception if the required criteria are met.
The majority of the Company’s customers are subject to month-to-month contractual arrangements. Remaining customers are subject to annual contractual arrangements. Subscription revenue is typically billed to customers and collected in the month in which the service is performed. Customers subject to annual contracts are billed based on an annualized usage for the number of existing users in the month the contract is executed. The majority of benefits and insurance related revenue is billed to customers in the month prior to the service being performed and collected from customers prior to the processing of payroll for the applicable billing period. Either party may generally terminate the contract upon thirty days' prior written notice without penalty.
The Company’s revenue recognition policies summarizing the nature, amount, timing, and uncertainty associated with each major source of revenue from contracts with customers are described below.
Subscription revenue
Subscription revenue represents fees charged to customers for accessing the Company’s cloud-based HR administration solution for employee payroll and benefits management, recruiting, and onboarding. The solution facilitates payroll and payroll tax processing, which includes filing and remitting federal, state, and local payroll taxes on behalf of our customers, and benefits administration services related to Company-sponsored health benefit plans. The transaction price is determined based on the number of WSEs and the fixed per employee per month (“PEPM”) rate. Subscription revenue is recognized over the time in which the customer has access to the solution for payroll and benefit processing, recruiting, and onboarding using an output method. Although the transaction price includes variable consideration, as these services qualify as a series of distinct services, the Company applies the variable consideration allocation exception and allocates the fees to each distinct service period (i.e. each pay period).
Subscription revenue is stated net of the gross payroll and payroll tax amounts funded by our customers. Although the Company assumes the responsibilities to process and remit the payroll and payroll related obligations, it does not assume employment-related responsibilities including determining the amount of the payroll and related payroll obligations, and the worksite employer remains the common law employer of its WSEs. As a result, the Company is the agent in the arrangement for revenue recognition purposes.
Benefits and insurance related revenue
Benefits and insurance related revenues consist of insurance-related amounts collected from customers and withheld from covered employees for risk-based and non-risk based insurance plans primarily provided through third-party insurance carriers, including employee health insurance benefits and workers’ compensation insurance. The Company’s performance obligation is to provide access to the Company’s sponsored health benefits and insurance coverage through insurance policies provided by third-party insurance carriers under its benefits and insurance related revenue consisting of state unemployment insurance (“SUI”), workers’ compensation insurance, and health insurance benefits provided to WSEs under Company-sponsored plans.
SUI revenue is recognized over the monthly period using an output method in which the control of the promised services is considered transferred when a customer’s payroll is processed over the contract period. For workers’ compensation insurance and health insurance benefits, the Company recognizes revenue over the monthly period of time that the customer and WSEs are covered under the Company-sponsored insurance policies.
The transaction price for SUI is based on the payroll costs of WSEs serviced and the applicable state’s tax rate. For workers’ compensation insurance, the transaction price is determined as a
F-38
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
percentage of payroll processed by the Company. The transaction price for the Company’s health insurance benefits is based on the number of WSEs serviced, the individual benefits elected by the WSEs, and the fees established by the Company for the various benefits. Although the transaction price for these performance obligations are variable, as these services qualify as a series of distinct services, the Company applies the variable consideration allocation exception and allocates the fees to each distinct service period.
Benefits and insurance related revenue is recorded on a gross basis as the Company is considered the principal for each of the performance obligations noted above as the Company controls payment for SUI, along with the selection of workers' compensation and health benefit coverage made available.
Disaggregation of revenue
Substantially all of the Company’s revenues relate to services transferred over time and it does not recognize any significant revenue for products and services transferred at a point in time.
Deferred revenue
Deferred revenue represents advance payments received from customers for professional employer organizations services, which include payroll, human resources, and compliance support, and are deferred and recognized as revenue over the contract period as the performance obligations are satisfied. In instances where the timing of revenue recognition differs from the timing of advance payments, the Company has determined its contracts do not include a significant financing component as the related performance obligations are generally satisfied within one year. As of August 31, 2021 and May 31, 2021, the balance of deferred revenue was $92.1 million and $86.8 million, respectively. The majority of the Company’s deferred revenue balance is collected from customers one month preceding the month of revenue recognition and mainly relates to benefits and insurance-related revenue. Approximately $80.9 million of the deferred revenue balance as of May 31, 2021 was recognized into revenue during the first quarter of fiscal year 2022.
Costs to obtain revenue contracts
Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions are deferred and amortized on a straight-line basis over the estimated average customer life which the Company has determined to be approximately seven years. Deferred sales commissions were $21.8 million and $21.2 million at August 31, 2021 and May 31, 2021, respectively. During the three months ended August 31, 2021 the Company capitalized $1.8 million of sales commissions compared to $1.4 million in the same three month period in 2020. The Company amortized $1.2 million in sales commissions during the three months ended August 31, 2021 compared to $0.9 million in the same three month period in 2020, which is included in sales and marketing expenses in the accompanying consolidated statements of operations.
Insurance fees
The Company provides group health insurance coverage to its WSE’s through partnerships with prominent healthcare providers covering medical, dental, vision, and other insurance benefits. The Company currently operates under guaranteed-cost policies, which means their carriers establish the premiums and there is no deductible. Monthly premiums are paid to the insurance providers for medical, dental, vision, and other benefits and associated amounts are collected from customers one month prior to the month of benefit.
Workers’ compensation costs
The Company’s workers’ compensation coverage has been provided through an arrangement with an insurance carrier since 2016. The insurance carrier is a fully-insured policy whereby it has the responsibility to pay all claims incurred regardless of whether the Company satisfies its responsibilities.
F-39
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Under the plan, and through August 31, 2021, the Company bears the economic burden for the first $1.0 million layer of claims per occurrence. The insurance carrier bears the economic burden for all claims in excess of this level.
Because the Company bears the economic burden for claims up to the levels noted above, such claims are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.
The Company consults with a third-party actuarial service to assist with establishing actuarial reserving methods to arrive at a range of ultimate loss indications by policy period, from which the Company selects the ultimate loss development rate. These factors are based on overall workers’ compensation industry trends as well as geographic locations, industry segments, and payroll classifications within our program, in addition to actual claims activity processed by the insurance carrier. The Company considers these rates to be reasonable.
At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (claim funds). The level of claim funds is primarily based upon anticipated worksite employee payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. The Company’s estimate of incurred claim costs expected to be paid within one year are included in accrued expenses and other current liabilities while the estimate of incurred claim costs expected to be paid beyond one year are included in other noncurrent liabilities on our consolidated balance sheets. Expenses associated with both liabilities are recorded in benefits and insurance fees within the consolidated statements of operations. The breakout between short-term and long-term workers’ compensation liabilities can be seen below:
(in millions)August 31, 2021May 31, 2021
Accrued workers’ compensation short-term$3.1 $2.1 
Accrued workers’ compensation long-term$5.0 $4.1 
For the three months ended August 31, 2021 and 2020 the undiscounted workers’ compensation costs for claims and premiums were $4.9 million and $5.1 million, respectively.
Income taxes
The Company accounts for its income taxes using the asset and liability method. Under the asset and liability method, deferred taxes are recognized for differences between the carrying values and tax bases of assets and liabilities. The Company also recognizes net operating loss carry forwards that are available to offset future taxable income as deferred tax asset. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Stock-based compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employees. The Company measures stock-based compensation cost at grant date, based on the estimated fair value of the award, and recognizes the expense straight-lined over the employee’s requisite service period. Compensation expense associated with stock options are based on the estimated grant date fair value method using the Black-Scholes option pricing model. Expense is
F-40
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
recognized using a straight-line amortization method over the respective vesting period, with adjustments to expense recognized in the period in which forfeitures occur.
Key Assumptions
The Company’s Black-Scholes option-pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected volatility of the price of the Company’s common stock, risk-free interest rates, the expected term of the option, and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, the Company’s stock-based compensation expense could be materially different in the future.
•Fair Value of the Company’s Common Stock. Because the Company’s stock is not publicly traded, it must estimate the fair value of its common stock.
•Expected Volatility. As the Company has not been a public company and does not have a trading history for its common stock, the expected stock price volatility for its common stock is estimated by taking the average historical price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers, which the Company has selected, consist of several public companies in the industry similar in size, stage of life cycle and financial leverage. These industry peers are also used in the Company’s common stock valuations. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of its own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar to it, 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 is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.
•Expected Term. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, it bases its expected term for awards issued to employees or members of its board of directors on the simplified method, which represents the average period from vesting to the expiration of the stock option.
•Expected Dividend Yield. The Company has never declared or paid any cash dividends to common stockholders and does not presently plan to pay cash dividends in the foreseeable future. Consequently, it uses an expected dividend yield of zero.
Common stock subject to repurchase
Option holders are allowed to exercise stock options to purchase common stock prior to vesting. The Company has the right to repurchase at the original purchase price any unvested but outstanding common shares upon termination of service of the option holder. The consideration received for an early exercise of a stock option is considered to be a deposit of the exercise price and the related amount is recorded as a liability. While such shares have been issued, they are not considered outstanding for accounting purposes until they vest and are therefore excluded from shares used in determining income per share until the repurchase right lapses and the shares are no longer subject to the repurchase feature. The liability is reclassified into common stock and additional paid-in capital as the shares vest and the repurchase right lapses.
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Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Accordingly, the Company has recorded the unvested portion of the early exercise proceeds of $0.4 million and $0.4 million as of August 31, 2021 and May 31, 2021, respectively, within accrued expenses & other current liabilities and other noncurrent liabilities in the consolidated balance sheets.
Legal proceedings
In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss.
Concentration of credit risk
Financial instruments that may be subject to concentration of credit risk include cash, cash equivalents, co-employment assets, and restricted cash. The Company maintains cash balances at a financial institution which is insured by the Federal Deposit Insurance Corporation up to two hundred and fifty thousand dollars per account.
The Company’s customer service agreement requires that customers timely pay their fees due under the agreement, which include, among other things, administrative fees, wage payments, payroll taxes, and other PEO service fees, and any other amounts that may accrue or may become outstanding relating to services provided by the Company. The Company generally requires payment from its customers on or before the applicable payroll date.
No customer accounted for more than 1% of total revenues in the three months ended August 31, 2021 and 2020. The Company made payments to an insurance provider that represents approximately 80% of payments made to suppliers for the three months ended August 31, 2021 and 2020.
Recent accounting pronouncements
Accounting pronouncements not listed below were assessed and determined to be not applicable or are expected to have minimal impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This aligns the accounting for implementation costs incurred in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance is effective for nonpublic companies for annual reporting periods beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021 with early adoption permitted. The amendments in this standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The adoption of this standard as of June 1, 2021, on a prospective basis, did not have a material effect on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting for the discontinuation of a reference rate such as the London Inter-bank Offered Rate (“LIBOR”) because of reference rate reform. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements.

F-42
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
3. (Loss) income per share
The Company computes (loss) income per share of Class A common stock and Class B common stock using the two-class method required due to the participating nature of both the redeemable convertible preferred stock (see Note 6), and the unvested stock options that have been early exercised by option holders (see Note 2). The rights, including the liquidation and dividend rights, of the Class A common stock and Class B common stock are substantially identical, other than voting rights. Accordingly, the Class A common stock and Class B common stock share in the Company’s net (loss) income. The weighted-average number of shares outstanding utilized in diluted income per share is computed using the weighted-average number of common shares outstanding plus the number of common shares that would be issued assuming exercise and conversion of all potentially dilutive instruments. The dilutive effect of the securities that are issuable under the Company’s equity incentive plans (see Note 7) are reflected in diluted income per share by application of the treasury stock method.
For the three months ended August 31, 2021 and 2020, basic and diluted (loss) income per share was as follows:
Three Months Ended
August 31,
(in millions, except share and per share amounts)20212020
Numerator:
Net (loss) income$(5.1)$2.2 
Less: net income allocated to participating securities— (1.6)
Net (loss) income attributable to common stockholders —basic(5.1)0.6 
Add: reallocation of net income attributable to participating securities— 1.6 
Net (loss) income attributable to common stockholders—diluted$(5.1)$2.2 
Denominator:
Weighted-average common shares outstanding—basic14,544,379 14,217,512 
Dilutive effect of assumed conversion of redeemable convertible preferred stock— 40,577,516 
Dilutive effect of assumed conversion of stock options— 1,929,420 
Dilutive effect of assumed conversion of warrants— 140,281 
Weighted-average common shares outstanding—diluted14,544,379 56,864,729 
(Loss) income per share:
Net (loss) income per share attributable to common stockholders—basic$(0.35)$0.04 
Net (loss) income per share attributable to common stockholders—diluted$(0.35)$0.04 
Dilutive securities having an anti-dilutive effect on diluted net income per share are excluded from the calculation. For the three months ended August 31, 2021, our diluted and basic loss per share attributable to common stockholders is the same as the Company was in a net loss position.
F-43
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
The following weighted-average outstanding shares of potentially dilutive securities were excluded from the calculation of diluted (loss) income per share, as they are anti-dilutive for the periods presented:
Three Months Ended August 31,
20212020
Redeemable convertible preferred stock40,577,516 — 
Stock options11,504,371 5,234,555 
Warrants140,500 — 
Total anti-dilutive securities52,222,387 5,234,555 
4. Intangible assets, net and goodwill
Intangible assets, net
Intangible assets, net, as of August 31, 2021 and May 31, 2021 consists of the following:
(in millions)Amortization period (in years)August 31, 2021May 31, 2021
Gross amount:
Capitalized software5$16.4 $14.6 
Acquired software53.0 3.0 
Customer relationships50.1 0.1 
Total gross amount
$19.5 $17.7 
Accumulated amortization:
Capitalized software$(6.4)$(5.8)
Acquired software(0.5)(0.4)
Customer relationships— — 
Total accumulated amortization
$(6.9)$(6.2)
Intangible assets, net:
Capitalized software$10.0 $8.8 
Acquired software2.5 2.6 
Customer relationships0.1 0.1 
Intangible assets, net
$12.6 $11.5 
Amortization expense of $0.8 million and $0.5 million for the three months ended August 31, 2021 and 2020, respectively, is included in cost of providing services and product development in the consolidated statements of operations. As of August 31, 2021 and May 31, 2021, intangible assets with a carrying amount of $1.9 million and $1.4 million, respectively, are included in the gross amount of capitalized software, and have not commenced amortization, as they are not ready for their intended use.
The Company did not write-off any capitalized software during the three months ended August 31, 2021 and 2020.
Goodwill
Goodwill represents the cost in excess of fair value of net assets acquired in a business combination. As of August 31, 2021 and May 31, 2021, the total balance of goodwill was $0.5 million.
F-44
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
5. Long-term debt, net
Long-term debt, net consists of the following:
(in millions)August 31, 2021May 31, 2021
Principal amount$15.2 $15.0 
Less: Unamortized debt financing costs0.4 0.4 
Long-term debt, net$14.8 $14.6 
Less: Current portion of long-term debt— 5.0 
Long-term debt, net (noncurrent)$14.8 $9.6 
JPM Credit Agreement
On June 4, 2021 (the “Closing Date”), the Company entered into a credit agreement (the “Credit Agreement”) by and among, Justworks, Inc., and JP Morgan Chase Bank, N.A., as administrative agent, sole bookrunner, and sole lead arranger. The Credit Agreement provides for a term loan in the aggregate principal amount of up to $20.0 million, $15.2 million of which was funded on the Closing Date (the “Term Loan”), along with a revolving credit facility of up to $30.0 million (the “Revolving Credit Facility”) of which, $9.1 million remains undrawn as of August 31, 2021. The Term Loan and Revolving Credit Facility mature on June 4, 2025 and June 4, 2024, respectively. As of August 31, 2021, the Company had $15.2 million outstanding under the term loan facility and is in compliance with all debt covenants.
On the Closing Date, the Company repaid $15.0 million aggregate principal amount of its Loan and Security Agreement dated May 31, 2019, as amended on June 1, 2020 and March 11, 2021, resulting in a loss of $1.1 million as a cost of extinguishment of debt.
Borrowings under the Credit Agreement bear interest at a rate per annum equal to LIBOR, or the Applicable Margin Rate, plus a Benchmark Spread of 2.50% or 3.50% depending on the Company’s EBITDA for the trailing twelve month period.
Borrowings under the Credit Agreement are secured by substantially all of the assets of Justworks, Inc. (excluding, among other things, deposit accounts used exclusively as escrow, fiduciary, withholding, tax payment, or trust accounts). Subject to certain terms of the Credit Agreement, the Company may prepay its borrowings under the Credit Agreement without premium or penalty prior to maturity. The Credit Agreement contains certain customary affirmative and negative covenants.
The Term Loan is subject to an interest-only period (payable monthly) which lasts until December 4, 2022. Commencing December 4, 2022 through and including December 4, 2024, the outstanding principal balance of the Term Loan will be subject to equal quarterly payments of principal based on a 5% per annum amortization schedule, and thereafter a 10% per annum amortization schedule until maturity. Scheduled principal payments of the Term Loan are $0.2 million per quarter, commencing on March 4, 2023 until December 4, 2024, and are $0.4 million for the remaining two quarters.
The Credit Agreement provides for a $25.0 million sub-limit for letters of credit. As of June 4, 2021, the Company transferred its outstanding letters of credit over from the Loan and Security Agreement to the Revolving Credit Facility.
As of August 31, 2021, the Company had outstanding letters of credit of approximately $21.0 million, including $7.2 million in connection with its obligations to its workers’ compensation carrier and certain lease obligations of $13.8 million.
F-45
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Maturities
As of August 31, 2021, scheduled future maturities of the long-term debt are as follows:
(in millions)August 31, 2021
remainder of fiscal year 2022$— 
20230.2 
20240.8 
202514.2 
2026— 
Total$15.2 
Fair Value
As of August 31, 2021, the fair value of long-term debt is considered to approximate its carrying value. The fair value assessment represents a Level 2 measurement.
6. Redeemable convertible preferred stock and stockholders’ deficit
All classes of redeemable convertible preferred stock are optionally convertible by the holder into shares of Series A common stock at the then applicable conversion price. See below for further discussion of conversion. In the event of liquidation of the Company (including certain events outside of the Company’s control such as a change in control), the holders of redeemable convertible preferred stock are entitled to a liquidation preference equal to the respective original issue price plus declared and unpaid dividends ahead of the classes of common stock described below. The aggregate preferential amount for all classes of redeemable convertible preferred stock was $147.1 million as of August 31, 2021 and May 31, 2021.
The liquidation preference for each series of redeemable convertible preferred stock as of August 31, 2021 and May 31, 2021 is as follows:
Authorized sharesShares outstandingLiquidation preference (per share)Par value (per share)Redeemable convertible preferred stock (in millions)
Series A10,926,405 10,847,580 $0.8700 $0.0005 $9.5 
Series A-112,157,378 1,309,798 $0.8700 $0.0005 1.1 
Series B9,142,892 9,090,144 $1.4200 $0.0005 12.9 
Series B-19,142,892 52,748 $1.4200 $0.0005 0.1 
Series C10,818,828 10,818,828 $3.1000 $0.0005 33.5 
Series C-110,818,828 — $3.1000 $0.0005 — 
Series D5,517,242 5,517,242 $7.2500 $0.0005 40.0 
Series E2,941,176 2,941,176 $17.0000 $0.0005 50.0 
Redeemable convertible preferred shares71,465,641 40,577,516 $147.1 
Common Stock
Holders of Class A Common Stock are entitled to one vote per share with dividend and liquidation rights subject to and qualified by the rights and preferences of the holders of the preferred stock, and holders of Class B Common Stock are entitled to ten votes per share with dividend and liquidation rights subject to and qualified by the rights and preferences of the holders of the preferred stock. So long as the
F-46
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Preferred Stock is outstanding, the Company is required to reserve from its authorized stock the number of shares sufficient to affect the conversion of all outstanding Preferred Stock.
7. Stock-based compensation
On December 26, 2012, the Company’s Board of Directors approved the adoption of the 2012 Stock Incentive Plan (the “2012 Plan”). Under the 2012 Plan, the Company grants stock options and restricted stock awards for its Class B Common Stock to employees, directors, consultants, and other individuals who provide services to the Company. As of August 31, 2021, the Company had 7,508,546 Class B Common Stock shares authorized for the issuance of equity awards under the 2012 Plan.
On February 21, 2018, the Company’s Board of Directors approved the adoption of the 2018 Stock Plan (the “2018 Plan”), as the successor of the 2012 Plan. Under the 2018 Plan, the Company grants stock options and restricted stock awards for Class A Common Stock to employees, directors, consultants, and other individuals who provide services to the Company. Following the adoption of the 2018 Plan, no additional stock awards will be granted under the 2012 Plan. As of August 31, 2021, the Company had 11,509,575 Class A Common Stock shares authorized for equity awards under the 2018 Plan.
All options granted during the years ended August 31, 2021 and 2020 were under the 2018 Plan. All future grants will be granted under the 2018 Plan.
Stock‑based compensation represents the cost related to stock-based awards granted to employees and third-party service providers in lieu of monetary payment. As discussed in Note 2, the compensation costs for such awards are accounted for in accordance with ASC Topic 718, Compensation—Stock Compensation. Accordingly, the Company measures stock-based compensation cost at the date of grant, based on the fair value of the award, and recognizes the expense straight-lined over the employee’s requisite service period.
Vesting Schedule
All options expire the day prior to the 10 year anniversary from the date of award. Almost all outstanding stock options vest according to one of the following three schedules:
(i)25% after 12 months of continuous service, with 1/48 of total shares vesting monthly for each month of continuous service thereafter, or
(ii)5% after 12 months of continuous service, 1.25% after each of the following 12 months of continuous service (for a total of 15% with respect to months 13-24 of continuous service), and the balance vesting in equal monthly installments of 3.33% over each of the next 24 months of continuous service thereafter (for a total of 80% with respect to months 25-48), or
(iii)0.83% after each of the first 12 months of continuous service (for a total of 10% with respect to months 1-12 of continuous service) and 2.5% after each of the following 36 months of continuous service thereafter (for a total of 90% with respect to months 13-48 of continuous service).
The Company grants stock options with an early exercise feature to its employees pursuant to the terms of the 2012 Plan and the 2018 Plan, respectively. Under the provisions of the 2012 Plan and 2018 Plan, the Company has the option to repurchase all forfeited shares of common stock that are unvested from the early exercised options from its employees upon termination at the price equal to its original purchase price. Those repurchased shares are then available for future reissuance.
F-47
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
For the three months ended August 31, 2021 and 2020, the Company allocated stock-based compensation expense to the following accounts in the consolidated financial statements:
Three Months Ended August 31,
(in millions)20212020
Cost of providing services$0.6 $0.1 
Sales and marketing0.6 0.3 
General and administrative 2.0 0.5 
Product development1.3 0.3 
Stock-based compensation$4.5 $1.2 
Capitalized in intangible assets(0.2)— 
Stock-based compensation expense$4.3 $1.2 
The key assumptions utilized to calculate the grant-date fair values using the Black-Scholes option pricing model for these awards are summarized below:
Three Months Ended
August 31, 2021
July 8, 2021June 15, 2021
Expected life (years)6.166.30
Expected volatility50.0 %50.0 %
Risk-free rate0.92 %1.06 %
Grant date fair value of common stock $24.73 $20.10 
To estimate the expected life of stock options, the Company has used the simplified method. Expected volatility is based on historical volatility of a group of peer entities. Dividend yields were determined to be $0.00. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.
For the three months ended August 31, 2021, the activity related to stock options was as follows:
Number of
options		Weighted
average
exercise price		Weighted
average
remaining
contractual life (years)		Weighted
average
grant-date
fair value		Aggregate intrinsic value (in millions)
Outstanding as of May 31, 20219,854,832 $5.88 7.57$2.49 $51.0 
Granted3,551,200 $11.06 9.82$14.53 
Exercised(93,671)$2.91 6.75 $1.95 $0.5 
Forfeited and expired(158,451)$5.70 8.24$4.07 
Outstanding as of August 31, 202113,153,910 $7.30 7.98$5.73 $292.6 
Exercisable as of August 31, 20215,142,191 $5.57 6.36$1.72 $123.3 
F-48
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
For the three months ended August 31, 2021, the activity related to unvested balance of stock options was as follows:
Number of
options		Weighted
average
grant-date
fair value
Unvested as of May 31, 20215,267,504$3.37 
Granted3,551,200$14.53 
Forfeited(139,071)$4.31 
Vested(667,914)$3.46 
Unvested as of August 31, 20218,011,719$8.29 
As of August 31, 2021, unrecognized stock-based compensation expense associated with the unvested stock options granted under the 2012 Plan and 2018 Plan is $60.3 million, which is expected to be recognized over a weighted average period of 3.86 years.
8. Income taxes
The Company has an effective tax rate of 0% for the three months ended August 31, 2021 and 2020, respectively. The income tax expense is driven primarily by adjustments to the valuation allowance.
The Company is subject to federal and state income taxes in the United States. The tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. The Company updates its estimated annual effective tax rate on a quarterly basis and, if the estimate changes, makes a cumulative adjustment. The estimate of the annual effective tax rate for the full year is applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year.
As of August 31, 2021 and May 31, 2021, the Company has recorded a full valuation allowance against net deferred tax assets, and intends to continue maintaining a full valuation allowance on these net deferred tax assets until there is sufficient evidence to support the release of all or a portion of these allowances. Release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded.
9. Commitments and Contingencies
Legal proceedings
The Company is not currently a party to any legal proceeding, investigation, or claim which, in the opinion of management, is likely to have a material adverse effect on the business, financial condition, results of operations, or cash flows. Legal fees associated with such legal proceedings are expensed as incurred. The Company reviews legal proceedings and claims on an ongoing basis and follows the appropriate accounting guidance, including ASC Topic 450, Contingencies when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the occurrence of a loss is probable and can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the consolidated financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated.
In addition, the Company may be involved in litigation from time to time in the ordinary course of business. It is the opinion of the Company's management that the ultimate resolution of any such matters
F-49
Justworks, Inc.
Notes to Consolidated Financial Statements (Unaudited)
currently pending will not have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows. However, the results of such matters cannot be predicted with certainty and there can be no assurance that the ultimate resolution of any legal or administrative proceeding or dispute will not have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.
In the ordinary course of business, the Company is subject to loss contingencies that cover a range of matters. An estimated loss from a loss contingency, such as a legal proceeding or claim, is accrued if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, the Company evaluates, among other factors, the degree of probability and the ability to reasonably estimate the amount of any such loss.
10. Related Party Transactions
The Company processes payroll in the normal course of business for certain investors. The revenue generated from these service agreements is not considered material.
11. Subsequent Events
In September 2021, the board of directors approved grants of 410,830 stock options under the 2018 Plan. The grant date fair value of these awards totaled $5.5 million and the majority of stock-based compensation expense related to these grants will be recognized over a four year period.
F-50


7,000,000 Shares
Class A Common Stock
jw_logox1080x200.jpg


PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the underwriting discounts and commissions, payable by Justworks, Inc. (the “Registrant”), in connection with the sale of its common stock being registered. All amounts are estimates except for the Securities and Exchange Commission (the “SEC”) registration fee, the Financial Industry Regulatory Authority (“FINRA”) filing fee and the Nasdaq listing fee.
Amount
SEC registration fee$23,880 
FINRA filing fee39,140 
Initial Nasdaq listing fee290,000 
Printing fees and expenses259,390 
Legal fees and expenses2,000,000 
Accounting fees and expenses1,100,000 
Transfer agent and registrar fees and expenses31,800 
Miscellaneous fees and expenses1,355,790 
Total$5,100,000 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant is governed by the Delaware General Corporation Law (the “DGCL”). Section 145 of the DGCL provides that a corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was or is an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the corporation’s best interest and, for criminal proceedings, had no reasonable cause to believe that such person’s conduct was unlawful. A Delaware corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or contemplated action or suit by or in the right of such corporation, under the same conditions, except that such indemnification is limited to expenses (including attorneys’ fees) actually and reasonably incurred by such person, and except that no indemnification is permitted without judicial approval if such person is adjudged to be liable to such corporation. Where an officer or director of a corporation is successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to above, or any claim, issue or matter therein, the corporation must indemnify that person against the expenses (including attorneys’ fees) which such officer or director actually and reasonably incurred in connection therewith.
The registrant’s amended and restated certificate of incorporation and amended and restated bylaws will authorize the indemnification of its officers and directors, consistent with Section 145 of the DGCL, subject to limited exceptions.
Reference is made to Section 102(b)(7) of the DGCL, which enables a corporation in its certificate of incorporation to eliminate or limit the personal liability of a director for monetary damages for violations of the director’s fiduciary duty, except (i) for any breach of the director’s duty of loyalty to the corporation or
II-1

its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions or (iv) for any transaction from which a director derived an improper personal benefit.
We have entered into indemnification agreements with each of our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
We maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.
In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us, within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is information regarding all unregistered securities sold by us since January 1, 2018. Also included is the consideration received by us for such shares and information relating to the section of the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.
Preferred Stock Issuances
In February 2018, we issued and sold an aggregate of 5,517,242 shares of our Series D preferred stock, par value $0.0005 per share, to 11 accredited investors at a purchase price of $7.25 per share, for aggregate consideration of $40,000,005.
In January 2020, we issued and sold an aggregate of 2,941,176 shares of our Series E preferred stock, par value $0.0005 per share, to 17 accredited investors at a purchase price of $17.00 per share, for an aggregate purchase price of $49,999,992.
Warrant Issuances
In May 2019, we issued two warrants to purchase up to an aggregate of 106,000 shares of our Class A common stock, par value $0.0005 per share, to two accredited investors at an exercise price of $0.01 per share for an aggregate exercise price of $1,060.
Options and Common Stock Issuances
From January 1, 2018 through the date of this registration statement, we granted to our directors, officers, employees, consultants and other service providers options to purchase an aggregate of 11,998,981 shares of Class A common stock, par value $0.0005 per share, at per share exercise prices ranging from $3.06 to $29.55. From January 1, 2018 through the date of this registration statement, we issued an aggregate of 372,960 shares of Class B common stock, par value $0.0005 per share, at per share purchase price ranging from $1.16 to $1.59 pursuant to the exercise of options by our directors, officers, employees, consultants and other service providers.
In May 2018, we issued 72,000 shares of Class B common stock, par value $0.0005 per share, to one accredited investor at a per share exercise price of $0.44 pursuant to the exercise of a warrant.
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In May 2018, we issued 40,000 shares of Class B common stock, par value $0.0005 per share, to one accredited investor at a per share exercise price of $1.155 pursuant to the exercise of a warrant.
In May 2018, we issued 40,000 shares of Class B common stock, par value $0.0005 per share, to one accredited investor at a per share exercise price of $0.01 pursuant to the exercise of a warrant.
In January 2020, we issued 52,946 shares of Class A common stock, par value $0.0005 per share, to one accredited investor at a per share exercise price of $0.01 pursuant to the net exercise of a warrant.
In March 2020, we issued 87,411 shares of Class B common stock, par value $0.0005 per share, to one accredited investor at a per share exercise price of $0.01 pursuant to the net exercise of a warrant.
The issuances of the securities in the transactions described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act and/or Rule 506, Rule 701 or Regulation S promulgated thereunder. The securities were issued directly by us and did not involve a public offering or general solicitation. The recipients of such securities represented their intentions to acquire the securities for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof.
None of the transactions set forth in Item 15 involved any underwriters, underwriting discounts or commissions or any public offering. All recipients had adequate access, through their relationships with us, to information about us.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)Exhibits.
Exhibit
Number		Description of Exhibit
1.1
3.1*
3.2*
3.3
3.4
4.1
4.2X+*
4.3*
4.4*
5.1
10.1#*
10.2#*
10.3#
10.4#
10.5#
10.6#X*
10.7X*
10.8#+*
10.9#*
10.10#†+*
10.11#
10.12#
10.13#
10.14#**
Isaac Oates Stock Option Agreement under the 2022 Incentive Award Plan
21.1*
23.1
23.2
24.1*
_______________
*Previously filed.
**To be filed by amendment.
#    Indicates management contract or compensatory plan.
†Portions of this exhibit (indicated by asterisks) have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).
+    Certain portions of this exhibit (indicated by “####”) have been redacted pursuant to Regulation S-K, Item 601(a)(6).
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X     Certain of the schedules and attachments to this exhibit have been omitted pursuant to Regulation S-K, Item 601(a)(5). The registrant hereby undertakes to provide further information regarding such omitted materials to the SEC upon request.
(b)Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
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ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant under the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1)For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance on Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act will be deemed to be part of this registration statement as of the time it was declared effective.
(2)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus will be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on January 4, 2022.
JUSTWORKS, INC.
By:/s/ Isaac Oates
Isaac Oates
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities held on the dates indicated.
SignatureTitleDate 
/s/ Isaac Oates
Chief Executive Officer and Chair of the Board of Directors
(Principal Executive Officer)
January 4, 2022
Isaac Oates
/s/ Aida Sukys
Chief Financial Officer
(Principal Financial and Accounting Officer)
January 4, 2022
Aida Sukys
*DirectorJanuary 4, 2022
Charles Berg
*DirectorJanuary 4, 2022
Jared Weinstein
*DirectorJanuary 4, 2022
Karen Magee
*DirectorJanuary 4, 2022
Kristina Leslie
*DirectorJanuary 4, 2022
Matthew Harris
*By:/s/ Isaac Oates
Isaac Oates
Attorney-in-Fact
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Document
Exhibit 1.1
Justworks, Inc.
Class A Common Stock

