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As filed with the Securities and Exchange Commission on March 3, 2014.

Registration No. 333-          

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

Opower, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   7372   26-0542549

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

1515 North Courthouse Road, 8th Floor

Arlington, Virginia 22201

703.778.4544

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 

Daniel Yates

Chief Executive Officer

Opower, Inc.

1515 North Courthouse Road, 8th Floor

Arlington, Virginia 22201

703.778.4544

(Name, address, including zip code, and telephone number, including area code, of agent for service) 

 

 

 

Copies to:

 

Richard A. Kline, Esq.

Anthony J. McCusker, Esq.

Joseph C. Theis, Esq.

Goodwin Procter LLP

135 Commonwealth Drive

Menlo Park, California 94025

650.752.3100

 

Michael Sachse, Esq.

Senior Vice President and General Counsel Opower, Inc.

1515 North Courthouse Road, 8th Floor

Arlington, Virginia 22201

703.778.4544

 

Mark R. Fitzgerald, Esq.

Michael C. Labriola, Esq.

Wilson Sonsini Goodrich & Rosati, Professional Corporation

1700 K Street NW, Fifth Floor

Washington, District of Columbia 20006

202.973.8800

 

 

 

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:  ¨

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate

offering price(1)(2)

  Amount of
registration fee

Common Stock, $0.000005 par value per share

  $100,000,000   $12,880

 

 

(1)   Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)   Includes the aggregate offering price of additional shares that the underwriters have the option to purchase to cover overallotments, if any.

 

 

 

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 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this 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 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.

 

 

PROSPECTUS (Subject to completion)

 

Issued      , 2014

 

                Shares

 

LOGO

 

COMMON STOCK

 

 

 

Opower, Inc. is offering              shares of its common stock. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price of our common stock will be between $             and $             per share.

 

 

 

We have applied to list our common stock on the New York Stock Exchange under the symbol “OPWR.”

 

 

 

We are an “emerging growth company” under the U.S. federal securities laws and are subject to reduced public company reporting requirements. Investing in our common stock involves risks. See “Risk Factors” beginning on page 12.

 

 

 

PRICE $             A SHARE

 

 

 

   

Price to
    Public    

 

Underwriting
Discounts
and
Commissions(1)

 

Proceeds to

    Opower    

Per Share

  $            $            $         

Total

 

$                    

  $                       $                    

 

  (1)   See “Underwriters” for additional information regarding underwriting compensation.

 

We have granted the underwriters the right to purchase up to an additional                 shares of common stock to cover over-allotments.

 

The Securities and Exchange Commission and any state securities regulators have not approved or disapproved of 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 common stock to purchasers on             , 2014.

 

 

 

MORGAN STANLEY   GOLDMAN, SACHS & CO.
Allen & Company LLC   Pacific Crest Securities
Canaccord Genuity   Cowen and Company

 

            , 2014


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LOGO

 

INFORMATION IS POWER


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LOGO

 

POWERFUL SOFTWARE, POWERED BY DATA 1.4 MILLION households served in 2010 32.1 MILLION households and businesses served in 2013 1,900 GWh saved in 2013 100+ BILLION meter reads analyzed annually $234.1 MILLIONsaved by consumers in 2013* 40+ behavioral science techniques used in our products *at average U.S. electricity prices 52 MILLION households and businesses in the Opower data set 93 utility customers across 8 COUNTRIES 27 of the 50 LARGEST U.S. ELECTRIC UTILITIES 52 MILLION households and businesses in the Opower data set


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LOGO

 

This is OPOWER


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     12   

Special Note Regarding Forward-Looking Statements

     34   

Market and Industry Data

     35   

Use of Proceeds

     35   

Dividend Policy

     35   

Capitalization

     36   

Dilution

     38   

Selected Financial Data

     40   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     42   

Business

     63   
     Page  

Management

     79   

Executive Compensation

     85   

Certain Relationships And Related Party Transactions

     92   

Principal Stockholders

     95   

Description Of Capital Stock

     98   

Shares Eligible For Future Sale

     102   

Certain Material U.S. Federal Income Tax Consequences

     105   

Underwriters

     109   

Legal Matters

     116   

Experts

     116   

Additional Information

     116   
 

 

 

 

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. 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 filed with the Securities and Exchange Commission. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial condition, results of operations and prospects may have changed since such date.

 

Through and including             , 2014 (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 is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

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 in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.

 

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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 common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Opower,” “the company,” “we,” “us,” and “our” in this prospectus refer to Opower, Inc.

 

OPOWER, INC.

 

Overview

 

Opower is a leading provider of cloud-based software to the $2.2 trillion utility industry. Utilities use our software platform to deliver key customer-facing applications that reduce energy demand and improve customer perception of the utility. Our software analyzes energy data and presents personalized insights to consumers in order to motivate reductions in energy consumption. These reductions are valued as a source of energy much like a conventional power plant. We believe that we are poised to transform the way the utility industry meets energy demand.

 

Utilities face two critical challenges that our software is built to address. First, utilities are under political, regulatory and environmental pressure to build fewer power plants, find cleaner sources of fuel and keep rates low. In order to accomplish these goals, utilities implement energy efficiency and demand response programs, which reduce overall and peak usage. Regulatory mechanisms support these programs by compensating utilities for reducing usage. Second, utilities need to strengthen their customer relationships. In many parts of the world, utilities compete for customers, and therefore customer engagement is critical. In regulated markets, which include much of the United States, regulators reward utilities for improving customer satisfaction. Utilities committed an estimated $11 billion to energy efficiency, demand response and customer engagement programs in 2013 in an effort to address these two challenges.

 

Our software is replacing low-tech and hardware-intensive products. Alternative efficiency programs today primarily consist of subsidies for energy efficient products, such as air conditioners and light bulbs. A common residential demand response program is a decades-old hardware switch connected to a pager network that shuts off the consumer’s air conditioner. Utility marketing efforts are often limited to traditional mass market approaches, such as bus stop advertisements and television commercials. We are able to replace these programs because our software offers measurable results and a better return on investment to utilities when scaled. Our approach has improved customer sentiment metrics by a median of 6% and up to 10% in some cases and we helped utilities and their customers save over 1,900 gigawatt hours of energy in 2013.

 

We can embed our solutions within utilities’ websites, mobile applications and customer service interfaces, and deliver individualized emails, text messages, automated phone calls and mail. In the design of these consumer touch points, we apply behavioral science insights to actionable patterns identified by our proprietary data analytics engine, which analyzes hundreds of billions of energy usage data points. Our cloud-based platform is extensible and configurable, a necessity to accommodate our customers’ diverse needs on a single code base.

 

We have developed four interconnected solutions on our platform:

 

   

2007: Opower Energy Efficiency – Reports and alerts, via mail and email, that compare consumers’ energy use to their neighbors’ and provide targeted energy saving recommendations.

 

 

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2010: Opower Customer Engagement Web, mobile, digital alerts and customer service applications that improve customer experience and streamline operations.

 

   

2012: Opower Thermostat Management Mobile and web applications that connect to third-party thermostats in order to control and optimize peak and overall HVAC utilization.

 

   

2013: Opower Demand Response – A zero-hardware solution consisting of near real-time text messages, email and automated phone alerts that motivates peak reductions in energy consumption.

 

We generate revenue from utilities by selling primarily multi-year subscriptions to our software. As of December 31, 2013, we served 93 utility customers in eight countries, including 27 of the 50 largest electric utilities in the United States. We have the opportunity to expand within these existing customers; for example, the average penetration of our Energy Efficiency solution is approximately 10% of our utility clients’ customer base. We believe our addressable market includes 1,300 electric and gas utilities worldwide, serving 650 million households and 60 million businesses.

 

Because our clients often provide us all of their energy data even when launching smaller programs, we currently manage data representing 37% of all U.S. households. The scale and scope of this data enable us to better optimize the energy-saving performance of our programs and continually improve our pattern-matching algorithms. We share our proprietary cross-utility insights with our utility customers, and they see it as a valued benefit. We believe that as we grow, these network effects will continue to strengthen, and that these advantages give us a defensible leadership position.

 

We have experienced significant growth since our inception. Through our utility customers, we have increased the households we serve from 1.4 million in 2010 to 32.1 million in 2013. For the years ended December 31, 2011, 2012 and 2013, our revenue was $28.7 million, $51.8 million and $88.7 million, respectively, representing year-over-year revenue growth of 80% and 71%, respectively. We generated more than 90% of our revenue from annual recurring subscription fees in 2013. Because we believe our opportunity is large, we continue to invest significantly in our growth. As a result, we have generated net losses of $21.3 million, $12.3 million and $14.2 million in 2011, 2012 and 2013, respectively.

 

Utility Industry Background and Our Market Opportunity

 

Utilities operate in a highly regulated environment. Regulators review and approve capital expenditures and, in most markets, set the rates utilities charge their customers. In particular, regulators increasingly incentivize utilities to pursue energy efficiency and demand response, and place higher priority on better customer experience.

 

Key Industry Trends Affecting Utilities

 

Key trends affecting utilities include:

 

Regulators Prioritizing Energy Efficiency Over New Capacity. More than 25 U.S. states have enacted long-term energy efficiency resource standards, and these states account for over 61% of total U.S. electricity consumption. Similarly, the European Union adopted an Energy Efficiency Directive in October 2012 in order to ensure the achievement of its commitment to reduce emissions by 20% by 2020. In Asia and Latin America, rapid development, limited supply and government regulation and initiatives are also creating an imperative for energy saving measures.

 

Increasing Focus on Reducing Peak Demand. As it is for most large network providers, reducing peak demand is valuable for utilities. In fact, it has become even more valuable as peak supply prices have gone up and as changing regulations have made it easier to sell energy reductions on par with supply.

 

 

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Changing Consumer Expectations. The widespread adoption of smartphones, mobile apps and social networking tools has changed the way consumers interact with their service providers. The change in consumer expectations has led utilities to seek new communication tools. As a result, utilities are looking for services that can improve their relationship with their customers.

 

Increasing Data Available to Utilities. Smart meter rollouts continue to accelerate globally. According to a January 2013 IMS Research report, smart meter penetration is expected to increase from 18% of all electricity meters in 2011 to 35% of all meters in 2016. Smart meters generate over 700 times more data than traditional meters, and this large increase creates an opportunity for utilities to offer new services and analytics-driven insights for their customers. In addition, the emergence of WiFi-enabled thermostats is likely to increase available energy data even further.