Underwriting Agreement
January [l], 2022
Goldman Sachs & Co. LLC
J.P. Morgan Securities LLC
BofA Securities, Inc.
As representatives (the “Representatives”) of the several Underwriters
named in Schedule I hereto
c/o    Goldman Sachs & Co. LLC
200 West Street
New York, New York 10282
c/o    J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
c/o    BofA Securities, Inc.
One Bryant Park
New York, New York 10036
Ladies and Gentlemen:
Justworks, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions stated in this agreement (this “Agreement”), to issue and sell to the Underwriters named in Schedule I hereto (the “Underwriters”) an aggregate of [l] shares and, at the election of the Underwriters, up to [l] additional shares of Class A Common Stock, par value $0.0005 per share (“Class A Common Stock”) of the Company. The aggregate of [l] shares of Class A Common Stock to be sold by the Company is herein called the “Firm Shares” and the aggregate of [l] additional shares of Class A Common Stock to be sold by the Company is herein called the “Optional Shares”. The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the “Shares”.
Raymond James & Associates, Inc. (the “Directed Share Underwriter”) has agreed to reserve up to [l] Shares of the Shares to be purchased by it under this Agreement for sale at the direction of the Company to certain parties related to the Company (collectively, “Participants”). The Shares to be sold by the Directed Share Underwriter pursuant to the Directed Share Program are hereinafter called the “Directed Shares.” Any Directed Shares not confirmed for purchase by the deadline established therefor by the Directed Share Underwriter in consultation with the Company will be offered to the public by the Underwriters as set forth in the Prospectus (as defined below).
1.    (a)    The Company represents and warrants to, and agrees with, each of the Underwriters that:
(i)    A registration statement on Form S–1 (File No. 333-261676) (the “Initial Registration Statement”) in respect of the Shares has been filed with the Securities and Exchange Commission (the “Commission”); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to the Representatives, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a “Rule 462(b) Registration Statement”),


filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the “Act”), which became effective upon filing, no other document with respect to the Initial Registration Statement has been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose or pursuant to Section 8A of the Act has been initiated or, to the Company’s knowledge, threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) under the Act is hereinafter called a “Preliminary Prospectus”; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the “Registration Statement”; the Preliminary Prospectus relating to the Shares that was included in the Registration Statement immediately prior to the Applicable Time (as defined in Section 1(a)(iii) hereof) is hereinafter called the “Pricing Prospectus”; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the “Prospectus”; any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act or Rule 163B under the Act is hereinafter called a “Testing-the-Waters Communication”; any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act is hereinafter called a “Written Testing-the-Waters Communication”; and any “issuer free writing prospectus” as defined in Rule 433 under the Act relating to the Shares is hereinafter called an “Issuer Free Writing Prospectus”);
(ii)    (A) No order preventing or suspending the use of any Preliminary Prospectus or any Issuer Free Writing Prospectus has been issued by the Commission, and (B) each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information (as defined in Section 9(b) of this Agreement);
(iii)    For the purposes of this Agreement, the “Applicable Time” is [l] [a.m.][p.m.] (Eastern time) on the date of this Agreement; the Pricing Prospectus, as supplemented by the information listed on Schedule II(c) hereto, taken together (collectively, the “Pricing Disclosure Package”), as of the Applicable Time, did not, and as of each Time of Delivery (as defined in Section 4(a) of this Agreement) will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Free Writing Prospectus and each Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement, the Pricing Prospectus or the Prospectus, and each Issuer Free Writing Prospectus and each Written Testing-the-Waters Communication, as supplemented by and taken together with the Pricing Disclosure Package, as of the Applicable Time, did not, and as of each Time of Delivery, will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements or omissions made in reliance upon and in conformity with the Underwriter Information;
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(iv)    No documents were filed with the Commission since the Commission’s close of business on the business day immediately prior to the date of this Agreement and prior to the execution of this Agreement, except as set forth on Schedule II(b) hereto;
(v)    The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to each part of the Registration Statement, as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, and as of each Time of Delivery, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information;
(vi)    Neither the Company nor any of its subsidiaries has, since the date of the latest audited financial statements included in the Pricing Prospectus, (i) sustained any loss or interference with its business that is material to the Company and its subsidiaries as a whole from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree or (ii) entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole, in each case otherwise than as set forth or contemplated in the Pricing Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Pricing Prospectus, there has not been (x) any change in the capital stock (other than as a result of (i) the exercise, if any, of stock options or the settlement of any restricted stock units or the award, if any, of stock options, restricted stock, or restricted stock units in the ordinary course of business pursuant to the Company’s equity plans that are described in the Pricing Prospectus and the Prospectus or (ii) the issuance, if any, of stock upon the reclassification or conversion of Company securities as described in the Pricing Prospectus and the Prospectus) or long-term debt of the Company or any of its subsidiaries or (y) any Material Adverse Effect (as defined below); as used in this Agreement, “Material Adverse Effect” shall mean any material adverse change or effect, or any development involving a prospective material adverse change or effect, in or affecting (i) the business, properties, general affairs, management, financial position, stockholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole, except as set forth or contemplated in the Pricing Prospectus, or (ii) the ability of the Company to perform its obligations under this Agreement, including the issuance and sale of the Shares, or to consummate the transactions contemplated in the Pricing Prospectus and the Prospectus;
(vii)    The Company and its subsidiaries do not own any real property. The Company has good and marketable title to all material personal property (other than with respect to intellectual property, which is addressed exclusively in subsection (xxvi) below) owned by them, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries;
(viii)    Each of the Company and each of its subsidiaries has been (i) duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization, with power and authority (corporate and other) to own its properties and conduct its business as described in the Pricing Prospectus, and (ii) duly qualified as a foreign corporation or other business entity for the transaction of business and is in good standing (where such concept
3

exists) under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except, in the case of this clause (ii), where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and each subsidiary of the Company required to be identified has been listed in the Registration Statement;
(ix)    The Company has an authorized capitalization as set forth in the Pricing Prospectus and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and conform in all material respects to the description of the capital stock contained in the Pricing Disclosure Package and the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims;
(x)    The Shares to be issued and sold by the Company have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform in all material respects to the description of the Class A Common Stock contained in the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights, other than rights that have been complied with or validly waived;
(xi)    The issue and sale of the Shares to be sold by the Company and the compliance by the Company with this Agreement and the consummation of the transactions contemplated in this Agreement and the Pricing Prospectus will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (A) any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (B) the certificate of incorporation or by-laws (or other applicable organizational document) of the Company or any of its subsidiaries, or (C) any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties, except, in the case of clauses (A) and (C) for such defaults, breaches or violations that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue of the Shares to be sold by the Company and the sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except such as have been obtained under the Act, the approval by the Financial Industry Regulatory Authority (“FINRA”) of the underwriting terms and arrangements, the approval for listing the Shares on the Nasdaq Stock Market (the “Exchange”) and such consents, approvals, authorizations, orders, registrations or qualifications as may have been obtained or as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters;
(xii)    Neither the Company nor any of its subsidiaries is (i) in violation of its certificate of incorporation or by-laws (or other applicable organizational document), (ii) in violation of any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties, or (iii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except, in the case of the foregoing clauses (ii) and (iii), for such violations or defaults as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
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(xiii)    The statements set forth in the Pricing Prospectus and the Prospectus under the caption “Description of Capital Stock”, insofar as they purport to constitute a summary of the terms of the Class A Common Stock, under the caption “Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Class A Common Stock”, and under the caption “Underwriting”, insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair in all material respects;
(xiv)    Other than as set forth in the Pricing Prospectus, there are no legal, governmental or regulatory investigations, actions, demands, claims, suits, arbitrations, inquiries or proceedings pending to which the Company or any of its subsidiaries or, to the Company’s knowledge, any officer or director of the Company is a party or of which any property or assets of the Company or any of its subsidiaries or, to the Company’s knowledge, any officer or director of the Company is the subject which, if determined adversely to the Company or any of its subsidiaries (or such officer or director), would individually or in the aggregate reasonably be expected to have a Material Adverse Effect; and, to the Company’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or others;
(xv)    The Company is not and, immediately after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Pricing Disclosure Package and the Prospectus, will not be required to register as an “investment company”, as such term is defined in the Investment Company Act of 1940, as amended;
(xvi)    At the time of filing the Initial Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Act) of the Shares, and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405 under the Act;
(xvii)    Ernst & Young LLP, who has certified certain financial statements of the Company and its subsidiaries, is an independent public accounting firm as required by the Act and the rules and regulations of the Commission thereunder;
(xviii)    The Company maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that (i) has been designed to comply with the requirements of the Exchange Act applicable to the Company, (ii) has been designed by the Company’s principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”) and (iii) is designed to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific authorization, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (C) access to assets is permitted only in accordance with management’s general or specific authorization and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and except as disclosed in the Registration Statement, Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal control over financial reporting, it being understood that this subsection shall not require the Company to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”) as of an earlier date than it would otherwise be required to so comply under applicable law;
(xix)    Since the date of the latest audited financial statements included in the Pricing Prospectus, there has been no change in the Company’s internal control over financial reporting that has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Company’s internal control over financial reporting;
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(xx)    The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that have been designed to comply with the requirements of the Exchange Act applicable to the Company; such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its subsidiaries is made known to the Company’s principal executive officer and principal financial officer by others within those entities; and such disclosure controls and procedures are effective;
(xxi)    This Agreement has been duly authorized, executed and delivered by the Company;
(xxii)    Neither the Company nor any of its subsidiaries, nor any director or officer of the Company or any of its subsidiaries nor, to the knowledge of the Company, any agent, employee, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) made, offered, promised or authorized any unlawful contribution, gift, entertainment or other unlawful expense (or taken any act in furtherance thereof); (ii) made, offered, promised or authorized any direct or indirect unlawful payment; or (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or the rules and regulations thereunder, the Bribery Act 2010 of the United Kingdom or any other applicable anti-corruption, anti-bribery or related law, statute or regulation (collectively, “Anti-Corruption Laws”); the Company and its subsidiaries have conducted their businesses in compliance with Anti-Corruption Laws and have instituted and maintained and will continue to maintain policies and procedures reasonably designed to promote and achieve compliance with such laws and with the representations and warranties contained herein; neither the Company nor any of its subsidiaries will use, directly or, to their respective knowledge, indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of Anti-Corruption Laws;
(xxiii)    The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with the requirements of applicable anti-money laundering laws, including, but not limited to, the Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2001, and the rules and regulations promulgated thereunder, and the anti-money laundering laws of the various jurisdictions in which the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulation or guidelines issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened;
(xxiv)    Neither the Company nor any of its subsidiaries, nor any director or officer of the Company or any of its subsidiaries nor, to the knowledge of the Company, any agent, employee or affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries is (i) currently the subject or the target of any sanctions administered or enforced by the U.S. Government, including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), or the U.S. Department of State and including, without limitation, the designation as a “specially designated national” or “blocked person,” the European Union, Her Majesty’s Treasury, the United Nations Security Council, or other relevant sanctions authority (collectively, “Sanctions”), (ii) located, organized, or resident in a country or territory that is the subject or target of Sanctions (a “Sanctioned Jurisdiction”), and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person, or in any country or territory, that, at the time of such funding, is the subject or the target of Sanctions or (ii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor
6

or otherwise) of Sanctions; neither the Company nor any of its subsidiaries is engaged in, or has, at any time in the past five years, engaged in, any dealings or transactions with or involving any individual or entity that was or is, as applicable, at the time of such dealing or transaction, the subject or target of Sanctions or with any Sanctioned Jurisdiction; the Company and its subsidiaries have instituted, and maintain, policies and procedures reasonably designed to promote and achieve continued compliance with Sanctions;
(xxv)    The financial statements included in the Registration Statement, the Pricing Prospectus and the Prospectus, together with the related schedules and notes, present fairly in all material respects the financial position of the Company and its subsidiaries at the dates indicated and the statement of operations, stockholders’ equity and cash flows of the Company and its subsidiaries for the periods specified; said financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included in the Registration Statement, the Pricing Prospectus and the Prospectus, present fairly in all material respects and in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Registration Statement, the Pricing Prospectus and the Prospectus present fairly in all material respects the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included therein. Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included in the Registration Statement, the Pricing Prospectus or the Prospectus under the Act or the rules and regulations promulgated thereunder. All disclosures contained in the Registration Statement, the Pricing Prospectus and the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply in all material respects with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Act, to the extent applicable;
(xxvi)    Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, the Company and each of its subsidiaries (i) own or otherwise possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, domain names, copyrights and registrations and applications thereof, licenses, know-how, software, systems and technology (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures and other intellectual property) necessary for the conduct of their respective businesses, (ii) to the Company’s knowledge, do not, through the conduct of their respective businesses, infringe, violate or conflict with any such right of others and (iii) have not received any written notice of any claim of infringement, violation or conflict with, any such rights of others;
(xxvii)    Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: (i) the Company and its subsidiaries’ information technology assets and equipment, computers, systems, networks, hardware, software, websites, applications, and databases (collectively, “IT Systems”) are adequate for, and operate and perform as required in connection with the operation of the business of the Company and its subsidiaries as currently conducted, and to the knowledge of the Company, are free and clear of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants; (ii) the Company and its subsidiaries have adopted and maintained commercially reasonable controls, policies, procedures, and safeguards designed to maintain and protect their material confidential information and the integrity, continuous operation, redundancy and security of their IT Systems and data (including information relating to an identifiable natural person and any other personal or personally identifiable data or information (“Personal Data”)) used in connection with their businesses, and there have been no breaches, violations, outages or unauthorized uses of or accesses to same; and (iii) the Company and its subsidiaries are presently in compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Personal Data and to the protection of such IT Systems and Personal Data from unauthorized use, access, misappropriation or modification;
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(xxviii)    Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in each of the Registration Statement, the Pricing Prospectus and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects;
(xxix)    There is and has been no failure on the part of the Company or any of the Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act, including Section 402 related to loans;
(xxx)    Neither the Company nor, to the Company’s knowledge, any individual or entity acting on the Company’s behalf has taken or will take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company or any of its subsidiaries in connection with the offering of the Shares;
(xxxi)    The Company and each of its subsidiaries have such permits, licenses, approvals, consents, franchises, certificates of need and other approvals or authorizations of governmental or regulatory authorities (“Permits”) as are necessary under applicable law to own their respective properties and conduct their respective businesses in the manner described in the Registration Statement, the Pricing Prospectus and the Prospectus, except for any of the foregoing that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received notice of any proceedings related to the revocation or modification of any such Permits that, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect;
(xxxii)    The Company and its subsidiaries, taken as a whole, are insured against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(xxxiii)    The Registration Statement, the Pricing Disclosure Package, the Prospectus, any Preliminary Prospectus, any Issuer Free Writing Prospectuses and any Written Testing-the-Waters Communication comply in all material respects, and any further amendments or supplements thereto will comply in all material respects, with any applicable laws or regulations of foreign jurisdictions in which the Pricing Disclosure Package, the Prospectus, any Preliminary Prospectus, any Issuer Free Writing Prospectus and any Written Testing-the-Waters Communication, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program;
(xxxiv)    No authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States;
(xxxv)    The Company has specifically directed in writing the allocation of Shares to each Participant in the Directed Share Program, and neither the Directed Share Underwriter nor any other Underwriter has had any involvement or influence, directly or indirectly, in such allocation decision;
(xxxvi)    The Company has not offered, or caused the Directed Share Underwriter or its affiliates to offer, Shares to any person pursuant to the Directed Share Program (i) for any consideration other than the cash payment of the initial public offering price per share set forth in Schedule II(c) hereof or (ii) with the specific intent to unlawfully influence (x) a customer or supplier of the Company to alter the customer or supplier’s terms, level or type of business with the Company or (y) a trade journalist or publication to write or publish favorable information about the Company or its products;
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(xxxvii)    From the time of initial confidential submission of a registration statement relating to the Shares with the Commission through the date hereof, the Company has been and is an “emerging growth company” as defined in Section 2(a)(19) of the Act (an “Emerging Growth Company”);
(xxxviii)    Neither the Company nor its subsidiaries have any debt securities or preferred stock that are rated by any “nationally recognized statistical rating organization” (as defined in Section 3(a)(62) of the Exchange Act); and
(xxxix)    Other than as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the holders of (i) shares of Common Stock (as defined below) or securities convertible into or exercisable or exchangeable for Common Stock that have not delivered executed lock-up letters to the Representatives as of the date hereof and (ii) shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock that are issuable pursuant to an award granted prior to the date of the effectiveness of the Registration Statement and issued pursuant to any employee benefit plan in effect on the date hereof and described in the Pricing Prospectus are, in each case, bound by enforceable market standoff provisions with the Company, pursuant to which such holders have agreed not to sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer such holder’s securities during the Company Lock-Up Period (as defined below) without the consent of the Company (“Market Standoff Provisions”). Each such Market Standoff Provision is in full force and effect as of the date hereof and shall remain in full force and effect during the Company Lock-Up Period, except that this provision shall not prevent the Company from effecting such a waiver or amendment to permit a transfer of securities that would be permissible if such securities were subject to the terms of the lock-up letter in the form attached as Annex II hereto.
2.    Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price per share of $[l], the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price per share set forth in clause (a) of this Section 2 (provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares), that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by the Representatives so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction, the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at their election up to [l] Optional Shares, at the purchase price per share set forth in the paragraph above, provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares. Any such election to purchase Optional Shares may be exercised only by written notice from the Representatives to the Company, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by the Representatives but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless the Representatives and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice.
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3.    Upon the authorization by the Representatives of the release of the Shares, the several Underwriters propose to offer the Shares for sale upon the terms and conditions set forth in the Pricing Disclosure Package and the Prospectus.
4.    (a) The Shares to be purchased by each Underwriter hereunder, in definitive or book-entry form, and in such authorized denominations and registered in such names as the Representatives may request upon at least forty-eight hours’ prior notice to the Company shall be delivered by or on behalf of the Company to the Representatives, through the facilities of the Depository Trust Company (“DTC”), for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Company to the Representatives at least forty-eight hours in advance. The Company will cause the certificates, if any, representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the “Designated Office”). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on January [l], 2022 or such other time and date as the Representatives and the Company may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by the Representatives in each written notice given by the Representatives of the Underwriters’ election to purchase such Optional Shares, or such other time and date as the Representatives and the Company may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the “First Time of Delivery”, each such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the “Second Time of Delivery”, and each such time and date for delivery is herein called a “Time of Delivery”.
(b)    The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 8(j) hereof will be delivered at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Manhattan West, New York, NY 10001 (the “Closing Location”), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at [l] p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, “New York Business Day” shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close.
5.    The Company agrees with each of the Underwriters:
(a)    To prepare the Prospectus in a form approved by the Representatives and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission’s close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or the Prospectus prior to the last Time of Delivery which shall be disapproved by the Representatives promptly after reasonable notice thereof; to advise the Representatives, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any amendment or supplement to the Prospectus has been filed and to furnish the Representatives with copies thereof; to file promptly all material required to be filed by the Company with the Commission pursuant to Rule 433(d) under the Act; to advise the Representatives, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus in respect of the Shares, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order suspending the effectiveness of the Registration Statement or any part thereof or preventing or suspending the use of any Preliminary
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Prospectus or other prospectus or suspending any such qualification, to promptly use its best efforts to obtain the withdrawal of such order;
(b)    Promptly from time to time to take such action as the Representatives may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as the Representatives may reasonably request and to use commercially reasonable efforts to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation (where not otherwise required) or to file a general consent to service of process in any jurisdiction (where not otherwise required);
(c)    Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement (or such other time as may be agreed by the Representatives and the Company) and from time to time, to furnish the Underwriters with written and electronic copies of the Prospectus in New York City in such quantities as the Representatives may reasonably request, and, if the delivery of a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus in order to comply with the Act, to notify the Representatives and upon their request to prepare and furnish without charge to each Underwriter and to any dealer in securities (whose name and address the Underwriters shall furnish to the Company) as many written and electronic copies as the Representatives may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; and in case any Underwriter is required to deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon the Representatives’ request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many written and electronic copies as the Representatives may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d)    To make generally available to its securityholders as soon as practicable (which may be satisfied by filing with the Commission’s Electronic Data Gathering Analysis and Retrieval System (“EDGAR”)), but in any event not later than sixteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158);
(e)    (i) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus (the “Company Lock-Up Period”), not to (A) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, or file with or confidentially submit to the Commission a registration statement under the Act relating to, any securities of the Company that are substantially similar to the Shares, including but not limited to any options or warrants to purchase shares of Class A Common Stock, shares of the Company’s Class B Common Stock (the “Class B Common Stock” and together with the Class A Common Stock, the “Common Stock”) or any other securities that are convertible into or exchangeable for, or that represent the right to receive, Common Stock or any such substantially similar securities, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing or (B) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Class A Common Stock or any such other securities, whether any such transaction described in clause (A) or (B) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, without the prior written consent of Goldman Sachs & Co.
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LLC, J.P. Morgan Securities LLC and BofA Securities, Inc.; provided, however that the foregoing restrictions shall not apply to (1) the Shares to be sold hereunder, (2) any shares of Common Stock issued upon the reclassification, conversion and/or exchange of convertible or exchangeable securities (including preferred stock and warrants) outstanding as of the date of this Agreement and described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (3) any shares of Common Stock or any securities or other awards (including without limitation options, restricted stock or restricted stock units) convertible into, exercisable for, or that represent the right to receive, shares of Common Stock pursuant to any stock option plan, incentive plan or stock purchase plan of the Company (collectively, “Company Stock Plans”) or otherwise in equity compensation arrangements described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or any shares of Common Stock issuable upon the exercise, conversion or settlement of such awards, provided that (a) any directors or officers who are the recipient thereof have provided to the Representatives a signed lock-up letter substantially in the form of Annex II hereto and (b) any employees who are the recipient thereof after the First Time of Delivery, have provided to the Representatives a signed lock-up letter substantially in the form of Annex II hereto or have otherwise received securities that are subject to Market Standoff Provisions that the Company agrees it will not waive or amend (other than to permit a transfer of securities that would be permissible if such securities were subject to the terms of such lock-up letter) without the prior written consent of the Representatives, (4) the issuance by the Company of shares of its Class A Common Stock upon the conversion of shares of its Class B Common Stock, (5) the filing by the Company of any registration statement on Form S-8 or a successor form thereto relating to any Company Stock Plan described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or any assumed employee benefit plan contemplated by clause (6), and (6) any shares of Common Stock or any securities convertible into or exchangeable for, or that represent the right to receive, shares of Common Stock issued in connection with any joint venture, commercial or collaborative relationship or the acquisition or license by the Company of the securities, businesses, property or other assets of another person or entity or pursuant to any employee benefit plan assumed by the Company in connection with any such acquisition, provided that in the case of clause (6), the aggregate number of shares that the Company may sell or issue or agree to sell or issue pursuant to clause (6) shall not exceed 10.0% of the total number of shares of capital stock issued and outstanding immediately following the completion of the transactions contemplated by this Agreement; and provided further that, in the case of clause (2), (4) or (6), each recipient thereof provides to the Representatives a signed lock-up letter substantially in the form of Annex II hereto.
        (ii) If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in lock-up letters pursuant to Section 1(b)(iv) or Section 8(h) hereof, in each case for an officer or director of the Company, and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Annex I hereto through a major news service at least two business days before the effective date of the release or waiver, if required by FINRA Rule 5131;
        (iii) During the Company Lock-Up Period, the Company agrees (A) to enforce the Market Standoff Provisions and any similar transfer restriction contained in any agreement between the Company and any of its security holders, including, without limitation, through the issuance of stop transfer instructions to the Company’s transfer agent with respect to any transaction that would constitute a breach of, or default under, the transfer restrictions and (B) that it shall not amend or waive any such transfer restrictions with respect to any such holder without the prior written consent of the Representatives; provided that this provision shall not prevent the Company from effecting a waiver or amendment to permit a transfer of securities that would be permissible under the terms of the lock-up letter in the form attached as Annex II hereto;
(f)    During a period of three years from the effective date of the Registration Statement, so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, to furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders’ equity and cash flows of the Company and its consolidated subsidiaries certified by independent public
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accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; provided, however, that the Company may satisfy the requirements of this Section 5(f) by filing such information through EDGAR;
(g)    During a period of three years from the effective date of the Registration Statement, so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, to furnish to the Representatives copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to the Representatives (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as the Representatives may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); provided, however, that the Company may satisfy the requirements of this Section 5(g) by filing such information through EDGAR;
(h)    To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Pricing Prospectus under the caption “Use of Proceeds”;
(i)    To use its best efforts to list for trading, subject to official notice of issuance the Shares on the Exchange;
(j)    To file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act;
(k)    If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 3a(c) of the Commission’s Informal and Other Procedures (16 CFR 202.3a);
(l)    Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Company’s trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Shares (the “License”); provided, however, that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred;
(m)    To comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program; and
(n)    To promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Shares within the meaning of the Act and (ii) the last Time of Delivery.
    6.    (a)    The Company represents and agrees that, without the prior consent of the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a “free writing prospectus” as defined in Rule 405 under the Act; and each Underwriter represents and agrees that, without the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus required to be filed with the Commission; any such free writing prospectus the use of which has been consented to by the Company and the Representatives is listed on Schedule II(a) hereto;
    (b)    The Company has complied and will comply with the requirements of Rule 433 under the Act applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or retention where required and legending; and the Company represents that it has satisfied and
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agrees that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file with the Commission any electronic road show;
    (c)    The Company agrees that if at any time following issuance of an Issuer Free Writing Prospectus or Written Testing-the-Waters Communication prepared or authorized by it any event occurred or occurs as a result of which such Issuer Free Writing Prospectus or Written Testing-the-Waters Communication prepared or authorized by it would conflict with the information in the Registration Statement, the Pricing Prospectus or the Prospectus or would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, the Company will give prompt notice thereof to the Representatives and, if requested by the Representatives, will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus, Written Testing-the-Waters Communication or other document which will correct such conflict, statement or omission;
    (d)    The Company represents and agrees that (i) it has not engaged in, or authorized any other person to engage in, any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the prior consent of the Representatives with entities that the Company reasonably believes are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act; and (ii) it has not distributed, or authorized any other person to distribute, any Written Testing-the-Waters Communication, other than those distributed with the prior consent of the Representatives that are listed on Schedule II(d) hereto; and the Company reconfirms that the Underwriters have been authorized to act on its behalf in engaging in Testing-the-Waters Communications; and
    (e)    Each Underwriter represents and agrees that any Testing-the-Waters Communications undertaken by it were with entities that such Underwriter reasonably believes are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act.
7.    The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company’s counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing, reproduction and filing of the Registration Statement, any Preliminary Prospectus, any Written Testing-the-Waters Communication, any Issuer Free Writing Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) reasonable and documented expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on the Exchange; and (v) filing fees incident to, and the reasonable and documented fees and disbursements of counsel for the Underwriters in connection with, any required review by FINRA of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates, if applicable; (vii) the cost and charges of any transfer agent or registrar; and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section; provided that the amount payable by the Company pursuant to subsections (iii) and (v) of this Section 7 for fees and disbursements of counsel shall not exceed $40,000 in the aggregate. In addition, the Company shall pay or cause to be paid reasonable and documented fees and disbursements of counsel for the Underwriters in connection with the Directed Share Program, not to exceed $20,000 in the aggregate, and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program. It is understood, however, that the Company shall bear the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that,
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except as provided in this Section, and Sections 9 and 12 hereof, the Underwriters will pay all of their own costs and expenses, including their own lodging, travel and meal expenses in connection with any roadshow, the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make, and the Underwriters will be responsible for 50% of the cost of any chartered plane in connection with any “roadshow” presentation to investors undertaken in connection with the offering of the Shares hereunder.
8.    The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company herein are, at and as of the Applicable Time and such Time of Delivery, true and correct, the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions:
    (a)    The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; all material required to be filed by the Company pursuant to Rule 433(d) under the Act shall have been filed with the Commission within the applicable time period prescribed for such filing by Rule 433; if the Company has elected to rely upon Rule 462(b) under the Act, the Rule 462(b) Registration Statement shall have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose or pursuant to Section 8A of the Act shall have been initiated or, to the Company’s knowledge, threatened by the Commission no stop order suspending or preventing the use of the Pricing Prospectus, Prospectus or any Issuer Free Writing Prospectus shall have been initiated or, to the Company’s knowledge, threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to the Representatives’ reasonable satisfaction;
    (b)    Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, shall have furnished to the Representatives such written opinion or opinions, dated such Time of Delivery, in form and substance satisfactory to the Representatives, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters;
    (c)    Latham & Watkins LLP, counsel for the Company, shall have furnished to the Representatives their written opinion, dated such Time of Delivery, in form and substance reasonably satisfactory to the Representatives;
    (d)    On the date of the Prospectus at a time prior to the execution of this Agreement, at or around 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, Ernst & Young LLP shall have furnished to the Representatives a letter or letters, dated the respective dates of delivery thereof, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided that the letter delivered at each Time of Delivery shall use a “cut-off date” not earlier than three business days prior to such Time of Delivery;
    (e)    (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Pricing Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Pricing Prospectus, and (ii) since the respective dates as of which information is given in the Pricing Prospectus there shall not have been any change in the capital stock (other than as a result of the exercise of stock options or the settlement of any restricted stock units or the award of stock options, restricted stock, or restricted stock units in the ordinary course of business pursuant to the Company’s equity plans that are described in the Pricing Prospectus and the Prospectus) or longterm debt of the Company or any of its subsidiaries or any change or effect, or any
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development involving a prospective change or effect, in or affecting (x) the business, properties, general affairs, management, financial position, stockholders’ equity or results of operations of the Company and its subsidiaries, taken as a whole, except as set forth or contemplated in the Pricing Prospectus, or (y) the ability of the Company to perform its obligations under this Agreement, including the issuance and sale of the Shares, or to consummate the transactions contemplated in the Pricing Prospectus and the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in the Representatives’ judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus and the Prospectus;
    (f)    On or after the Applicable Time there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the Exchange; (ii) a suspension or material limitation in trading in the Company’s securities on the Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (v) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (iv) or (v) in the Representatives’ judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus and the Prospectus;
    (g)    The Shares to be sold at such Time of Delivery shall have been duly listed, subject to official notice of issuance, on the Exchange;
    (h)    The Company shall have obtained and delivered to the Underwriters executed copies of an agreement from (i) each officer and director of the Company and (ii) security holders of the Company which, together with the security holders subject to the Market Standoff Provisions, represent substantially all of the shares of capital stock of the Company, in each case, substantially to the effect set forth in Annex II hereto;
    (i)    The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and
    (j)    The Company shall have furnished or caused to be furnished to the Representatives at such Time of Delivery certificates of officers of the Company, satisfactory to the Representatives as to the accuracy of the representations and warranties of the Company herein at and as of such Time of Delivery, as to the performance by the Company of all of its obligations hereunder to be performed at or prior to such Time of Delivery, as to such other matters as the Representatives may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (e) of this Section 8.
9.    (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any “roadshow” as defined in Rule 433(h) under the Act (a “roadshow”), any “issuer information” filed or required to be filed pursuant to Rule 433(d) under the Act or any Testing-the-Waters Communication prepared or authorized by the Company, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any documented legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall
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not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus or any Testing-the-Waters Communication, in reliance upon and in conformity with the Underwriter Information.
(b)    Each Underwriter, severally and not jointly, will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow, or any Testing-the-Waters Communication, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow, or any Testing-the-Waters Communication, in reliance upon and in conformity with the Underwriter Information; and will reimburse the Company for any documented legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. As used in this Agreement with respect to an Underwriter and an applicable document, “Underwriter Information” shall mean the written information furnished to the Company by such Underwriter through the Representatives expressly for use therein; it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the [l] paragraph under the caption “Underwriting”, and the information contained in the [l] paragraph under the caption “Underwriting”.
(c)    Promptly after receipt by an indemnified party under subsection (a) or (b) of this Section 9 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party otherwise than under the preceding paragraphs of this Section 9. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
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(d)    If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any documented legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint.
(e)    The obligations of the Company under this Section 9 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each employee, officer and director of each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act and each broker-dealer or other affiliate of any Underwriter; and the obligations of the Underwriters under this Section 9 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Act.
(f)
(i)    The Company will indemnify and hold harmless the Directed Share Underwriter against any losses, claims, damages and liabilities to which the Directed Share Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims damages or liabilities (or actions in respect thereof) (x) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or
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necessary to make the statements therein not misleading, (y) arise out of or are based upon the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase, or (z) are related to, arise out of or are in connection with the Directed Share Program, and will reimburse the Directed Share Underwriter for any documented out-of-pocket legal or other expenses reasonably incurred by the Directed Share Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that with respect to clauses (y) and (z) above, the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability is finally judicially determined to have resulted from the bad faith or gross negligence of the Directed Share Underwriter.
(ii)    Promptly after receipt by the Directed Share Underwriter of notice of the commencement of any action, the Directed Share Underwriter shall, if a claim in respect thereof is to be made against the Company, notify the Company in writing of the commencement thereof; provided that the failure to notify the Company shall not relieve the Company from any liability that it may have under the preceding paragraph of this Section 9(f) except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the Company shall not relieve it from any liability that it may have to the Directed Share Underwriter otherwise than under the preceding paragraph of this Section 9(f). In case any such action shall be brought against the Directed Share Underwriter and it shall notify the Company of the commencement thereof, the Company shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel reasonably satisfactory to the Directed Share Underwriter (who shall not, except with the consent of the Directed Share Underwriter, be counsel to the Company), and, after notice from the Company to the Directed Share Underwriter of its election so to assume the defense thereof, the Company shall not be liable to the Directed Share Underwriter under this subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by the Directed Share Underwriter, in connection with the defense thereof other than reasonable costs of investigation. The Company shall not, without the written consent of the Directed Share Underwriter, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Directed Share Underwriter is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (x) includes an unconditional release of the Directed Share Underwriter from all liability arising out of such action or claim and (y) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the Directed Share Underwriter.
(iii)    If the indemnification provided for in this Section 9(f) is unavailable to or insufficient to hold harmless the Directed Share Underwriter under Section 9(f)(i) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then the Company shall contribute to the amount paid or payable by the Directed Share Underwriter as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Directed Share Underwriter on the other from the offering of the Directed Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then the Company shall contribute to such amount paid or payable by the Directed Share Underwriter in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Directed Share Underwriter on the other in connection with any statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Directed Share Underwriter on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Directed Shares (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Directed Share Underwriter for the Directed Shares. If the loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement of a material fact or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, the relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue
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statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Directed Share Underwriter on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Directed Share Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 9(f)(iii) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above in this Section 9(f)(iii). The amount paid or payable by the Directed Share Underwriter as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 9(f)(iii) shall be deemed to include any documented out-of-pocket legal or other expenses reasonably incurred by the Directed Share Underwriter in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9(f)(iii), the Directed Share Underwriter shall not be required to contribute any amount in excess of the amount by which the total price at which the Directed Shares sold by it and distributed to the Participants exceeds the amount of any damages that the Directed Share Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(iv)    The obligations of the Company under this Section 9(f) shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each employee, officer and director of the Directed Share Underwriter and each person, if any, who controls the Directed Share Underwriter within the meaning of the Act and each broker-dealer or other affiliate of the Directed Share Underwriter.
10.    (a)    If any Underwriter shall default in its obligation to purchase the Shares that it has agreed to purchase hereunder at a Time of Delivery, the Representatives may in their discretion arrange for the Representatives or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter the Representatives do not arrange for the purchase of such Shares, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to the Representatives to purchase such Shares on such terms. In the event that, within the respective prescribed periods, the Representatives notify the Company that the Representatives have so arranged for the purchase of such Shares, or the Company notifies the Representatives that it has so arranged for the purchase of such Shares, the Representatives or the Company shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments or supplements to the Registration Statement or the Prospectus which in the Representatives’ opinion may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares.
(b)    If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the Representatives and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
(c)    If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the Representatives and the Company as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of
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the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to a Second Time of Delivery, the obligations of the Underwriters to purchase and of the Company to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company, except for the expenses to be borne by the Company and the Underwriters as provided in Section 7 hereof and the indemnity and contribution agreements in Section 9 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
11.    The respective indemnities, rights of contribution, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any director, officer, employee, affiliate or controlling person of any Underwriter, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Shares.
12.    If this Agreement shall be terminated pursuant to Section 10 hereof, the Company shall not then be under any liability to any Underwriter except as provided in Sections 7 and 9 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Company as provided herein, or the Underwriters decline to purchase the Shares for any reason permitted under this Agreement, the Company will reimburse the Underwriters through the Representatives for all reasonably incurred and documented out-of-pocket expenses approved in writing by the Representatives, including documented fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company shall then be under no further liability to any Underwriter except as provided in Sections 7 and 9 hereof.
13.    In all dealings hereunder, the Representatives shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by the Representatives jointly.
In accordance with the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282, Attention: Registration Department; if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth on the cover of the Registration Statement, Attention: Secretary; and if to any stockholder that has delivered a lock-up letter described in Section 8(h) hereof shall be delivered or sent by mail to his or her respective address provided in writing to the Company; provided, however, that any notice to an Underwriter pursuant to Section 9(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters’ Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company by the Representatives on request; provided further that notices under subsection 5(e) shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to the Representatives at Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282, Attention: Control Room; J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179, Attention: Equity Syndicate Desk; and BofA Securities, Inc., One Bryant Park, New York, New York 10036, email: dg.ecm_execution_services@bofa.com, Attention: Syndicate Department, with a copy to: email: dg.ecm_legal@bofa.com, Attention: ECM Legal. Any such statements, requests, notices or agreements shall take effect upon receipt thereof.
14.    This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and, to the extent provided in Sections 9 and 11 hereof, the officers and
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directors of the Company and each person who controls the Company or any Underwriter, or any director, officer, employee, or affiliate of any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase.
15.    Time shall be of the essence of this Agreement. As used herein, the term “business day” shall mean any day when the Commission’s office in Washington, D.C. is open for business.
16.    The Company acknowledges and agrees that (i) the purchase and sale of the Shares pursuant to this Agreement is an arm’s-length commercial transaction between the Company, on the one hand, and the several Underwriters, on the other, (ii) in connection therewith and with the process leading to such transaction each Underwriter is acting solely as a principal and not the agent or fiduciary of the Company, (iii) no Underwriter has assumed an advisory or fiduciary responsibility in favor of the Company with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company on other matters) or any other obligation to the Company except the obligations expressly set forth in this Agreement, (iv) the Company has consulted its own legal and financial advisors to the extent it deemed appropriate, and (v) none of the activities of the Underwriters in connection with the transactions contemplated herein constitutes a recommendation, investment advice, or solicitation of any action by the Underwriters with respect to any entity or natural person. The Company agrees that it will not claim that the Underwriters, or any of them, has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to the Company, in connection with such transaction or the process leading thereto.
17.    This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company and the Underwriters, or any of them, with respect to the subject matter hereof.
18.    This Agreement and any transaction contemplated by this Agreement and any claim, controversy or dispute arising under or related thereto shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws that would result in the application of any other law than the laws of the State of New York. The Company agrees that any suit or proceeding arising in respect of this Agreement or any transaction contemplated by this Agreement will be tried exclusively in the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in The City and County of New York, and the Company agrees to submit to the jurisdiction of, and to venue in, such courts.
19.    The Company and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
20.    This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
21.    Notwithstanding anything herein to the contrary, the Company is authorized to disclose to any persons the U.S. federal and state income tax treatment and tax structure of the potential transaction and all materials of any kind (including tax opinions and other tax analyses) provided to the Company relating to that treatment and structure, without the Underwriters imposing any limitation of any kind. However, any information relating to the tax treatment and tax structure shall remain confidential (and the foregoing sentence shall not apply) to the extent necessary to enable any person
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to comply with securities laws. For this purpose, “tax structure” is limited to any facts that may be relevant to that treatment.
22.    Recognition of the U.S. Special Resolution Regimes.
(a)    In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(b)    In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
(c)    As used in this section:
“BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).
“Covered Entity” means any of the following:
(i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.
If the foregoing is in accordance with the Representatives’ understanding, please sign and return to us counterparts hereof, and upon the acceptance hereof by the Representatives, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters and the Company. It is understood that the Representatives’ acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company for examination, upon request, but without warranty on the Representatives’ part as to the authority of the signers thereof.
[Remainder of Page Intentionally Left Blank]
23

Very truly yours,
Justworks, Inc.
By:
Name:
Title:
[Signature Page to Underwriting Agreement]

Accepted as of the date hereof
in New York, New York:
Goldman Sachs & Co. LLC
By:
Name:
Title:
J.P. Morgan Securities LLC
By:
Name:
Title:
BofA Securities, Inc.
By:
Name:
Title:
On behalf of each of the Underwriters
[Signature Page to Underwriting Agreement]

SCHEDULE I
UnderwriterTotal Number of
Firm Shares
to be Purchased
Number of Optional
Shares to be
Purchased if
Maximum Option
Exercised
Goldman Sachs & Co. LLC

J.P. Morgan Securities LLC

BofA Securities, Inc.



Total


SCHEDULE II
(a)     Issuer Free Writing Prospectuses not included in the Pricing Disclosure Package
    Electronic Roadshow dated [l]
(b)     Additional documents incorporated by reference
    None
(c)     Information other than the Pricing Prospectus that comprise the Pricing Disclosure Package
    The initial public offering price per share for the Shares is $[l]
    The number of Shares purchased by the Underwriters is [l].
(d)    Written Testing-the-Waters Communications
        [l]


ANNEX I
[FORM OF PRESS RELEASE]
Justworks, Inc.
[Date]
Justworks, Inc. (the “Company”) announced today that Goldman Sachs & Co. LLC, J.P. Morgan Chase Securities LLC and BofA Securities, Inc., the lead book-running managers in the recent public sale of              shares of the Company’s common stock, are [waiving] [releasing] a lock-up restriction with respect to               shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on      , 20__, and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.


ANNEX II
FORM OF LOCK-UP AGREEMENT



Justworks, Inc.
Lock-Up Agreement
__________, 20__
Goldman Sachs & Co. LLC
J.P. Morgan Securities LLC
BofA Securities, Inc.
As Representatives of the several Underwriters
c/o    Goldman Sachs & Co. LLC
200 West Street
New York, New York 10282
c/o    J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
c/o    BofA Securities, Inc.
One Bryant Park
New York, New York 10036
    Re: Justworks, Inc. - Lock-Up Agreement
Ladies and Gentlemen:
The undersigned understands that Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and BofA Securities, Inc., as representatives (the “Representatives”), propose to enter into an underwriting agreement (the “Underwriting Agreement”) on behalf of the several Underwriters named in Schedule I thereto (collectively, the “Underwriters”), with Justworks, Inc., a Delaware corporation (the “Company”), providing for a public offering (the “Offering”) of shares of Class A common stock, par value $0.0005 per share, of the Company (the “Shares”) pursuant to a Registration Statement (the “Registration Statement”) on Form S-1 to be filed with the Securities and Exchange Commission. As used herein, the term “Common Stock” refers to shares of the Company’s Class A common stock together with the Company’s Class B common stock, par value $0.0005 per share.
In consideration of the agreement by the Underwriters to offer and sell the Shares, and of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the undersigned agrees that, during the period beginning from the date of this agreement (“Lock-Up Agreement”) and continuing to and including the date 180 days after the date (the “Public Offering Date”) set forth on the final prospectus related to the Offering (the “Prospectus”) used to sell the Shares (such period, as modified by the paragraphs below, as applicable to the undersigned, the “Lock-Up Period”), the undersigned shall not, and shall not cause or direct any of its affiliates to, (i) offer, sell, contract to sell, pledge, grant any option to purchase, lend or otherwise dispose of any shares of Common Stock, or any options or warrants to purchase any shares of Common Stock, or any securities convertible into, exchangeable for or that represent the right to receive shares of Common Stock (such options, warrants or other securities, collectively, “Derivative Instruments”), including without limitation any such shares or Derivative Instruments now owned or hereafter acquired by the undersigned, (ii) engage in any hedging or other transaction or arrangement (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) which is designed to or which reasonably could be expected to lead to or result in a sale, loan, pledge or other disposition (whether by the undersigned or someone other than the undersigned), or transfer of any of the economic consequences of ownership, in whole or in part, directly or indirectly, of any shares of Common Stock or Derivative Instruments,


whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of Common Stock or other securities, in cash or otherwise (any such sale, loan, pledge or other disposition, or transfer of economic consequences, a “Transfer”) or (iii) otherwise publicly announce any intention to engage in or cause any action or activity described in clause (i) above or transaction or arrangement described in clause (ii) above (except as may be permitted pursuant to the exceptions and early release provisions in this Lock-Up Agreement). The undersigned represents and warrants that the undersigned is not, and has not caused or directed any of its affiliates to be or become, currently a party to any agreement or arrangement that provides for, is designed to or which reasonably could be expected to lead to or result in any Transfer during the Lock-Up Period. For the avoidance of doubt, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed or other Shares the undersigned may purchase in the Offering (provided that the release provisions in the fifth paragraph of this Lock-Up Agreement shall not be applicable to any issuer-directed or other Shares the undersigned may purchase in the Offering).
If the undersigned is an officer or director of the Company, (i) the Representatives agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, the Representatives will notify the Company of the impending release or waiver, and (ii) the Company has agreed or will agree in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver in accordance with the requirements under FINRA Rule 5131 (or any successor provision thereto). Any release or waiver granted by the Representatives hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply to the early release provisions in this Lock-Up Agreement or if (a) the release or waiver is effected solely to permit a transfer not for consideration or to an immediate family member as defined in FINRA Rule 5130(i)(5) and (b) the transferee has agreed in writing to be bound by the same terms described in this Lock-Up Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.
Notwithstanding the foregoing:
(1)    if the undersigned is a current or former employee, contractor or consultant of the Company or any of its subsidiaries (excluding any current officer or director of the Company [and any entity through which any current officer or director of the Company beneficially owns shares of Common Stock]1) (an “Employee Stockholder”), subject to compliance with applicable securities laws, including, without limitation, Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), the undersigned may sell in the public market, for a 6-consecutive Trading Day (as defined below) period (or such fewer number of consecutive Trading Days as the Company in its sole discretion shall determine) beginning at the commencement of trading on the first Trading Day on which the Company’s Class A common stock is traded on the Nasdaq Stock Market, up to 1,000, in the aggregate, of the shares of Common Stock and Derivative Instruments held by the undersigned as of the Public Offering Date for which all vesting conditions have been satisfied as of the Public Offering Date (the “First Window Eligible Shares”);
(2)    subject to compliance with applicable securities laws, including, without limitation, Rule 144 promulgated under the Securities Act, the undersigned (excluding any current officer or director of the Company [and any entity through which any current officer or director of the Company beneficially owns shares of Common Stock]2) may
1 NTD: To be included in all lock-up agreements, except lock-up agreements that are signed by Thrive Capital and Bain Capital Ventures and the directors affiliated with such funds.
2 NTD: To be included in all lock-up agreements, except lock-up agreements that are signed by Thrive Capital and Bain Capital Ventures and the directors affiliated with such funds.


sell in the public market, beginning at the commencement of trading on the second Trading Day after the Company’s public release of financial results for the third quarter of its fiscal year 2022 (which, for this purpose, shall not include “flash” numbers or preliminary, partial earnings) (the “Third Fiscal Quarter Earnings Release”), a number of shares not in excess of (A) 20% of the undersigned’s shares of Common Stock and Derivative Instruments, which percentage shall be calculated based on the number of shares of Common Stock and Derivative Instruments held by the undersigned as of the Public Offering Date (including any securities held by the undersigned for which all vesting conditions have been satisfied as of the Public Offering Date, but excluding any securities that have not vested as of the Public Offering Date) plus (B) any remaining First Window Eligible Shares in the event that the undersigned is an Employee Stockholder who did not sell all of its First Window Eligible Shares pursuant to clause (1) above; and
(3)    if the undersigned is a current officer or director of the Company, [or an entity through which any current officer or director of the Company beneficially owns shares of Common Stock,]3 subject to compliance with applicable securities laws, including, without limitation, Rule 144 promulgated under the Securities Act, the undersigned may sell in the public market, beginning at the commencement of trading on the second Trading Day after the later of (i) the Third Fiscal Quarter Earnings Release and (ii) the date the last reported closing price of the Company’s Class A common stock on the Nasdaq Stock Market is at least equal to the initial public offering price per share set forth on the cover page of the Prospectus for 10 Trading Days out of any 15-consecutive Trading Day period ending on or after the date of the Third Fiscal Quarter Earnings Release, a number of shares not in excess of 5% of the undersigned’s shares of Common Stock and Derivative Instruments, which percentage shall be calculated based on the number of shares of Common Stock and Derivative Instruments held by the undersigned as of the Public Offering Date (including any securities held by the undersigned for which all vesting conditions have been satisfied as of the Public Offering Date, but excluding any securities that have not vested as of the Public Offering Date).
    Notwithstanding the foregoing, in addition to, and not by way of limitation of, any transfers by the undersigned that are permitted pursuant to the preceding paragraph, the undersigned may
(a)    transfer the undersigned’s shares of Common Stock and Derivative Instruments:
(i).    as a bona fide gift or gifts or charitable contribution, or for bona fide estate planning purposes;
(ii).    to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or if the undersigned is a trust, to a trustor or beneficiary of the trust or to the estate of the beneficiary of such trust;
(iii).    if the undersigned is a corporation, to any wholly-owned subsidiary of such corporation;
(iv).    in connection with the sale or other Transfer of the undersigned’s shares of Common Stock or other securities acquired (A) from the Underwriters in the Offering or (B) in open market transactions after the completion of the Offering;
(v).    upon death, by will or intestacy;
(vi).    to any immediate family member;
3 NTD: To be included in all lock-up agreements, except lock-up agreements that are signed by Thrive Capital and Bain Capital Ventures and the directors affiliated with such funds.


(vii).    to a partnership, limited liability company or other entity of which the undersigned or the immediate family members of the undersigned are the legal and beneficial owner(s) of all of the outstanding equity securities or similar interests;
(viii).    by operation of law or pursuant to a qualified domestic order or in connection with a divorce settlement, separation agreement or any related court order;
(ix).    as part of a distribution, transfer or disposition without consideration by the undersigned to its limited or general partners, members or equity holders, or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control or management with the undersigned or affiliates of the undersigned (including, for the avoidance of doubt, where the undersigned is a partnership, to its general partner or a successor partnership or fund, or any other funds managed by such partnership);
(x).    in connection with the conversion or reclassification of the outstanding capital stock of the Company as described in the Prospectus (including, for the avoidance of doubt, the undersigned’s voluntary conversion of Class B common stock into Class A common stock), provided that any such shares of Common Stock received upon such conversion or reclassification shall remain subject to the provisions of this Lock-Up Agreement;
(xi).    pursuant to a bona fide third-party merger, consolidation, tender offer or other similar transaction involving a Change of Control (as defined below) of the Company occurring after the settlement of the Offering that is approved by the Company’s board of directors and made to all holders of the Company’s capital stock, provided that all of the undersigned’s Common Stock or Derivative Instruments subject to this Lock-Up Agreement that are not so transferred, tendered or otherwise disposed of remain subject to this Lock-Up Agreement; and provided further that, in the event that such Change of Control is not completed, the undersigned’s shares of Common Stock and Derivative Instruments shall remain subject to the restrictions contained in this Lock-Up Agreement and title to the undersigned’s shares of Common Stock or Derivative Instruments of the Company shall remain with the undersigned;
(xii).    to the Company pursuant to contractual arrangements under which the Company has, in connection with the termination of service of the undersigned, (A) the option to repurchase such shares of Common Stock or Derivative Instruments or (B) a right of first refusal with respect to transfers of such shares of Common Stock or Derivative Instruments; provided that in the case of clauses (A) and (B) above, (1) such contractual arrangement (or form thereof) is described in the Prospectus or filed as an exhibit to the Registration Statement and (2) such contractual arrangement is in effect on the date of the Prospectus;
(xiii).    to the Company in connection with the vesting or settlement of restricted stock units or the exercise of options or other rights to purchase shares of Common Stock (including, in each case, by way of “net” or “cashless” exercise), including any transfer to the Company for the payment of exercise price, tax withholdings or remittance payments due as a result of the vesting, settlement or exercise of such restricted stock units, options or other rights, in all such cases, pursuant to equity awards granted under a stock incentive plan or other equity award plan that is described in the Prospectus; or
(xiv).    with the prior written consent of the Representatives on behalf of the Underwriters; and


(b)    enter into a written plan meeting the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) relating to the transfer, sale or other disposition of securities of the undersigned, if then permitted by the Company; provided that the securities subject to the plan may not be sold during the Lock-Up Period (except to the extent otherwise permitted pursuant to the exceptions and early release provisions above) and no public announcement or filing under the Exchange Act, or any other public filing or announcement, shall be required or shall be voluntarily made regarding the establishment of such plan during the Lock-Up Period.
    Notwithstanding anything to the contrary, in the case of clauses (i), (ii), (iii), (v), (vi), (vii), (viii) and (ix) above, it shall be a condition to the transfer or distribution that the donee, devisee, transferee or distribute, as the case may be, agrees in writing to be bound by the restrictions set forth herein, and there shall be no further transfer of such Common Stock or Derivative Instruments except in accordance of this Lock-Up Agreement; in the case of clauses (i), (ii), (iii), (iv), (vi), (vii) and (xii)(B) above, no filing under the Exchange Act or any other public filing or disclosure reporting a reduction in beneficial ownership of shares of Common Stock or Derivative Instruments by or on behalf of the undersigned shall be required or voluntarily made during the Lock-Up Period (other than any required Form 5 filing); in the case of any transfers pursuant to clauses (v), (viii), (ix), (x), (xii)(A) and (xiii) above, any filing that is required under the Exchange Act to be made during the Lock-Up Period shall clearly indicate in the footnotes thereto that the filing relates to the circumstances described in such clauses; and in the case of any transfers pursuant to clauses (i), (ii), (iii), (v), (vi) and (vii), any such transfer shall not involve a disposition for value.
    For purposes of this Lock-Up Agreement, (i) “immediate family” shall mean any relationship by blood, marriage, domestic partnership or adoption, not more remote than first cousin, (ii) a “Trading Day” shall mean a day on which the Nasdaq Stock Market is open for the buying and selling of securities and (iii) “Change of Control” shall mean the transfer (whether by bona fide tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a “person” (as defined in Section 13(d)(3) of the Exchange Act) or group of affiliated persons (other than the Company), of the Company’s voting securities if, after such transfer, such person or group of affiliated persons would hold more than 50% of the outstanding voting power of the voting share capital of the Company (or the surviving entity).
    [If, prior to the termination of this Lock-Up Agreement, the Underwriters enter into an agreement with any executive officer or director of the Company or a holder of at least one percent (1%) of the Company’s then outstanding shares of Common Stock, and such other agreement waives, terminates or suspends an existing lock-up restriction herein, in whole or in part, permanently or for a limited period of time, then this Lock-Up Agreement shall be deemed to be automatically modified without any further action (the “Pro-Rata Release”) so that the lock-up restrictions of this Lock-Up Agreement set forth herein are also waived, terminated or suspended on the same terms and for the same percentage of the undersigned’s holdings of Company securities on an as-converted, fully diluted basis (it being agreed that, for purposes of determining record or beneficial ownership of a stockholder on such basis (a “fully diluted basis”), all shares of Common Stock or securities convertible into or exercisable or exchangeable for shares of Common Stock held by investment funds affiliated with such stockholder shall be aggregated); provided, however, that such Pro-Rata Release shall not be applied in the event of (a) releases granted from such lock-up restrictions to any individual party by the Underwriters in an amount less than or equal to 1% of the Company’s total outstanding Common Stock (calculated on a fully diluted basis) immediately following the closing of the Offering, (b) if the release, waiver or termination is effected solely to permit a transfer not for consideration and the transferee has agreed in writing to be bound by the same terms described in this Lock-Up Agreement to the extent and for the duration that such terms remain in effect at the time of such transfer or (c) any secondary underwritten public offering or sale of the Common Stock (including any secondary underwritten public offering with a primary component) during the Lock-Up Period provided in the case of this clause (c) that the undersigned has been given the opportunity to participate on a pro rata basis in such follow-on public offering. The Company shall, upon any such automatic modification of this Lock-Up Agreement, notify the


undersigned of such modification in writing as promptly as reasonably practicable and in any event at least 12 hours prior to the open of trading markets on the effective date of such waiver, termination or suspension (provided that the failure to provide such notice shall not give rise to any claim or liability against the Representatives or the Underwriters).]4
    The undersigned now has, and, except as contemplated above, for the duration of this Lock-Up Agreement will have, good and marketable title to the undersigned’s shares of Common Stock, free and clear of all liens, encumbrances, and claims whatsoever. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s shares of Common Stock except in compliance with the foregoing restrictions. By default, the Company will use reasonable efforts to instruct the transfer agent and registrar to remove stop transfer instructions using a “first in, first out” methodology if less than all of the undersigned’s shares are to be released from any of the foregoing restrictions prior to the date 180 days after the Public Offering Date.
    The undersigned acknowledges and agrees that none of the Underwriters has made any recommendation or provided any investment or other advice to the undersigned with respect to this Lock-Up Agreement or the subject matter hereof, and the undersigned has consulted its own legal, accounting, financial, regulatory, tax and other advisors with respect to this Lock-Up Agreement and the subject matter hereof to the extent the undersigned has deemed appropriate.
    This Lock-Up Agreement may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com or www.echosign.com) or other transmission method, and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
    Notwithstanding anything to the contrary contained herein, this Lock-Up Agreement (and the Lock-Up Period described herein) will automatically terminate and the undersigned will be released from all of his, her or its obligations hereunder upon the earliest to occur, if any, of (i) prior to the execution of the Underwriting Agreement, the Company advises the Representatives in writing that it has determined not to proceed with the Offering, (ii) the Company files an application to withdraw the Registration Statement, (iii) the Underwriting Agreement is executed but is terminated (other than the provisions thereof which survive termination) prior to payment for and delivery of the Shares to be sold thereunder, or (iv) March 31, 2022, in the event that the Underwriting Agreement has not been executed by such date; provided, however, that the Company may, by written notice to you prior to such date, extend such date in clause (iv) for a period of up to three additional months.
    This Lock-Up Agreement shall be governed by and construed in accordance with the laws of the State of New York.
[Signature Page Follows]
4 NTD: To be included in lock-up agreements signed by executive officers, directors, and holders of at least 1% of the Company’s outstanding capital stock.


    The undersigned understands that the Company and the Underwriters are relying upon this Lock-Up Agreement in proceeding toward consummation of the Offering. The undersigned further understands that this Lock-Up Agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors, and assigns.
Very truly yours,
IF AN INDIVIDUAL: IF AN ENTITY:
   
By:   
 (duly authorized signature) (please print complete name of entity)
     
Name:  By: 
 (please print full name)  (duly authorized signature)
     
   Name: 
    (please print full name)
     
   Title: 
    (please print full title)
[Signature Page to Lock-Up Agreement]
Document
Exhibit 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
JUSTWORKS, INC.
Justworks, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify as follows:
1.The name of the Corporation is Justworks, Inc. The Corporation was incorporated by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on October 5, 2012 under the name Clockwork Solutions, Inc.
2.This Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), which amends, restates and further integrates the certificate of incorporation of the Corporation as heretofore in effect (the “Prior Certificate”), has been adopted by the Corporation in accordance with Sections 242 and 245 of the DGCL, and has been adopted by the written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL.
3.The text of the Prior Certificate is hereby amended and restated by this Certificate of Incorporation to read in its entirety as set forth in EXHIBIT A attached hereto.
IN WITNESS WHEREOF, Justworks, Inc. has caused this Certificate of Incorporation to be signed by a duly authorized officer of the Corporation, on _____________, 2022.
Justworks, Inc.
By:
Name:Isaac Oates
Title:Chief Executive Officer
[Signature Page to Justworks, Inc. Certificate of Incorporation]

EXHIBIT A
ARTICLE I
The name of the corporation is Justworks, Inc. (the “Corporation”).
ARTICLE II
The address of the Corporation’s registered office in the State of Delaware is 251 Little Falls Drive, Wilmington, New Castle County, Delaware 19808. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”) as it now exists or may hereafter be amended and supplemented.
ARTICLE IV
The total number of shares of all classes of capital stock that the Corporation shall have authority to issue is 470,000,000 shares, consisting of three classes of stock as follows: 400,000,000 shares of Class A Common Stock, par value $0.0005 per share (“Class A Common Stock”), 50,000,000 shares of Class B Common Stock, par value $0.0005 per share (“Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”), and 20,000,000 shares of Preferred Stock, par value $0.0005 per share (“Preferred Stock”).
Subject to the rights of any holders of outstanding shares of any series of Preferred Stock, the number of authorized shares of Class A Common Stock, Class B Common Stock or Preferred Stock may be increased or decreased (but not below (i) the number of shares thereof then outstanding and (ii) with respect to the Class A Common Stock, the number of shares of Class A Common Stock reserved pursuant to Section 8 of Part A of Article IV) by the affirmative vote of the holders of capital stock representing a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote thereon, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Upon the filing and effectiveness of this Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Reclassification Effective Time”), (i) each share of Class A Common Stock (as defined in the Prior Certificate) issued and outstanding or held in treasury immediately prior to the Reclassification Effective Time, shall be automatically reclassified into one share of Class A Common Stock (as defined in this Certificate of Incorporation) without any further action by the Corporation or the holder of any such share and (ii) each share of Class B Common Stock (as defined in the Prior Certificate) issued and outstanding or held in treasury immediately prior to the Reclassification Effective Time, shall be automatically reclassified into one share of Class B Common Stock (as defined in this Certificate of Incorporation) without any further action by the Corporation or the holder of any such share.