 

Increasing Competition. Over the past two decades, many countries and some U.S. states have separated the retail sale of energy from the generation, distribution and transmission of power. In these markets, competition among retail providers can be high, and customer retention is a challenge with some utilities experiencing customer churn of more than 25% per year. In noncompetitive, or regulated, energy markets, other providers, such as rooftop solar contractors, are entering the market with products and services that threaten to disintermediate the utility. All of these challenges mean that utilities must build deeper relationships with their customers.

 

The Opportunity for the Opower Solution

 

We believe our solutions give utilities greater returns than their historical options and, as a result, we expect to continue to grow our share of these large markets over time.

 

   

Energy Efficiency. In the U.S. alone, utilities spent $6.9 billion on electric efficiency in 2012. Since 2007, this spending has grown at a 21% CAGR, according to a July 2013 report from the Institute for Electric Innovation.

 

   

Demand Response. The global demand response market is projected to grow from $3.0 billion in 2013 to $5.8 billion in 2020, representing a CAGR of 10%, according to a second quarter 2013 report published by Navigant Research.

 

   

Customer Engagement. We believe that customer engagement is at the intersection of a number of markets for utilities, including customer billing and information systems, home energy management solutions and smart grid analytics. These markets are expected to grow from $4.1 billion in 2013 to $12.1 billion in 2020, representing a 17% CAGR, according to Navigant Research and Greentech Media.

 

Our solutions address a portion of each of these markets. Based on our internal analysis and industry experience, we estimate our addressable market opportunity to be at least $11 billion annually. Our newest solutions, Thermostat Management and Demand Response, offer significant growth potential, but both are still in a nascent stage with an immaterial impact on our revenue to date.

 

Key Benefits to Utilities

 

The key benefits utilities derive from our solutions include:

 

Low Cost, Large Scale Energy Efficiency. We are able to cost-effectively drive energy efficiency results across millions of homes. As a result, for some utilities, our efficiency solution has become their single biggest source of residential energy savings.

 

Low Cost, Large Scale Residential Demand Response. Our software enables utilities to scale residential peak demand reductions by rapidly communicating with energy consumers.

 

 

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Improved Customer Satisfaction. Utilities have implemented our user-friendly solutions to increase customer satisfaction. We have surveyed over 30,000 energy consumers who receive our solutions. These consumers consistently report greater trust in their utility as a source of information, and they believe that the utility wants to help them save energy and money.

 

Reduced Cost to Serve. Utilities spend $6 billion annually on customer service. With our digital solutions, utilities can communicate with their customers through web and mobile applications, making interactions more cost effective and efficient. We believe this reduces customer service costs. Customer service software has been reducing the cost of service for a wide set of industries, but the utility industry has lagged behind.

 

Better Customer Engagement Technology. Our platform gives utilities the ability to deploy state-of-the-art technology for their customer communications, allowing them to reach and engage their customers across multiple channels with minimal effort. Much as next generation customer relationship management (“CRM”) software and digital marketing software have delivered significant value to enterprises globally, our solutions help utilities strengthen their relationships with their customers.

 

Network Effects. We have six years of experience working with industry leading utilities. Our large and growing energy dataset combined with our significant industry experience has caused many utilities to view us as a source of third-party benchmarking and industry knowledge.

 

Our Differentiated Approach

 

The key components of our differentiated approach are:

 

Highly Scalable Data Analytics Engine. We have built what we believe to be the most sophisticated data engine serving utilities. As of December 31, 2013, we have collected energy data from 52 million households and businesses aggregated from our utility customers. Our data analytics engine can process and analyze our vast data set and provide personalized insights to the households and businesses that our utility customers serve.

 

Cloud-Based Architecture. Our solutions are built on a cloud-based architecture and delivered through web and mobile applications, text message, email, phone and mail. We maintain a single version of our code base, which means that all of our customers receive new features and updates simultaneously. In an industry that is accustomed to long-term investments, the fact that our software is regularly updated at no added cost is a significant benefit.

 

Intuitive User Experience Informed by Behavioral Science. An intuitive user experience and behavioral science are at the core of all of our solutions. We seek to change the habits of consumers by presenting realistic goals, encouragement and rewards. We use more than 40 behavioral science techniques such as loss language, normative comparisons and reciprocity to encourage utility customers to optimize their energy consumption.

 

Track Record of Measurable Results. We design our products to deliver measurable outcomes, which are necessary for utilities to meet their energy efficiency and demand response targets. We have 189 client years of results, and we believe this track record gives us a significant advantage over our competitors. Our approach to savings has been approved by regulators in 30 states, and that track record has strengthened our brand.

 

 

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Our Growth Strategy

 

The key elements of our growth strategy include:

 

Expand With Existing Customers. We see a significant opportunity to grow our revenue simply by expanding our presence within our existing customer base. Currently, our energy efficiency reports are deployed to approximately 10% of households that our utility customers serve. Most of our utility customers initially purchase only one of our four solutions, and deploy that initial solution to only a portion of their customers. Because all of our easily integrated products help utilities improve their engagement with energy consumers, we believe that utilities will derive even greater benefits as they deploy additional solutions. Moreover, once a utility begins to send us its data, we can more easily roll out programs to additional households and businesses.

 

Win New Customers Globally. As of December 31, 2013, we had 93 utility customers in eight countries, yet we believe that there are approximately 1,300 utilities that could benefit from our solutions. To reach more of these potential customers, we are expanding our sales, marketing and regulatory efforts, in particular internationally.

 

Develop New Offerings on Our Industry Data Platform. Since we are a trusted partner, our customers often ask us to develop new offerings to meet their growing needs. These requests are increasingly central to our plans for growth. We have made, and will continue to make, significant investments to augment our platform to capture adjacent opportunities.

 

Focus on Gas and Electric Consumer Outcomes. From the outset, we have designed products that can deliver measurable changes in consumer behavior, which has been core to our success. We believe we can achieve more both with our existing solutions and through new products. We have focused and will continue to focus our research and development efforts to continue to improve outcomes for gas and electric consumers.

 

Risks Affecting Us

 

Our business, financial condition, results of operations and prospects are subject to numerous risks. These risks include:

 

   

We have a history of losses and we may not achieve or sustain profitability on a quarterly or annual basis.

 

   

Sales and implementation cycles to our customers can be lengthy and unpredictable.

 

   

We operate in a highly regulated business environment.

 

   

We are dependent on the utility industry, which has experienced increased and changing regulations.

 

   

A limited number of our utility customers are responsible for a significant portion of our bookings, revenue and cash flow.

 

   

We have experienced rapid growth and organizational change in recent periods.

 

   

The market for our products and solutions is still developing.

 

   

Utilities in critical markets may fail to collect data or may be unable to collect current data that we require to provide our products and solutions.

 

   

Our quarterly results are inherently unpredictable and subject to substantial fluctuations.

 

   

We operate in a competitive industry.

 

 

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Corporate Information

 

We were incorporated in Delaware in 2007. Our principal executive offices are located at 1515 North Courthouse Road, 8th Floor, Arlington, Virginia 22201, and our telephone number is (703) 778-4544. Our website address is www.opower.com. Information contained on or that can be accessed through our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.

 

“Opower” is our registered trademark in the United States, Australia, Canada, the European Community, Japan and New Zealand. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.

 

 

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THE OFFERING

 

Common stock offered by us

                    shares

Common stock to be outstanding after this offering

                    shares

Option to purchase additional shares from us

   We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional                  shares from us.

Use of proceeds

   We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $                 million (or approximately $                 million if the underwriters’ option to purchase additional shares in this offering is exercised in full), based upon an assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering 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 of this offering for working capital and other general corporate purposes, including investing further in our sales and marketing and research and development efforts. We intend to use proceeds from this offering to further grow our business and to fund our growth strategies discussed in this prospectus. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. See “Use of Proceeds” for additional information.

Concentration of ownership

   Upon completion of this offering, our executive officers and directors, and their affiliates, will beneficially own, in the aggregate, approximately         % of our outstanding shares of common stock.

Risk factors

   See “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our common stock.

New York Stock Exchange trading symbol

   “OPWR”

 

The number of shares of common stock that will be outstanding after this offering is based on 41,359,839 shares outstanding as of December 31, 2013, and excludes:

 

   

7,789,720 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $3.83 per share;

 

 

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1,093,326 shares of common stock issuable upon the vesting of restricted stock units that were outstanding as of December 31, 2013;

 

   

283,950 shares of common stock issuable upon the vesting of restricted stock units that were granted after December 31, 2013;

 

   

                 shares of common stock issuable upon the conversion of the subordinated convertible promissory note with a utility partner dated March 8, 2013, based on an assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus; and

 

   

6,529,852 shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of 1,529,852 shares of common stock reserved for future issuance under our 2007 Stock Plan as of December 31, 2013, which shares will be added to the shares to be reserved under our 2014 Stock Incentive Plan, and 5,000,000 shares of common stock reserved for future issuance under our 2014 Stock Incentive Plan, which will become effective in connection with this offering, and shares that become available pursuant to provisions thereof that automatically increase the share reserves under the 2014 Stock Incentive Plan each year.

 

Except as otherwise indicated, all information in this prospectus assumes:

 

   

the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 19,246,714 shares of common stock, the conversion of which will occur immediately prior to the completion of this offering;

 

   

the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering; and

 

   

no exercise by the underwriters of their option to purchase up to an additional                  shares of common stock from us in this offering.