The designations and the powers, preferences, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation are as follows:
ACommon Stock.
1.Equal Status; General. Except as otherwise provided herein or required by law, shares of Class A Common Stock and Class B Common Stock shall have the same rights, privileges, preferences and powers, rank equally (including as to dividends and distributions, and upon any liquidation, dissolution, distribution of assets or winding up of the Corporation), share ratably and be identical in all respects and as to all matters. The voting, dividend, liquidation and other rights, preferences and powers of the holders of Common Stock are subject to and qualified by the rights, powers and preferences of any series of Preferred Stock as may be designated by the Board of Directors of the Corporation (the “Board of Directors”) and outstanding from time to time.
2.Voting. Except as otherwise provided herein or expressly required by law, at all meetings of stockholders and on all matters submitted to a vote of stockholders of the Corporation generally, (i) each holder of Class A Common Stock, as such, shall have the right to one (1) vote per share of Class A Common Stock held of record by such holder, and (ii) each holder of Class B Common Stock, as such, shall have the right to ten (10) votes per share of Class B Common Stock held of record by such holder. Except as otherwise provided herein or required by law, the holders of shares of Class A Common Stock and Class B Common Stock, as such, shall (a) at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Corporation generally, and (b) be entitled to notice of any stockholders’ meeting in accordance with the Amended and Restated Bylaws of the Corporation (as the same may be amended and/or restated from time to time, the “Bylaws”); provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designation (as defined herein)) or pursuant to the DGCL. There shall be no cumulative voting.
3.Dividend Rights. Shares of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share basis, with respect to any dividends as may be declared and paid from time to time by the Board of Directors out of any assets of the Corporation legally available therefor; provided, however, that in the event a dividend is paid in the form of shares of Class A Common Stock or Class B Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares), then holders of Class A Common Stock shall be entitled to receive shares of Class A Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be), and holders of Class B Common Stock shall be entitled to receive shares of Class B Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be), with holders of shares of Class A Common Stock and Class B Common Stock
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receiving, on a per share basis, an identical number of shares of Class A Common Stock or Class B Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be), as applicable. Notwithstanding the foregoing, the Board of Directors may pay or make a disparate dividend per share of Class A Common Stock or Class B Common Stock (whether in the amount of such dividend payable per share, the form in which such dividend is payable, the timing of the payment, or otherwise) if such disparate dividend is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
4.Subdivisions, Combinations or Reclassifications. Shares of Class A Common Stock or Class B Common Stock may not be subdivided, combined or reclassified unless the shares of the other class are concurrently therewith proportionately subdivided, combined or reclassified in a manner that maintains the same proportionate equity ownership among the holders of the outstanding Class A Common Stock and Class B Common Stock on the date of such subdivision, combination or reclassification; provided, however, that shares of one such class may be subdivided, combined or reclassified in a different or disproportionate manner if such subdivision, combination or reclassification is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
5.Liquidation, Dissolution or Winding Up. Subject to the preferential or other rights of any holders of Preferred Stock then outstanding, upon the dissolution, distribution of assets, liquidation or winding up of the Corporation, whether voluntary or involuntary, holders of Class A Common Stock and Class B Common Stock will be entitled to receive ratably all assets of the Corporation available for distribution to its stockholders in proportion to the number of shares held by each such stockholder, unless disparate or different treatment of the shares of each such class with respect to distributions upon any such liquidation, dissolution, distribution of assets or winding up is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class. A consolidation, reorganization or merger of the Corporation with any other person or persons, or a sale of all or substantially all of the assets of the Corporation, shall not be considered to be a dissolution, liquidation or winding up of the Corporation within the meaning of this Section 5.
6.Merger or Consolidation. In the case of any consolidation or merger of the Corporation with or into any other entity, the holders of shares of Class A Common Stock or Class B Common Stock have the right to receive, or the right to elect to receive, consideration or payment that shall be identical to and made ratably on a per share basis among the holders of the Class A Common Stock and Class B Common Stock as a single class; provided, however, that, if such distribution, payment or consideration consists, in whole or in part, of shares of capital stock or other equity interests, holders of shares of Class A Common Stock or Class B Common Stock may receive, or have the right to elect to receive, different or disproportionate consideration in connection with such consolidation, merger or other transaction only if and solely to the extent that the difference in the per share consideration to the holders of the Class A Common Stock and Class B Common Stock is that any securities distributed to the holder of, or issuable upon the conversion of, a share of Class B Common Stock have ten (10) times the
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voting power of any securities distributed to the holder of, or issuable upon the conversion of, a share of Class A Common Stock.
7.Conversion.
7.1.Optional Conversion of Class B Common Stock. Each share of Class B Common Stock shall be convertible into one (1) validly issued, fully paid and nonassessable share of Class A Common Stock at the option of the holder thereof at any time upon written notice to the Corporation.
7.2.Automatic Conversion of Class B Common Stock Upon Transfer. With respect to each holder of Class B Common Stock, upon the occurrence of a Transfer (as defined in Section 9 of Part A of Article IV), other than a Permitted Transfer (as defined in Section 9 of Part A of Article IV), of shares of Class B Common Stock held by such holder, each share subject to such Transfer shall automatically, without further action by the Corporation or the holder thereof, convert into one (1) validly issued, fully paid and nonassessable share of Class A Common Stock.
7.3.Final Conversion of All Shares of Class B Common Stock. Each share of outstanding Class B Common Stock shall automatically, without further action by the Corporation or the holder thereof, convert into one (1) validly issued, fully paid and nonassessable share of Class A Common Stock at 5:00 p.m. (New York City time) on the date that is ten (10) years following the closing of the Corporation’s initial public offering of Class A Common Stock in a firm commitment underwritten offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”).
7.4.Mechanics of Conversion.
7.4.1.Before any holder of Class B Common Stock shall be entitled to convert any shares of Class B Common Stock into shares of Class A Common Stock pursuant to Subsection 7.1 of Part A of Article IV, such holder shall surrender the certificate or certificates therefor (if any), duly endorsed, at the principal corporate office of the Corporation or of any transfer agent for the Class B Common Stock, and shall provide written notice to the Corporation at its principal corporate office, of such conversion election and shall state therein the name or names (i) in which the certificate or certificates representing the shares of Class A Common Stock into which the shares of Class B Common Stock are so converted are to be issued (if such shares of Class A Common Stock will be certificated) or (ii) in which such shares of Class A Common Stock are to be registered in book-entry form (if such shares of Class A Common Stock are uncertificated). If the shares of Class A Common Stock into which the shares of Class B Common Stock are to be converted are to be issued in a name or names other than the name of the holder of the shares of Class B Common Stock being converted, such notice shall be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder, or to the nominee or nominees of such holder, a certificate or certificates representing the number of shares of Class A Common Stock to which such holder shall be entitled upon such
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conversion (if such shares of Class A Common Stock are certificated) or shall register such shares of Class A Common Stock in book-entry form (if such shares of Class A Common Stock are uncertificated). Such conversion shall be deemed to be effective immediately prior to the close of business (i) with respect to certificated shares, on the date of such surrender of the certificate or certificates representing the shares of Class B Common Stock to be converted or (ii) with respect to shares that are uncertificated, immediately prior to the close of business on the date that the holder delivers notice of such conversion election as required by this Subsection to the Corporation’s transfer agent, and, in each case, the shares of Class A Common Stock issuable upon such conversion shall be deemed to be outstanding as of such time, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be deemed to be the record holder or holders of such shares of Class A Common Stock as of such time. Notwithstanding anything herein to the contrary, shares of Class B Common Stock represented by a lost, stolen or destroyed stock certificate may be converted pursuant to Subsection 7.1 of Part A of Article IV if the holder thereof notifies the Corporation or its transfer agent that such certificate has been lost, stolen or destroyed and provides an affidavit of that fact acceptable to the Corporation and executes an agreement acceptable to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificate.
7.4.2.Each outstanding stock certificate (if shares are in certificated form) that, immediately prior to the occurrence of a conversion pursuant to Subsections 7.3 of Part A of Article IV represented one or more shares of Class B Common Stock subject to such conversion shall, upon such conversion, be deemed to represent an equal number of shares of Class A Common Stock, without the need for surrender or exchange thereof.
7.4.3.The Corporation shall, upon the request of any holder whose shares of Class B Common Stock have been converted into shares of Class A Common Stock as a result of any conversion pursuant to Subsections 7.1, 7.2 or 7.3 of Part A of Article IV, and upon surrender by such holder to the Corporation of the outstanding certificate(s) formerly representing such holder’s shares of Class B Common Stock, if any (or, in the case of any lost, stolen or destroyed certificate, upon such holder providing an affidavit of that fact acceptable to the Corporation and executing an agreement acceptable to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificate), issue and deliver to such holder certificate(s) representing the shares of Class A Common Stock into which such holder’s shares of Class B Common Stock were converted as a result of such conversion (if such shares are certificated) or, if such shares are uncertificated, register such shares in book-entry form.
7.4.4.Each share of Class B Common Stock that is converted pursuant to Subsection 7.1, 7.2 or 7.3 of Part A of Article IV shall thereupon automatically be retired and shall not be available for reissuance.
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7.4.5.The Corporation may, from time to time, establish such policies and procedures, not in violation of applicable law or the other provisions of this Certificate of Incorporation or Bylaws of the Corporation, relating to the conversion of the Class B Common Stock into Class A Common Stock, as it may deem necessary or advisable in connection therewith. If the Corporation has reason to believe that any circumstance giving rise to a conversion of shares of Class B Common Stock into Class A Common Stock in accordance with the provisions of this Section 7 of Part A of Article IV has occurred but has not theretofore been reflected on the books of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation), the Corporation may request that the holder of such shares furnish affidavits or other evidence to the Corporation as the Corporation deems necessary to determine whether a conversion of shares of Class B Common Stock to Class A Common Stock has occurred, and if such holder does not within ten (10) days after the date of such request furnish sufficient evidence to the Corporation (in the manner provided in the request) to enable the Corporation to determine that no such conversion has occurred, any such shares of Class B Common Stock, to the extent not previously converted, shall be automatically converted into shares of Class A Common Stock and the same shall thereupon be registered on the books and records of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation). In connection with any action of stockholders taken at a meeting, the stock ledger of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation) shall be presumptive evidence as to who are the stockholders entitled to vote in person or by proxy at any meeting of stockholders and the class or classes or series of shares held by each such stockholder and the number of shares of each class or classes or series held by such stockholder.
8.Reservation of Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of Class B Common Stock, such number of shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock into shares of Class A Common Stock.
9.Definitions.
“Affiliate” means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another person.
“Convertible Security” shall mean any evidences of indebtedness, shares of Preferred Stock or other securities (other than shares of Class B Common Stock) convertible into or exchangeable for shares of Common Stock, either directly or indirectly.
“Effective Time” means the time of the effective time of the Certificate of Incorporation of the Corporation filed with Secretary of State of the State of Delaware by the Corporation in connection with the registered initial public offering of the Class A Common Stock.
“Family Member” means with respect to any individual who is a Qualified Stockholder (a) the spouse or former spouse of such Qualified Stockholder, (b) the parents, grandparents, lineal descendants, siblings or lineal descendants of siblings of such Qualified Stockholder or (c)
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the parents, grandparents, lineal descendants, siblings or lineal descendants of siblings of the spouse of such Qualified Stockholder. Lineal descendants shall include adopted persons, but only so long as they are adopted while a minor.
“Not-for-Profit Organization” means an organization that (i) is tax-exempt under Section 501(c)(3) of the Internal Revenue Code or (ii) meets the requirements for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, has filed for recognition of exemption and expects to receive a determination letter recognizing tax-exempt status effective as of the date of formation.
“Option” shall mean rights, options, restricted stock units or warrants to subscribe for, purchase or otherwise acquire shares of Common Stock or Convertible Securities (as defined above).
“Permitted Entity” shall mean: (I) with respect to a Qualified Stockholder that is an individual, (a)(1) a Permitted Trust (as defined below) primarily for the benefit of (i) such Qualified Stockholder, (ii) one or more Family Members of such Qualified Stockholder, (iii) any Not-for-Profit Organization or (iv) any other Permitted Entity of such Qualified Stockholder or (2) a Not-for-Profit Organization, provided that, in each case, the Qualified Stockholder holds, directly or indirectly, exclusive Voting Control with respect to such shares of Class B Common Stock; or (b)(1) any Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or (2) a pension, profit sharing, stock bonus or other type of plan or trust of which such Qualified Stockholder is a participant or beneficiary and which satisfies the requirements for qualification under Section 401 of the Internal Revenue Code (in the case of (b)(1) or (2), a “Plan”), provided that a Transfer of Class B Common Stock to such Plan is not prohibited by the Employee Retirement Income Security Act of 1974 or any applicable law; or (II) with respect to a Qualified Stockholder that is an entity, any Affiliate of, or general partnership, limited partnership, limited liability company, corporation or other entity controlled by, such Qualified Stockholder or any other Permitted Entity of such Qualified Stockholder; provided that “Permitted Entity” shall not include any portfolio company of such Qualified Stockholder.
“Permitted Transfer” shall mean, and be restricted to, any Transfer of a share of Class B Common Stock: (a) by a Qualified Stockholder to (i) any Permitted Entity of such Qualified Stockholder, or (ii) another Qualified Stockholder; or (b) by a Permitted Entity of a Qualified Stockholder to (i) such Qualified Stockholder, (ii) any other Permitted Entity of such Qualified Stockholder, or (iii) another Qualified Stockholder.
“Permitted Transferee” shall mean a transferee of shares of Class B Common Stock received in a Permitted Transfer.
“Permitted Trust” shall mean a bona fide trust where each trustee is (i) a Qualified Stockholder, (ii) a Family Member, or (iii) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies and bank trust departments.
“Qualified Stockholder” shall mean: (a) the record holder of a share of Class B Common Stock as of the Effective Time; (b) the initial record holder of any shares of Class B Common
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Stock that are originally issued by the Corporation after the Effective Time pursuant to the exercise or conversion of any Option or Convertible Security that, in each case, was outstanding as of the Effective Time; and (c) a Permitted Transferee.
“Transfer” of a share of Class B Common Stock shall mean any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law, including, without limitation, a transfer of a share of Class B Common Stock to a broker or other nominee (regardless of whether there is a corresponding change in beneficial ownership), or the transfer of, or entering into a binding agreement with respect to, Voting Control over such share by proxy or otherwise; provided, however, that the following shall not be considered a “Transfer” within the meaning of this Section 9 of Part A of Article IV:
(i)the granting of a revocable proxy to officers or directors of the Corporation at the request of the Board of Directors in connection with actions to be taken at an annual or special meeting of stockholders;
(ii)entering into a voting trust, agreement or arrangement (with or without granting a proxy) solely with stockholders who are holders of Class B Common Stock, which voting trust, agreement or arrangement does not involve any payment of cash, securities or other property to the holder of the shares subject thereto other than the mutual promise to vote shares in a designated manner; for the avoidance of doubt, any voting trust, agreement or arrangement entered into prior to the Effective Time shall not constitute a Transfer;
(iii)entering into a voting trust, agreement or arrangement (with or without granting a proxy) pursuant to a written agreement to which the Corporation is a party or taking any actions contemplated thereby;
(iv)the pledge of shares of Class B Common Stock by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction for so long as such stockholder continues to exercise Voting Control over such pledged shares; provided, however, that a foreclosure on such shares or other similar action by the pledgee shall constitute a Transfer unless such foreclosure or similar action otherwise qualifies as a Permitted Transfer;
(v)the fact that, as of the Effective Time or at any time after the Effective Time, the spouse of any holder of Class B Common Stock possesses or obtains an interest in such holder’s shares of Class B Common Stock arising solely by reason of the application of the community property laws of any jurisdiction, so long as no other event or circumstance shall exist or have occurred that constitutes a Transfer of such shares of Class B Common Stock; provided that, any transfer of shares by any holder of shares of Class B Common Stock to such holder’s spouse, including a transfer in connection with a divorce proceeding, domestic relations order or similar legal requirement, shall constitute a “Transfer” of such shares of Class B Common Stock, unless otherwise exempt from the definition of Transfer;
(vi)entering into a trading plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with a broker or other nominee;
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provided, however, that a sale of such shares of Class B Common Stock, pursuant to such plan shall constitute a “Transfer” at the time of such sale; and
(vii)in connection with a merger or consolidation of the Corporation with or into any other entity, or in the case of any other transaction having an effect on stockholders substantially similar to that resulting from a merger or consolidation, such as the sale, lease, exchange, or other disposition (other than liens and encumbrances created in the ordinary course of business, including liens or encumbrances to secure indebtedness for borrowed money that are approved by the Board of Directors, so long as no foreclosure occurs in respect of any such lien or encumbrance) of all or substantially all of the Corporation’s property and assets, that has been approved by the Board of Directors, the entering into a support, voting, tender or similar agreement or arrangement (in each case, with or without the grant of a proxy) that has also been approved by the Board of Directors or the consummation of the actions or transactions contemplated therein (including, without limitation, voting, tendering, selling, exchanging, or otherwise transferring or disposing of shares of Class B Common Stock or any legal or beneficial interest therein).
“Voting Control” means, with respect to a share of Class B Common Stock, the power (whether exclusive or shared) to vote or direct the voting of such share by proxy, voting agreement or otherwise.
BPreferred Stock.
Shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the creation and issuance of such series adopted by the Board of Directors as hereinafter provided.
Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issuance of the shares thereof and by filing a certificate of designation relating thereto in accordance with the DGCL (a “Certificate of Designation”), to determine and fix the number of shares of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, and to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series as shall be stated and expressed in such resolutions, all to the fullest extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, the resolution or resolutions providing for the creation and issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law and this Certificate of Incorporation (including any Certificate of Designation). Except as otherwise required by law, holders of any series of Preferred Stock shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by this Certificate of Incorporation (including any Certificate of Designation).
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ARTICLE V
For the management of the business and for the conduct of the affairs of the Corporation it is further provided that:
AGeneral Powers. Except as otherwise expressly provided by the DGCL or this Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
BNumber of Directors; Election of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect directors, the number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors.
CClasses of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect directors, the directors of the Corporation are hereby classified with respect to the time for which they severally hold office into three classes, designated as Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of such directors. The initial Class I directors shall serve for a term expiring at the first annual meeting of the stockholders following the time at which the initial classification of the Board of Directors became effective; the initial Class II directors shall serve for a term expiring at the second annual meeting of the stockholders following the time at which the initial classification of the Board of Directors became effective; and the initial Class III directors shall serve for a term expiring at the third annual meeting following the time at which the initial classification of the Board of Directors became effective. At each annual meeting of stockholders of the Corporation following the time at which the initial classification of the Board of Directors became effective, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The Board of Directors is authorized to assign members of the Board of Directors already in office to a class at the time such classification became effective.
DTerm and Removal. Subject to the rights of the holders of any series of Preferred Stock to elect directors, each director shall hold office until the annual meeting at which such director’s term expires and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, disqualification or removal. No decrease in the number of directors shall shorten the term of any incumbent director. Subject to the rights of the holders of any series of Preferred Stock to elect directors, the Board of Directors or any individual director may be removed from office at any time and only for cause by the affirmative vote of the holders of capital stock representing a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class.
EVacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock to elect directors, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board of Directors that results from the death, disability, resignation, disqualification or removal of any director or from any other cause shall be filled solely by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director, and shall not
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be filled by the stockholders unless the Board of Directors determines by resolution that any such vacancy or newly created directorship shall be filled by the stockholders. Any director elected to fill a newly created directorship or vacancy in accordance with the preceding sentence shall hold office until the next annual meeting of stockholders held to elect the class of directors to which such director is elected and until his or her successor is duly elected and qualified or until his or her earlier death, resignation, retirement, disqualification, or removal.
FPreferred Stock Directors. Whenever the holders of any series of Preferred Stock issued by the Corporation shall have the right as provided for herein (including any Certificate of Designation), voting separately as a series or separately as a class with one or more such other series, to elect directors, the election, term of office, removal and other features of such directorships shall be governed by the terms of this Certificate of Incorporation (including any Certificate of Designation). Notwithstanding anything to the contrary in this Article V, during the period when the holders of any series of Preferred Stock issued by the Corporation shall have the right to elect additional directors, the number of directors to be elected by the holders of any such series of Preferred Stock shall be in addition to the number fixed pursuant to paragraph B of this Article V, and the total number of directors constituting the whole Board of Directors shall be automatically increased by such number of directors to be elected by the holders of any such series of Preferred Stock and each such additional director shall serve until such director’s successor shall have been duly elected and qualified, or until such director’s right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his earlier death, disqualification, resignation or removal. Except as otherwise provided in the Certificate of Designation(s) in respect of any series of Preferred Stock, whenever the holders of any series of Preferred Stock having such right to elect additional directors are divested of such right pursuant to the provisions of this Certificate of Incorporation (including any Certificate of Designation), the terms of office of all such additional directors elected by the holders of such series of Preferred Stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate (in which case each such director thereupon shall cease to be qualified as, and shall cease to be, a director) and the total authorized number of directors of the Corporation shall automatically be reduced accordingly.
GVote by Ballot. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
ARTICLE VI
AConsent of Stockholders In Lieu of Meeting. Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the stockholders of the Corporation, and shall not be taken by consent in lieu of a meeting.
BSpecial Meetings of Stockholders. Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, at any time only by or at the direction of (i) the Chair of the Board of Directors (if any), (ii) the Chief Executive Officer, (iii) the Lead
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Independent Director (if any) or (iv) the Board of Directors pursuant to a resolution adopted by a the Board of Directors.
CStockholder Nominations and Introduction of Business, Etc. Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the Bylaws of the Corporation.
ARTICLE VII
No director of the Corporation shall have any personal liability to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or hereafter may be amended. Any amendment, repeal or modification of this Article VIII, or the adoption of any provision of the Certificate of Incorporation inconsistent with this Article VII, shall not adversely affect any right or protection of a director of the Corporation with respect to any act or omission occurring prior to such amendment, repeal, modification or adoption. If the DGCL is amended after approval by the stockholders of this Article VII to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.
ARTICLE VIII
The Corporation shall have the power to provide rights to indemnification and advancement of expenses to its current and former officers, directors, employees and agents and to any person who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
ARTICLE IX
Unless the Corporation consents in writing to the selection of an alternative forum, (a) (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of the Corporation to the Corporation or the Corporation’s stockholders (iii) any action asserting a claim arising pursuant to any provision of the DGCL, this Certificate of Incorporation, the Bylaws (as either may be amended and/or restated from time to time) or as to which the DGCL confers exclusive jurisdiction on the Court of Chancery of the State of Delaware (the “Court of Chancery”), or (iv) any action asserting a claim governed by the internal affairs doctrine, be exclusively brought in the Court of Chancery or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware; and (b) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. To the fullest extent permitted by law, any person purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article IX. Notwithstanding the foregoing, this Article IX
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shall not apply to claims seeking to enforce any liability or duty created by the Exchange Act, or any other claim for which the U.S. federal courts have exclusive jurisdiction.
ARTICLE X
AAmendment of the Certificate of Incorporation. The Corporation reserves the right to amend, alter, change, adopt or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of shares of any class or series of capital stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision of this Certificate of Incorporation inconsistent with Part A of Article IV, Articles V, VI, VII, VIII, IX and this Article X.
BAmendment of Bylaws. In furtherance and not in limitation of the powers conferred upon it by the DGCL, the Board of Directors shall have the power to adopt, amend, alter or repeal the Bylaws of the Corporation. The stockholders may not adopt, amend, alter or repeal the Bylaws of the Corporation unless such action is approved, in addition to any other vote required by this Certificate of Incorporation, by the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
CSeverability. If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not, to the fullest extent permitted by applicable law, in any way be affected or impaired thereby and (ii) to the fullest extent permitted by applicable law, the provisions of this Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
ARTICLE XI
To the fullest extent permitted by the laws of the State of Delaware and in accordance with Section 122(17) of the DGCL, (i) the Corporation hereby renounces all interest and expectancy that it otherwise would be entitled to have in, and all rights to be offered an opportunity to participate in, any business opportunity that from time to time may be presented to any Director or stockholder who is not employed by the Corporation or its subsidiaries (each
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such person, an “Exempt Person”); (ii) no Exempt Person will have any duty to refrain from (1) engaging in a corporate opportunity in the same or similar lines of business in which the Corporation or its subsidiaries from time to time is engaged or proposes to engage or (2) otherwise competing, directly or indirectly, with the Corporation or any of its subsidiaries; and (iii) if any Exempt Person acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity both for such Exempt Person or any of his or her respective Affiliates, on the one hand, and for the Corporation or its subsidiaries, on the other hand, such Exempt Person shall have no duty to communicate or offer such transaction or business opportunity to the Corporation or its subsidiaries and such Exempt Person may take any and all such transactions or opportunities for itself or offer such transactions or opportunities to any other person. Notwithstanding the foregoing, the preceding sentence of this Article XI shall not apply to any potential transaction or business opportunity that is expressly offered to a director, executive officer or employee of the Corporation or its subsidiaries, solely in his or her capacity as a director, executive officer or employee of the Corporation or its subsidiaries.
To the fullest extent permitted by the laws of the State of Delaware, no potential transaction or business opportunity may be deemed to be a corporate opportunity of the Corporation or its subsidiaries unless (i) the Corporation or its subsidiaries would be permitted to undertake such transaction or opportunity in accordance with this Certificate of Incorporation, (ii) the Corporation or its subsidiaries at such time have sufficient financial resources to undertake such transaction or opportunity, (iii) the Corporation or its subsidiaries have an interest or expectancy in such transaction or opportunity and (iv) such transaction or opportunity would be in the same or similar line of business in which the Corporation or its subsidiaries are then engaged or a line of business that is reasonably related to, or a reasonable extension of, such line of business.
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Document
Exhibit 3.4

Amended and Restated Bylaws of
Justworks, Inc.
(a Delaware corporation)


Table of Contents

Page
Article I - Corporate Offices
1
1.1
Registered Office
1
1.2
Other Offices
1
Article II - Meetings of Stockholders
1
2.1
Place of Meetings
1
2.2
Annual Meeting
1
2.3
Special Meeting
1
2.4
Notice of Business to be Brought before a Meeting.
1
2.5
Notice of Nominations for Election to the Board.
4
2.6
Additional Requirements for Valid Nomination of Candidates to Serve as Director and, if Elected, to be Seated as Directors.
6
2.7
Notice of Stockholders’ Meetings
7
2.8
Quorum
7
2.9
Adjourned Meeting; Notice
8
2.10
Conduct of Business
8
2.11
Voting
8
2.12
Record Date for Stockholder Meetings and Other Purposes
9
2.13
Proxies
9
2.14
List of Stockholders Entitled to Vote
10
2.15
Inspectors of Election
10
2.16
Delivery to the Corporation.
11
Article III - Directors
11
3.1
Powers
11
3.2
Number; Term; Qualifications.
11
3.3
Resignation; Removal; Vacancies
11
3.4
Place of Meetings; Meetings by Telephone.
11
3.5
Regular Meetings
11
3.6
Special Meetings; Notice
12
3.7
Quorum
12
3.8
Board Action without a Meeting
12
3.9
Fees and Compensation of Directors
12
Article IV - Committees
13
4.1
Committees of Directors
13
4.2
Committee Minutes
13
4.3
Meetings and Actions of Committees
13
4.4
Subcommittees.
13
i

TABLE OF CONTENTS
(continued)
Article V - Officers
14
5.1
Officers
14
5.2
Appointment of Officers
14
5.3
Subordinate Officers
14
5.4
Removal and Resignation of Officers
14
5.5
Vacancies in Offices
14
5.6
Representation of Shares of Other Corporations
14
5.7
Authority and Duties of Officers
15
5.8
Compensation.
15
Article VI - Records
15
Article VII - General Matters
15
7.1
Execution of Corporate Contracts and Instruments
15
7.2
Stock Certificates
15
7.3
Special Designation of Certificates.
16
7.4
Lost Certificates
16
7.5
Shares Without Certificates
16
7.6
Construction; Definitions
16
7.7
Dividends
16
7.8
Fiscal Year
16
7.9
Seal
17
7.10
Transfer of Stock
17
7.11
Stock Transfer Agreements
17
7.12
Registered Stockholders
17
7.13
Waiver of Notice
17
Article VIII - Notice
17
8.1
Delivery of Notice; Notice by Electronic Transmission
17
Article IX - Indemnification
18
9.1
Indemnification of Directors and Officers
18
9.2
Indemnification of Others
19
9.3
Prepayment of Expenses
19
9.4
Determination; Claim
19
9.5
Non-Exclusivity of Rights
19
9.6
Insurance
19
9.7
Other Indemnification
19
9.8
Continuation of Indemnification
20
9.9
Amendment or Repeal; Interpretation
20
Article X - Amendments
20
Article XI - Definitions
20
ii

Amended and Restated Bylaws of
Justworks, Inc.
Article I - Corporate Offices
1.1    Registered Office. 
The address of the registered office of Justworks, Inc. (the “Corporation”) in the State of Delaware, and the name of its registered agent at such address, shall be as set forth in the Corporation’s certificate of incorporation, as the same may be amended and/or restated from time to time (the “Certificate of Incorporation”).
1.2    Other Offices. 
The Corporation may have additional offices at any place or places, within or outside the State of Delaware, as the Corporation’s board of directors (the “Board”) may from time to time establish or as the business of the Corporation may require.
Article II - Meetings of Stockholders
2.1    Place of Meetings. 
Meetings of stockholders shall be held at any place within or outside the State of Delaware, designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the Corporation’s principal executive office.
2.2    Annual Meeting. 
The Board shall designate the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly brought before the meeting in accordance with Section 2.4 of these bylaws may be transacted. The Board may postpone, reschedule or cancel any previously scheduled annual meeting of stockholders.
2.3    Special Meeting. 
Special meetings of the stockholders may be called only by such persons and only in such manner as set forth in the Certificate of Incorporation.
No business may be transacted at any special meeting of stockholders other than the business specified in the notice of such meeting. The Board may postpone, reschedule or cancel any previously scheduled special meeting of stockholders.
2.4    Notice of Business to be Brought before a Meeting. This Section 2.4 shall apply to any business that may be brought before an annual meeting of stockholders other than nominations for election to the Board at such meeting, which shall be governed by Section 2.5 and Section 2.6. Stockholders seeking to nominate persons for election to the Board must comply with Section 2.5 and Section 2.6 and this Section 2.4 shall not be applicable to nominations except as expressly provided in Section 2.5 and Section 2.6.
(a)    At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in a notice of meeting given by or at the direction of the Board including by