 

 

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SUMMARY FINANCIAL DATA

 

The following tables summarize our historical financial data. We have derived the summary statement of operations data for the years ended December 31, 2011, 2012 and 2013 and the balance sheet data as of December 31, 2013 from our audited financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,  
     2011     2012     2013  
     (In thousands, except per share
amounts)
 

Consolidated Statements of Operations Data:

      

Revenue

   $ 28,746      $ 51,756      $ 88,703   

Cost of revenue(1)

     13,306        18,913        31,304   
  

 

 

   

 

 

   

 

 

 

Gross profit

     15,440        32,843        57,399   

Operating expenses(1):

      

Sales and marketing

     13,648        21,338        30,551   

Research and development

     14,372        16,134        27,087   

General and administrative

     8,716        7,730        13,578   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     36,736        45,202        71,216   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (21,296     (12,359     (13,817

Other income (expense), net

     (1     54        (321
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (21,297     (12,305     (14,138

Provision for income taxes

            27        23   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (21,297   $ (12,332   $ (14,161
  

 

 

   

 

 

   

 

 

 

Weighted-average common stock outstanding(2):

      

Basic and diluted

     17,836        19,442        21,121   

Net income (loss) per share(2):

      

Basic and diluted

   $ (1.19   $ (0.63   $ (0.67

Pro forma weighted-average common stock outstanding(2):

      

Basic and diluted

      

Pro forma net loss per share (unaudited)(2):

      

Basic and diluted

       $     

 

  (1)   Stock-based compensation was allocated as follows:

 

     Year Ended December 31,  
         2011              2012              2013      
     (In thousands)  

Cost of revenue

   $ 87       $ 137       $ 197   

Sales and marketing

     340         484         1,348   

Research and development

     382         447         939   

General and administrative

     151         119         1,141   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 960       $ 1,187       $ 3,625   
  

 

 

    

 

 

    

 

 

 
  (2)   See Note 10 to our audited financial statements for an explanation of the method used to calculate basic and diluted net loss per share attributable to common stockholders, pro forma basic and diluted net loss per share attributable to common stockholders and the weighted-average number of shares used in the computation of the per share amounts.

 

 

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     December 31, 2013  
     Actual     Pro Forma(1)      Pro Forma  As
Adjusted(2)(3)
 
     (In thousands)  

Balance Sheet Data:

       

Cash and cash equivalents

   $ 28,819      $                        $                    

Working capital (deficit)

     (11,851     

Property and equipment, net

     10,813        

Total assets

     63,135        

Deferred revenue

     52,390        

Total indebtedness

     3,673        

Total stockholders’ equity (deficit)

     (6,263     

 

  (1)   The pro forma column in the balance sheet data table above gives effect to (i) the filing of our amended and restated certificate of incorporation, (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 19,246,714 shares of common stock and (iii) the automatic conversion of all outstanding debt under a subordinated convertible promissory note with a utility partner dated March 8, 2013 into                  shares of common stock, based on an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, which conversion will occur prior to the completion of this offering, as if such conversion had occurred on December 31, 2013.
  (2)   The pro forma as adjusted column in the balance sheet data table above gives effect to the pro forma adjustments set forth in footnote 1 above and the sale and issuance by us of                  shares of common stock in this offering at an assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering 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.
  (3)   Each $1.00 increase or decrease in the assumed initial public offering price of $                 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the cash and cash equivalents, working capital (deficit), total assets and total stockholders’ equity (deficit) by $                 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the cash and cash equivalents, working capital (deficit), total assets and total stockholders’ equity (deficit) by $                 million assuming an initial public offering price of $                 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions payable by us.

 

     Year Ended December 31,  
     2011     2012     2013  
     (In thousands)  
Other Financial Metrics:       

Adjusted EBITDA

   $ (19,710   $ (9,573   $ (6,426

 

To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below between adjusted EBITDA and net loss, the most directly comparable financial measure as measured in accordance with U.S. generally accepted accounting principles (“GAAP”).

 

We have included adjusted EBITDA in this prospectus because it is a key measure used by our management to evaluate our operating performance, generate future operating plans and make strategic decisions. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management and board of directors.

 

 

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While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared in accordance with GAAP. Some of these limitations are:

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

   

adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

   

adjusted EBITDA does not include the impact of stock-based compensation;

 

   

adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us; and

 

   

other companies, including companies in our industry, may calculate adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure.

 

We believe it is useful to exclude non-cash charges, such as depreciation and amortization and stock-based compensation, from our adjusted EBITDA because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.

 

Because of the aforementioned limitations, you should consider adjusted EBITDA alongside other financial performance measures, including net loss, cash flow metrics and our financial results presented in accordance with GAAP. The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated:

 

     Year Ended December 31,  
     2011     2012     2013  
     (In thousands)  

Reconciliation of Net Loss to Adjusted EBITDA:

      

Net loss

   $ (21,297   $ (12,332   $ (14,161

Provision for income taxes

            27        23   

Other (income) expense, including interest

     1        (54     321   

Depreciation and amortization

     626        1,599        3,766   

Stock-based compensation

     960        1,187        3,625   
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (19,710   $ (9,573   $ (6,426
  

 

 

   

 

 

   

 

 

 

 

 

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RISK FACTORS

 

Investing in our 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 common stock. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be harmed. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.

 

Risks Related to Our Business

 

We have a history of losses and anticipate continued losses and negative operating cash flow for the foreseeable future, and we may not achieve or sustain profitability on a quarterly or annual basis.

 

We have incurred significant losses to date, with an accumulated deficit of $83.2 million as of December 31, 2013. For the years ended December 31, 2011, 2012 and 2013, we incurred net losses of $21.3 million, $12.3 million and $14.2 million, respectively. We expect these losses to continue. We also anticipate negative operating cash flow for the foreseeable future, as we expect to incur significant operating expenses in connection with the continued development and expansion of our business. Many of these expenses relate to prospective customers that may never contract with us, as well as products that may not be introduced, that we may choose to discontinue, that may fail to achieve desired results or that may not generate revenue until later periods, if at all. We may not achieve or sustain profitability on a quarterly or annual basis.

 

Sales cycles and implementation times can be lengthy and unpredictable and require significant employee time and financial resources.

 

Sales cycles for our products tend to be long and unpredictable. Even after we have convinced prospective customers of the need for, and value of, our products and solutions, our customers are large organizations that frequently have extensive budgeting, procurement, competitive bidding, technical and performance reviews and regulatory approval processes that can slow down the sales process by months or even years. Utilities may choose, and many historically have chosen, to follow industry trends rather than be early adopters of new products or solutions, which can extend the lead time for or prevent acceptance of more recently introduced products or solutions such as ours. In many instances, a utility may require one or more pilot programs to test our products and solutions before committing to a larger deployment. These pilot programs may be quite lengthy and provide no assurance that they will lead to a larger deployment or future sales. The implementation and deployment of our solutions can be unpredictable due to contract negotiations and challenges with implementation, or critical dependencies, such as the installation of other products, including smart meters. Furthermore, the implementation and deployment of new products and solutions may require troubleshooting, which requires additional time and resources from us and our customers. These delays may lengthen our sales cycles.

 

Our sales cycle is typically 6 months to 24 months. This extended sales, implementation and deployment process requires our senior management and our sales and marketing and customer services personnel to dedicate significant time to sales, and to use significant financial resources without any assurance of success or recovery of our related expenses.

 

The lengthy sales cycle also makes it difficult to forecast new customer implementations and deployments, as well as the volume and timing of future agreements, which, in turn, makes forecasting our future results of operations challenging. In the event that we publicly disclose any forecasts of our future results of operations or other forward-looking metrics, and those forecasts ultimately turn out to be inaccurate, the value of our common stock could significantly decline.

 

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We provide services to utilities that operate in a highly regulated business environment, and regulatory requirements or need for regulatory approval could delay or reduce demand for our products, impose costs on us or make our products less attractive to our customers.

 

Our customers, products and solutions are subject to many federal, state, local and foreign laws and regulations. In many cases, our customers are subject to direct oversight from Public Utility Commissions, Public Service Commissions, Independent System Operators, the Federal Energy Regulatory Commission or other regulatory entities primarily focused on the energy utility sector. Applicable laws and regulations govern, among other things, utility demand for energy efficiency and demand response solutions, the data that we are able to handle and collect, utility structuring and incentives, the utility’s ability to spend money on our products and solutions and the methods and manners that we can use to contact utility customers. Depending on the solutions sought, prospective customers may be required to gain approval from any of these organizations prior to implementing our solutions, which could delay our ability to collect cash and recognize revenue.

 

We are dependent in part on regulations on the utility industry, and the changing regulatory landscape could alter our customers’ buying patterns.

 

The utility industry has been subject to increasing and changing regulations in recent years. We derive substantially all of our revenue from sales of products and solutions directly and indirectly to utilities, and this complex and difficult landscape poses a risk to us. We have experienced, and may in the future experience, variability in our results of operations on an annual and a quarterly basis as a result of these factors. Going forward, these factors could harm our financial condition and cash flows.

 

Changes in the regulatory conditions could reduce a customer’s interest in or ability to implement our products and solutions. Examples of market dynamics driven by regulation include:

 

   

energy efficiency goals;

 

   

interpretations of the energy savings credit attributed to our products;

 

   

regulated compensation associated with energy efficiency;

 

   

demand response goals;

 

   

rules concerning the peak reductions attributed to our products;

 

   

regulated compensation associated with demand response;

 

   

smart metering or advanced meter infrastructure deployments; and

 

   

data privacy.

 

Many regulatory jurisdictions have implemented rules that provide financial incentives for the implementation of energy efficiency and demand response technologies, either by providing rebates or through the restructuring of utility rates. In the past, we have seen demand for our solutions altered by changes in regulation. We have also had to limit or alter our offerings to comply with regulatory requirements, and these changes have affected our revenue. In addition, deregulation may change the incentives for our customers or prospective customers to use our solutions. If changes in regulation reduce or negatively alter the demand for our solutions, our business and results of operations could be harmed. In order to counteract this risk, we have invested significant time and effort in understanding and attempting to impact government decisions that we believe will affect our market. These efforts, however, have not always been successful and may not succeed in the future.

 

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If we fail to respond to evolving technological changes, our products and solutions could become obsolete or less competitive.

 

Our industry is highly competitive and characterized by new and rapidly evolving technologies, techniques, standards, regulations, customer requirements and frequent product introductions. Accordingly, our results of operations depend upon, among other things, our ability to develop and introduce new products and solutions, as well as our ability to improve existing products. The process of developing new technologies and products is complex. If we are unable to develop enhancements to, and new features for, our existing products or if we are unable to develop new products that keep pace with technological developments or industry standards, our business could be harmed.

 

We continue to invest in new product offerings and the success of those offerings is uncertain. A few examples of such product development challenges are:

 

   

Over the last three years, we have invested significant resources in developing a thermostat offering. We have yet to see a significant return from that investment, as our development and sales growth has been slowed by market challenges. These challenges may continue, and our investment in this area may not yield returns.

 

   

We are developing an offering tailored specially for small and medium-sized businesses. The market for this offering is unproven, and our ability to successfully deliver the results our customers seek is uncertain.