any committee or persons authorized to do so by the Board or these bylaws, (ii) if not specified in a notice of meeting, otherwise brought before the meeting by the Board or the Chair of the Board, if any, or (iii) otherwise properly brought before the meeting by a stockholder present in person who (A) (1) was a record owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.4 and at the time of the meeting, (2) is entitled to vote at the meeting, and (3) has complied with this Section 2.4 in all applicable respects or (B) properly made such proposal in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations, the “Exchange Act”). The foregoing clause (iii) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of the stockholders. The only matters that may be brought before a special meeting are the matters specified in the notice of meeting given by or at the direction of the person calling the meeting pursuant to Section 2.3, and stockholders shall not be permitted to propose business to be brought before a special meeting of the stockholders. For purposes of this Section 2.4 and Section 2.5, “present in person” shall mean that the stockholder proposing that the business be brought before the annual meeting of the Corporation, or a qualified representative of such proposing stockholder, appear at such annual meeting, and a “qualified representative” of such proposing stockholder shall be a duly authorized officer, manager or partner of such stockholder or any other person authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(b)    Without qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (i) provide Timely Notice (as defined below) thereof in writing and in proper form to the Secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.4. To be timely, a stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the one-year anniversary of the preceding year’s annual meeting (which date shall, for purposes of the Corporation’s first annual meeting of stockholders after its shares of Class A Common Stock (as defined in the Certificate of Incorporation) are first publicly traded, be deemed to have occurred on June 30); provided, however, that if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered, or mailed and received, not later than the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosure of the date of such annual meeting was first made by the Corporation (such notice within such time periods, “Timely Notice”). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of Timely Notice as described above.
(c)    To be in proper form for purposes of this Section 2.4, a stockholder’s notice to the Secretary of the Corporation shall set forth:
(i)    As to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records); and (B) the number of shares of each class or series of stock of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of stock of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are referred to as “Stockholder Information”);
(ii)    As to each Proposing Person, (A) the full notional amount of any securities that, directly or indirectly, underlie any “derivative security” (as such term is defined in Rule 16a-1(c) under the Exchange Act) that constitutes a “call equivalent position” (as such term is defined in Rule 16a-1(b) under the Exchange Act) (“Synthetic Equity Position”) and that is, directly or indirectly, held or maintained by such Proposing Person with respect to any shares of any class or series of stock of the Corporation; provided that, for the purposes of the definition of “Synthetic Equity Position,” the term “derivative security” shall also include any security or instrument that
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would not otherwise constitute a “derivative security” as a result of any feature that would make any conversion, exercise or similar right or privilege of such security or instrument becoming determinable only at some future date or upon the happening of a future occurrence, in which case the determination of the amount of securities into which such security or instrument would be convertible or exercisable shall be made assuming that such security or instrument is immediately convertible or exercisable at the time of such determination; and, provided, further, that any Proposing Person satisfying the requirements of Rule 13d-1(b)(1) under the Exchange Act (other than a Proposing Person that so satisfies Rule 13d-1(b)(1) under the Exchange Act solely by reason of Rule 13d-1(b)(1)(ii)(E)) shall not be deemed to hold or maintain the notional amount of any securities that underlie a Synthetic Equity Position held by such Proposing Person as a hedge with respect to a bona fide derivatives trade or position of such Proposing Person arising in the ordinary course of such Proposing Person’s business as a derivatives dealer, (B) any rights to dividends on the shares of any class or series of stock of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (C) any material pending or threatened legal proceeding in which such Proposing Person is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, (D) any other material relationship between such Proposing Person, on the one hand, and the Corporation or any affiliate of the Corporation, on the other hand, (E) any direct or indirect material interest in any material contract or agreement of such Proposing Person with the Corporation or any affiliate of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (F) a representation that such Proposing Person intends or is part of a group that intends to deliver a proxy statement or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or otherwise solicit proxies from stockholders in support of such proposal and (G) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (G) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial owner; and
(iii)    As to each item of business that the stockholder proposes to bring before the annual meeting, (A) a brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of each Proposing Person, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the bylaws, the language of the proposed amendment), and (C) a reasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other person or entity (including their names) in connection with the proposal of such business by such stockholder; and (D) any other information relating to such item of business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act; provided, however, that the disclosures required by this paragraph (iii) shall not include any disclosures with respect to any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial owner.
(d)    For purposes of this Section 2.4, the term “Proposing Person” shall mean (i) the stockholder providing the notice of business proposed to be brought before an annual meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual meeting is made, and (iii) any participant (as defined in paragraphs (a)(ii)-(vi) of Instruction 3 to Item 4 of Schedule 14A) with such stockholder in such solicitation.
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(e)    A Proposing Person shall update and supplement its notice to the Corporation of its intent to propose business at an annual meeting, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4 shall be true and correct as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof). For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any proposal or to submit any new proposal, including by changing or adding matters, business or resolutions proposed to be brought before a meeting of the stockholders.
(f)    Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting that is not properly brought before the meeting in accordance with this Section 2.4. The presiding officer of the meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with this Section 2.4, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
(g)    This Section 2.4 is expressly intended to apply to any business proposed to be brought before an annual meeting of stockholders other than any proposal made in accordance with Rule 14a-8 under the Exchange Act and included in the Corporation’s proxy statement. In addition to the requirements of this Section 2.4 with respect to any business proposed to be brought before an annual meeting, each Proposing Person shall comply with all applicable requirements of the Exchange Act with respect to any such business. Nothing in this Section 2.4 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(h)    For purposes of these bylaws, “public disclosure” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
2.5    Notice of Nominations for Election to the Board.
(a)    Nominations of any person for election to the Board at an annual meeting or at a special meeting (but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) may be made at such meeting only (i) by or at the direction of the Board, including by any committee or persons authorized to do so by the Board or these bylaws, or (ii) by a stockholder present in person (A) who was a record owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.5 and at the time of the meeting, (B) is entitled to vote at the meeting, and (C) has complied with this Section 2.5 and Section 2.6 as to such notice and nomination. The foregoing clause (ii) shall be the exclusive means for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting or special meeting.
(b)    (i) Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting, the stockholder must (1) provide Timely Notice (as defined in Section 2.4) thereof in writing and in proper form to the Secretary of the Corporation, (2) provide the information, agreements and questionnaires with respect to such stockholder and its candidate for nomination as required to be set forth by this Section 2.5 and Section 2.6 and (3) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5 and Section 2.6.
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(ii) Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling a special meeting, then for a stockholder to make any nomination of a person or persons for election to the Board at a special meeting, the stockholder must (i) provide timely notice thereof in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, (ii) provide the information with respect to such stockholder and its candidate for nomination as required by this Section 2.5 and Section 2.6 and (iii) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the one hundred twentieth (120th) day prior to such special meeting and not later than the ninetieth (90th) day prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (as defined in Section 2.4) of the date of such special meeting was first made.
(iii) In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(iv) In no event may a Nominating Person provide Timely Notice with respect to a greater number of director candidates than are subject to election by stockholders at the applicable meeting. If the Corporation shall, subsequent to such notice, increase the number of directors subject to election at the meeting, such notice as to any additional nominees shall be due on the later of (A)(1) the conclusion of the time period for Timely Notice for an annual meeting or (2) the date set forth in Section 2.5(b)(ii) for a special meeting, and (B) the tenth day following the date of public disclosure (as defined in Section 2.4) of such increase.
(c)    To be in proper form for purposes of this Section 2.5, a stockholder’s notice to the Secretary of the Corporation shall set forth:
(i)    As to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(c)(i), except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(i));
(ii)    As to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(c)(ii), except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(c)(ii) and the disclosure with respect to the business to be brought before the meeting in Section 2.4(c)(ii) shall be made with respect to the nomination of persons for election to the Board at the meeting); and
(iii)    As to each candidate whom a Nominating Person proposes to nominate for election as a director, (A) all information with respect to such candidate for nomination that would be required to be set forth in a stockholder’s notice pursuant to this Section 2.5 and Section 2.6 if such candidate for nomination were a Nominating Person, (B) all information relating to such candidate for nomination that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including such candidate’s written consent to being named in the Corporation’s proxy statement and associated proxy card as a nominee and to serving as a director if elected), (C) a description of any direct or indirect material interest in any material contract or agreement between or among any Nominating Person, on the one hand, and each candidate for nomination or his or her respective associates or any other participants in such solicitation, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the candidate for nomination were a director or executive officer of such registrant (the disclosures to be made pursuant to the foregoing clauses (A) through (C) are referred to as “Nominee Information”), and (D) a completed and signed questionnaire, representation and agreement as provided in Section 2.6(a).
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(d)    For purposes of this Section 2.5, the term “Nominating Person” shall mean (i) the stockholder providing the notice of the nomination proposed to be made at the meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meeting is made, and (iii) any other participant in such solicitation.
(e)     A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.5 shall be true and correct as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof). For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any nomination or to submit any new nomination.
(f)    In addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Nominating Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.
2.6    Additional Requirements for Valid Nomination of Candidates to Serve as Director and, if Elected, to be Seated as Directors.
(a)    To be eligible to be a candidate for election as a director of the Corporation at an annual or special meeting, a candidate must be nominated in the manner prescribed in Section 2.5 and the candidate for nomination, whether nominated by the Board or by a stockholder of record, must have previously delivered (with respect to nominations by stockholders pursuant to Section 2.5, within the time period for delivery of the stockholder’s notice pursuant to Section 2.5), to the Secretary of the Corporation at the principal executive offices of the Corporation, (i) a completed written questionnaire (in a form provided by the Corporation upon request) with respect to the background, qualifications, stock ownership and independence of such proposed nominee and (ii) a written representation and agreement (in form provided by the Corporation upon request) that such candidate for nomination (A) is not and, if elected as a director during his or her term of office, will not become a party to (1) any agreement, arrangement or understanding with, and has not given and will not give any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question that has not been disclosed to the Corporation (a “Voting Commitment”) or (2) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (B) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation or reimbursement for service as a director that has not been disclosed therein or otherwise to the Corporation, (C) if elected as a director of the Corporation, will comply with all applicable corporate governance, conflict of interest, confidentiality, stock ownership and trading and other policies, procedures and guidelines of the Corporation applicable to directors and in effect during such person’s term in office as a director (and, if requested by any candidate for nomination, the Secretary of the Corporation shall provide to such candidate for nomination all such policies, procedures and guidelines then in effect), (D) if elected as director of the Corporation, intends to serve the entire term until the next meeting at which such candidate would face re-election and (E) consents to being named as a nominee in the Corporation’s proxy statement pursuant to Rule 14a-4(d) under the Exchange Act and any associated proxy card of the Corporation and agrees to serve if elected as a director.
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(b)    The Board may also require any proposed candidate for nomination as a director to furnish such other information as may reasonably be requested by the Board in writing prior to the meeting of stockholders at which such candidate’s nomination is to be acted upon in order for the Board to determine the eligibility of such candidate for nomination to be an independent director of the Corporation, including, without limitation, eligibility in accordance with the Corporation’s Nominating and Corporate Governance Guidelines.
(c)    A candidate for nomination as a director shall further update and supplement the materials delivered pursuant to this Section 2.6, if necessary, so that the information provided or required to be provided pursuant to this Section 2.6 shall be true and correct as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary of the Corporation at the principal executive offices of the Corporation (or any other office specified by the Corporation in any public announcement) not later than five (5) business days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof). For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any proposal or to submit any new proposal, including by changing or adding nominees, matters, business or resolutions proposed to be brought before a meeting of the stockholders.
(d)    No candidate shall be eligible for nomination as a director of the Corporation unless such candidate for nomination and the Nominating Person seeking to place such candidate’s name in nomination has complied with Section 2.5 and this Section 2.6, as applicable. The presiding officer at the meeting shall, if the facts warrant, determine that a nomination was not properly made in accordance with Section 2.5 and this Section 2.6, and if he or she should so determine, he or she shall so declare such determination to the meeting, the defective nomination shall be disregarded and any ballots cast for the candidate in question (but in the case of any form of ballot listing other qualified nominees, only the ballots cast for the nominee in question) shall be void and of no force or effect.
(e)    Notwithstanding anything in these bylaws to the contrary, no candidate for nomination shall be eligible to be seated as a director of the Corporation unless nominated in accordance with Section 2.5 and this Section 2.6.
2.7    Notice of Stockholders’ Meetings.
Unless otherwise provided by law, the Certificate of Incorporation or these bylaws, the notice of any meeting of stockholders shall be sent or otherwise given in accordance with Section 8.1 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date and time of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.8    Quorum. 
Unless otherwise provided by law, the Certificate of Incorporation or these bylaws, the holders of a majority in voting power of the stock issued and outstanding and entitled to vote at the meeting, present in person if applicable, or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. A quorum, once established at a meeting, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, a quorum is not present or represented at any meeting of the stockholders, then either (i) the person presiding over the meeting or
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(ii) a majority in voting power of the stockholders entitled to vote thereon, present in person, or by remote communication, if applicable, or represented by proxy, shall have power to adjourn the meeting from time to time in the manner provided in Section 2.9 of these bylaws until a quorum is present or represented. At any adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.9    Adjourned Meeting; Notice. 
When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At any adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such meeting as of the record date so fixed for notice of such adjourned meeting.
2.10    Conduct of Business. 
The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures (which need not be in writing) and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the person presiding over the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present (including, without limitation, rules and procedures for removal of disruptive persons from the meeting); (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the person presiding over the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting (including, without limitation, determinations with respect to the administration and/or interpretation of any of the rules, regulations or procedures of the meeting, whether adopted by the Board or prescribed by the person presiding over the meeting), shall, if the facts warrant, determine and declare to the meeting that a matter of business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
2.11    Voting. 
Except as may be otherwise provided in the Certificate of Incorporation or the DGCL, each stockholder shall be entitled to one (1) vote for each share of capital stock held by such stockholder.
Except as otherwise provided by the Certificate of Incorporation, at all duly called or convened meetings of stockholders at which a quorum is present, for the election of directors, a plurality of the votes cast shall be sufficient to elect a director. Except as otherwise provided by the Certificate of
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Incorporation, these bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, each other matter presented to the stockholders at a duly called or convened meeting at which a quorum is present shall be decided by the affirmative vote of the holders of a majority of the votes cast (excluding abstentions and broker non-votes) on such matter.
2.12    Record Date for Stockholder Meetings and Other Purposes. 
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) days nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting; and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of capital stock, or for the purposes of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
Unless otherwise restricted by the Certificate of Incorporation, in order that the Corporation may determine the stockholders entitled to consent to corporate action without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date for determining stockholders entitled to consent to corporate action in writing without a meeting is fixed by the Board, (i) when no prior action of the Board is required by law or the Certificate of Incorporation, the record date for such purpose shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law and (ii) if prior action by the Board is required by law or the Certificate of Incorporation, the record date for such purpose shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.
2.13    Proxies. 
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A proxy may be in the form of an electronic transmission which sets forth or is submitted with information from which it can be determined that the transmission was authorized by the stockholder.
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2.14    List of Stockholders Entitled to Vote. 
The Corporation shall prepare, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided, however, that if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the Corporation’s principal executive office. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 2.14 or to vote in person or by proxy at any meeting of stockholders.
2.15    Inspectors of Election.
Before any meeting of stockholders, the Corporation shall appoint an inspector or inspectors of election to act at the meeting or its adjournment and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If any person appointed as inspector or any alternate fails to appear or fails or refuses to act, then the person presiding over the meeting shall appoint a person to fill that vacancy.
Such inspectors shall:
(i)    determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting and the validity of any proxies and ballots;
(ii)    count all votes or ballots;
(iii)    count and tabulate all votes;
(iv)    determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspector(s); and
(v)    certify its or their determination of the number of shares represented at the meeting and its or their count of all votes and ballots.
Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspection with strict impartiality and according to the best of such inspector’s ability. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. The inspectors of election may appoint such persons to assist them in performing their duties as they determine.
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2.16    Delivery to the Corporation.
Whenever Sections 2.4, 2.5 and 2.6 of this Article II requires one or more persons (including a record or beneficial owner of stock) to deliver a document or information to the Corporation or any officer, employee or agent thereof (including any notice, request, questionnaire, revocation, representation or other document or agreement), such document or information shall be in writing exclusively (and not in an electronic transmission) and shall be delivered exclusively by hand (including, without limitation, overnight courier service) or by certified or registered mail, return receipt requested, and the Corporation shall not be required to accept delivery of any document not in such written form or so delivered. For the avoidance of doubt, the Corporation expressly opts out of Section 116 of the DGCL with respect to the delivery of information and documents to the Corporation required by this Article II.
Article III - Directors
3.1    Powers. 
Except as otherwise provided by the Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the Board.
3.2    Number; Term; Qualifications. 
The total number of directors constituting the Board shall be determined from time to time as provided in the Certificate of Incorporation. The Board shall be classified in the manner provided in the Certificate of Incorporation. Each director shall hold office until such time as provided in the Certificate of Incorporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires. Directors need not be stockholders to be qualified for election or service as a director of the Corporation. The Certificate of Incorporation or these bylaws may prescribe qualifications for directors.
3.3    Resignation; Removal; Vacancies. 
Any director may resign at any time upon written or electronic transmission to the Secretary of the Corporation. Such resignation shall be effective upon delivery unless otherwise specified. Directors of the Corporation may be removed only as expressly provided in the Certificate of Incorporation. Newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board resulting from the death, resignation, disqualification, removal from office or other cause shall be filled as set forth in the Certificate of Incorporation.
3.4    Place of Meetings; Meetings by Telephone.
The Board may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this Section 3.4 shall constitute presence in person at the meeting.
3.5    Regular Meetings. 
Regular meetings of the Board may be held within or outside the State of Delaware and at such time and at such place as which has been designated by the Board and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other means of electronic transmission. No further notice shall be required for regular meetings of the Board.
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3.6    Special Meetings; Notice. 
Special meetings of the Board for any purpose or purposes may be called at any time by the Chair of the Board, if any, the Chief Executive Officer, or a majority of the total number of directors constituting the Board.
Notice of the time and place of special meetings shall be:
(i)    delivered personally by hand, by courier or by telephone;
(ii)    sent by United States first-class mail, postage prepaid;
(iii)    sent by facsimile or electronic mail; or
(iv)    sent by other means of electronic transmission,
directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, or other address for electronic transmission, as the case may be, as shown on the Corporation’s records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or electronic mail, or (iii) sent by other means of electronic transmission, it shall be delivered or sent at least twenty-four (24) hours before the time of the holding of the meeting. If the notice is sent by U.S. mail, it shall be deposited in the U.S. mail at least four (4) days before the time of the holding of the meeting. The notice need not specify the place of the meeting (if the meeting is to be held at the Corporation’s principal executive office) nor the purpose of the meeting.
3.7    Quorum. 
At all meetings of the Board, unless otherwise provided by the Certificate of Incorporation, a majority of the total number of directors shall constitute a quorum for the transaction of business; provided that, solely for the purposes of filling vacancies pursuant to Section 3.3 of these bylaws, a meeting of the Board may be held if a majority of the directors then in office participate in such meeting. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the Certificate of Incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
3.8    Board Action without a Meeting. 
Unless otherwise restricted by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission. After an action is taken, the consent or consents relating thereto shall be filed with the minutes of the proceedings of the Board, or the committee thereof, in the same paper or electronic form as the minutes are maintained. Such action by written consent or consent by electronic transmission shall have the same force and effect as a unanimous vote of the Board.
3.9    Fees and Compensation of Directors. 
Unless otherwise restricted by the Certificate of Incorporation or these bylaws, the Board shall have the authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity. Any director of the Corporation may decline any or all such compensation payable to such director in his or her discretion.
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Article IV - Committees
4.1    Committees of Directors. 
The Board may designate one (1) or more committees, each committee to consist, of one (1) or more of the directors of the Corporation. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent permitted by applicable law or provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval (other than the election or removal of directors), or (ii) adopt, amend or repeal any bylaw of the Corporation.
4.2    Committee Minutes. 
Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
4.3    Meetings and Actions of Committees. 
Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:
(i)    Section 3.4 (place of meetings; meetings by telephone);
(ii)    Section 3.5 (regular meetings);
(iii)    Section 3.6 (special meetings; notice);
(iv)    Section 3.8 (board action without a meeting); and
(v)    Section 7.13 (waiver of notice),
with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However:
(i)    the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(ii)    special meetings of committees may also be called by resolution of the Board or the chair of the applicable committee; and
(iii)    the Board may adopt rules for the governance of any committee to override the provisions that would otherwise apply to the committee pursuant to this Section 4.3, provided that such rules do not violate the provisions of the Certificate of Incorporation or applicable law.
4.4    Subcommittees.
Unless otherwise provided in the Certificate of Incorporation, these bylaws or the resolutions of the Board designating the committee, a committee may create one (1) or more subcommittees, each
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subcommittee to consist of one (1) or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
Article V - Officers
5.1    Officers. 
The officers of the Corporation shall include a Chief Executive Officer, a Chief Financial Officer and a Secretary. The Corporation may also have, at the discretion of the Board, a Chair of the Board, a Vice Chair of the Board, a Treasurer, one (1) or more Vice Presidents, one (1) or more Senior Vice Presidents, one (1) or more Assistant Treasurers, one (1) or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person. No officer need be a stockholder or director of the Corporation.
5.2    Appointment of Officers. 
The Board shall appoint the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws.
5.3    Subordinate Officers. 
The Board may appoint, or empower the Chief Executive Officer or, in the absence of any such Chief Executive Officer, the Chief Financial Officer, to appoint, such other officers and agents as the business of the Corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.
5.4    Removal and Resignation of Officers. 
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board may fill the pending vacancy before the effective date if the Board provides that the successor shall not take office until the effective date. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.5    Vacancies in Offices. 
Any vacancy occurring in any office of the Corporation shall be filled by the Board or as provided in Section 5.2.
5.6    Representation of Shares of Other Corporations and Other Entities. 
The Chair of the Board, if any, the Chief Executive Officer or the Chief Financial Officer, or any other person authorized by the Board, the Chief Executive Officer or the Chief Financial Officer, is authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares or voting securities of any other corporation or other entity standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
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5.7    Authority and Duties of Officers. 
All officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be provided herein or designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the oversight of the Board.
5.8    Compensation.
The compensation of the officers of the Corporation for their services as such shall be fixed from time to time by or at the direction of the Board. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he or she is also a director of the Corporation.
Article VI - Records
A stock ledger consisting of one or more records in which the names of all of the Corporation’s stockholders of record, the address and number of shares registered in the name of each such stockholder, and all issuances and transfers of stock of the Corporation are recorded in accordance with Section 224 of the DGCL shall be administered by or on behalf of the Corporation. Any records administered by or on behalf of the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device, or method, or one or more electronic networks or databases (including one or more distributed electronic networks or databases), provided that the records so kept can be converted into clearly legible paper form within a reasonable time and, with respect to the stock ledger, that the records so kept (i) can be used to prepare the list of stockholders specified in Sections 219 and 220 of the DGCL, (ii) record the information specified in Sections 156, 159, 217(a) and 218 of the DGCL, and (iii) record transfers of stock as governed by Article 8 of the Uniform Commercial Code as adopted in the State of Delaware.
Article VII - General Matters
7.1    Execution of Corporate Contracts and Instruments. 
The Board, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances.
7.2    Stock Certificates. 
The shares of the Corporation shall be represented by certificates, provided that the Board by resolution may provide that some or all of the shares of any class or series of stock of the Corporation shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by a certificate shall be entitled to have a certificate signed by, or in the name of the Corporation by, any two officers authorized to sign stock certificates representing the number of shares registered in certificate form. Each officer of the Corporation is authorized to executed stock certificates on behalf of the Corporation and such stock certificates shall be signed by any two authorized officers. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
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7.3    Special Designation of Certificates.
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or on the back of the certificate that the Corporation shall issue to represent such class or series of stock (or, in the case of uncertificated shares, set forth in a notice provided pursuant to Section 151 of the DGCL); provided, however, that except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face of back of the certificate that the Corporation shall issue to represent such class or series of stock (or, in the case of any uncertificated shares, included in the aforementioned notice) a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
7.4    Lost Certificates. 
Except as provided in this Section 7.4, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
7.5    Shares Without Certificates
The Corporation may adopt a system of issuance, recordation and transfer of its shares of stock by electronic or other means not involving the issuance of certificates, provided the use of such system by the Corporation is permitted in accordance with applicable law.
7.6    Construction; Definitions. 
Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural and the plural number includes the singular.
7.7    Dividends. 
The Board, subject to any restrictions contained in either (i) the DGCL or (ii) the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock.
The Board may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
7.8    Fiscal Year. 
The fiscal year of the Corporation shall be fixed by resolution of the Board and may be changed by the Board.
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7.9    Seal. 
The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The Corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
7.10    Transfer of Stock. 
Shares of the Corporation shall be transferable in the manner prescribed by law, the Certificate of Incorporation and these bylaws. Shares of stock of the Corporation shall be transferred on the books of the Corporation only by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates representing such shares endorsed by the appropriate person or persons (or by delivery of duly executed instructions with respect to uncertificated shares), with such evidence of the authenticity of such endorsement or execution, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing the names of the persons from and to whom it was transferred.
7.11    Stock Transfer Agreements. 
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes or series of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
7.12    Registered Stockholders. 
Except as otherwise provided by the laws of the State of Delaware, the Corporation:
(i)     shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner; and
(ii)    shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof.
7.13    Waiver of Notice. 
Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these bylaws.
Article VIII - Notice
8.1    Delivery of Notice; Notice by Electronic Transmission. 
Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provisions of the DGCL, the Certificate of Incorporation, or these bylaws may be given in writing directed to the stockholder’s mailing address (or by electronic transmission directed to the stockholder’s electronic mail address, as applicable) as it
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appears on the records of the Corporation and shall be given (1) if mailed, when the notice is deposited in the U.S. mail, postage prepaid, (2) if delivered by courier service, the earlier of when the notice is received or left at such stockholder’s address or (3) if given by electronic mail, when directed to such stockholder’s electronic mail address unless the stockholder has notified the Corporation in writing or by electronic transmission of an objection to receiving notice by electronic mail. A notice by electronic mail must include a prominent legend that the communication is an important notice regarding the Corporation.
Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice or electronic transmission to the Corporation. Notwithstanding the provisions of this paragraph, the Corporation may give a notice by electronic mail in accordance with the first paragraph of this section without obtaining the consent required by this paragraph.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i)    if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii)    if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iii)    if by any other form of electronic transmission, when directed to the stockholder.
Notwithstanding the foregoing, a notice may not be given by an electronic transmission from and after the time that (1) the Corporation is unable to deliver by such electronic transmission two (2) consecutive notices given by the Corporation and (2) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice, provided, however, the inadvertent failure to discover such inability shall not invalidate any meeting or other action.
An affidavit of the Secretary or an Assistant Secretary of the Corporation or of the transfer agent or other agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
Article IX - Indemnification
9.1    Indemnification of Directors and Officers.
The Corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the Corporation (a “covered person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a limited liability company, partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees, judgments, fines ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred by such person in connection with any such Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in Section 9.4, the Corporation shall be required to indemnify a person in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized in the specific case by the Board.
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9.2    Indemnification of Others.
The Corporation shall have the power to indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the Corporation who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a limited liability company, partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.
9.3    Prepayment of Expenses.
The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by any covered person, and may pay the expenses incurred by any employee or agent of the Corporation, in defending any Proceeding in advance of its final disposition; provided, however, that such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article IX or otherwise.
9.4    Determination; Claim.
If a claim for indemnification (following the final disposition of such Proceeding) under this Article IX is not paid in full within sixty (60) days, or a claim for advancement of expenses under this Article IX is not paid in full within thirty (30) days, after a written claim therefor has been received by the Corporation the claimant may thereafter (but not before) file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.
9.5    Non-Exclusivity of Rights.
The rights conferred on any person by this Article IX shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
9.6    Insurance.
The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust enterprise or non-profit entity against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.
9.7    Other Indemnification.
The Corporation’s obligation, if any, to indemnify or advance expenses to any person who was or is serving at its request as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification or advancement of expenses from such other corporation, limited liability company, partnership, joint venture, trust, enterprise or non-profit entity.
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9.8    Continuation of Indemnification.
The rights to indemnification and to prepayment of expenses provided by, or granted pursuant to, this Article IX shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such person.
9.9    Amendment or Repeal; Interpretation.
The provisions of this Article IX shall constitute a contract between the Corporation, on the one hand, and, on the other hand, each individual who serves or has served as a director or officer of the Corporation (whether before or after the adoption of these bylaws), in consideration of such person’s performance of such services, and pursuant to this Article IX the Corporation intends to be legally bound to each such current or former director or officer of the Corporation. With respect to current and former directors and officers of the Corporation, the rights conferred under this Article IX are present contractual rights and such rights are fully vested, and shall be deemed to have vested fully, immediately upon adoption of theses bylaws. With respect to any directors or officers of the Corporation who commence service following adoption of these bylaws, the rights conferred under this provision shall be present contractual rights and such rights shall fully vest, and be deemed to have vested fully, immediately upon such director or officer commencing service as a director or officer of the Corporation. Any repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection (i) hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification or (ii) under any agreement providing for indemnification or advancement of expenses to an officer or director of the Corporation in effect prior to the time of such repeal or modification.
Any reference to an officer of the Corporation in this Article IX shall be deemed to refer exclusively to the Chief Executive Officer, Chief Financial Officer, and Secretary, or other officer of the Corporation appointed by (x) the Board pursuant to Article V of these bylaws or (y) an officer to whom the Board has delegated the power to appoint officers pursuant to Article V of these bylaws, and any reference to an officer of any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise shall be deemed to refer exclusively to an officer appointed by the Board (or equivalent governing body) of such other entity pursuant to the certificate of incorporation and bylaws (or equivalent organizational documents) of such other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise. The fact that any person who is or was an employee of the Corporation or an employee of any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise has been given or has used the title of “Vice President” or any other title that could be construed to suggest or imply that such person is or may be an officer of the Corporation or of such other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (other than a title referenced in the first sentence of this paragraph) shall not result in such person being constituted as, or being deemed to be, an officer of the Corporation or of such other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise for purposes of this Article IX.
Article X - Amendments
The Board is expressly empowered to adopt, amend or repeal the bylaws. The stockholders also shall have power to adopt, amend or repeal the bylaws as provided in the Certificate of Incorporation.
Article XI - Definitions
As used in these bylaws, unless the context otherwise requires, the following terms shall have the following meanings:
An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates a record
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that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
An “electronic mail” means an electronic transmission directed to a unique electronic mail address (which electronic mail shall be deemed to include any files attached thereto and any information hyperlinked to a website if such electronic mail includes the contact information of an officer or agent of the Corporation who is available to assist with accessing such files and information).
An “electronic mail address” means a destination, commonly expressed as a string of characters, consisting of a unique user name or mailbox (commonly referred to as the “local part” of the address) and a reference to an internet domain (commonly referred to as the “domain part” of the address), whether or not displayed, to which electronic mail can be sent or delivered.
The term “person” means any individual, general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature, and shall include any successor (by merger or otherwise) of such entity.
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Justworks, Inc.
Certificate of Amendment and Restatement of Bylaws
The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of Justworks, Inc., a Delaware corporation (the “Corporation”), and that the foregoing bylaws were adopted by the Board of Directors of the Corporation on ___________, 2021 to be effective as of ___________, 2022.
Mario Springer
General Counsel and Secretary

Document
Exhibit 4.1
justworks-certspecimen001.jpg

C O U N TER SIG N ED AN D R EG ISTER ED : A M ER IC A N STO C K TR A N SFER & TR U ST C O M PA N Y, LLC BR O O KLYN , N Y TR AN SFER AG EN T AN D R EG ISTR AR BY: AU TH O R IZED SIG N ATU R E DateD: NUMBER transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the certificate of incorporation and bylaws of the Corporation, as amended and restated to date (copies of which are on file with the Corporation and with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE this Certifies that: is the registereD holDer of SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 482204 10 4 CLASS A COMMON STOCK SHARES CHIEF EXECUTIVE OFFICERSENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK, $0.0005 PAR VALUE PER SHARE, OF Justworks, Inc. SPECIMEN - NOT NEGOTIABLE SPECIMEN not negotiable



justworks-certspecimen002.jpg

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - ....................Custodian.................... TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants in common Act................... (State) Additional abbreviations may also be used though not in the above list. For Value Received, hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) Shares of the stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. COLUMBIA PRINTING SERVICES, LLC - www.stockinformation.com Signature(s) Guaranteed By The Signature(s) must be guaranteed by an eligible guarantor institution (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with membership in an approved Signature Guarantee Medallion Program), pursuant to SEC Rule 17Ad-15. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNA- TIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE BOARD TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ANY CLASS OR SERIES. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT NAMED ON THIS CERTIFICATE.

Document
Exhibit 5.1
1271 Avenue of the Americas
New York, New York 10020-1401
Tel: +1.212.906.1200 Fax: +1.212.751.4864
www.lw.com
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FIRM / AFFILIATE OFFICES
AustinMilan
BeijingMoscow
BostonMunich
BrusselsNew York
Century CityOrange County
January 4, 2022ChicagoParis
DubaiRiyadh
DüsseldorfSan Diego
FrankfurtSan Francisco
HamburgSeoul
Justworks, Inc. Hong KongShanghai
55 Water Street, 29th FloorHoustonSilicon Valley
New York, NY 10041LondonSingapore
Los AngelesTokyo
MadridWashington, D.C.
Re: Registration Statement No. 333-261676
Up to 8,050,000 shares of Class A common stock, par value $0.0005 per share
To the addressee set forth above:
We have acted as special counsel to Justworks, Inc., a Delaware corporation (the “Company”), in connection with the proposed issuance of up to 8,050,000 shares (the “Shares”) of the Company’s Class A common stock, par value $0.0005 per share. The Shares are included in a registration statement on Form S–1 under the Securities Act of 1933, as amended (the “Act”), initially filed with the Securities and Exchange Commission (the “Commission”) on December 16, 2021 (Registration No. 333-261676) (as amended, the “Registration Statement”). The term “Shares” shall include any additional shares of common stock registered by the Company pursuant to Rule 462(b) under the Act in connection with the offering contemplated by the Registration Statement. This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related prospectus (the “Prospectus”), other than as expressly stated herein with respect to the issue of the Shares.
As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter. With your consent, we have relied upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters. We are opining herein as to General Corporation Law of the State of Delaware, and we express no opinion with respect to any other laws.
Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, when the amended and restated certificate of incorporation of the Company in the form most recently filed as an exhibit to the Registration Statement has been duly filed with the Secretary of State of the State of Delaware and when the Shares shall have been duly registered on the books of the transfer agent and registrar therefor in the name or on behalf of the purchasers and have been issued by the Company against payment therefor (not less than par value) in the circumstances contemplated by the form of underwriting agreement most recently filed as an exhibit to the Registration Statement, the issue and sale of the Shares will have been

January 4, 2022
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duly authorized by all necessary corporate action of the Company, and the Shares will be validly issued, fully paid and nonassessable. In rendering the foregoing opinion, we have assumed that the Company will comply with all applicable notice requirements regarding uncertificated shares provided in the General Corporation Law of the State of Delaware.
This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading “Legal Matters.” We further consent to the incorporation by reference of this letter and consent into any registration statement filed pursuant to Rule 462(b) with respect to the Shares. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.
Sincerely,
/s/ Latham & Watkins LLP

Document
Exhibit 10.3
JUSTWORKS, INC.
2022 INCENTIVE AWARD PLAN
ARTICLE I.
PURPOSE
The Plan’s purpose is to enhance the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership opportunities. Capitalized terms used in the Plan are defined in Article XI..
ARTICLE II.
ELIGIBILITY
Service Providers are eligible to be granted Awards under the Plan, subject to the limitations described herein.
ARTICLE III.
ADMINISTRATION AND DELEGATION
3.1    Administration. The Plan is administered by the Administrator. The Administrator has authority to determine which Service Providers receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan. The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or appropriate to administer the Plan and any Awards. The Administrator’s determinations under the Plan are in its sole discretion and will be final and binding on all persons having or claiming any interest in the Plan or any Award.
3.2    Appointment of Committees. To the extent Applicable Laws permit, the Board may delegate any or all of its powers under the Plan to one or more Committees. The Board may abolish any Committee or re-vest in itself any previously delegated authority at any time.
ARTICLE IV.
STOCK AVAILABLE FOR AWARDS
4.1    Number of Shares. Subject to adjustment under Article VIII and the terms of this Article IV, Awards may be made under the Plan covering up to the Overall Share Limit. Shares issued under the Plan may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares.
4.2    Share Recycling. If all or any part of an Award expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring Shares at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for such Shares or not issuing any Shares covered by the Award, the unused Shares covered by the Award will, as applicable, become or again be available for Award grants under the Plan. Further, Shares delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the applicable exercise or purchase price of an Award and/or to satisfy any applicable tax withholding obligation (including Shares retained by the Company from the Award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or again be available for Award grants under the Plan. The payment of Dividend