 

   

We have invested considerable resources in developing a demand response offering. While the early results have been promising, it is possible that the market could be smaller than we have expected or that our product will not function as intended.

 

   

We also have other products in development; it is possible that none of those products will prove to be successful.

 

All of our research and development efforts are dependent upon our ability to deliver products and functionality in a timely and efficient manner. In the past, we have experienced delays delivering products, and while we have taken steps to improve the predictability of our research and development efforts, those efforts may not be successful. If we continue to experience delays in our ability to deliver new products and functionality, our business and growth rates would suffer.

 

Our success depends in part on our ability to deliver measurable outcomes, and our business may be harmed if our products became less effective or our results are questioned.

 

Our products deliver valuable measurable outcomes for our customers and receive favorable treatment from their regulators, both of which are important to our customers. Our ability to deliver expected results is dependent on numerous factors, including but not limited to the effectiveness of our approach and products, the cost of alternate sources of energy savings, the availability of data and our ability to effectively reach energy consumers. We may not be able to continue to deliver valuable measurable outcomes or we may find that our programs yield diminishing returns over time. In addition, it is possible that regulators will change their view of our results in a way that might harm our business overall. For example, if regulators were to treat our energy savings as less significant or less reliable than other efficiency programs, or if regulators were to alter how utilities are compensated for working with us, our business and results of operations may be harmed. If our ability to deliver results were to change, or if regulators were to view our results less favorably, our brand, business and results of operations may be harmed.

 

Because we recognize subscription revenue over the term of the contract, downturns or upturns in new sales will not be immediately reflected in our results of operations and may be difficult to discern.

 

We generally recognize subscription revenue from customers ratably over the terms of their contracts, which typically range from one to five years. As a result, most of the subscription revenue we report in each

 

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quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous periods. Consequently, a decline in new or renewed subscriptions in any single quarter will likely have only a small impact on our revenue results for that quarter, but will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our solutions, and potential changes in our pricing policies or rates of renewals, may not be fully reflected in our results of operations until future periods. We may be unable to adjust our cost structure to reflect the changes in revenue. In addition, a significant majority of our costs are expensed as incurred. As a result, increased growth in the number of our customers could result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.

 

A limited number of our utility customers are responsible for a significant portion of our revenue and cash flow. A decrease in sales to these utility customers or delays in customer implementation and deployments could harm our results of operations and financial condition.

 

We operate in a large and concentrated market. A substantial portion of our revenue, profitability and cash flow depends on a limited number of utility customers, and we cannot easily replace a lost customer. As a result, there may be significant variability in our quarterly results if we were to lose one or more of our large customers.

 

For the year ended December 31, 2012, our ten largest customers by revenue represented 61% of our total revenue, with two clients, National Grid and Pacific Gas and Electric Company (“PG&E”), representing more than 10% of our total revenue at 15% and 14%, respectively. For the year ended December 31, 2013 our ten largest customers by revenue represented 62% of our total revenue, with three clients, National Grid, PG&E, and Exelon each representing more than 10% of our total revenue at 14%, 13% and 11%, respectively. Many of our fees are not due until we have actually begun to deliver our solutions and, as a result, are subject to delay. We have contracted to provide multiple services to National Grid, PG&E and Exelon, including processing and analyzing data and displaying results to their customers. We entered into an implementation and licensing agreement with National Grid in June 2009, which was renewed and now expires in December 2015, and a renewed application services agreement with PG&E in December 2012 with a term of 3 years. We have also entered into multiple agreements with Exelon subsidiaries, including Baltimore Gas & Electric (“BGE”), PECO and Commonwealth Edison. We entered into an agreement with BGE in March 2011 with an initial term expiring in February 2015 and a renewed agreement with Commonwealth Edison in February 2011 with a term expiring in May 2014, subject to certain additional limitations on the initial term. National Grid, PG&E, BGE and Commonwealth Edison may generally terminate their respective agreements in each case for cause upon written notice of certain uncured material breaches of contract by us, upon the bankruptcy or insolvency of the other party or under certain other circumstances. In addition, National Grid, PG&E, BGE and Commonwealth Edison may generally terminate their respective agreements for convenience upon prior written notice.

 

We expect that a limited number of utility customers will continue to account for a substantial portion of our revenue in future periods. Changes in the business requirements, vendor selection or purchasing behavior of our utility customers could significantly decrease our sales.

 

Many of our customer agreements provide our customers with the ability to terminate the agreement for convenience, which may limit our ability to forecast our revenue accurately or could harm our results of operations and financial condition.

 

Many of our customer agreements, including National Grid and PG&E, are subject to customer termination for any reason, including for the customer’s convenience following a specified notice period. In limited circumstances, we may be required to provide refunds or sales credits in addition to the loss of future revenue from these customers. If customers terminate their agreements with us for convenience, our results of operations may be harmed and our revenue forecasts may be incorrect.

 

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We have experienced rapid growth and organizational change in recent periods. If we fail to manage our growth effectively, our financial performance may suffer.

 

We have substantially expanded our overall business, customer base, employee headcount and operations in recent periods both domestically and internationally. We increased our total number of full-time employees from 162 employees as of December 31, 2010 to 465 employees as of December 31, 2013. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, customer operations, research and development, sales and marketing, manufacturing, administrative, financial and other resources. We anticipate further growth in headcount will be required to address increases in our solution offerings and continued expansion. Our success will depend in part upon the ability of our management team to manage this growth effectively. To do so, we must continue to recruit, hire, train, manage and integrate a significant number of qualified managers and employees in specialized roles within our company, including in technology, sales and marketing. If our new employees perform poorly, or if we are unsuccessful in recruiting, hiring, training, managing and integrating these new employees, or retaining these or our existing employees, our business and results of operations may suffer.

 

In addition, to manage the expected growth of our headcount and operations, we will need to continue to improve our operational, financial, management and information technology infrastructure. Our anticipated additional headcount and capital investments will increase our costs, which will make it more difficult for us to address any future revenue shortfalls by reducing expenses in the short term. If we are unable to manage our growth successfully, our business and results of operations will be harmed.

 

The market for our products and solutions is still developing. If the market does not develop as quickly or as much as we expect, our business and growth rates could be harmed.

 

The market for our products and solutions is still developing, and it is uncertain whether our products and solutions will achieve and sustain high levels of demand and market acceptance, both domestically and internationally. Our near-term and long-term success will depend to a substantial extent on the willingness and ability of utilities, both domestically and internationally, to pursue energy efficiency, demand response and customer engagement programs. Utilities’ activities are governed by regulatory agencies, including public utility commissions, which may not create a regulatory environment that is conducive to the implementation of energy efficiency or demand response in a particular jurisdiction. Indeed, currently many utilities lack the economic motivation, regulatory requirements or financial incentives to deploy our technology. If utilities do not pursue energy efficiency, demand response or customer engagement or do so in fewer numbers or more slowly than we expect, our business and results of operations would be harmed.

 

Utilities in critical markets may fail to collect data or may be unable to collect current data that we require to provide our products and solutions.

 

Our cloud-based platform is dependent upon receiving specific data inputs from our customers such as current energy usage data. Without those inputs, our platform may be less reliable or effective or may not work and we may not be able to provide effective solutions. In markets where energy usage data is infrequently collected or where access to that data is restricted, including in international markets, we may prove unable to provide our products and solutions, or we may be forced to alter our products and solutions in a manner that reduces our ability to derive revenue from them. For example, the processes for data collection in Europe are still developing, and as a result, data may be more difficult to obtain or more expensive to access. If we are unable to access current data from our customers, our business and results of operations may be harmed.

 

Our quarterly results are inherently unpredictable and subject to substantial fluctuations and, as a result, we may fail to meet the expectations of securities analysts and investors, which could harm the trading price of our common stock.

 

Our results of operations, including our revenue, profitability and cash flows, may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control. While our revenue has increased in recent periods, our revenue may not continue to increase or may decrease on a quarterly or annual basis.

 

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Factors that may affect the unpredictability of our quarterly results and cause our stock price to fluctuate include, but are not limited to:

 

   

long, and sometimes unpredictable, sales and customer implementation and deployment cycles;

 

   

changes in the mix of products and solutions sold;

 

   

our dependence on a limited number of customers;

 

   

the timing of deployment of our products and solutions by our customers, which can have a material effect on when we recognize related revenue under our revenue recognition policies;

 

   

changing market and competitive conditions;

 

   

failures of our solutions that may harm our reputation or result in contractual penalties or terminations;

 

   

product or project failures by our customers that result in the cancellation, slowing down or deferring of projects;

 

   

changes to our cost structure, including changes to our cost of postage, data acquisition, data storage and management, data security and labor;

 

   

delays in adopting our solutions associated with data privacy concerns;

 

   

changes in laws or regulations, directly affecting either our operations, those of our customers or utility consumers;

 

   

delays in regulatory approvals for our utility customers and utility customer implementations and deployments;

 

   

political and consumer sentiment and the related impact on the scope and timing of deployment of our products and solutions;

 

   

economic, regulatory and political conditions in the markets where we operate or anticipate operating;

 

   

the addition of new employees; and

 

   

extraordinary expenses such as litigation or other dispute-related settlement payments.

 

As a result, we believe that quarter-to-quarter comparisons of our results of operations are not necessarily a good indication of what our future performance will be. It is likely that in some future quarters our results of operations may be below the expectations of securities analysts or investors, in which case the price of our common stock would likely decline.

 

We operate in a competitive industry and our market share and results of operations may be harmed if we are unable to respond to our competitors effectively.

 

Competition in our market involves rapidly changing technologies, evolving regulatory requirements and industry expectations, frequent new product introductions and changes in customer requirements. To maintain and improve our competitive position, we must keep pace with the evolving needs of our utility customers and continue to develop and introduce new products, features and solutions in a timely and efficient manner. We compete with software suppliers to utilities. Our key competitors currently include Aclara, C3 Energy, Nest Labs (which was acquired by Google), Oracle, SAP and Tendril, as well as many other smaller providers. Certain of these companies have, and future competitors may have, substantially greater financial, marketing, technological and other resources than we do.

 

Additionally, we compete with energy efficiency providers that provide utilities with other efficiency programs and demand response companies that offer programs specifically focused on reduction in peak capacity. If these programs become more cost effective, it would harm our business. For example, if the cost of alternative efficiency approaches, such as light bulb replacement subsidies or home retrofits, decreased or if utilities could more easily deploy those measures on a large scale, our business could be harmed.

 

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We have also seen many companies imitate our products, solutions and tactics, and we expect that trend to continue. As we look to expand into new markets, we expect to face additional competitors that may be more established in specific geographies. We anticipate that in the future, additional competitors will emerge that offer a broad range of competing products and solutions.

 

Our business and financial performance could be harmed by changes in tax laws or regulations.

 

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Those enactments could harm our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. These events could require us or our utility customers to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our utility customers to pay fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future utility customers may elect not to purchase our products and solutions in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our utility customers’ and our compliance, operating and other costs, as well as the costs of our products. Further, these events could decrease the capital we have available to operate our business. The occurrence of any or all of these events could harm our business and results of operations.

 

In addition, we may be subject to sales, use and income tax audits by many tax jurisdictions throughout the world, many of which have not established clear guidance on the tax treatment of software-as-a-service based companies. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

 

Our results of operations may be harmed if we are required to collect sales taxes for our products and solutions in jurisdictions where we have not historically done so.

 

Historically, we have not collected sales tax from our customers nor have we remitted such taxes in many states where we sell our products and solutions. Although we believe we are not obligated to collect sales taxes from our customers in those jurisdictions, states or one or more countries may seek to impose sales or other tax collection obligations on us, including for past sales by us or our utilities. A successful assertion that we should be collecting additional sales or other taxes on our products or solutions could discourage customers from purchasing our solutions or otherwise harm our business and results of operations.

 

We rely on our management team and need additional key personnel to grow our business, and the loss of key employees or inability to hire key personnel could harm our business.

 

Our success and future growth depend on the skills, working relationships and continued services of our management team and other key personnel. The loss of any member of our senior management team, and in particular our Chief Executive Officer, President or other key executives, could harm our business. All of our officers are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace.

 

Volatility or lack of performance in our stock price may affect our ability to retain our senior management and key personnel. Many of our longest-tenured employees, including members of our senior management and other key personnel with deep institutional knowledge, hold significant vested stock options and shares of our common stock. Employees may be more likely to leave us if the shares they own or the shares underlying their vested stock options have significantly appreciated in value relative to the original purchase prices of the shares or the exercise prices of the options, or if the exercise prices of the options that they hold are significantly above the market price of our common stock. As a result of these factors, we may be unable to attract or retain qualified personnel. Our inability to retain the necessary personnel to run and grow our business could harm our business and results of operations.

 

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In addition, our future success will depend on our ability to attract, retain and motivate highly skilled management, product development, operations, sales, engineering and other personnel in the United States and abroad. Competition for these types of personnel is intense and we have experienced periods where we had difficulty hiring for critical roles. In particular, we have struggled at times to attract and hire sales executives and software developers who meet our standards. Even if we are able to hire qualified individuals, we may be unable to retain such individuals. Furthermore, if we hire from competitors or other companies, their former employers may attempt to assert that these employees or we have breached legal obligations, resulting in a diversion of our time and resources.

 

Postal charges are one of our most significant costs. If postal rates or mailing costs increase, our cost of delivering our solutions could increase.

 

In each country where we deliver mailed paper reports, we are dependent upon the government mail carrier to deliver our products. We have very little ability to control postal expenses and a change in postal expenses could have a significant impact on our business. For example, the United States Postal Service (“USPS”) delivers all of our U.S. mail correspondence, and we are bound to accept any postage rate increases enacted by the USPS. In the past, we have seen the specific postage rate applied to our products change due to a change in how the USPS interpreted its classification rules. In January 2013, the USPS determined that these reports should be charged first class postage rates rather than standard mail rates, thereby increasing our postage cost significantly. These increased charges continued through June 2013 when we were able to modify our product to comply with classification rules for postage at the standard rate. During the six months ended June 30, 2013, our payments to the USPS increased by $2.9 million as a result of these first class postage rates. We have encountered similar concerns from other carriers to a lesser extent as well. Such increased charges harmed our business and our results of operations during this period. If the USPS or other mail carriers change their position as to our mailed reports or we change our product offerings again, our future results of operations could be harmed.

 

If we cannot maintain our environmental focus as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contributes to our success.

 

We believe that a critical contributor to our success has been our focus on the environmental impact of our products and solutions. We believe that focus has driven innovation, increased attention to results and has allowed us to attract and retain highly talented individuals who are motivated by our mission driven culture. As we grow and change, we may find it difficult to maintain this critical aspect of our corporate culture. Any failure to preserve our culture could harm our ability to retain and recruit quality personnel, thereby harming our future success.

 

We have a limited operating history in an evolving industry, which makes it difficult to predict our future prospects and may increase the risk that we will not be successful.

 

We have a limited operating history in an evolving market that may not develop as expected. This limited operating history makes it difficult to effectively assess or forecast our future prospects. We have encountered and will continue to encounter risks and uncertainties frequently experienced by growing companies in the technology industry, such as the risks and uncertainties described in this prospectus. If our assumptions regarding these risks and uncertainties are incorrect or change due to changes in our markets, or if we do not address these risks successfully, our financial results and results of operations may differ materially from our expectations and our business may suffer.

 

Our marketing efforts depend significantly on our ability to receive positive references from our existing utility customers.

 

We operate in an industry with a limited number of buyers and reputation is particularly important as a result. Our customers often serve as references for each other, and they have been known to discuss the performance of our products and solutions with each other. Consequently, our marketing efforts depend significantly on our ability to call on our current utility customers to provide positive references. Given our

 

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limited number of utility customers, the loss or dissatisfaction of any customer could substantially harm our brand and reputation, inhibit the market acceptance of our products and solutions and impair our ability to attract new utility customers and maintain existing utility customers. Any of these consequences could harm our business, financial condition and results of operations.

 

Our business depends substantially on customers renewing, upgrading and expanding their solutions with us. Any decline in our customer renewals, upgrades and expansions may harm our future results of operations.

 

Our ability to grow depends substantially on our ability to expand our business with existing customers. To date, a significant portion of our growth has resulted from our ability to sell new products and solutions and expand existing products and solutions sold to current customers. We have limited historical data with respect to rates of customer renewals, upgrades and expansions so we may not accurately predict future trends in these areas. Our customers’ renewal rates may decline or fluctuate because of several factors, including their satisfaction or dissatisfaction with our solutions, the prices of our solutions, the prices of solutions offered by our competitors or reductions in our customers’ spending levels due to the macroeconomic environment or other factors. If our customers believe that our service offerings are not sufficiently scalable or effective and do not provide adequate security for the dissemination of information over the Internet, they will not expand their solutions with us, and our profitability and gross margin may be harmed. If our customers do not renew their subscriptions for our solutions, renew on less favorable terms or do not purchase additional functionality or subscriptions, our revenue may grow more slowly than expected or decline.

 

If the market for our cloud-based delivery model develops more slowly than we expect, our growth may slow or stall, and our results of operations would be harmed.

 

Use of cloud-based or software-as-a-service (“SaaS”) applications to manage and automate enterprise IT is at an early stage within our industry. We do not know whether the trend of adoption of enterprise SaaS solutions we have experienced in the past will continue in the future. In particular, many utilities have invested substantial personnel and financial resources to integrate legacy software into their businesses over time, and some have been reluctant or unwilling to migrate to SaaS. Furthermore, some utilities have been reluctant or unwilling to use SaaS because they have concerns regarding the risks associated with the security of their data and the reliability of the technology delivery model associated with these solutions. In addition, if other SaaS providers experience security incidents, loss of customer data, disruptions in delivery or other problems, the market for SaaS solutions as a whole, including our service, may be negatively impacted. If the adoption of cloud-based or SaaS solutions does not continue, the market for our solutions may stop developing or may develop more slowly than we expect, either of which would harm our results of operations.

 

From time to time, we have worked and expect to continue to work with third parties to pursue sales opportunities. If we were unable to establish and maintain these relationships, or if our initiatives with these third parties are unsuccessful, our business and future growth may be harmed.

 

For some of our existing and anticipated future products and solutions, we expect to maintain and may seek to establish relationships with third parties in order to take advantage of market opportunities. For example, certain third parties act as energy efficiency program administrators to utilities, system integrators and local partners in international markets, and we will need to work with such third parties to maintain or grow our business in certain territories. Our success in such circumstances may depend both on our ability to maintain a relationship with the third party and the third party’s ability to maintain a relationship with the utility. In addition, these third-party vendors may offer competing products, partner with other providers or otherwise choose not to partner with us. In the event that we are unable to establish or maintain new relationships on favorable terms, or at all, our ability to successfully sell our existing and anticipated future products and solutions could be harmed.

 

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Security breaches involving our products or solutions, publicized breaches in similar products and solutions offered by others, or the public perception of security risks or vulnerability created by the deployment of new technologies in general, whether or not valid, could harm our business.

 

The security measures we have integrated into our platform and solutions that are designed to detect unauthorized activity and prevent or minimize security breaches and the unauthorized collection, use and disclosure of personal data may not function as expected and our products and solutions, those of other companies with whose products our products and solutions are integrated or interact, or even the products of other solutions providers may be subject to significant real or perceived security breaches.

 

Our platform collects, stores, compiles and analyzes potentially sensitive information related to consumers’ energy usage. We store and/or come into contact with sensitive consumer information and data. If, in handling this information, we, our partners or our utility customers fail to comply with privacy or security laws, we could face significant legal, financial, and reputational exposure to claims of government agencies, regulatory bodies, utility customers and consumers whose privacy is compromised. Even the perception that we, our partners or our utility customers have improperly handled sensitive, confidential information could have a negative effect on our business. In addition, third parties may attempt to breach our security measures or inappropriately use or access our software or the network hardware through computer viruses, physical or electronic break-ins, and other means. If a breach is successful, sensitive information may be improperly obtained, manipulated or corrupted, and we may face legal and financial exposure. In addition, a breach could lead to a loss of confidence in our products and solutions and our business could be harmed.

 

Our products and solutions may also be integrated with or interface with products and solutions sold by third parties, and as a result rely on the security of those products and their secure transmission of proprietary data over the Internet and cellular networks. Because we do not have control over the security measures implemented by third parties, we cannot ensure the complete integrity or security of such third-party products and transmissions.

 

Concerns about security or customer privacy may result in the adoption of legislation that restricts the implementation of technologies like ours or requires us to make modifications to our products such as limiting how we collect, use and store data, which could significantly limit the deployment of our technologies or result in significant expense to modify our products.