Equivalents in cash in conjunction with any outstanding Awards shall not count against the Overall Share Limit.
4.3    Incentive Stock Option Limitations. Notwithstanding anything to the contrary herein, no more than 8,517,981 Shares may be issued pursuant to the exercise of Incentive Stock Options.
4.4    Substitute Awards. In connection with an entity’s merger or consolidation with the Company or the Company’s acquisition of an entity’s property or stock, the Administrator may grant Substitute Awards in respect of any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate in accordance with Applicable Laws. Substitute Awards may be granted on such terms as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards will not count against the Overall Share Limit (nor shall Shares subject to a Substitute Award be added back to the Shares available for Awards under the Plan as provided in Section 4.2 above), except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not count against the Overall Share Limit (and Shares subject to such Awards shall not be added to the Shares available for Awards under the Plan as provided above in Section 4.2); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Directors prior to such acquisition or combination.
4.5    Non-Employee Director Compensation. Notwithstanding any provision to the contrary in the Plan, the Administrator may establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan. The Administrator will from time to time determine the terms, conditions and amounts of all such non-employee Director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that the sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of Awards granted to a non-employee Director as compensation for services as a non-employee Director during any fiscal year of the Company may not exceed $750,000, increased to $1,000,000 for a non-employee Director’s initial fiscal year of service as a non-employee Director. The Administrator may make exceptions to these limits for individual non-employee Directors in extraordinary circumstances, as the Administrator may determine in its discretion, provided that the non-employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving non-employee Directors.
ARTICLE V.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
5.1    General. The Administrator may grant Options or Stock Appreciation Rights to Service Providers subject to the limitations in the Plan, including any limitations in the Plan that apply to Incentive Stock Options. The Administrator will determine the number of Shares covered by each Option and Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the
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conditions and limitations applicable to the exercise of each Option and Stock Appreciation Right. A Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator may impose and payable in cash, Shares valued at such Fair Market Value or a combination of the two as the Administrator may determine or provide in the Award Agreement.
5.2    Exercise Price. The Administrator will establish each Option’s and Stock Appreciation Right’s exercise price and specify the exercise price in the Award Agreement. Unless otherwise determined by the Administrator, the exercise price will not be less than 100% of the Fair Market Value of a Share on the grant date of the Option or Stock Appreciation Right.
5.3    Duration. Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that, unless otherwise determined by the Administrator in accordance with Applicable Laws, the term of an Option or Stock Appreciation Right will not exceed ten years. Notwithstanding the foregoing, if the Participant, prior to the end of the term of an Option or Stock Appreciation Right, violates the non-competition, non-solicitation, confidentiality or other similar restrictive covenant provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company or any Subsidiary, the right of the Participant and the Participant’s transferees to exercise any Option or Stock Appreciation Right issued to the Participant shall terminate immediately upon such violation unless the Administrator otherwise determines.
5.4    Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock Appreciation Right, together with, as applicable, payment in full (i) as specified in Section 5.5 for the number of Shares for which the Award is exercised and (ii) as specified in Section 9.5 for any applicable taxes. Unless the Administrator otherwise determines, an Option or Stock Appreciation Right may not be exercised for a fraction of a Share.
5.5    Payment Upon Exercise. Subject to Section 10.8, any Company insider trading policy (including blackout periods) and Applicable Laws, the exercise price of an Option must be paid by:
(a)    cash, wire transfer of immediately available funds or by check payable to the order of the Company, provided that the Company may limit the use of one of the foregoing payment forms if one or more of the payment forms below is permitted;
(b)    if there is a public market for Shares at the time of exercise, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the Participant’s delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be required by the Administrator;
(c)    to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued at their Fair Market Value;
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(d)    to the extent permitted by the Administrator, surrendering Shares then issuable upon the Option’s exercise valued at their Fair Market Value on the exercise date;
(e)    to the extent permitted by the Administrator, delivery of any other property that the Administrator determines is good and valuable consideration; or
(f)    to the extent permitted by the Administrator, any combination of the above payment forms approved by the Administrator.
ARTICLE VI.
RESTRICTED STOCK; RESTRICTED STOCK UNITS
6.1    General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service Provider, subject to the Company’s right to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant (or to require forfeiture of such shares) if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable restriction period or periods that the Administrator establishes for such Award. In addition, the Administrator may grant to Service Providers Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement. The Administrator will determine and set forth in the Award Agreement the terms and conditions for each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.
6.2    Restricted Stock.
(a)    Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such Shares, unless the Administrator provides otherwise in the Award Agreement. In addition, unless the Administrator provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.
(b)    Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates issued in respect of shares of Restricted Stock, together with a stock power endorsed in blank.
(c)    Section 83(b) Election. If a Participant makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which such Participant would otherwise be taxable under Section 83(a) of the Code, such Participant shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service along with proof of the timely filing thereof.
6.3    Restricted Stock Units.
(a)    Settlement. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participant’s election, in a manner intended to comply with Section 409A.
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(b)    Stockholder Rights. A Participant will have no rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.
(c)    Dividend Equivalents. If the Administrator provides, a grant of Restricted Stock Units may provide a Participant with the right to receive Dividend Equivalents. Dividend Equivalents may be paid currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement.
ARTICLE VII.
OTHER STOCK OR CASH BASED AWARDS
7.1    Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance Criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator determines. Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash Based Award, including any purchase price, performance goal (which may be based on the Performance Criteria), transfer restrictions, and vesting conditions, which will be set forth in the applicable Award Agreement.
ARTICLE VIII.
ADJUSTMENTS FOR CHANGES IN COMMON STOCK
AND CERTAIN OTHER EVENTS
8.1    Equity Restructuring(a)    . In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article VIII, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include adjusting the number and type of securities subject to each outstanding Award and/or the Award’s exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided under this Section 8.1 will be nondiscretionary and final and binding on the affected Participant and the Company; provided that the Administrator will determine whether an adjustment is equitable.
8.2    Corporate Transactions. In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the
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following actions whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:
(a)    To provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to or less than zero, then the Award may be terminated without payment;
(b)    To provide that such Award shall vest and, to the extent applicable, be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;
(c)    To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;
(d)    To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV hereof on the maximum number and kind of shares which may be issued) and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards;
(e)    To replace such Award with other rights or property selected by the Administrator; and/or
(f)    To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.
8.3    Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering or other similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to sixty days before or after such transaction.
8.4    General. Except as expressly provided in the Plan or the Administrator’s action under the Plan, no Participant will have any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with respect to an Equity Restructuring under Section 8.1 above or the Administrator’s action under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award or the Award’s grant price or exercise price (if applicable). The existence of the Plan, any Award Agreements and the Awards granted hereunder will not affect or restrict in any way the Company’s right or power to
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make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger, consolidation dissolution or liquidation of the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible into or exchangeable for Shares. The Administrator may treat Participants and Awards (or portions thereof) differently under this Article VIII.
ARTICLE IX.
GENERAL PROVISIONS APPLICABLE TO AWARDS
9.1    Transferability. Except as the Administrator may determine or provide in an Award Agreement or otherwise for Awards other than Incentive Stock Options, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to the Administrator’s consent, pursuant to a domestic relations order, and, during the life of the Participant, will be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, will include references to a Participant’s authorized transferee that the Administrator specifically approves.
9.2    Documentation. Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the Administrator determines. Each Award may contain terms and conditions in addition to those set forth in the Plan.
9.3    Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.
9.4    Termination of Service; Change in Status. The Administrator will determine, in its sole discretion, the effect of all matters and questions relating to any Termination of Service, including, without limitation, whether a Termination of Service has occurred, whether a Termination of Service resulted from a discharge for Cause and all questions of whether a particular leave of absence constitutes a Termination of Service or whether any other change or purported change in a Participant’s Service Provider status affects an Award and the extent to which, and the period during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award, if applicable.
9.5    Withholding. Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by Applicable Law to be withheld in connection with such Participant’s Awards by the date of the event creating the tax liability. The Company may deduct an amount sufficient to satisfy such tax obligations based on the applicable statutory withholding rates (or such other rate as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due to a Participant. Subject to Section 10.8 and any Company insider trading policy (including blackout periods), Participants may satisfy such tax obligations (i) in cash, by wire transfer of immediately available funds, or by check made payable to the order of the Company, provided that the Company may limit the use of one of the foregoing payment forms if one or more of the payment forms below is permitted, (ii) to the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value, (iii) if there is a public market for Shares at the time the tax obligations are to be satisfied, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company
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cash or a check sufficient to satisfy the tax withholding; provided that such amount is paid to the Company at such time as may be required by the Administrator, or (iv) to the extent permitted by the Company, any combination of the foregoing payment forms approved by the Administrator. If any tax withholding obligation will be satisfied under clause (ii) of the immediately preceding sentence by the Company’s retention of Shares from the Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participant’s behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee, and each Participant’s acceptance of an Award under the Plan will constitute the Participant’s authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.
9.6    Amendment of Award; Repricing. The Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different type, changing the exercise or settlement date, and converting an Incentive Stock Option to a Non-Qualified Stock Option. The Participant’s consent to such action will be required unless (i) the action, taking into account any related action, does not materially and adversely affect the Participant’s rights under the Award, or (ii) the change is permitted under Article VIII or pursuant to Section 10.6. Notwithstanding the foregoing or anything in the Plan to the contrary, the Administrator may not, without the approval of the stockholders of the Company, (i) reduce the exercise price per share of outstanding Options or Stock Appreciation Rights (ii) cancel outstanding Options or Stock Appreciation Rights in exchange for Options or Stock Appreciation Rights with an exercise price per share that is less than the exercise price per share of the original Options or Stock Appreciation Rights, or (iii) cancel outstanding underwater Options or Stock Appreciation Rights in exchange for cash or other Awards.
9.7    Conditions on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Company’s satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable Laws. The Company’s inability to obtain authority from any regulatory body having jurisdiction, which the Administrator determines is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell such Shares as to which such requisite authority has not been obtained.
9.8    Acceleration. The Administrator may at any time provide that any Award will become immediately vested and fully or partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
9.9    Additional Terms of Incentive Stock Options. The Administrator may grant Incentive Stock Options only to employees of the Company, any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. If an Incentive Stock Option is granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value of a Share on the Option’s grant date, and the term of the Option will not exceed five years. All Incentive Stock Options will be subject to and construed consistently with Section 422 of the Code. By accepting an Incentive Stock Option, the Participant agrees if requested by the Company to give prompt notice to the Company of dispositions or other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within (i) two years from the grant date of
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the Option or (ii) one year after the transfer of such Shares to the Participant, specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such disposition or other transfer. Neither the Company nor the Administrator will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an “incentive stock option” under Section 422 of the Code. Any Incentive Stock Option or portion thereof that fails to qualify as an “incentive stock option” under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Non-Qualified Stock Option.
ARTICLE X.
MISCELLANEOUS
10.1    No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company or any Subsidiary or any of their respective affiliates. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement.
10.2    No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such Shares. Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with Applicable Laws.
10.3    Effective Date and Term of Plan. The Plan will become effective on the Effective Date and, unless earlier terminated by the Board, will remain in effect until the earlier of (i) the earliest date as of which all Awards granted under the Plan have been satisfied in full or terminated and no Shares approved for issuance under the Plan remain available to be granted under new Awards or (ii) the tenth anniversary of (A) the date the Plan was approved by the Board or (B) the date the Plan was approved by the Company’s stockholders, but Awards previously granted may extend beyond that date in accordance with the Plan. If the Plan is not approved by the Company’s stockholders, the Plan will not become effective and no Awards will be granted under the Plan.
10.4    Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time; provided that no amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such amendment in a manner disproportionate to other similarly-situated Awards without the affected Participant’s consent. No Awards may be granted under the Plan during any suspension period or after Plan termination. Awards outstanding at the time of any Plan suspension or termination will continue to be governed by the Plan and the Award Agreement, as in effect before such suspension or termination. The Company will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
10.5    Provisions for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign nationals or employed outside the United States or establish subplans or
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procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
10.6    Section 409A.
(a)    General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Award’s grant date. The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 10.6 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
(b)    Separation from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement of such Award upon a termination of a Participant’s Service Provider relationship will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A), whether such “separation from service” occurs upon or after the Termination of Service of a Participant. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment,” Termination of Service or like terms means a “separation from service.”
(c)    Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as defined under Section 409A and as the Administrator determines) due to his or her “separation from service” will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of “nonqualified deferred compensation” under such Award payable more than six months following the Participant’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.
10.7    Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator, director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating to the Plan’s administration or interpretation, against any cost or expense (including attorneys’ fees) or liability
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(including any sum paid in settlement of a claim with the Administrator’s approval) arising from any act or omission concerning this Plan unless arising from such person’s own fraud or bad faith.
10.8    Lock-Up Period. The Company may, at the request of any underwriter representative or otherwise, in connection with registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities during a period of up to one hundred eighty days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.
10.9    Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this section by and among the Company and any Subsidiary any of their respective affiliates exclusively for implementing, administering and managing the Participant’s participation in the Plan. The Company and the Subsidiaries and their respective affiliates may hold certain personal information about a Participant, including the Participant’s name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or any Subsidiary and any of their respective affiliates; and Award details, to implement, manage and administer the Plan and Awards (the “Data”). The Company and the Subsidiaries and their respective affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participant’s participation in the Plan, and the Company and the Subsidiaries and their respective affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than the recipients’ country. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participant’s participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participant’s participation in the Plan. A Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or withdraw the consents in this Section 10.9 in writing, without cost, by contacting the local human resources representative. The Company may cancel Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents in this Section 10.9. For more information on the consequences of refusing or withdrawing consent, Participants may contact their local human resources representative.
10.10    Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been excluded, and the illegal or invalid action will be null and void.
10.11    Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is expressly specified in such Award Agreement or other written agreement that a specific provision of the Plan will not apply.
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10.12    Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, disregarding any state’s choice-of-law principles requiring the application of a jurisdiction’s laws other than the State of Delaware.
10.13    Claw-back Provisions. All Awards (including any proceeds, gains or other economic benefit the Participant actually or constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award) will be subject to any Company claw-back policy as in effect from time to time, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder).
10.14    Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plan’s text, rather than such titles or headings, will control.
10.15    Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to conform to Applicable Laws.
10.16    Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as expressly provided in writing in such other plan or an agreement thereunder.
10.17    Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section 9.5: (a) any Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c) the applicable Participant will be responsible for all broker’s fees and other costs of sale, and by accepting an Award, each Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participant’s applicable obligation, the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participant’s obligation.
ARTICLE XI.
DEFINITIONS
As used in the Plan, the following words and phrases will have the following meanings:
11.1    “Administrator” means the Board or a Committee to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee.
11.2    “Applicable Laws” means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock
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is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are granted.
11.3    “Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Other Stock or Cash Based Awards.
11.4    “Award Agreement” means a written agreement evidencing an Award, which may be electronic, that contains such terms and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.
11.5    “Board” means the Board of Directors of the Company.
11.6    “Cause” means (i) if a Participant is a party to a written employment, severance or consulting agreement with the Company or any of its Subsidiaries or an Award Agreement (a “Relevant Agreement”) in which the term “cause” is defined, “cause” as defined in the Relevant Agreement, (ii) if no Relevant Agreement exists and a Participant is a participant in the Justworks, Inc. Executive Severance Policy, as may be amended from time to time, or any successor severance policy of the Company (the “Executive Severance Policy”), “Cause” as defined in Executive Severance Policy, and (iii) if no Relevant Agreement exists and a Participant is not a participant in the Executive Severance Policy, (A) a conviction of, a plea of nolo contendere or a guilty plea by a Participant (1) to an act of fraud, misappropriation or embezzlement, or (2) to a felony which is materially injurious to the Company; (B) an act of gross negligence or willful misconduct which the Administrator reasonably determines to be materially injurious to the Company; (C) a Participant’s material breach of any agreement between the Participant and the Company or failure to comply with the Company’s material policies or rules; (D) a Participant’s unauthorized use or disclosure of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company or (E) a Participant’s continuing failure to perform assigned duties after receiving written notification of the failure from the Administrator, (F) use of illegal drugs or improper use of alcohol or legal drugs by Participant that causes material harm to the Company, (G) repeated insolent or abusive conduct in the workplace, including but not limited to, harassment of others of a racial or sexual nature; (H) taking any action which is intended to harm or disparage the Company or any of its officers or directors, or their respective reputations, or which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company; or (I) engaging in any act of material self-dealing involving the Company without prior notice to and consent by the Board. The foregoing definition does not in any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time, and the term “Company” will be interpreted to include any Subsidiary, parent, affiliate, or any successor thereto, if appropriate.
11.7    “Change in Control” means and includes each of the following:
(a)    A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries (or any group which includes such persons), a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50 % of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
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(b)    The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i)    which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(ii)    after which no person or group (other than any group which includes any such persons) beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a) or (b) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
11.8    “Code” means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
11.9    “Committee” means one or more committees or subcommittees of the Board, which may include one or more Directors or executive officers of the Company, or one or more committees consisting of executive officers of the Company, in each case, to the extent Applicable Laws permit. To the extent required to comply with the provisions of Rule 16b-3, it is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule 16b-3, a “non-employee director” within the meaning of Rule 16b-3; however, a Committee member’s failure to qualify as a “non-employee director” within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
11.10    “Common Stock” means the Class A common stock, par value $0.0005 per share, of the Company.
11.11    “Company” means Justworks, Inc., a Delaware corporation, or any successor.
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11.12     “Consultant” means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render services to such entity if the consultant or adviser: (i) renders bona fide services to the Company; (ii) renders services not in connection with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) is a natural person.
11.13    “Designated Beneficiary” means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator determines, to receive amounts due or exercise the Participant’s rights if the Participant dies or becomes incapacitated. Without a Participant’s effective designation, “Designated Beneficiary” will mean the Participant’s estate.
11.14    “Director” means a Board member.
11.15    “Disability” means (i) if a Participant is a party to a Relevant Agreement in which the term “disability” is defined, “disability” as defined in the Relevant Agreement, and (ii) if no Relevant Agreement exists, “disability” within the meaning of Section 22(e)(3) of the Code.
11.16    “Dividend Equivalents” means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of dividends paid on Shares.
11.17    “Effective Date” means the day prior to the Public Trading Date.
11.18     “Employee” means any employee of the Company or any of its Subsidiaries.
11.19    “Equity Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other Company securities) or the share price of Common Stock (or other Company securities) and causes a change in the per share value of the Common Stock underlying outstanding Awards.
11.20    “Exchange Act” means the Securities Exchange Act of 1934, as amended.
11.21     “Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) in any case the Administrator may determine the Fair Market Value in its discretion to the extent such determination does not constitute a “material revision” to the Plan under applicable stock exchange or stock market rules and regulations (or otherwise require stockholder approval).
11.22    “Greater Than 10% Stockholder” means an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporation, as defined in Section 424(e) and (f) of the Code, respectively.
11.23    “Incentive Stock Option” means an Option intended to qualify as an “incentive stock option” as defined in Section 422 of the Code.
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11.24    “Non-Qualified Stock Option” means an Option not intended or not qualifying as an Incentive Stock Option.
11.25    “Option” means an option to purchase Shares.
11.26    “Other Stock or Cash Based Awards” means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property.
11.27    “Overall Share Limit” means the sum of (i) 8,517,981 Shares; and (ii) an annual increase on the first day of each calendar year beginning June 1, 2022 and ending on and including June 1, 2031, equal to the lesser of (A) 5% of the aggregate number of shares of Common Stock outstanding on the final day of the immediately preceding fiscal year and (B) such smaller number of Shares as is determined by the Board.
11.28     “Participant” means a Service Provider who has been granted an Award.
11.29    “Performance Criteria” mean the criteria (and adjustments) that the Administrator may select for an Award to establish performance goals for a performance period, which may include the following: net earnings or losses (either before or after one or more of interest, taxes, depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales or revenue or sales or revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash flow return on capital with respect corporate (excluding PEO customer cash)); corporate operating cash or corporate free cash flow (defined as cash provided by (used in) operating and investing activities, excluding the effects of: changes in co-employment assets and changes in restricted cash); corporate cash level defined as cash excluding co-employment assets and restricted cash; number or worksite lives on company platform; return on assets; return on capital or invested capital; cost of capital; return on stockholders’ equity; total stockholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory, commercial, or strategic milestones or developments; market share; economic value or economic value added models; division, group or corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel; human resources management; supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; business development goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; marketing initiatives; and other measures of performance selected by the Board or Committee whether or not listed herein, any of which may be measured in absolute terms, as compared to any incremental increase or decrease or qualitatively in the Board or Committee’s sole discretion. Such performance goals also may be based solely by reference to the Company’s performance or the performance of a Subsidiary, division, business segment or business unit of the Company or a Subsidiary, or based upon performance relative to performance of other companies or upon comparisons of any of the indicators of performance relative to performance of other companies. The Committee may provide for exclusion of the impact of an event or occurrence which the Committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges or events, (b) asset write-downs, (c) litigation or claim judgments or settlements,
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(d) acquisitions or divestitures, (e) reorganization or change in the corporate structure or capital structure of the Company, (f) an event either not directly related to the operations of the Company, a Subsidiary, division, business segment or business unit or not within the reasonable control of management, (g) foreign exchange gains and losses, (h) a change in the fiscal year of the Company, (i) the refinancing or repurchase of bank loans or debt securities, (j) unbudgeted capital expenditures, (k) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (l) conversion of some or all of convertible securities to Common Stock, (m) any business interruption event (n) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles, or (o) the effect of changes in other laws or regulatory rules affecting reported results.
11.30    “Plan” means this 2022 Incentive Award Plan, as may be amended from time to time.
11.31     “Public Trading Date” means the first date upon which the Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
11.32    “Restricted Stock” means Shares awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.
11.33    “Restricted Stock Unit” means an unfunded, unsecured right to receive, on the applicable settlement date, one or more Shares or an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain vesting conditions and other restrictions.
11.34    “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act.
11.35    “Section 409A” means Section 409A of the Code and all regulations, guidance, compliance programs and other interpretative authority thereunder.
11.36    “Securities Act” means the Securities Act of 1933, as amended.
11.37    “Service Provider” means an Employee, Consultant or Director.
11.38    “Shares” means shares of Common Stock.
11.39    “Stock Appreciation Right” means a stock appreciation right granted under Article V.
11.40    “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.
11.41    “Substitute Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
11.42    “Termination of Service” means the date the Participant ceases to be a Service Provider.
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Document
Exhibit 10.4
Justworks, Inc.
Non-Employee Director Compensation Policy
Non-employee members of the board of directors (the “Board”) of Justworks, Inc. (the “Company”) shall be eligible to receive cash and equity compensation as set forth in this Non-Employee Director Compensation Policy (this “Policy”). The cash and equity compensation described in this Policy shall be paid or be made, as applicable, automatically and without further action of the Board, to each member of the Board who is not an employee of the Company or any parent or subsidiary of the Company (each, a “Non-Employee Director”) who may be eligible to receive such cash or equity compensation, unless such Non-Employee Director declines the receipt of such cash or equity compensation by written notice to the Company. This Policy shall become effective after the effectiveness of the Company’s initial public offering (the “IPO”) and shall remain in effect until it is revised or rescinded by further action of the Board. This Policy may be amended, modified or terminated by the Board at any time in its sole discretion. The terms and conditions of this Policy shall supersede any prior cash and/or equity compensation arrangements for service as a member of the Board between the Company and any of its Non-Employee Directors and between any subsidiary of the Company and any of its non-employee directors.
1.    Cash Compensation.
(a)    Annual Retainers. Each Non-Employee Director shall receive an annual retainer of $32,000 for service on the Board.
(b)    Additional Annual Retainers. In addition, a Non-Employee Director shall receive the following annual retainers:
(i)    Chair of the Board. A Non-Employee Director serving as Chair of the Board shall receive an additional annual retainer of $25,000 for such service.
(ii)    Lead Independent Director. A Non-Employee Director serving as Lead Independent Director of the Board shall receive an additional annual retainer of $15,000 for such service.
(iii)    Audit Committee. A Non-Employee Director serving as Chair of the Audit Committee shall receive an additional annual retainer of $20,000 for such service. A Non-Employee Director serving as a member of the Audit Committee (other than the Chair) shall receive an additional annual retainer of $10,000 for such service.
(iv)    Compensation Committee. A Non-Employee Director serving as Chair of the Compensation Committee shall receive an additional annual retainer of $20,000 for such service. A Non-Employee Director serving as a member of the Compensation Committee (other than the Chair) shall receive an additional annual retainer of $10,000 for such service.
(v)    Nominating and Corporate Governance Committee. A Non-Employee Director serving as Chair of the Nominating and Corporate Governance Committee shall receive an additional annual retainer of $8,000 for such service. A Non-Employee Director serving as a member of the Nominating and Corporate Governance Committee (other than the Chair) shall receive an additional annual retainer of $4,000 for such service.
(c)    Payment of Retainers. The annual retainers described in Sections 1(a) and 1(b) shall be earned on a quarterly basis based on a calendar quarter and shall be paid by the Company in arrears not later than the fifteenth day following the end of each calendar quarter. In the event a Non-Employee Director does not serve as a Non-Employee Director, or in the


applicable positions described in Section 1(b), for an entire calendar quarter, such Non-Employee Director shall receive a prorated portion of the retainer(s) otherwise payable to such Non-Employee Director for such calendar quarter pursuant to Sections 1(a) and 1(b), with such prorated portion determined by multiplying such otherwise payable retainer(s) by a fraction, the numerator of which is the number of days during which the Non-Employee Director serves as a Non-Employee Director or in the applicable positions described in Section 1(b) during the applicable calendar quarter and the denominator of which is the number of days in the applicable calendar quarter.
2.    Equity Compensation. Non-Employee Directors shall be granted the equity awards described below. The awards described below shall be granted under and shall be subject to the terms and provisions of the Company’s 2022 Incentive Award Plan or any other applicable Company equity incentive plan then-maintained by the Company (such plan, as may be amended from time to time, the “Equity Plan”) and shall be granted subject to the execution and delivery of award agreements, including attached exhibits, in substantially the forms previously approved by the Board. All applicable terms of the Equity Plan apply to this Policy as if fully set forth herein, and all equity grants hereunder are subject in all respects to the terms of the Equity Plan.
(a)    IPO Awards. Each Non-Employee Director who (i) serves on the Board as of the date the IPO price of the shares of the Company’s common stock is established in connection with the Company’s IPO (the “Pricing Date”) and (ii) will continue to serve as a Non-Employee Director immediately following the Pricing Date shall be automatically granted, on the Pricing Date, an award of restricted stock units that have an aggregate fair value on the date of grant of the product of (i) $155,000 and (ii) a fraction, the numerator of which is the expected number of days from the Pricing Date to the Company’s first annual meeting of the Company’s stockholders (each such meeting, an “Annual Meeting”) (which is assumed to be November 15, 2022 for purposes of this calculation) and the denominator of which is 365 (as determined in accordance with FASB Accounting Codification Topic 718 (“ASC 718”) and subject to adjustment as provided in the Equity Plan).
(b)    Annual Awards. Each Non-Employee Director who (i) serves on the Board as of the date of any Annual Meeting after the Pricing Date, (ii) has served on the Board either (A) for a minimum of six (6) months as of the date of any Annual Meeting or (B) since the IPO, and (iii) will continue to serve as a Non-Employee Director immediately following such Annual Meeting shall be automatically granted, on the date of such Annual Meeting, an award of restricted stock units that have an aggregate fair value on the date of such Annual Meeting of $155,000 (as determined in accordance with ASC 718 and with the number of shares of common stock underlying such award subject to adjustment as provided in the Equity Plan). The awards described in this Section 2(a) shall be referred to as the “Annual Awards.” For the avoidance of doubt, a Non-Employee Director elected for the first time to the Board at an Annual Meeting shall receive only an Initial Award in connection with such election, and shall not receive any Annual Award on the date of such Annual Meeting as well.
(c)    Initial Awards. Except as otherwise determined by the Board, each Non-Employee Director who is initially elected or appointed to the Board after the Pricing Date shall be automatically granted, on the date of such Non-Employee Director’s initial election or appointment (such Non-Employee Director’s “Start Date”), an award of restricted stock units that have an aggregate fair value on such Non-Employee Director’s Start Date equal to $310,000 (as determined in accordance with ASC 718 and with the number of shares of common stock underlying each such award subject to adjustment as provided in the Equity Plan). The awards described in this Section 2(c) shall be referred to as “Initial Awards.” For the avoidance of doubt, no Non-Employee Director shall be granted more than one Initial Award. For the avoidance of doubt, a Non-Employee Director who receives an IPO Award shall not be entitled to receive an Initial Award.
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(d)    Termination of Employment of Employee Directors. Members of the Board who are employees of the Company or any parent or subsidiary of the Company who subsequently terminate their employment with the Company and any parent or subsidiary of the Company and remain on the Board will not receive an Initial Award pursuant to Section 2(c) above, but to the extent that they are otherwise eligible, will be eligible to receive, after termination from employment with the Company and any parent or subsidiary of the Company, Annual Awards as described in Section 2(a) above.
(e)    Vesting of Awards Granted to Non-Employee Directors.
(i)    Each IPO Award shall vest and become exercisable on the first Annual Meeting, subject to the Non-Employee Directors continuing in service on the Board through the applicable vesting date.
(ii)    Each Annual Award shall vest and become exercisable on the earlier of (i) the day immediately preceding the date of the first Annual Meeting following the date of grant and (ii) the first anniversary of the date of grant, in each case, subject to the Non-Employee Director continuing in service on the Board through the applicable vesting date.
(iii)    Each Initial Award shall vest and become exercisable ratably over three years on each of the first, second and third anniversaries of the date of grant, in each case, subject to the Non-Employee Director continuing in service on the Board through the applicable vesting date.
(iv)    No portion of an IPO Award, Annual Award or Initial Award that is unvested or unexercisable at the time of a Non-Employee Director’s termination of service on the Board shall become vested and exercisable thereafter. All of a Non-Employee Director’s IPO Awards, Annual Awards and Initial Awards shall vest in full immediately prior to the occurrence of a Change in Control (as defined in the Equity Plan), to the extent outstanding at such time.
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Document
Exhibit 10.5
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (“Agreement”) is made as of January __, 2022 by and between Justworks, Inc., a Delaware corporation (the “Company”), and ______________, a member of the Board of Directors or an officer of the Company (“Indemnitee”). This Agreement supersedes and replaces any and all previous Agreements between the Company and Indemnitee covering indemnification and advancement.
RECITALS
WHEREAS, the Board of Directors of the Company (the “Board”) believes that highly competent persons have become more reluctant to serve publicly-held corporations as directors, officers, or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification and advancement of expenses against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The bylaws and certificate of incorporation of the Company (each as may be amended from time to time, the “Bylaws” and “Certificate of Incorporation”, respectively) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”). The Bylaws, Certificate of Incorporation, and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification and advancement of expenses;
WHEREAS, the uncertainties relating to such insurance, to indemnification, and to advancement of expenses may increase the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by Applicable Law (as defined below) so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws, Certificate of Incorporation and any resolutions adopted pursuant thereto, and is not a substitute therefor, nor diminishes or abrogates any rights of Indemnitee thereunder; and


WHEREAS, Indemnitee does not regard the protection available under the Bylaws, Certificate of Incorporation, DGCL and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as an officer or director without adequate additional protection, and the Company desires Indemnitee to serve or continue to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that Indemnitee be so indemnified and be advanced expenses.
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1.Services to the Company. Indemnitee agrees to serve as a director or officer of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law). This Agreement does not create any obligation on the Company to continue Indemnitee in such position and is not an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.
Section 2.Definitions. As used in this Agreement:
(a)“Agent” means any person who is authorized by the Company or an Enterprise to act for or represent the interests of the Company or an Enterprise, respectively.
(b)“Applicable Law” means applicable law, including as it presently exists or may hereafter be amended, but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment.
(c)A “Change in Control” occurs upon the earliest to occur after the date of this Agreement of any of the following events:
i.Acquisition of Stock by Third Party. Any Person (as defined below) that becomes a Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities unless the change in relative beneficial ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors;
ii.Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(c)(i), 2(c)(iii) or 2(c)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;
iii.Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger
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or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;
iv.Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and
v.Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.
vi.For purposes of this Section 2(c), the following terms have the following meanings:
1“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
2“Person” has the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person excludes (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
3“Beneficial Owner” has the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner excludes any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
(d) “Corporate Status” describes the status of a person who is or was acting as a director, officer, employee, fiduciary, or Agent of the Company or an Enterprise.
(e)“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(f)“Enterprise” means any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other entity for which Indemnitee is or was serving at the request of the Company as a director, officer, employee, or Agent.
(g)“Expenses” includes all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the
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premium, security for, and other costs relating to any cost bond, supersedes bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 14(d) only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. Expenses, however, do not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(h)“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” does not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.
(i)The term “Proceeding” includes any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason of Indemnitee’s Corporate Status or by reason of any action taken by Indemnitee (or a failure to take action by Indemnitee) or of any action (or failure to act) on Indemnitee’s part while acting pursuant to Indemnitee’s Corporate Status, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement. A Proceeding also includes a situation the Indemnitee believes in good faith may lead to or culminate in the institution of a Proceeding.
(j)“Sponsor Entities” means entities advised by Bain Capital Ventures, LP and Thrive Capital Management LLC.
Section 3.Indemnity in Third-Party Proceedings. The Company will indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, the Company will indemnify Indemnitee to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that Indemnitee’s conduct was unlawful.
Section 4.Indemnity in Proceedings by or in the Right of the Company. The Company will indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, the Company will indemnify Indemnitee to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best
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interests of the Company. The Company will not indemnify Indemnitee for Expenses under this Section 4 related to any claim, issue or matter in a Proceeding for which Indemnitee has been finally adjudged by a court to be liable to the Company, unless, and only to the extent that, the Delaware Court of Chancery the (“Delaware Court”)or any court in which the Proceeding was brought determines upon application by Indemnitee that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.
Section 5.Indemnification for Expenses of a Party Who is Wholly or Partly Successful. To the fullest extent permitted by law, the Company will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee in connection with any Proceeding to the extent that Indemnitee is successful, on the merits or otherwise. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law. For purposes of this Section 5 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, will be deemed to be a successful result as to such claim, issue or matter.
Section 6.Indemnification For Expenses of a Witness. To the fullest extent permitted by applicable law, the Company will indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any Proceeding to which Indemnitee is not a party but to which Indemnitee is a witness, deponent, interviewee, or otherwise asked to participate.
Section 7.Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company will indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Section 8.Additional Indemnification. Notwithstanding any limitation in Sections 3, 4, or 5, the Company will indemnify Indemnitee to the fullest extent permitted by applicable law (including but not limited to, the DGCL and any amendments to or replacements of the DGCL adopted after the date of this Agreement that expand the Company’s ability to indemnify its officers and directors) if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor).
Section 9.Exclusions. Notwithstanding any provision in this Agreement, the Company is not obligated under this Agreement to make any indemnification payment to Indemnitee in connection with any Proceeding:
(a)for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except to the extent provided in Section 16(b) and except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or
(b)for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as defined in Section 2(c) hereof) or similar provisions of state statutory law or common law, (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act
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(including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act) or (iii) any reimbursement of the Company by Indemnitee of any compensation pursuant to any compensation recoupment or clawback policy adopted by the Board or the compensation committee of the Board, including but not limited to any such policy adopted to comply with stock exchange listing requirements implementing Section 10D of the Exchange Act; or
(c)initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Proceeding or part of any Proceeding is to enforce Indemnitee’s rights to indemnification or advancement, of Expenses, including a Proceeding (or any part of any Proceeding) initiated pursuant to Section 14 of this Agreement, (ii) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (iii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.
Section 10.Advances of Expenses.
(a)The Company will advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding) not initiated by Indemnitee or any Proceeding (or any part of any Proceeding) initiated by Indemnitee if (i) the Proceeding or part of any Proceeding is to enforce Indemnitee’s rights to obtain indemnification or advancement of Expenses from the Company or Enterprise, including a proceeding initiated pursuant to Section 14 or (ii) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation. The Company will advance the Expenses within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding.
(b)Advances will be unsecured and interest free. Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, thus Indemnitee qualifies for advances upon the execution of this Agreement and delivery to the Company. No other form of undertaking is required other than the execution of this Agreement. The Company will make advances without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement.
Section 11.Procedure for Notification of Claim for Indemnification or Advancement.
(a)Indemnitee will notify the Company in writing of any Proceeding with respect to which Indemnitee intends to seek indemnification or advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. Indemnitee will include in the written notification to the Company a description of the nature of the Proceeding and the facts underlying the Proceeding and provide such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such Proceeding. Indemnitee’s failure to notify the Company will not relieve the Company from any obligation it may have to Indemnitee under this Agreement, and any delay in so notifying the Company will not constitute a waiver by Indemnitee of any rights under this Agreement. The Secretary of the Company will, promptly
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upon receipt of such a request for indemnification or advancement, advise the Board in writing that Indemnitee has requested indemnification or advancement.
(b)The Company will be entitled to participate in the Proceeding at its own expense.
Section 12.Procedure Upon Application for Indemnification.
(a)Unless a Change in Control has occurred, the determination of Indemnitee’s entitlement to indemnification will be made:
i.by a majority vote of the Disinterested Directors, even though less than a quorum of the Board;
ii.by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board;
iii. if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by written opinion provided by Independent Counsel selected by the Board; or
iv.if so directed by the Board, by the stockholders of the Company.
(b)If a Change in Control has occurred, the determination of Indemnitee’s entitlement to indemnification will be made by written opinion provided by Independent Counsel selected by Indemnitee (unless Indemnitee requests such selection be made by the Board)
(c) The party selecting Independent Counsel pursuant to subsection (a)(iii) or (b) of this Section 12 will provide written notice of the selection to the other party. The notified party may, within ten (10) days after receiving written notice of the selection of Independent Counsel, deliver to the selecting party a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection will set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected will act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within thirty (30) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof and the final disposition of the Proceeding, Independent Counsel has not been selected or, if selected, any objection to has not been resolved, either the Company or Indemnitee may petition the Delaware Court for the appointment as Independent Counsel of a person selected by such court or by such other person as such court designates. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel will be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(d)Indemnitee will cooperate with the person, persons or entity making the determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. The Company will advance and pay any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making the indemnification determination irrespective of the
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determination as to Indemnitee’s entitlement to indemnification and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company promptly will advise Indemnitee in writing of the determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied and providing a copy of any written opinion provided to the Board by Independent Counsel.
(e)If it is determined that Indemnitee is entitled to indemnification, the Company will make payment to Indemnitee within thirty (30) days after such determination.
Section 13.Presumptions and Effect of Certain Proceedings.
(a)In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination will, to the fullest extent not prohibited by law, presume Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(a) of this Agreement, and the Company will, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, will be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b)If the determination of the Indemnitee’s entitlement to indemnification has not been made pursuant to Section 12 within sixty (60) days after the later of (i) receipt by the Company of Indemnitee’s request for indemnification pursuant to Section 11(a) and (ii) the final disposition of the Proceeding for which Indemnitee requested Indemnification (the “Determination Period”), the requisite determination of entitlement to indemnification will, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee will be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. The Determination Period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, the Determination Period may be extended an additional fifteen (15) days if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 12(a)(iv) of this Agreement.
(c)The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, will not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.
(d)For purposes of any determination of good faith, Indemnitee will be deemed to have acted in good faith if Indemnitee acted based on the records or books of account of the Company, its subsidiaries, or an Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Company, its subsidiaries,
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or an Enterprise in the course of their duties, or on the advice of legal counsel for the Company, its subsidiaries, or an Enterprise or on information or records given or reports made to the Company, its subsidiaries or an Enterprise by an independent certified public accountant or by an appraiser, financial advisor or other expert selected with reasonable care by or on behalf of the Company, its subsidiaries, or an Enterprise. Further, Indemnitee will be deemed to have acted in a manner “not opposed to the best interests of the Company,” as referred to in this Agreement if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan. The provisions of this Section 13(d) is not exclusive and does not limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.
(e)The knowledge and/or actions, or failure to act, of any director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise may not be imputed to Indemnitee for purposes of determining Indemnitee’s right to indemnification under this Agreement.
Section 14.Remedies of Indemnitee.
(a)Indemnitee may commence litigation against the Company in the Delaware Court of Chancery to obtain indemnification or advancement of Expenses provided by this Agreement in the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) the Company does not advance Expenses pursuant to Section 10 of this Agreement, (iii) the determination of entitlement to indemnification is not made pursuant to Section 12 of this Agreement within the Determination Period, (iv) the Company does not indemnify Indemnitee pursuant to Section 5 or 6 or the second to last sentence of Section 12(d) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor, (v) the Company does not indemnify Indemnitee pursuant to Section 3, 4, 7, or 8 of this Agreement within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder. Alternatively, Indemnitee or the Company, at its option, as applicable, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee must commence such Proceeding seeking an adjudication or an award in arbitration within one hundred and eighty (180) days following the date on which Indemnitee first has the right to commence such Proceeding pursuant to this Section 14(a); provided, however, that the foregoing clause does not apply in respect of a Proceeding brought by Indemnitee to enforce Indemnitee’s rights under Section 5 of this Agreement. The Company will not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b)If a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 will be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee may not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14 the Company will have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and will not introduce evidence of the determination made pursuant to Section 12 of this Agreement.
(c)If a determination is made pursuant to Section 12 of this Agreement that Indemnitee is entitled to indemnification, the Company will be bound by such determination in
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any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d)The Company is, to the fullest extent not prohibited by law, precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and will stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(e)It is the intent of the Company that, to the fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. The Company, to the fullest extent permitted by law, will (within thirty (30) days after receipt by the Company of a written request therefor) advance to Indemnitee such Expenses which are incurred by Indemnitee in connection with any action concerning this Agreement, Indemnitee’s right to indemnification or advancement of Expenses from the Company, or concerning any directors’ and officers’ liability insurance policies maintained by the Company, and will indemnify Indemnitee against any and all such Expenses unless the court determines that each of the Indemnitee’s claims in such action were made in bad faith or were frivolous or are prohibited by law.
Section 15.Non-exclusivity; Survival of Rights; Insurance; Subrogation.
(a)The indemnification and advancement of Expenses provided by this Agreement are not exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. The indemnification and advancement of Expenses provided by this Agreement may not be limited or restricted by any amendment, alteration or repeal of this Agreement in any way with respect to any action taken or omitted by Indemnitee in Indemnitee’s Corporate Status occurring prior to any amendment, alteration or repeal of this Agreement. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Bylaws, Certificate of Incorporation, or this Agreement, it is the intent of the parties hereto that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy is cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, will not prevent the concurrent assertion or employment of any other right or remedy.
(b)The Company hereby acknowledges that Indemnitee may have certain rights to indemnification, advancement of Expenses and/or insurance provided by one or more other Persons with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entities). The relationship between the Company and such other Persons, other than an Enterprise, with respect to the Indemnitee’s rights to indemnification, advancement of Expenses, and insurance is described by this subsection, subject to the provisions of subsection
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(d) of this Section 15 with respect to a Proceeding concerning Indemnitee’s Corporate Status with an Enterprise.
i.The Company hereby acknowledges and agrees:
1)the Company is the indemnitor of first resort with respect to any request for indemnification or advancement of Expenses made pursuant to this Agreement concerning any Proceeding;
2) the Company is primarily liable for all indemnification and indemnification or advancement of Expenses obligations for any Proceeding, whether created by law, organizational or constituent documents, contract (including this Agreement) or otherwise;
3)any obligation of any other Persons with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entities) to indemnify Indemnitee and/or advance Expenses to Indemnitee in respect of any proceeding are secondary to the obligations of the Company’s obligations;
4)the Company will indemnify Indemnitee and advance Expenses to Indemnitee hereunder to the fullest extent provided herein without regard to any rights Indemnitee may have against any other Person with whom or which Indemnitee may be associated (including, any Sponsor Entities) or insurer of any such Person.
ii.The Company irrevocably waives, relinquishes and releases (A) any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entities) from any claim of contribution, subrogation, reimbursement, exoneration or indemnification, or any other recovery of any kind in respect of amounts paid by the Company to Indemnitee pursuant to this Agreement and (B) any right to participate in any claim or remedy of Indemnitee against any Person (including, without limitation, any Sponsor Entities), whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any Person (including, without limitation, any Sponsor Entities), directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right.
iii.In the event any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entities) or their insurers advances or extinguishes any liability or loss for Indemnitee, the payor has a right of subrogation against the Company or its insurers for all amounts so paid which would otherwise be payable by the Company or its insurers under this Agreement. In no event will payment by any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entities) or their insurers affect the obligations of the Company hereunder or shift primary liability for the Company’s obligation to indemnify or advance of Expenses to any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entities).
iv.Any indemnification or advancement of Expenses provided by any other Person with whom or which Indemnitee may be associated (including, without limitation, any Sponsor Entities) is specifically in excess over the Company’s obligation to indemnify and advance Expenses or any valid and collectible insurance (including but not limited to any malpractice insurance or professional errors and omissions insurance) provided by the Company.
(c)To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company, the
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Company will obtain a policy or policies covering Indemnitee to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies, including coverage in the event the Company does not or cannot, for any reason, indemnify or advance Expenses to Indemnitee as required by this Agreement. If, at the time of the receipt of a notice of a claim pursuant to this Agreement, the Company has director and officer liability insurance in effect, the Company will give prompt notice of such claim or of the commencement of a Proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. The Company will thereafter take all reasonably necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies. Indemnitee agrees to assist the Company efforts to cause the insurers to pay such amounts and will comply with the terms of such policies, including selection of approved panel counsel, if required.
(d)The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee for any Proceeding concerning Indemnitee’s Corporate Status with an Enterprise will be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from such Enterprise. The Company and Indemnitee intend that any such Enterprise (and its insurers) be the indemnitor of first resort with respect to indemnification and advancement of Expenses for any Proceeding related to or arising from Indemnitee’s Corporate Status with such Enterprise. The Company’s obligation to indemnify and advance Expenses to Indemnitee is secondary to the obligations the Enterprise or its insurers owe to Indemnitee. Indemnitee agrees to take all reasonably necessary and desirable action to obtain from an Enterprise indemnification and advancement of Expenses for any Proceeding related to or arising from Indemnitee’s Corporate Status with such Enterprise.
(e)In the event of any payment made by the Company under this Agreement, the Company will be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee from any Enterprise or insurance carrier. Indemnitee will execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
Section 16.Duration of Agreement. This Agreement continues until and terminates upon the later of: (a) ten (10) years after the date that Indemnitee ceases to have a Corporate Status or (b) one (1) year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement relating thereto. The indemnification and advancement of Expenses rights provided by or granted pursuant to this Agreement are binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise, and inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
Section 17.Severability. If any provision or provisions of this Agreement is held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) will not in any way be affected or impaired thereby and remain enforceable to the fullest extent permitted by law; (b) such provision or provisions will be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the
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fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) will be construed so as to give effect to the intent manifested thereby.
Section 18.Interpretation. Any ambiguity in the terms of this Agreement will be resolved in favor of Indemnitee and in a manner to provide the maximum indemnification and advancement of Expenses permitted by law. The Company and Indemnitee intend that this Agreement provide to the fullest extent permitted by law for indemnification and advancement in excess of that expressly provided, without limitation, by the Certificate of Incorporation, the Bylaws, vote of the Company stockholders or disinterested directors, or applicable law.
Section 19.Enforcement.
(a)The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director or officer of the Company.
(b)This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation, the Bylaws and applicable law, and is not a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
Section 20.Modification and Waiver. No supplement, modification or amendment of this Agreement is binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement will be deemed or constitutes a waiver of any other provisions of this Agreement nor will any waiver constitute a continuing waiver.
Section 21.Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company does not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.
Section 22.Notices. All notices, requests, demands and other communications under this Agreement will be in writing and will be deemed to have been duly given if (a) delivered by hand to the other party, (b) sent by reputable overnight courier to the other party or (c) sent by facsimile transmission or electronic mail, with receipt of oral confirmation that such communication has been received:
(a)If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee provides to the Company.
(b)If to the Company to:
Justworks, Inc.
55 Water Street
New York, NY 10041
Attention: General Counsel
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or to any other address as may have been furnished to Indemnitee by the Company.
Section 23.Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, will contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
Section 24.Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties are governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or Proceeding arising out of or in connection with this Agreement may be brought only in the Delaware Court of Chancery and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or Proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or Proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or Proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 25.Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which will for all purposes be deemed to be an original but all of which together constitutes one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 26.Headings. The headings of this Agreement are inserted for convenience only and do not constitute part of this Agreement or affect the construction thereof.