 

Any real or perceived security breach could harm our reputation and result in significant legal and financial exposure, including increased remediation costs and security protection costs, inhibit market acceptance of our products and solutions, halt or delay the deployment by utilities of our products and solutions, cause us to lose customers, harm our reputation, trigger unfavorable legislation and regulatory action, or inhibit the growth of the overall market for new products and solutions being sold to the utility industry. Any of these risks could harm our business, financial condition and results of operations.

 

Interruptions or delays in service from our third-party data center facilities, or problems with the third-party hardware or software that we employ, could impair the delivery of our solutions and harm our business.

 

We currently utilize data center facilities in the United States and Canada that are operated by third parties. These facilities may be vulnerable to damage or interruption from, among other things, fire, natural disaster, power loss, telecommunications failure, war, acts of terrorism, unauthorized entry, human error and computer viruses or other defects. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. We rely on software and hardware technology provided by third parties to enable us to provide these solutions. Any damage to, or failure of, these third-party data centers or the third-party hardware and software we employ, could result in significant and lengthy interruptions in our ability to provide our solutions to our utility customers and their subscribers. We do not carry business interruption insurance sufficient to compensate us for potentially significant losses that result from service interruptions and system failures. Such interruptions and system failures could reduce our revenue and bookings, cause us to issue credits or pay penalties, cause customers to terminate their agreements with us and harm our reputation and our ability to attract new utility customers.

 

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If our products contain defects or otherwise fail to perform as expected our reputation could be damaged, we could lose market share and, as a result, our financial condition or results of operations could be harmed.

 

Our software platform is complex and may contain defects or experience failures due to any number of issues. The satisfactory performance, reliability and availability of our platform is critical to our success. From time to time, we have found defects in our software, and new errors in our existing software may be detected in the future. If any of our products contain a material defect, do not function as anticipated, or do not safeguard customer data consistent with industry standards we may have to devote significant time and resources to find and correct the issue. Any system delays, interruptions or disruptions to our servers caused by telecommunications failures, computer viruses, physical break-ins, domain attacks, hacking or other attempts to harm our systems or servers that results in the unavailability or slowdown of our products or loss of data would reduce the attractiveness of our products. We may also experience interruptions caused by reasons beyond our control. Efforts to correct problems could divert the attention of our management team and other relevant personnel from other important tasks. Such failings might damage our reputation and relationships with utilities; result in the loss of business to competitors; result in fines or regulatory penalties against us; and result in litigation against us.

 

Our technology, products and solutions have only been developed in the last several years and we have had only limited opportunities to deploy and assess their performance in the field at full scale.

 

The current generation of our platform and solutions has been developed in the last several years and is continuing to evolve. Deploying and operating our technology is a complex endeavor and, until recently, had been done primarily in pilot programs. As the size, complexity and scope of our deployments have expanded, we have been able to test product performance at a greater scale and in a variety of new geographic settings and environmental conditions. These larger deployments have presented a number of unforeseen operational and technical challenges, which in some cases have caused delays and required us to commit significant resources to address these challenges. As the number, size and complexity of our deployments grow, we may continue to encounter unforeseen operational, technical and other challenges, some of which could cause significant delays and high deployment costs, which in turn may delay our ability to collect revenue, trigger contractual penalties, result in unanticipated expenses or damage to our reputation, each of which could harm our business, financial condition and results of operations.

 

To date, we have derived our revenue from a limited number of products and solutions. Our efforts to expand our product portfolio may not succeed, and may reduce our revenue growth rate.

 

To date, we have derived our revenue from a limited number of products and solutions. Any factor adversely affecting sales of one or more of these products and solutions, including market acceptance, product competition, performance and reliability, reputation, price competition and economic and market conditions, could adversely affect our business and results of operations. Our plan to expand our product and solution portfolio may not be successful, which may harm the growth of our business and our results of operations.

 

Material defects or errors in our data collection and analysis systems could damage our reputation, result in significant costs to us and impair our ability to sell our products.

 

Our data collection and analysis systems are complex and may contain material defects or errors. In addition, the large amount of data that we collect may cause errors in our data collection and analysis systems. Any defect in our data collection software, network systems, statistical projections or other methodologies could result in:

 

   

loss of customers;

 

   

damage to our brand;

 

   

lost or delayed market acceptance and sales of our products and solutions;

 

   

interruptions in the availability of our products and solutions;

 

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the incurrence of substantial costs to correct any material defect or error;

 

   

sales credits, refunds or liability to our customers;

 

   

diversion of development resources; and

 

   

increased warranty and insurance costs.

 

Any material defect or error in our data collection systems could adversely affect our reputation and results of operations.

 

Our customers frequently insist on customized products, which are often difficult for us to deliver in a timely and cost-effective manner. If we are not able to find a long-term solution for customer customization requests, our business and results of operations may suffer.

 

Our customers often request customized service that is costly and time consuming for us to deliver. While we try to avoid customizing our product for individual customers, customizations continue to take up valuable research and development resources. We are taking steps to make customization requests easier to fulfill, but those efforts may prove to be unsuccessful. If we are unable to make customization requests easier to fulfill, customer satisfaction would be negatively affected and our business and results of operations may suffer.

 

Our business may be harmed if it is alleged or found that our products infringe the intellectual property rights of others.

 

Our industry is characterized by the existence of a large number of patents and by litigation based on allegations of infringement or other violations of intellectual property rights. From time to time, third parties have claimed and may continue to claim that we are infringing upon their patents or other intellectual property rights. In addition, we may be contractually obligated to indemnify our utility customers or other third parties that use or resell our products in the event our products are alleged to infringe a third party’s intellectual property rights. In many cases, these indemnification obligations are uncapped. Responding to such claims, regardless of their merit, can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand and cause us to incur significant expenses. Even if we are indemnified against such costs, the indemnifying party may be unable to uphold its contractual obligations. Further, claims of intellectual property infringement might require us to redesign affected products, delay affected product offerings, enter into costly settlement or license agreements or pay costly damage awards or face a temporary or permanent injunction prohibiting us from marketing, selling or distributing the affected products. If we cannot or do not license the alleged infringed technology on reasonable terms or at all, or substitute similar technology from another source, our revenue and earnings could be harmed. Additionally, our utility customers may not purchase our products if they are concerned that our products infringe third-party intellectual property rights. This could reduce the market opportunity for the sale of our products and solutions. The occurrence of any of these events may harm our business, financial condition and results of operations.

 

In addition to this general risk, we are aware of specific patents that we could be accused of infringing. We believe we would have valid defenses available to us should we be accused of such infringement, but our defense may not be successful. Even if our defenses are valid, however, an accusation of patent infringement would be time consuming and costly to defend.

 

The success of our business depends on our ability to protect and enforce our intellectual property rights.

 

We rely on a combination of patent, trademark, trade dress, copyright, unfair competition and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights. These laws, procedures and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed or misappropriated. Further, the laws of

 

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certain countries do not protect proprietary rights to the same extent as the laws of the United States and, therefore, in certain jurisdictions, we may be unable to protect our proprietary technology adequately against unauthorized third-party copying, infringement or use, which could harm our competitive position.

 

In recent years, in the United States and elsewhere, considerable doubt has been cast upon the validity of software patents as a whole. Were the underlying laws to change, such that we were no longer able to patent our software platform, our intellectual property rights might be more difficult to protect.

 

We cannot ensure that any of our pending applications will be granted or that any patents that may be issued will adequately protect our intellectual property. In addition, third parties have in the past and could in the future bring infringement, invalidity, co-inventorship, re-examination or similar claims with respect to any patents that may be issued to us in the future. Any such claims, whether or not successful, could be extremely costly to defend, divert management’s attention and resources, damage our reputation and brand, and harm our business and results of operations.

 

We may be required to spend significant resources to monitor and protect our intellectual property rights. In order to protect or enforce our patent rights, protect our trade secrets or know-how, or determine the enforceability, scope and validity of the proprietary rights of others, we may initiate patent litigation or other proceedings against third parties, such as infringement suits or interference proceedings. Any lawsuits or proceedings that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. Litigation and other proceedings also put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits or other proceedings that we initiate and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may harm our business, financial condition and results of operations.

 

Some of our products rely on technologies developed or licensed by third parties. We may seek to license technology from third parties for future products and solutions. We may not be able to obtain or continue to obtain licenses and technologies from these third parties on commercially reasonable terms or at all. Our inability to retain our current third-party licenses or obtain third-party licenses required to develop new products or product enhancements could require us to obtain alternate technology that may be of lower quality or performance standards or at greater cost, or could require that we change our product and design plans, any of which could limit or delay our ability to manufacture and sell our products.

 

We use open source software in our products and solutions that may subject our products and solutions to general release or require us to re-engineer our products and solutions, which may harm our business.

 

We use open source software in connection with our products and solutions. From time to time, companies that incorporate open source software into their products have faced claims challenging the ownership of open source software and compliance with open source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and make available any derivative works of the open source code on unfavorable terms or at no cost. Although we attempt to make sure open source software is only used in a manner that would not require us to disclose the source code to the related product or that would not otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release proprietary source code, pay damages for breach of contract, re-engineer our products, discontinue the sale of products in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts, any of which could harm our business, results of operations and financial condition.

 

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If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be harmed.

 

In addition to patent-pending technology, we rely on our unpatented technology and trade secrets. We generally seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements with our employees and contractors and with parties with which we do business. These agreements may be breached and we may not have adequate remedies for any such breach. We cannot be certain that the steps we have taken will prevent unauthorized use or reverse engineering of our technology. Moreover, our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our employees, contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. These disputes could result in substantial litigation costs, monetary damages or restrictions on our ability to offer our products and solutions. If our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and harm our business, financial condition and results of operations.

 

Developments in data protection laws and regulations may affect our solutions, which could harm our business.

 

Our solutions may be subject to data protection laws and regulations that impose a general framework for the collection, processing and use of personal data. Our platform and solutions rely on the transfer of data relating to individual energy usage and may be affected by these laws and regulations. It is unclear how the regulations governing the collection, use and disclosure of personal data in connection with privacy requirements will further develop in the United States and internationally, and to what extent this may affect our solutions. These developments could harm our business, financial condition and results of operations.

 

We are subject to international business uncertainties that could harm our business and results of operations or slow our growth.

 

Our ability to grow our business and our future success will depend to a significant extent on our ability to expand our operations and customer base worldwide. Operating in international markets requires significant resources and management attention and, other than our operations in the United Kingdom, France, Sweden, Australia, Hong Kong, Japan and New Zealand, we have limited experience entering new geographic markets. At present, we are opening an office in Odessa, Ukraine, to expand our research and development workforce. The Ukraine has experienced considerable political turmoil and this turmoil may impact our operations, which would in turn compromise our ability to develop our products at the pace and cost that we desire. This and other international efforts may not be successful. International sales and operations are subject to risks such as:

 

   

inability to localize our product;

 

   

lack of effectiveness of our solutions in new markets;

 

   

technology compatibility;

 

   

the imposition of government controls;

 

   

government expropriation of facilities;

 

   

lack of a well-established system of laws and enforcement of those laws;

 

   

lack of a legal system free of undue influence or corruption;

 

   

exposure to a business culture in which improper sales practices may be prevalent;

 

   

restrictions on the import or export of critical technology;

 

   

currency exchange rate fluctuations;

 

   

multiple and possibly overlapping tax regimes and adverse tax burdens;

 

   

compliance with anti-corruption and anti-bribery laws such as the U.S. Foreign Corrupt Practices Act or the U.K. Anti-Bribery Act of 2010;

 

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lack of availability of qualified third-party financing;

 

   

generally longer receivable collection periods than in the United States;

 

   

difficulties in staffing and managing foreign operations;

 

   

preference for local vendors;

 

   

burdens of complying with different permitting standards;

 

   

a wide variety of foreign laws and obstacles to the repatriation of earnings and cash;

 

   

difficulties in handling legal disputes in foreign jurisdictions; and

 

   

different or lesser protection of our intellectual property.

 

Fluctuations in the value of the U.S. dollar may impact our ability to compete in international markets. International expansion and market acceptance depend on our ability to modify our business approach and technology to take into account such factors as differing customer business models, product requirements and needs, the applicable regulatory and business environment, labor costs and other economic conditions. These factors may harm our future international sales and, consequently, our business, financial condition and results of operations and slow our future growth.

 

Federal, state and international laws regulating telephone and email marketing practices impose certain obligations on marketers, which could reduce our ability to expand our business.

 

We make telephone calls and send emails and text messages as part of our solutions. The United States regulates marketing by telephone, text message and email. The Telephone Consumer Protection Act prohibits companies from making telemarketing calls to numbers listed in the Federal Do-Not-Call Registry and imposes other obligations and limitation on making phone calls and sending text messages to consumers. The Federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (the “CAN-SPAM Act”) regulates commercial email messages and specifies penalties for the transmission of commercial email messages that do not comply with certain requirements, such as providing an opt-out mechanism for stopping future emails from senders. We may need to comply with such laws and any associated rules and regulations. States and other countries have similar laws related to telemarketing and commercial emails. Additional or modified laws and regulations, or interpretations of existing, modified or new laws, regulations and rules, could prohibit or increase the cost of engaging with energy consumers and impair our ability to expand the use of our solutions, including our demand response solution, to more customers. Failure to comply with obligations and restrictions related to telephone, text message and email marketing could subject us to lawsuits, fines, statutory damages, consent decrees, injunctions, adverse publicity and other losses that could harm our business.

 

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations and our ability to attract and retain qualified executives and board members.

 

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), as well as rules implemented by the Securities and Exchange Commission (“SEC”), the New York Stock Exchange (“NYSE”) and other applicable securities or exchange-related rules and regulations. In addition, our management team will also have to adapt to the requirements of being a public company. We expect complying with these rules and regulations will substantially increase our legal and financial compliance costs and make some activities more difficult, time consuming or costly, particularly when we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

 

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As a public company, we also expect that it may be more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required 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 individuals to serve on our board of directors or as our executive officers.

 

We are an “emerging growth company,” and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding an annual non-binding advisory vote on executive compensation and nonbinding stockholder approval of any golden parachute payments not previously approved. If we choose not to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, our auditors will not be required to attest to the effectiveness of our internal control over financial reporting. As a result, investors may become less comfortable with the effectiveness of our internal controls and the risk that material weaknesses or other deficiencies in our internal controls go undetected may increase. If we choose to provide reduced disclosures in our periodic reports and proxy statements while we are an emerging growth company, investors would have access to less information and analysis about our executive compensation, which may make it difficult for investors to evaluate our executive compensation practices. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions and provide reduced disclosure. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be harmed. We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a ‘‘large accelerated filer,’’ with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

 

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to ‘‘opt out’’ of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

We have identified a material weakness in our internal control over financial reporting. Although we expect to make every effort to address this material weakness, we may find that we are unable to improve our internal control over financial reporting, which could make it difficult to maintain an effective system of internal control over financial reporting, reduce the reliability of our financial reporting, harm investor confidence in our company and affect the value of our common stock.

 

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report we file with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting. However, our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an ‘‘emerging growth company’’ as defined in the JOBS Act if we take advantage of the exemptions available to us through the JOBS Act.

 

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We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404.

 

In connection with the preparation of our consolidated financial statements for the year ended December 31, 2013, we and our independent registered public accounting firm identified a material weakness in the design and operation of our internal control over financial reporting. The material weakness relates to our financial statement close process and the lack of sufficient financial accounting and reporting expertise commensurate with our financial reporting requirements during this period. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

We are currently in the process of remediating the material weakness and are taking numerous steps that we believe will address the underlying causes of the material weakness, primarily through the hiring of additional accounting and finance personnel with technical accounting and financial reporting experience, enhancing and segregating duties within our accounting and finance department, and enhancing our internal review procedures during the financial statement close process. If we fail to effectively remediate deficiencies in our control environment or are unable to implement and maintain effective internal control over financial reporting and disclosure controls to meet the demands that will be placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC.

 

Even if we are able to report our financial statements accurately and in a timely manner, if we do not make all necessary improvements to address the material weakness, continued disclosure of a material weakness will be required in future filings with the SEC, which could cause our reputation to be harmed and our stock price to decline.

 

We may not be able to remediate this or any future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls when they are required to issue such opinion, investors could lose confidence in the accuracy and completeness of our financial reports, which could harm our stock price.

 

Acquisitions of other businesses, products or technologies could disrupt our business and harm our financial condition and results of operations.

 

In order to remain competitive, obtain key competencies or accelerate our time to market, we may seek to acquire additional businesses, products or technologies. We have not completed any acquisitions to date and we therefore have no experience in successfully acquiring and integrating additional businesses, products or technologies. If we identify an appropriate acquisition candidate, we may not be successful in negotiating the terms of the acquisition, financing the acquisition or effectively integrating the acquired business, product or technology into our existing business and operations. We may have difficulty integrating acquired technologies or products with our existing products and solutions. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues. If we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted which could affect the market price of our stock. In addition, any acquisitions we are able to complete may not result in the synergies or other benefits we had expected to achieve, which could result in substantial write-offs. Further, contemplating or completing an acquisition and integrating an acquired business, product or technology will significantly divert management and employee time and resources.

 

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We may not be able to utilize a significant portion of our net operating loss carryforwards, which could harm our results of operations.

 

As of December 31, 2013, we had U.S. federal net operating loss carryforwards due to prior period losses of $58.3 million for U.S. federal purposes, which if not utilized will begin to expire in 2027. Realization of these net operating loss carryforwards is dependent upon future income, and there is a risk that our existing carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could harm our results of operations.

 

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), our ability to utilize net operating loss carryforwards or other tax attributes, in any taxable year may be limited if we have experienced or experience in connection with this offering or in the future an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws.

 

This offering or future issuances of our stock could cause an “ownership change.” It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could harm our results of operations.

 

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

 

In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions or unforeseen circumstances and may determine to engage in equity or debt financings or enter into credit facilities for other reasons. In the future, we may not be able to timely secure debt or equity financing on favorable terms, or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock, including shares of common stock sold in this offering. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be limited.

 

Our business could be severely harmed by natural disasters or other catastrophes.

 

A significant catastrophic event such as war, acts of terrorism, natural disasters, such as earthquakes, fire or floods, loss of power, computer viruses, or global threats, including, but not limited to, the outbreak of epidemic disease, could disrupt our operations and impair deployment of our solutions by our utility customers, interrupt critical functions, cause our suppliers to be unable to meet our demand for parts and equipment, reduce demand for our products, prevent our utility customers from honoring their contractual obligations to us or otherwise harm our business. To the extent that such disruptions or uncertainties result in delays or cancellations of the deployment of our products and solutions, our reputation, business, results of operations and financial condition could be harmed.

 

Risks Related to Ownership of Our Common Stock and this Offering

 

Concentration of ownership among our existing executive officers, directors and their affiliates and our 5% stockholders may prevent new investors from influencing significant corporate decisions.

 

Upon completion of this offering, our executive officers, directors and holders of 5% or more of our outstanding common stock will beneficially own, in the aggregate, approximately         % of our outstanding shares

 

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of common stock. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your interests. These stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders, which in turn could reduce the price of our common stock.

 

An active, liquid and orderly trading market for our common stock may not develop and you could lose all or part of your investment.

 

Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price of our common stock will be determined through negotiation with the underwriters. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares of common stock following this offering.

 

The price of our common stock may be volatile, and you could lose all or part of your investment.

 

The trading price of our common stock following this offering may fluctuate substantially and may be higher or lower than the initial public offering price. The trading price of our common stock following this offering will depend on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the trading price of our common stock include the following:

 

   

price and volume fluctuations in the overall stock market from time to time;

 

   

volatility in the market prices and trading volumes of technology stocks;

 

   

changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

   

sales of shares of our common stock by us or our stockholders;

 

   

failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;

 

   

the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;

 

   

announcements by us or our competitors of new products;

 

   

the public’s reaction to our press releases, other public announcements and filings with the SEC;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

actual or anticipated changes in our results of operations or fluctuations in our results of operations;

 

   

actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;

 

   

litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

 

   

developments or disputes concerning our intellectual property or other proprietary rights;

 

   

announced or completed acquisitions of businesses or technologies by us or our competitors;

 

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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

 

   

changes in accounting standards, policies, guidelines, interpretations or principles;

 

   

any significant change in our management; and

 

   

general economic conditions and slow or negative growth of our markets.

 

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

A total of             , or             %, of our total outstanding shares after the offering are restricted from immediate resale, but may be sold in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.