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
JUSTWORKS, INCINDEMNITEE
By:
Name:Name:
Office:Address:
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Document
Exhibit 10.11
JUSTWORKS, INC.
2022 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
The purpose of this Plan is to assist Eligible Employees of the Company and its Designated Subsidiaries in acquiring a stock ownership interest in the Company.
The Plan consists of two components: (i) the Section 423 Component and (ii) the Non-Section 423 Component. The Section 423 Component is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code and shall be administered, interpreted and construed in a manner consistent with the requirements of Section 423 of the Code. The Non-Section 423 Component authorizes the grant of rights which need not qualify as rights granted pursuant to an “employee stock purchase plan” under Section 423 of the Code. Rights granted under the Non-Section 423 Component shall be granted pursuant to separate Offerings containing such sub-plans, appendices, rules or procedures as may be adopted by the Administrator and designed to achieve tax, securities laws or other objectives for Eligible Employees and Designated Subsidiaries but shall not be intended to qualify as an “employee stock purchase plan” under Section 423 of the Code. Except as otherwise determined by the Administrator or provided herein, the Non-Section 423 Component will operate and be administered in the same manner as the Section 423 Component. Offerings intended to be made under the Non-Section 423 Component will be designated as such by the Administrator at or prior to the time of such Offering.
For purposes of this Plan, the Administrator may designate separate Offerings under the Plan in which Eligible Employees will participate. The terms of these Offerings need not be identical, even if the dates of the applicable Offering Period(s) in each such Offering are identical, provided that the terms of participation are the same within each separate Offering under the Section 423 Component (as determined under Section 423 of the Code). Solely by way of example and without limiting the foregoing, the Company could, but shall not be required to, provide for simultaneous Offerings under the Section 423 Component and the Non-Section 423 Component of the Plan.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise.
2.1“Administrator” means the entity that conducts the general administration of the Plan as provided in Article XI.
2.2“Agent” means the brokerage firm, bank or other financial institution, entity or person(s), if any, engaged, retained, appointed or authorized to act as the agent of the Company or an Employee with regard to the Plan.
2.3“Applicable Law” means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which Shares are listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where rights under this Plan are granted.
2.4“Board” means the Board of Directors of the Company.
2.5“Code” means the U.S. Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
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2.6“Common Stock” means the Class A common stock of the Company, par value $0.0005 per share, and such other securities of the Company that may be substituted therefore.
2.7“Company” means Justworks, Inc., a Delaware corporation, or any successor.
2.8“Compensation” of an Eligible Employee means, unless otherwise determined by the Administrator, the gross base compensation or wages received by such Eligible Employee as compensation for services to the Company or any Designated Subsidiary, excluding overtime payments, sales commissions, incentive compensation, bonuses, expense reimbursements, income received in connection with any compensatory equity awards, fringe benefits and other special payments.
2.9“Designated Subsidiary” means any Subsidiary designated by the Administrator in accordance with Section 11.2(b), such designation to specify whether such participation is in the Section 423 Component or Non-Section 423 Component. A Designated Subsidiary may participate in either the Section 423 Component or Non-Section 423 Component, but not both; provided that a Subsidiary that, for U.S. tax purposes, is disregarded from the Company or any Subsidiary that participates in the Section 423 Component shall automatically constitute a Designated Subsidiary that participates in the Section 423 Component.
2.10“Effective Date” means the date prior to the Public Trading Date.
2.11“Eligible Employee” means:
(a)an Employee who does not, immediately after any rights under this Plan are granted, own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of Shares and other securities of the Company, a Parent or a Subsidiary (as determined under Section 423(b)(3) of the Code). For purposes of the foregoing, the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock that an Employee may purchase under outstanding options shall be treated as stock owned by the Employee.
(b)Notwithstanding the foregoing, the Administrator may provide in an Offering Document that an Employee shall not be eligible to participate in an Offering Period under the Section 423 Component if: (i) such Employee is a highly compensated employee within the meaning of Section 423(b)(4)(D) of the Code; (ii) such Employee has not met a service requirement designated by the Administrator pursuant to Section 423(b)(4)(A) of the Code (which service requirement may not exceed two years); (iii) such Employee’s customary employment is for twenty hours per week or less; (iv) such Employee’s customary employment is for less than five months in any calendar year; and/or (v) such Employee is a citizen or resident of a foreign jurisdiction and the grant of a right to purchase Shares under the Plan to such Employee would be prohibited under the laws of such foreign jurisdiction or the grant of a right to purchase Shares under the Plan to such Employee in compliance with the laws of such foreign jurisdiction would cause the Plan to violate the requirements of Section 423 of the Code, as determined by the Administrator in its sole discretion; provided, further, that any exclusion in clauses (i), (ii), (iii), (iv) or (v) shall be applied in an identical manner under each Offering Period to all Employees, in accordance with Treasury Regulation Section 1.423-2(e).
(c)Further notwithstanding the foregoing, with respect to the Non-Section 423 Component, the first sentence in this definition shall apply in determining who is an “Eligible Employee,” except (i) the Administrator may limit eligibility further within the Company or a Designated Subsidiary so as to only designate some Employees of the Company or a Designated Subsidiary as Eligible Employees, and (ii) to the extent the restrictions in the first sentence in this definition are not consistent with applicable local laws, the applicable local laws shall control.
2.12 “Employee” means any individual who renders services to the Company or any Designated Subsidiary in the status of an employee, and, with respect to the Section 423 Component, a person who is an employee within the meaning of Section 3401(c) of the Code. For purposes of an individual’s participation in, or other rights under the Plan, all determinations by the Company shall be final, binding and conclusive, notwithstanding that any court of law or governmental agency subsequently makes a contrary determination. For purposes of the Plan, the employment relationship shall be treated as
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continuing intact while the individual is on sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three (3) months and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three (3)-month period.
2.13“Enrollment Date” means the first Trading Day of each Offering Period.
2.14“Fair Market Value” means, as of any date, the value of Shares determined as follows: (i) if the Shares are listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Shares as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Shares are not traded on a stock exchange but are quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) without an established market for the Shares, the Administrator will determine the Fair Market Value in its discretion.
2.15“Non-Section 423 Component” means those Offerings under the Plan, together with the sub-plans, appendices, rules or procedures, if any, adopted by the Administrator as a part of this Plan, in each case, pursuant to which rights to purchase Shares during an Offering Period may be granted to Eligible Employees that need not satisfy the requirements for rights to purchase Shares granted pursuant to an “employee stock purchase plan” that are set forth under Section 423 of the Code.
2.16“Offering” means an offer under the Plan of a right to purchase Shares that may be exercised during an Offering Period as further described in Article IV hereof. Unless otherwise specified by the Administrator, each Offering to the Eligible Employees of the Company or a Designated Subsidiary shall be deemed a separate Offering, even if the dates and other terms of the applicable Offering Periods of each such Offering are identical, and the provisions of the Plan will separately apply to each Offering. To the extent permitted by Treas. Reg. § 1.423-2(a)(1), the terms of each separate Offering under the Section 423 Component need not be identical, provided that the terms of the Section 423 Component and an Offering thereunder together satisfy Treas. Reg. § 1.423-2(a)(2) and (a)(3).
2.17“Offering Document” has the meaning given to such term in Section 4.1.
2.18“Offering Period” has the meaning given to such term in Section 4.1.
2.19“Parent” means any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
2.20“Participant” means any Eligible Employee who has executed a subscription agreement and been granted rights to purchase Shares pursuant to the Plan.
2.21“Payday” means the regular and recurring established day for payment of Compensation to an Employee of the Company or any Designated Subsidiary.
2.22“Plan” means this 2022 Employee Stock Purchase Plan, including both the Section 423 Component and Non-Section 423 Component and any other sub-plans or appendices hereto, as amended from time to time.
2.23“Public Trading Date” means the first date upon which the Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
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2.24“Purchase Date” means the last Trading Day of each Purchase Period or such other date as determined by the Administrator and set forth in the Offering Document.
2.25“Purchase Period” shall refer to one or more periods within an Offering Period, as designated in the applicable Offering Document; provided, however, that, in the event no purchase period is designated by the Administrator in the applicable Offering Document, the purchase period for each Offering Period covered by such Offering Document shall be the same as the applicable Offering Period.
2.26“Purchase Price” means the purchase price designated by the Administrator in the applicable Offering Document (which purchase price, for purposes of the Section 423 Component, shall not be less than 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower); provided, however, that, in the event no purchase price is designated by the Administrator in the applicable Offering Document, the purchase price for the Offering Periods covered by such Offering Document shall be 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower; provided, further, that the Purchase Price may be adjusted by the Administrator pursuant to Article VIII and shall not be less than the par value of a Share.
2.27“Section 423 Component” means those Offerings under the Plan, together with the sub-plans, appendices, rules or procedures, if any, adopted by the Administrator as a part of this Plan, in each case, pursuant to which rights to purchase Shares during an Offering Period may be granted to Eligible Employees that are intended to satisfy the requirements for rights to purchase Shares granted pursuant to an “employee stock purchase plan” that are set forth under Section 423 of the Code.
2.28 “Securities Act” means the U.S. Securities Act of 1933, as amended.
2.29“Share” means a share of Common Stock.
2.30“Subsidiary” means any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain; provided, however, that a limited liability company or partnership may be treated as a Subsidiary to the extent either (a) such entity is treated as a disregarded entity under Treasury Regulation Section 301.7701-3(a) by reason of the Company or any other Subsidiary that is a corporation being the sole owner of such entity, or (b) such entity elects to be classified as a corporation under Treasury Regulation Section 301.7701-3(a) and such entity would otherwise qualify as a Subsidiary. In addition, with respect to the Non-Section 423 Component, Subsidiary shall include any corporate or non-corporate entity in which the Company has a direct or indirect equity interest or significant business relationship.
2.31“Trading Day” means a day on which national stock exchanges in the United States are open for trading.
2.32“Treas. Reg.” means U.S. Department of the Treasury regulations.
ARTICLE III
SHARES SUBJECT TO THE PLAN
3.1Number of Shares. Subject to Article VIII, the aggregate number of Shares that may be issued pursuant to rights granted under the Plan shall be 1,245,189 Shares. In addition to the foregoing, subject to Article VIII, on the first day of each calendar year beginning on June 1, 2022 and ending on and including June 1, 2031, the number of Shares available for issuance under the Plan shall be increased by that number of Shares equal to the lesser of (a) 1% of the aggregate number of shares of Common Stock of the Company outstanding on the final day of the immediately preceding fiscal year and (b) such smaller number of Shares as determined by the Board. If any right granted under the Plan shall for any reason terminate without having been exercised, the Shares not purchased under such right shall again become available for issuance under the Plan. Notwithstanding anything in this Section 3.1 to the contrary, the number of Shares that may be issued or transferred pursuant to the rights granted under the
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Section 423 Component of the Plan shall not exceed an aggregate of 12,451,890 Shares, subject to Article VIII.
3.2Shares Distributed. Any Shares distributed pursuant to the Plan may consist, in whole or in part, of authorized and unissued Shares, treasury shares or Shares purchased on the open market.
ARTICLE IV
OFFERING PERIODS; OFFERING DOCUMENTS; PURCHASE DATES
4.1Offering Periods. The Administrator may from time to time grant or provide for the grant of rights to purchase Shares under the Plan to Eligible Employees during one or more periods (each, an “Offering Period”) selected by the Administrator. The terms and conditions applicable to each Offering Period shall be set forth in an “Offering Document” adopted by the Administrator, which Offering Document shall be in such form and shall contain such terms and conditions as the Administrator shall deem appropriate and shall be incorporated by reference into and made part of the Plan and shall be attached hereto as part of the Plan. The provisions of separate Offerings or Offering Periods under the Plan need not be identical.
4.2Offering Documents. Each Offering Document with respect to an Offering Period shall specify (through incorporation of the provisions of this Plan by reference or otherwise):
(a)the length of the Offering Period, which period shall not exceed twenty-seven months;
(b)the maximum number of Shares that may be purchased by any Eligible Employee during such Offering Period, which, in the absence of a contrary designation by the Administrator, shall be 2,500 Shares; and
(c)such other provisions as the Administrator determines are appropriate, subject to the Plan.
ARTICLE V
ELIGIBILITY AND PARTICIPATION
5.1Eligibility. Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of this Article V and, for the Section 423 Component, the limitations imposed by Section 423(b) of the Code.
5.2Enrollment in Plan.
(a)Except as otherwise set forth in an Offering Document or determined by the Administrator, an Eligible Employee may become a Participant in the Plan for an Offering Period by delivering a subscription agreement to the Company by such time prior to the Enrollment Date for such Offering Period (or such other date specified in the Offering Document) designated by the Administrator and in such form as the Company provides.
(b)Each subscription agreement shall designate either (i) a whole percentage of such Eligible Employee’s Compensation or (ii) a fixed dollar amount, in either case, to be withheld by the Company or the Designated Subsidiary employing such Eligible Employee on each Payday during the Offering Period as payroll deductions under the Plan. In either event, the designated percentage or fixed dollar amount may not be less than one percent (1%) and may not be more than the maximum percentage specified by the Administrator in the applicable Offering Document (which percentage shall be twenty percent (20%) in the absence of any such designation) as payroll deductions. The payroll deductions made for each Participant shall be credited to an account for such Participant under the Plan and shall be deposited with the general funds of the Company.
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(c)A Participant may increase or decrease the percentage of Compensation or the fixed dollar amount designated in his or her subscription agreement, subject to the limits of this Section 5.2, or may suspend his or her payroll deductions, at any time during an Offering Period; provided, however, that the Administrator may limit the number of changes a Participant may make to his or her payroll deduction elections during each Offering Period in the applicable Offering Document (and in the absence of any specific designation by the Administrator, a Participant shall be allowed to decrease (but not increase) his or her payroll deduction elections one time during each Offering Period). Any such change or suspension of payroll deductions shall be effective with the first full payroll period following ten business days after the Company’s receipt of the new subscription agreement (or such shorter or longer period as may be specified by the Administrator in the applicable Offering Document). In the event a Participant suspends his or her payroll deductions, such Participant’s cumulative payroll deductions prior to the suspension shall remain in his or her account and shall be applied to the purchase of Shares on the next occurring Purchase Date and shall not be paid to such Participant unless he or she withdraws from participation in the Plan pursuant to Article VII.
(d)Except as otherwise set forth in an Offering Document or determined by the Administrator, a Participant may participate in the Plan only by means of payroll deduction and may not make contributions by lump sum payment for any Offering Period.
5.3Payroll Deductions. Except as otherwise provided in the applicable Offering Document, payroll deductions for a Participant shall commence on the first Payday following the Enrollment Date and shall end on the last Payday in the Offering Period to which the Participant’s authorization is applicable, unless sooner terminated by the Participant as provided in Article VII or suspended by the Participant or the Administrator as provided in Section 5.2 and Section 5.6, respectively. Notwithstanding any other provisions of the Plan to the contrary, in non-U.S. jurisdictions where participation in the Plan through payroll deductions is prohibited, the Administrator may provide that an Eligible Employee may elect to participate through contributions to the Participant’s account under the Plan in a form acceptable to the Administrator in lieu of or in addition to payroll deductions; provided, however, that, for any Offering under the Section 423 Component, the Administrator shall take into consideration any limitations under Section 423 of the Code when applying an alternative method of contribution.
5.4Effect of Enrollment. A Participant’s completion of a subscription agreement will enroll such Participant in the Plan for each subsequent Offering Period on the terms contained therein until the Participant either submits a new subscription agreement, withdraws from participation under the Plan as provided in Article VII or otherwise becomes ineligible to participate in the Plan.
5.5Limitation on Purchase of Shares. An Eligible Employee may be granted rights under the Section 423 Component only if such rights, together with any other rights granted to such Eligible Employee under “employee stock purchase plans” of the Company, any Parent or any Subsidiary, as specified by Section 423(b)(8) of the Code, do not permit such employee’s rights to purchase stock of the Company or any Parent or Subsidiary to accrue at a rate that exceeds $25,000 of the fair market value of such stock (determined as of the first day of the Offering Period during which such rights are granted) for each calendar year in which such rights are outstanding at any time. This limitation shall be applied in accordance with Section 423(b)(8) of the Code.
5.6Suspension of Payroll Deductions. Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 5.5 (with respect to the Section 423 Component) or the other limitations set forth in this Plan, a Participant’s payroll deductions may be suspended by the Administrator at any time during an Offering Period. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares by reason of Section 423(b)(8) of the Code, Section 5.5 or the other limitations set forth in this Plan shall be paid to such Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date.
5.7Foreign Employees. In order to facilitate participation in the Plan, the Administrator may provide for such special terms applicable to Participants who are citizens or residents a foreign jurisdiction, or who are employed by a Designated Subsidiary outside of the United States, as the Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Except as permitted by Section 423 of the Code, with respect to the Section 423 Component,
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such special terms may not be more favorable than the terms of rights granted under the Section 423 Component to Eligible Employees who are residents of the United States. Such special terms may be set forth in an addendum to the Plan in the form of an appendix or sub-plan (which appendix or sub-plan may be designed to govern Offerings under the Section 423 Component or the Non-Section 423 Component, as determined by the Administrator). To the extent that the terms and conditions set forth in an appendix or sub-plan conflict with any provisions of the Plan, the provisions of the appendix or sub-plan shall govern. The adoption of any such appendix or sub-plan shall be pursuant to Section 11.2(g). Without limiting the foregoing, the Administrator is specifically authorized to adopt rules and procedures, with respect to Participants who are foreign nationals or employed in non-U.S. jurisdictions, regarding the exclusion of particular Subsidiaries from participation in the Plan, eligibility to participate, the definition of Compensation, handling of payroll deductions or other contributions by Participants, payment of interest, conversion of local currency, data privacy security, payroll tax, withholding procedures, establishment of bank or trust accounts to hold payroll deductions or contributions.
5.8Leave of Absence. During leaves of absence approved by the Company meeting the requirements of Treasury Regulation Section 1.421-1(h)(2) under the Code, a Participant may continue participation in the Plan by making cash payments to the Company on his or her normal Payday equal to the Participant’s authorized payroll deduction.
ARTICLE IV
GRANT AND EXERCISE OF RIGHTS
6.1Grant of Rights. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period shall be granted a right to purchase the maximum number of Shares specified under Section 4.2, subject to the limits in Section 5.5, and shall have the right to buy, on each Purchase Date during such Offering Period (at the applicable Purchase Price), such number of whole Shares as is determined by dividing (a) such Participant’s payroll deductions accumulated prior to such Purchase Date and retained in the Participant’s account as of the Purchase Date, by (b) the applicable Purchase Price (rounded down to the nearest Share). The right shall expire on the earliest of: (x) the last Purchase Date of the Offering Period, (y) the last day of the Offering Period, and (z) the date on which the Participant withdraws in accordance with Section 7.1 or Section 7.3.
6.2Exercise of Rights. On each Purchase Date, each Participant’s accumulated payroll deductions and any other additional payments specifically provided for in the applicable Offering Document will be applied to the purchase of whole Shares, up to the maximum number of Shares permitted pursuant to the terms of the Plan and the applicable Offering Document, at the Purchase Price. No fractional Shares shall be issued upon the exercise of rights granted under the Plan, unless the Offering Document specifically provides otherwise. Any cash in lieu of fractional Shares remaining after the purchase of whole Shares upon exercise of a purchase right will be credited to a Participant’s account and carried forward and applied toward the purchase of whole Shares for the next following Offering Period. Shares issued pursuant to the Plan may be evidenced in such manner as the Administrator may determine and may be issued in certificated form or issued pursuant to book-entry procedures.
6.3Pro Rata Allocation of Shares. If the Administrator determines that, on a given Purchase Date, the number of Shares with respect to which rights are to be exercised may exceed (a) the number of Shares that were available for issuance under the Plan on the Enrollment Date of the applicable Offering Period, or (b) the number of Shares available for issuance under the Plan on such Purchase Date, the Administrator may in its sole discretion provide that the Company shall make a pro rata allocation of the Shares available for purchase on such Enrollment Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants for whom rights to purchase Shares are to be exercised pursuant to this Article VI on such Purchase Date, and shall either (i) continue all Offering Periods then in effect, or (ii) terminate any or all Offering Periods then in effect pursuant to Article IX. The Company may make pro rata allocation of the Shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares shall be paid to such
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Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date or such earlier date as determined by the Administrator.
6.4Withholding. At the time a Participant’s rights under the Plan are exercised, in whole or in part, or at the time some or all of the Shares issued under the Plan is disposed of, the Participant must make adequate provision for the Company’s federal, state, or other tax withholding obligations, if any, that arise upon the exercise of the right or the disposition of the Shares. At any time, the Company may, but shall not be obligated to, withhold from the Participant’s Compensation or Shares received pursuant to the Plan the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Shares by the Participant.
6.5Conditions to Issuance of Shares. The Company shall not be required to issue or deliver any certificate or certificates for, or make any book entries evidencing, Shares purchased upon the exercise of rights under the Plan prior to fulfillment of all of the following conditions: (a) the admission of such Shares to listing on all stock exchanges, if any, on which the Shares are then listed; (b) the completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, that the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable; (d) the payment to the Company of all amounts that it is required to withhold under federal, state or local law upon exercise of the rights, if any; and (e) the lapse of such reasonable period of time following the exercise of the rights as the Administrator may from time to time establish for reasons of administrative convenience.
ARTICLE VII
WITHDRAWAL; CESSATION OF ELIGIBILITY
7.1Withdrawal. A Participant may withdraw all but not less than all of the payroll deductions credited to his or her account and not yet used to exercise his or her rights under the Plan at any time by giving written notice to the Company in a form acceptable to the Company no later than one week prior to the end of the Offering Period (or such shorter or longer period as may be specified by the Administrator in the applicable Offering Document). All of the Participant’s payroll deductions credited to his or her account during an Offering Period shall be paid to such Participant as soon as reasonably practicable after receipt of notice of withdrawal and such Participant’s rights for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of Shares shall be made for such Offering Period. If a Participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the next Offering Period unless the Participant timely delivers to the Company a new subscription agreement.
7.2Future Participation. A Participant’s withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or a Designated Subsidiary or in subsequent Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
7.3Cessation of Eligibility. Upon a Participant’s ceasing to be an Eligible Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan pursuant to this Article VII and the payroll deductions credited to such Participant’s account during the Offering Period shall be paid to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 12.4, as soon as reasonably practicable, and such Participant’s rights for the Offering Period shall be automatically terminated. If a Participant transfers employment from the Company or any Designated Subsidiary participating in the Section 423 Component to any Designated Subsidiary participating in the Non-Section 423 Component, such transfer shall not be treated as a termination of employment, but the Participant shall immediately cease to participate in the Section 423 Component; however, any contributions made for the Offering Period in which such transfer occurs shall be transferred to the Non-Section 423 Component, and such Participant shall immediately join the then-current Offering under the Non-Section 423 Component upon the same terms and conditions in effect for the Participant’s participation in the Section 423 Component, except for such modifications otherwise applicable for
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Participants in such Offering. A Participant who transfers employment from any Designated Subsidiary participating in the Non-Section 423 Component to the Company or any Designated Subsidiary participating in the Section 423 Component shall not be treated as terminating the Participant’s employment and shall remain a Participant in the Non-Section 423 Component until the earlier of (i) the end of the current Offering Period under the Non-Section 423 Component or (ii) the Enrollment Date of the first Offering Period in which the Participant is eligible to participate following such transfer. Notwithstanding the foregoing, the Administrator may establish different rules to govern transfers of employment between entities participating in the Section 423 Component and the Non-Section 423 Component, consistent with the applicable requirements of Section 423 of the Code.
ARTICLE VIII
ADJUSTMENTS UPON CHANGES IN SHARES
8.1Changes in Capitalization. Subject to Section 8.3, in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), change in control, reorganization, merger, amalgamation, consolidation, combination, repurchase, redemption, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event, as determined by the Administrator, affects the Shares such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any outstanding purchase rights under the Plan, the Administrator shall make equitable adjustments, if any, to reflect such change with respect to (a) the aggregate number and type of Shares (or other securities or property) that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 and the limitations established in each Offering Document pursuant to Section 4.2 on the maximum number of Shares that may be purchased); (b) the class(es) and number of Shares and price per Share subject to outstanding rights; and (c) the Purchase Price with respect to any outstanding rights.
8.2Other Adjustments. Subject to Section 8.3, in the event of any transaction or event described in Section 8.1 or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including without limitation, any change in control), or of changes in Applicable Law or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it deems appropriate, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any right under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
(a)To provide for either (i) termination of any outstanding right in exchange for an amount of cash, if any, equal to the amount that would have been obtained upon the exercise of such right had such right been currently exercisable or (ii) the replacement of such outstanding right with other rights or property selected by the Administrator in its sole discretion;
(b)To provide that the outstanding rights under the Plan shall be assumed by the successor or survivor corporation, or a Parent or Subsidiary thereof, or shall be substituted for by similar rights covering the stock of the successor or survivor corporation, or a Parent or Subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(c)To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding rights under the Plan and/or in the terms and conditions of outstanding rights and rights that may be granted in the future;
(d)To provide that Participants’ accumulated payroll deductions may be used to purchase Shares prior to the next occurring Purchase Date on such date as the Administrator determines in its sole discretion and the Participants’ rights under the ongoing Offering Period(s) shall be terminated; and
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(e)To provide that all outstanding rights shall terminate without being exercised.
8.3No Adjustment Under Certain Circumstances. Unless determined otherwise by the Administrator, no adjustment or action described in this Article VIII or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Section 423 Component of the Plan to fail to satisfy the requirements of Section 423 of the Code.
8.4No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to outstanding rights under the Plan or the Purchase Price with respect to any outstanding rights.
ARTICLE IX
AMENDMENT, MODIFICATION AND TERMINATION
9.1Amendment, Modification and Termination. The Administrator may amend, suspend or terminate the Plan at any time and from time to time; provided, however, that approval of the Company’s stockholders shall be required to amend the Plan to: (a) increase the aggregate number, or change the type, of shares that may be sold pursuant to rights under the Plan under Section 3.1 (other than an adjustment as provided by Article VIII), (b) change the classes of corporations whose employees may be granted rights under the Plan or (c) the extent required under Applicable Law, taking into account the terms hereof.
9.2Certain Changes to Plan. Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected (and, with respect to the Section 423 Component of the Plan, after taking into account Section 423 of the Code), the Administrator shall be entitled to change or terminate the Offering Periods, add or revise Offering Period share limits, limit the frequency and/or number of changes in the amount withheld from Compensation during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of payroll withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Shares for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion to be advisable that are consistent with the Plan.
9.3Actions In the Event of Unfavorable Financial Accounting Consequences. In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(a)altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;
(b)shortening any Offering Period so that the Offering Period ends on a new Purchase Date, including an Offering Period underway at the time of the Administrator action; and
(c)allocating Shares.
Such modifications or amendments shall not require stockholder approval or the consent of any Participant.
9.4Payments Upon Termination of Plan. Upon termination of the Plan, the balance in each Participant’s Plan account shall be refunded as soon as practicable after such termination, without any
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interest thereon, or the Offering Period may be shortened so that the purchase of Shares occurs prior to the termination of the Plan.
ARTICLE X
TERM OF PLAN
The Plan shall become effective on the Effective Date. The effectiveness of the Section 423 Component of the Plan shall be subject to approval of the Plan by the Company’s stockholders within twelve months following the date the Plan is first approved by the Board. No right may be granted under the Section 423 Component of the Plan prior to such stockholder approval. The Plan shall remain in effect until terminated under Section 9.1. No rights may be granted under the Plan during any period of suspension of the Plan or after termination of the Plan.
ARTICLE XI
ADMINISTRATION
11.1Administrator. Unless otherwise determined by the Board, the Administrator of the Plan shall be the Compensation Committee of the Board (or another committee or a subcommittee of the Board to which the Board delegates administration of the Plan). The Board may at any time vest in the Board any authority or duties for administration of the Plan. The Administrator may delegate administrative tasks under the Plan to the services of an Agent or Employees to assist in the administration of the Plan, including establishing and maintaining an individual securities account under the Plan for each Participant.
11.2Authority of Administrator. The Administrator shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(a)To determine when and how rights to purchase Shares shall be granted and the provisions of each offering of such rights (which need not be identical), including any matching contribution of Shares by the Company or any Designated Subsidiary under any Non-Section 423 Component.
(b)To designate from time to time which Subsidiaries of the Company shall be Designated Subsidiaries, which designation may be made without the approval of the stockholders of the Company.
(c)To impose a mandatory holding period pursuant to which Employees may not dispose of or transfer Shares purchased under the Plan for a period of time determined by the Administrator in its discretion.
(d)To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(e)To amend, suspend or terminate the Plan as provided in Article IX.
(f)Generally, to exercise such powers and to perform such acts as the Administrator deems necessary or expedient to promote the best interests of the Company and its Subsidiaries and to carry out the intent that the Plan be treated as an “employee stock purchase plan” within the meaning of Section 423 of the Code for the Section 423 Component.
(g)The Administrator may adopt sub-plans applicable to particular Designated Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 3.1 hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.
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11.3Decisions Binding. The Administrator’s interpretation of the Plan, any rights granted pursuant to the Plan, any subscription agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.
ARTICLE XII
MISCELLANEOUS
12.1Restriction upon Assignment. A right granted under the Plan shall not be transferable other than by will or the applicable laws of descent and distribution, and is exercisable during the Participant’s lifetime only by the Participant. Except as provided in Section 12.4 hereof, a right under the Plan may not be exercised to any extent except by the Participant. The Company shall not recognize and shall be under no duty to recognize any assignment or alienation of the Participant’s interest in the Plan, the Participant’s rights under the Plan or any rights thereunder.
12.2Rights as a Stockholder. With respect to Shares subject to a right granted under the Plan, a Participant shall not be deemed to be a stockholder of the Company, and the Participant shall not have any of the rights or privileges of a stockholder, until such Shares have been issued to the Participant or his or her nominee following exercise of the Participant’s rights under the Plan. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein or as determined by the Administrator.
12.3Interest. No interest shall accrue on the payroll deductions or contributions of a Participant under the Plan.
12.4Designation of Beneficiary.
(a)A Participant may, in the manner determined by the Administrator, file a written designation of a beneficiary who is to receive any Shares and/or cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death subsequent to a Purchase Date on which the Participant’s rights are exercised but prior to delivery to such Participant of such Shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant’s account under the Plan in the event of such Participant’s death prior to exercise of the Participant’s rights under the Plan. If the Participant is married and resides in a community property state, a designation of a person other than the Participant’s spouse as his or her beneficiary shall not be effective without the prior written consent of the Participant’s spouse.
(b)Such designation of beneficiary may be changed by the Participant at any time by written notice to the Company. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
12.5Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
12.6Equal Rights and Privileges. Subject to Section 5.7, all Eligible Employees will have equal rights and privileges under the Section 423 Component so that the Section 423 Component of this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Subject to Section 5.7, any provision of the Section 423 Component that is inconsistent with Section 423 of the Code will, without further act or amendment by the Company, the Board or the Administrator, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code. Eligible Employees participating in the Non-Section 423 Component need not have the same rights and privileges
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as other Eligible Employees participating in the Non-Section 423 Component or as Eligible Employees participating in the Section 423 Component.
12.7Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
12.8No Employment Rights. Nothing in the Plan shall be construed to give any person (including any Eligible Employee or Participant) the right to remain in the employ of the Company or any Parent or Subsidiary or affect the right of the Company or any Parent or Subsidiary to terminate the employment of any person (including any Eligible Employee or Participant) at any time, with or without cause.
12.9Notice of Disposition of Shares. Each Participant shall give prompt notice to the Company of any disposition or other transfer of any Shares purchased upon exercise of a right under the Section 423 Component of the Plan if such disposition or transfer is made: (a) within two years from the Enrollment Date of the Offering Period in which the Shares were purchased or (b) within one year after the Purchase Date on which such Shares were purchased. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Participant in such disposition or other transfer.
12.10Governing Law. The Plan and any agreements hereunder shall be administered, interpreted and enforced in accordance with the laws of the State of Delaware, disregarding any state’s choice of law principles requiring the application of a jurisdiction’s laws other than the State of Delaware.
12.11Electronic Forms. To the extent permitted by Applicable Law and in the discretion of the Administrator, an Eligible Employee may submit any form or notice as set forth herein by means of an electronic form approved by the Administrator. Before the commencement of an Offering Period, the Administrator shall prescribe the time limits within which any such electronic form shall be submitted to the Administrator with respect to such Offering Period in order to be a valid election.
* * * * *
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Document
Exhibit 10.12
JUSTWORKS, INC.
2022 INCENTIVE AWARD PLAN
STOCK OPTION GRANT NOTICE
Capitalized terms not specifically defined in this Stock Option Grant Notice (the “Grant Notice”) have the meanings given to them in the 2022 Incentive Award Plan (as amended from time to time, the “Plan”) of Justworks, Inc. (the “Company”). The Company hereby grants to the participant listed below (“Participant”) the stock option described in this Grant Notice (the “Option”), subject to the terms and conditions of the Plan and the Stock Option Agreement attached hereto as Exhibit A (the “Agreement”), both of which are incorporated into this Grant Notice by reference.
Participant:
Grant Date:
Exercise Price per Share:
Shares Subject to the Option:
Final Expiration Date:
Vesting Commencement Date:
Vesting Schedule:[To be specified in individual agreements]
Type of Option
☐ Incentive Stock Option
☐ Non-Qualified Stock Option
By Participant’s signature below or electronic acceptance or authentication in a form authorized by the Company, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or relating to the Option.
JUSTWORKS, INC.PARTICIPANT
By:By:
Print Name:Print Name:
Title:


EXHIBIT A
STOCK OPTION AGREEMENT
ARTICLE I.
GENERAL
Section 1.1    Incorporation of Terms of Plan. The Option is subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
Section 1.2    Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice. For purposes of this Agreement,
(a)    “Cessation Date” shall mean the date of Participant’s Termination of Service (regardless of the reason for such termination).
(b)    “Participating Company” shall mean the Company or any of its parents or Subsidiaries.
ARTICLE II.
GRANT OF OPTION
Section 2.1    Grant of Option. In consideration of Participant’s past and/or continued employment with or service to a Participating Company and for other good and valuable consideration, effective as of the grant date set forth in the Grant Notice (the “Grant Date”), the Company has granted to the Participant the Option to purchase any part or all of an aggregate number of Shares set forth in the Grant Notice, upon the terms and conditions set forth in the Grant Notice, the Plan and this Agreement, subject to adjustment as provided in Article VIII of the Plan.
Section 2.2    Exercise Price. The exercise price per Share of the Shares subject to the Option (the “Exercise Price”) shall be as set forth in the Grant Notice.
Section 2.3    Consideration to the Company. In consideration of the grant of the Option by the Company, Participant agrees to render faithful and efficient services to any Participating Company.
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1    Commencement of Exercisability.
(a)    Subject to Participant’s continued employment with or service to a Participating Company on each applicable vesting date and subject to Sections 3.2, 3.3, 5.9 and 5.14 hereof, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice.
(b)    Unless otherwise determined by the Administrator or as set forth in a written agreement between Participant and the Company, any portion of the Option that has not become vested and exercisable on or prior to the Cessation Date (including, without limitation, pursuant to any
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employment or similar agreement by and between Participant and the Company) shall be forfeited on the Cessation Date and shall not thereafter become vested or exercisable.
Section 3.2    Duration of Exercisability. The installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment that becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3 hereof. Once the Option becomes unexercisable, it shall be forfeited immediately.
Section 3.3    Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of the following events:
(a)    The expiration date set forth in the Grant Notice; provided that such expiration date shall not be later than the tenth (10th) anniversary of the Grant Date;
(b)    Except as the Administrator may otherwise approve, the expiration of three (3) months from the Cessation Date by reason of Participant’s Termination of Service for any reason other than due to death, Disability or by a Participating Company for Cause;
(c)    Except as the Administrator may otherwise approve, immediately upon the earlier of (i)] the Cessation Date by reason of Participant’s Termination of Service by a Participating Company for Cause and (ii) the date that the Participant materially breaches any Restrictive Covenant Agreement (as defined below);
(d)    The expiration of twelve (12) months from the Cessation Date by reason of Participant’s Termination of Service due to Disability; and
(e)    The expiration of twelve (12) months from the Cessation Date by reason of Participant’s Termination of Service due to death.
Section 3.4    Tax Withholding. Notwithstanding any other provision of this Agreement:
(a)    The Participating Companies have the authority to deduct or withhold, or require Participant to remit to the applicable Participating Company, an amount sufficient to satisfy any applicable federal, state, local and foreign taxes (including the employee portion of any FICA obligation) required by Applicable Law to be withheld with respect to any taxable event arising pursuant to this Agreement. The Participating Companies may withhold or Participant may make such payment in one or more of the forms specified below:
(i)    by cash or check made payable to the Participating Company with respect to which the withholding obligation arises;
(ii)    by the deduction of such amount from other compensation payable to Participant;
(iii)    with respect to any withholding taxes arising in connection with the exercise of the Option, with the consent of the Administrator, by requesting that the Participating Companies withhold a net number of vested Shares otherwise issuable upon the exercise of the Option having a then current fair market value not exceeding the amount necessary to satisfy the withholding obligation of the Participating Companies
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based on the applicable statutory withholding rates in Participant’s applicable jurisdictions for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such taxable income;
(iv)    with respect to any withholding taxes arising in connection with the exercise of the Option, with the consent of the Administrator, by tendering to the Company vested Shares held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences and having a then current fair market value not exceeding the amount necessary to satisfy the withholding obligation of the Participating Companies based on the applicable statutory withholding rates in Participant’s applicable jurisdictions for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such taxable income;
(v)    with respect to any withholding taxes arising in connection with the exercise of the Option, through the delivery of a notice that Participant has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable to Participant pursuant to the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Participating Company with respect to which the withholding obligation arises in satisfaction of such withholding taxes; provided that payment of such proceeds is then made to the applicable Participating Company at such time as may be required by the Administrator, but in any event not later than the settlement of such sale; or
(vi)    in any combination of the foregoing.
(b)    With respect to any withholding taxes arising in connection with the Option, in the event Participant fails to provide timely payment of all sums required pursuant to Section 3.4(a), the Company shall have the right and option, but not the obligation, to treat such failure as an election by Participant to satisfy all or any portion of Participant’s required payment obligation pursuant to Section 3.4(a)(ii) or Section 3.4(a)(iii) above, or any combination of the foregoing as the Company may determine to be appropriate. The Company shall not be obligated to deliver any certificate representing Shares issuable with respect to the exercise of the Option to, or to cause any such Shares to be held in book-entry form by, Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of Participant resulting from the exercise of the Option or any other taxable event related to the Option.
(c)    In the event any tax withholding obligation arising in connection with the Option will be satisfied under Section 3.4(a)(v), then the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on Participant’s behalf a whole number of Shares from those Shares then issuable upon the exercise of the Option as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the tax withholding obligation and to remit the proceeds of such sale to the Participating Company with respect to which the withholding obligation arises. Participant’s acceptance of this Option constitutes Participant’s instruction and authorization to the Company and such brokerage firm to complete the transactions described in this Section 3.4(c), including the transactions described in the previous sentence, as applicable.
(d)    Participant is ultimately liable and responsible for all taxes owed in connection with the Option, regardless of any action any Participating Company takes with respect to any tax
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withholding obligations that arise in connection with the Option. No Participating Company makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or exercise of the Option or the subsequent sale of Shares. The Participating Companies do not commit and are under no obligation to structure the Option to reduce or eliminate Participant’s tax liability. The Company may refuse to issue any Shares to Participant until the foregoing tax withholding obligations are satisfied, provided that no payment shall be delayed under this Section 3.4(c) if such delay will result in a violation of Section 409A.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1    Person Eligible to Exercise. During the lifetime of Participant, only Participant may exercise the Option or any portion thereof. After the death of Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3 hereof, be exercised by Participant’s personal representative or by any Person empowered to do so under the deceased Participant’s will or under the then Applicable Laws of descent and distribution.
Section 4.2    Partial Exercise. Subject to Section 5.2, any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3 hereof.
Section 4.3    Manner of Exercise. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company (or any third party administrator or other Person designated by the Company), during regular business hours, of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3 hereof.
(a)    An exercise notice in a form specified by the Administrator, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Administrator;
(b)    The receipt by the Company of full payment for the Shares with respect to which the Option or portion thereof is exercised, in such form of consideration permitted under Section 4.4 that is acceptable to the Administrator;
(c)    The payment of any applicable withholding tax in accordance with Section 3.4;
(d)    Any other written representations or documents as may be required in the Administrator’s sole discretion to effect compliance with Applicable Law; and
(e)    In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any Person or Persons other than Participant, appropriate proof of the right of such Person or Persons to exercise the Option.
Notwithstanding any of the foregoing, the Administrator shall have the right to specify all conditions of the manner of exercise, which conditions may vary by country and which may be subject to change from time to time.
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Section 4.4    Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination thereof, at the election of Participant:
(a)    Cash or check;
(b)    With the consent of the Administrator, surrender of vested Shares (including, without limitation, Shares otherwise issuable upon exercise of the Option) held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences and having a fair market value on the date of delivery equal to the aggregate Exercise Price of the Option or exercised portion thereof;
(c)    Through the delivery of a notice that Participant has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Exercise Price; provided that payment of such proceeds is then made to the Company at such time as may be required by the Administrator, but in any event not later than the settlement of such sale; or
(d)    Any other form of legal consideration acceptable to the Administrator.
Section 4.5    Conditions to Issuance of Shares. The Company shall not be required to issue or deliver any certificate or certificates for any Shares or to cause any Shares to be held in book-entry form prior to the fulfillment of all of the following conditions: (a) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of the Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable, (c) the obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable, (d) the receipt by the Company of full payment for such Shares, which may be in one or more of the forms of consideration permitted under Section 4.4, and (e) the receipt of full payment of any applicable withholding tax in accordance with Section 3.4 by the Participating Company with respect to which the applicable withholding obligation arises.
Section 4.6    Rights as Stockholder. Neither Participant nor any Person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares purchasable upon the exercise of any part of the Option unless and until certificates representing such Shares (which may be in book-entry form) will have been issued and recorded on the records of the Company or its transfer agents or registrars and delivered to Participant (including through electronic delivery to a brokerage account). No adjustment will be made for a dividend or other right for which the record date is prior to the date of such issuance, recordation and delivery, except as provided in Article VIII of the Plan. Except as otherwise provided herein, after such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to such Shares, including, without limitation, the right to receipt of dividends and distributions on such Shares
Section 4.7    Restrictive Covenants. The Participant hereby acknowledges and agrees that any restrictive covenants or similar written agreements (the “Restrictive Covenant Agreements”) between such Participant and the Company or any other Participating Company are incorporated herein by reference, and that such agreements, as applicable, remain in full force and effect.
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ARTICLE V.
OTHER PROVISIONS
Section 5.1    Administration. The Administrator shall have the power to interpret the Plan, the Grant Notice and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan, the Grant Notice and this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator will be final and binding upon Participant, the Company and all other interested Persons. To the extent allowable pursuant to Applicable Law, no member of the Committee or the Board will be personally liable for any action, determination or interpretation made with respect to the Plan, the Grant Notice or this Agreement.
Section 5.2    Whole Shares. The Option may only be exercised for whole Shares.
Section 5.3    Option Not Transferable. Subject to Section 4.1 hereof, the Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the Shares underlying the Option have been issued, and all restrictions applicable to such Shares have lapsed. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. Notwithstanding the foregoing, with the consent of the Administrator, if the Option is a Non-Qualified Stock Option, it may be transferred to Permitted Transferees pursuant to any conditions and procedures the Administrator may require.
Section 5.4    Adjustments. The Administrator may accelerate the vesting of all or a portion of the Option in such circumstances as it, in its sole discretion, may determine. Participant acknowledges that the Option is subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan, including Article VIII of the Plan.
Section 5.5    Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Participant shall be addressed to Participant at Participant’s last email or physical address reflected on the Company’s records. By a notice given pursuant to this Section 5.5, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email (to Participant only) or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
Section 5.6    Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
Section 5.7    Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
Section 5.8    Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable
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Laws, including, without limitation, the provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to Applicable Law. To the extent permitted by Applicable Law, the Plan, the Grant Notice and this Agreement shall be deemed amended to the extent necessary to conform to Applicable Law.
Section 5.9    Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board, provided that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Option in any material way without the prior written consent of Participant.
Section 5.10    Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in Section 5.3 and the Plan, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
Section 5.11    Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Option, the Grant Notice and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
Section 5.12    Not a Contract of Employment. Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of any Participating Company or shall interfere with or restrict in any way the rights of any Participating Company, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause, except to the extent (a) expressly provided otherwise in a written agreement between a Participating Company and Participant or (b) where such provisions are not consistent with applicable foreign or local laws, in which case such applicable foreign or local laws shall control.
Section 5.13    Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
Section 5.14    Section 409A. This Option is intended to be exempt from Section 409A of the Code, such that no adverse tax consequences, interests, or penalties under Section 409A apply, and shall be interpreted consistent with such intent. However, notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without the Participant’s consent, amend this Agreement, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of the Option. The Company makes no representations or warranties as to the Option’s tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 5.14 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to the Option and will
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have no liability to the Participant or any other person if the Option is determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
Section 5.15    Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
Section 5.16    Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the right to receive Shares as a general unsecured creditor with respect to the Option, as and when exercised pursuant to the terms hereof.
Section 5.17    Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which shall be deemed an original and all of which together shall constitute one instrument.
Section 5.18    Broker-Assisted Sales. In the event of any broker-assisted sale of Shares in connection with the payment of withholding taxes as provided in Section 3.4(c) or the payment of the Exercise Price as provided in Section 4.4(c): (a) any Shares to be sold through a broker-assisted sale will be sold on the day the tax withholding obligation or exercise of the Option, as applicable, occurs or arises, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other participants in the Plan in which all participants receive an average price; (c) Participant will be responsible for all broker’s fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the proceeds of such sale exceed the applicable tax withholding obligation or Exercise Price, the Company agrees to pay such excess in cash to Participant as soon as reasonably practicable; (e) Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the applicable tax withholding obligation or Exercise Price; and (f) in the event the proceeds of such sale are insufficient to satisfy the applicable tax withholding obligation, Participant agrees to pay immediately upon demand to the Participating Company with respect to which the withholding obligation arises an amount in cash sufficient to satisfy any remaining portion of the applicable Participating Company’s withholding obligation.
Section 5.19    Incentive Stock Options. Participant acknowledges that to the extent the aggregate Fair Market Value of Shares (determined as of the time the option with respect to the Shares is granted) with respect to which Incentive Stock Options, which may include this Option (if applicable), are exercisable for the first time by Participant during any calendar year exceeds $100,000 or if for any other reason such Incentive Stock Options do not qualify or cease to qualify for treatment as “incentive stock options” under Section 422 of the Code, such Incentive Stock Options shall be treated as Non-Qualified Stock Options. Participant further acknowledges that the rule set forth in the preceding sentence shall be applied by taking the Option and other stock options into account in the order in which they were granted, as determined under Section 422(d) of the Code and the Treasury Regulations thereunder. Participant also acknowledges that an Incentive Stock Option exercised more than three (3) months after Participant’s
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Termination of Service, other than by reason of death or disability, will be taxed as a Non-Qualified Stock Option.
Section 5.20    Notification of Disposition. If this Option is designated as an Incentive Stock Option, Participant shall give prompt written notice to the Company of any disposition or other transfer of any Shares acquired under this Agreement if such disposition or transfer is made (a) within two (2) years from the Grant Date or (b) within one (1) year after the transfer of such Shares to Participant. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.
Section 5.21    Claw-back Provisions. The Option (including any proceeds, gains or other economic benefit the Participant actually or constructively receives upon exercise of the Option or the receipt or resale of any Shares underlying the Option) will be subject to any Company claw-back policy as in effect from time to time, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder).
* * * * *
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Document
Exhibit 10.13
JUSTWORKS, INC.
2022 INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Capitalized terms not specifically defined in this Restricted Stock Unit Grant Notice (the “Grant Notice”) have the meanings given to them in the 2022 Incentive Award Plan (as amended from time to time, the “Plan”) of Justworks, Inc. (the “Company”).
The Company hereby grants to the participant listed below (“Participant”) the Restricted Stock Units described in this Grant Notice (the “RSUs”), subject to the terms and conditions of the Plan and the Restricted Stock Unit Agreement attached hereto as Exhibit A (the “Agreement”), both of which are incorporated into this Grant Notice by reference. Each RSU is hereby granted in tandem with a corresponding dividend equivalent to the extent a portion of such RSU is vested, as further described in Article II of the Agreement (the “Dividend Equivalents”).
Participant:[Insert Participant Name]
Grant Date:[Insert Grant Date]
Number of RSUs:[Insert Number of RSUs]
Vesting Commencement Date:[Insert Vesting Commencement Date]
Vesting Schedule:[To be specified in individual agreements]
By Participant’s signature below or electronic acceptance or authentication in a form authorized by the Company, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement.
Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Grant Notice and the Agreement.
JUSTWORKS, INC.PARTICIPANT
By:By:
Print Name:Print Name:
Title:



Exhibit A
TO RESTRICTED STOCK UNIT GRANT NOTICE
RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the number of RSUs set forth in the Grant Notice.
ARTICLE I.
GENERAL
Section 1.1    Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice. For purposes of this Agreement,
(a)    “Cessation Date” shall mean the date of Participant’s Termination of Service (regardless of the reason for such termination).
(b)    “Participating Company” shall mean the Company or any of its parents or Subsidiaries.
Section 1.2    Incorporation of Terms of Plan. The RSUs and the shares of Common Stock issued to Participant hereunder (“Shares”) are subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
ARTICLE II.
AWARD OF RESTRICTED STOCK UNITS
Section 2.1    Award of RSUs and Dividend Equivalents.
(a)    In consideration of Participant’s past and/or continued employment with or service to a Participating Company and for other good and valuable consideration, effective as of the grant date set forth in the Grant Notice (the “Grant Date”), the Company has granted to Participant the number of RSUs set forth in the Grant Notice, upon the terms and conditions set forth in the Grant Notice, the Plan and this Agreement, subject to adjustment as provided in Article VIII of the Plan. Each RSU represents the right to receive one Share at the times and subject to the conditions set forth herein. However, unless and until the RSUs have vested, Participant will have no right to the payment of any Shares subject thereto. Prior to the actual delivery of any Shares, the RSUs will represent an unsecured obligation of the Company, payable only from the general assets of the Company.
(b)    The Company hereby grants to Participant an Award of Dividend Equivalents with respect to each RSU granted pursuant to the Grant Notice for all ordinary cash dividends that are paid to all or substantially all holders of the outstanding Shares between the Grant Date and the date when the applicable RSU is distributed or paid to Participant or is forfeited or expires. The Dividend Equivalents for each RSU shall be equal to the amount of cash that is paid as a dividend on one Share. All such Dividend Equivalents shall be credited to Participant and be deemed to be reinvested in additional RSUs as of the date of payment of any such dividend based on the Fair Market Value of a Share on such date. Each additional RSU that results from such deemed reinvestment of Dividend
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Equivalents granted hereunder shall be subject to the same vesting, distribution or payment, adjustment and other provisions that apply to the underlying RSU to which such additional RSU relates.
Section 2.2    Vesting of RSUs and Dividend Equivalents.
(a)    Subject to Participant’s continued employment with or service to a Participating Company on each applicable vesting date and subject to the terms of this Agreement, the RSUs shall vest in such amounts and at such times as are set forth in the Grant Notice. Each additional RSU that results from deemed reinvestments of Dividend Equivalents pursuant to Section 2.1(b) shall vest whenever the underlying RSU to which such additional RSU relates vests.
(b)    In the event Participant incurs a Termination of Service, except as may be otherwise provided by the Administrator or as set forth in a written agreement between Participant and the Company, Participant shall immediately forfeit any and all RSUs and Dividend Equivalents granted under this Agreement that have not vested or do not vest on or prior to the date on which such Termination of Service occurs, and Participant’s rights in any such RSUs and Dividend Equivalents that are not so vested shall lapse and expire.
Section 2.3
(a)    Distribution or Payment of RSUs. Participant’s RSUs shall be distributed in Shares (either in book-entry form or otherwise) within 60 days following the vesting of the applicable RSU pursuant to Section 2.2, and, in any event, no later than March 15th of the calendar year following the year in which such vesting occurred. Notwithstanding the foregoing, the Company may delay a distribution or payment in settlement of RSUs if it reasonably determines that such payment or distribution will violate federal securities laws or any other Applicable Law, provided that such distribution or payment shall be made at the earliest date at which the Company reasonably determines that the making of such distribution or payment will not cause such violation, as required by Treasury Regulation Section 1.409A-2(b)(7)(ii), and provided further that no payment or distribution shall be delayed under this Section 2.3(a) if such delay will result in a violation of Section 409A.
(b)    All distributions shall be made by the Company in the form of whole Shares, and any fractional share shall be distributed in cash in an amount equal to the value of such fractional share determined based on the Fair Market Value as of the date immediately preceding the date of such distribution.
Section 2.4    Conditions to Issuance of Certificates. The Company shall not be required to issue or deliver any certificate or certificates for any Shares or to cause any Shares to be held in book-entry form prior to the fulfillment of all of the following conditions: (a) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of the Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable, (c) the obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable, and (d) the receipt of full payment of any applicable withholding tax in accordance with Section 2.5 by the Participating Company with respect to which the applicable withholding obligation arises.
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Section 2.5    Tax Withholding. Notwithstanding any other provision of this Agreement:
(a)     The Participating Companies have the authority to deduct or withhold, or require Participant to remit to the applicable Participating Company, an amount sufficient to satisfy any applicable federal, state, local and foreign taxes (including the employee portion of any FICA obligation) required by Applicable Law to be withheld with respect to any taxable event arising pursuant to this Agreement. The Participating Companies may withhold or Participant may make such payment in one or more of the forms specified below:
(i)    by cash or check made payable to the Participating Company with respect to which the withholding obligation arises;
(ii)    by the deduction of such amount from other compensation payable to Participant;
(iii)    with respect to any withholding taxes arising in connection with the settlement of the RSUs, with the consent of the Administrator, by requesting that the Company withhold a net number of vested shares of Stock otherwise issuable pursuant to the RSUs having a then current fair market value not exceeding the amount necessary to satisfy the withholding obligation of the Participating Companies based on the applicable statutory withholding rates in Participant’s applicable jurisdictions for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such taxable income;
(iv)    with respect to any withholding taxes arising in connection with the settlement of the RSUs, with the consent of the Administrator, by tendering to the Company vested shares of Stock having a then current fair market value not exceeding the amount necessary to satisfy the withholding obligation of the Participating Companies based on the applicable statutory withholding rates in Participant’s applicable jurisdictions for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such taxable income;
(v)    with respect to any withholding taxes arising in connection with the settlement of the RSUs, through the delivery of a notice that Participant has placed a market sell order with a broker acceptable to the Company with respect to shares of Stock then issuable to Participant pursuant to the RSUs, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Participating Company with respect to which the withholding obligation arises in satisfaction of such withholding taxes; provided that payment of such proceeds is then made to the applicable Participating Company at such time as may be required by the Administrator, but in any event not later than the settlement of such sale; or
(vi)    in any combination of the foregoing.
(b)    With respect to any withholding taxes arising in connection with the RSUs, in the event Participant fails to provide timely payment of all sums required pursuant to Section 2.5(a), the Company shall have the right and option, but not the obligation, to treat such failure as an election by Participant to satisfy all or any portion of Participant’s required payment obligation pursuant to Section 2.5(a)(ii) or Section 2.5(a)(iii) above, or any combination of the foregoing as the Company may determine to be appropriate. The Company shall not be obligated to deliver any certificate representing shares of Stock issuable with respect to the RSUs to Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of
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Participant resulting from the vesting or settlement of the RSUs or any other taxable event related to the RSUs.
(c)    In the event any tax withholding obligation arising in connection with the RSUs will be satisfied under Section 2.5(a)(v), then the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on Participant’s behalf a whole number of shares from those shares of Stock then issuable to Participant pursuant to the RSUs as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the tax withholding obligation and to remit the proceeds of such sale to the Participating Company with respect to which the withholding obligation arises. Participant’s acceptance of this Award constitutes Participant’s instruction and authorization to the Company and such brokerage firm to complete the transactions described in this Section 2.5(c), including the transactions described in the previous sentence, as applicable.
(d)    Participant is ultimately liable and responsible for all taxes owed in connection with the RSUs, regardless of any action any Participating Company takes with respect to any tax withholding obligations that arise in connection with the RSUs. No Participating Company makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the RSUs or the subsequent sale of Shares. The Participating Companies do not commit and are under no obligation to structure the RSUs to reduce or eliminate Participant’s tax liability. The Company may refuse to issue any shares of Stock in settlement of the RSUs to Participant until the foregoing tax withholding obligations are satisfied, provided that no payment shall be delayed under this Section 2.5(c) if such delay will result in a violation of Section 409A of the Code.
Section 2.6    Rights as Stockholder. Neither Participant nor any Person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book-entry form) will have been issued and recorded on the records of the Company or its transfer agents or registrars and delivered to Participant (including through electronic delivery to a brokerage account). Except as otherwise provided herein, after such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to such Shares, including, without limitation, the right to receipt of dividends and distributions on such Shares.
Section 2.7    Restrictive Covenants; Forfeiture. The Participant hereby acknowledges and agrees that any restrictive covenants or similar written agreements (the “Restrictive Covenant Agreements”) between such Participant and the Company or any other Participating Company are incorporated herein by reference, and that such agreements, as applicable, remain in full force and effect. In the event the Participant materially breaches the Restrictive Covenant Agreements or any other written covenants between such Participant and any Participating Company, the Participant shall immediately forfeit any and all RSUs and Dividend Equivalents granted under this Agreement (whether or not vested), and Participant’s rights in any such RSUs and Dividend Equivalents shall lapse and expire.
ARTICLE III.
OTHER PROVISIONS
Section 3.1    Administration. The Administrator shall have the power to interpret the Plan, the Grant Notice and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan, the Grant Notice and this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the
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Administrator will be final and binding upon Participant, the Company and all other interested Persons. To the extent allowable pursuant to Applicable Law (and without limiting Section 10.7 of the Plan), no member of the Committee or the Board will be personally liable for any action, determination or interpretation made with respect to the Plan, the Grant Notice or this Agreement.
Section 3.2    RSUs Not Transferable. The RSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the Shares underlying the RSUs have been issued, and all restrictions applicable to such Shares have lapsed. No RSUs or any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.
Section 3.3    Adjustments. The Administrator may accelerate the vesting of all or a portion of the RSUs in such circumstances as it, in its sole discretion, may determine. Participant acknowledges that the RSUs and the Shares subject to the RSUs are subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan, including Article VIII of the Plan.
Section 3.4    Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Participant shall be addressed to Participant at Participant’s last email or physical address reflected on the Company’s records. By a notice given pursuant to this Section 3.4, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email (to Participant only) or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
Section 3.5    Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
Section 3.6    Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
Section 3.7    Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws, including, without limitation, the provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted, only in such a manner as to conform to Applicable Law. To the extent permitted by Applicable Law, the Plan, the Grant Notice and this Agreement shall be deemed amended to the extent necessary to conform to Applicable Law.
Section 3.8    Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board, provided that, except as may otherwise
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be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the RSUs in any material way without the prior written consent of Participant.
Section 3.9    Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in Section 3.2 and the Plan, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
Section 3.10    Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the RSUs (including RSUs that result from the deemed reinvestment of Dividend Equivalents), the Dividend Equivalents, the Grant Notice and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
Section 3.11    Not a Contract of Employment. Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of any Participating Company or shall interfere with or restrict in any way the rights of any Participating Company, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause, except to the extent (a) expressly provided otherwise in a written agreement between a Participating Company and Participant or (b) where such provisions are not consistent with applicable foreign or local laws, in which case such applicable foreign or local laws shall control.
Section 3.12    Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
Section 3.13    Section 409A. This Award is intended to be exempt from, or comply with, Section 409A, such that no adverse tax consequences, interest or penalties under Section 409A apply, and it shall be interpreted consistent with such intent. However, notwithstanding anything in the Plan, the Grant Notice or this Agreement to the contrary, the Administrator may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies and procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs and other interpretive authority that may be issued after an Award’s grant date. The Company makes no representations or warranties to an Award’s tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 3.13 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
Section 3.14    Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held invalid or unenforceable, such provision will be severable from, and such invalidity or
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unenforceability will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
Section 3.15    Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs and Dividend Equivalents.
Section 3.16    Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which shall be deemed an original and all of which together shall constitute one instrument.
Section 3.17    Broker-Assisted Sales. In the event of any broker-assisted sale of Shares in connection with the payment of withholding taxes as provided in Section 2.5(c): (a) any Shares to be sold through a broker-assisted sale will be sold on the day the tax withholding obligation, as applicable, occurs or arises, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other participants in the Plan in which all participants receive an average price; (c) Participant will be responsible for all broker’s fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the proceeds of such sale exceed the applicable tax withholding obligation, the Company agrees to pay such excess in cash to Participant as soon as reasonably practicable; (e) Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the applicable tax withholding obligation; and (f) in the event the proceeds of such sale are insufficient to satisfy the applicable tax withholding obligation, Participant agrees to pay immediately upon demand to the Participating Company with respect to which the withholding obligation arises an amount in cash sufficient to satisfy any remaining portion of the applicable Participating Company’s withholding obligation.
Section 3.18    Claw-back Provisions. The RSUs (including any proceeds, gains or other economic benefit the Participant actually or constructively receives upon distribution of the RSUs or the receipt or resale of any Shares underlying the RSUs) will be subject to any Company claw-back policy as in effect from time to time, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder).
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Document
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated September 17, 2021, in the Registration Statement on Form S-1 and related Prospectus of Justworks, Inc. for the registration of its Class A common stock.
/s/ Ernst & Young LLP
New York, New York
January 4, 2022