 

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering, and the perception that these sales could occur may also depress the market price of our common stock. Based on shares outstanding as of December 31, 2013, we will have              shares of common stock outstanding after this offering. Of these shares, the common stock sold in this offering will be freely tradable in the United States, except for any shares purchased by our “affiliates” as defined in Rule 144 under the Securities Act of 1933. The holders of substantially all of the shares of outstanding common stock have agreed with the underwriters, subject to certain exceptions described in “Underwriters,” not to dispose of or hedge any of their common stock during the 180-day period beginning on the date of this prospectus, except with the prior written consent of Morgan Stanley & Co. LLC and Goldman, Sachs & Co. After the expiration of the 180-day restricted period, these shares may be sold in the public market in the United States, subject to prior registration in the United States, if required, or reliance upon an exemption from United States registration, including, in the case of shares held by affiliates or control persons, compliance with the volume restrictions of Rule 144.

 

Upon completion of this offering, stockholders owning an aggregate of 34,593,054 shares will be entitled, under contracts providing for registration rights, to require us to register shares of our common stock owned by them for public sale in the United States. In addition, we intend to file a registration statement to register the approximately              shares reserved for future issuance under our equity compensation plans. Upon effectiveness of that registration statement, subject to the satisfaction of applicable exercise periods and, in certain cases, lock-up agreements with the representatives of the underwriters referred to above, the shares of common stock issued upon exercise of outstanding options will be available for immediate resale in the United States in the open market.

 

As restrictions end or pursuant to registration rights, sales of our common stock may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our common stock.

 

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Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware Law, could impair a takeover attempt.

 

Our certificate of incorporation, bylaws and Delaware law contain or will contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include or will include provisions:

 

   

creating a classified board of directors whose members serve staggered three-year terms;

 

   

authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

 

   

limiting the liability of, and providing indemnification to, our directors and officers;

 

   

limiting the ability of our stockholders to call and bring business before special meetings;

 

   

requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

 

   

controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings;

 

   

providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings;

 

   

establishing that the number of directors is set by the board of directors;

 

   

providing that board vacancies be filled by the board of directors; and

 

   

limiting the ability to remove directors other than for cause.

 

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

 

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

 

Any provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

 

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways that may not yield a return.

 

The net proceeds from the sale of our shares of common stock by us in this offering may be used for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire complementary businesses, products, solutions or technologies. However, we do not have any agreements or commitments for any acquisitions at this time. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be invested with a view towards long-term benefits for our stockholders and this may not increase our results of operations or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

 

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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 common stock of $             per share, based on the midpoint of the price range on the cover page of this prospectus, is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $              in the net tangible book value per share from the price you paid. In addition, following this offering, purchasers who bought shares from us in the offering will have contributed             % of the total consideration paid to us by our stockholders to purchase shares of common stock, in exchange for acquiring approximately             % of our total outstanding shares as of December 31, 2013 after giving effect to this offering. The exercise of outstanding stock options will result in further dilution.

 

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, or if our actual results differ significantly from our guidance, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who covers us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

In addition, from time to time, we may release earnings guidance or other forward-looking statements in our earnings releases, earnings conference calls or otherwise regarding our future performance that represent our management’s estimates as of the date of release. Some or all of the assumptions of any future guidance that we furnish may not materialize or may vary significantly from actual future results. Any failure to meet guidance or analysts’ expectations could have a material adverse effect on the trading price or trading volume of our stock.

 

We do not expect to declare any dividends in the foreseeable future.

 

We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements within the meaning of the federal securities laws, and these statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our future financial performance, including our revenue, cost of revenue, gross profit or gross margin and operating expenses;

 

   

the sufficiency of our cash and cash equivalents to meet our liquidity needs;

 

   

our predictions about industry and market trends;

 

   

our ability to increase the number of customers using our software;

 

   

our ability to attract and retain customers to use our products and solutions;

 

   

our ability to successfully expand in our existing markets and into new markets;

 

   

our ability to effectively manage our growth and future expenses;

 

   

our customers’ intention to deploy and further rollout our solutions;

 

   

our ability to maintain, protect and enhance our intellectual property;

 

   

our ability to comply with modified or new laws and regulations applying to our business; and

 

   

the attraction and retention of qualified employees and key personnel.

 

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

 

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

 

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

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MARKET AND INDUSTRY DATA

 

This prospectus contains statistical data, estimates and forecasts that are based on independent industry publications, such as those published by Greentech Media, the Institute for Electric Innovation and Navigant Research, or other publicly available information, as well as other information based on our internal sources. Although we believe that the third-party sources referred to in this prospectus are reliable, neither we nor the underwriters have independently verified the information provided by these third parties. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under “Risk Factors” and elsewhere in this prospectus.

 

USE OF PROCEEDS

 

We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $             million, based upon an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering 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. If the underwriters’ option to purchase additional shares from us is exercised in full, we estimate that our net proceeds would be approximately $             million, 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 of $             per share would increase or decrease the net proceeds that we receive from this offering by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of one million in the number of shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $             million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

 

The principal purposes of this offering are to create a public market for our common stock and facilitate our future access to the public equity markets. We currently intend to use the net proceeds that we will receive from this offering for working capital and other general corporate purposes, including investing further in our sales and marketing and research and development efforts. We intend to use proceeds from this offering to further grow our business and to fund our growth strategies discussed in this prospectus. We may also use a portion of the net proceeds that we receive to acquire or invest in complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or commitments with respect to any acquisitions or investments at this time.

 

We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering or the amounts we actually spend on the uses set forth above. Accordingly, we will have broad discretion in using these proceeds. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit, or direct or guaranteed obligations of the U.S. government.

 

DIVIDEND POLICY

 

We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors may deem relevant.

 

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CAPITALIZATION

 

The following table sets forth cash and cash equivalents, as well as our capitalization, as of December 31, 2013 as follows:

 

   

on an actual basis;

 

   

on a pro forma basis, giving effect to (i) the filing of our amended and restated certificate of incorporation, (ii) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 19,246,714 shares of common stock and (iii) the automatic conversion of all outstanding debt under a subordinated convertible promissory note with a utility partner dated March 8, 2013 into              shares of common stock, based on an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, which conversion will occur prior to the completion of this offering, as if such conversion had occurred on December 31, 2013; and

 

   

on a pro forma as adjusted basis, giving effect to the pro forma adjustments set forth above and the sale and issuance by us of              shares of common stock in this offering, based on an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering 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 pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other final terms of this offering. You should read this table together with our financial statements and related notes, and the sections titled “Selected Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.

 

     December 31, 2013  
     Actual     Pro Forma      Pro Forma
As Adjusted
 
     (In thousands, except share and per
share amounts)
 

Cash and cash equivalents

   $ 28,819      $                    $                
  

 

 

   

 

 

    

 

 

 

Notes payable

     2,418        

Stockholders’ equity (deficit):

       

Series A, B and C convertible preferred stock, par value $0.000005 per share: 19,428,252 shares authorized, 19,246,714 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

     67,693        

Preferred stock, par value $0.000005 per share: no shares authorized, issued and outstanding, actual; 25,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

            

Common stock, par value $0.000005 per share, 62,000,000 shares authorized, 22,113,125 shares issued and outstanding, actual; 500,000,000 shares authorized,                  shares issued and outstanding, pro forma; 500,000,000 shares authorized,              shares issued and outstanding, pro forma as adjusted

            

Additional paid-in capital

     9,407        

Treasury stock

            

Accumulated deficit

     (83,243     

Accumulated other comprehensive loss

     (120     
  

 

 

   

 

 

    

 

 

 

Total stockholders’ equity (deficit)

     (6,263     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ (3,845   $         $     
  

 

 

   

 

 

    

 

 

 

 

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If the underwriters’ option to purchase additional shares from us were exercised in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit) and shares issued and outstanding as of December 31, 2013 would be $             million, $             million, $             million and              million, respectively.

 

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our cash and cash equivalents, additional paid-in capital, and total stockholders’ equity (deficit) by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

 

The number of shares of our common stock outstanding in the table above excludes the following:

 

   

7,789,720 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $3.83 per share;

 

   

1,093,326 shares of common stock issuable upon the vesting of restricted stock units that were outstanding as of December 31, 2013;

 

   

283,950 shares of common stock issuable upon the vesting of restricted stock units that were granted after December 31, 2013; and

 

   

6,529,852 shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of 1,529,852 shares of common stock reserved for future issuance under our 2007 Stock Plan as of December 31, 2013, which shares will be added to the shares to be reserved under our 2014 Stock Incentive Plan, and 5,000,000 shares of common stock reserved for future issuance under our 2014 Stock Incentive Plan, which will become effective in connection with this offering, and shares that become available pursuant to provisions thereof that automatically increase the share reserves under the 2014 Stock Incentive Plan each year.

 

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DILUTION

 

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering.

 

Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value (deficit) as of December 31, 2013 was $(12.6) million, or $(0.57) per share. Our pro forma net tangible book value (deficit) as of December 31, 2013 was $             million, or $             per share, based on the total number of shares of our common stock outstanding as of December 31, 2013, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock as of December 31, 2013 into an aggregate of              shares of common stock and the automatic conversion of all outstanding debt under a subordinated convertible promissory note with a utility partner dated March 8, 2013, which conversions will occur immediately prior to the completion of this offering.

 

After giving effect to the sale by us of              shares of common stock in this offering at the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering 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, our pro forma as adjusted net tangible book value as of December 31, 2013 would have been $             million, or $             per share. This represents an immediate increase in pro forma net tangible book value of $             per share to our existing stockholders and immediate dilution of $             per share to investors purchasing shares of common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $               

Pro forma net tangible book value (deficit) per share as of December 31, 2013

   $                   

Increase in pro forma net tangible book value (deficit) per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

     
     

 

 

 

Dilution per share to new investors in this offering

      $    
     

 

 

 

 

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering 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 to new investors by $             , and would increase or decrease, as applicable, dilution per share to new investors in this offering by $             , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options to purchase common stock are exercised, new investors would experience further dilution. If the underwriters exercise their option to purchase additional shares from us in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering would be $             per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $             per share.

 

The following table presents, on a pro forma as adjusted basis as of December 31, 2013, after giving effect to the conversion of all outstanding shares of convertible preferred stock into common stock immediately prior to the completion of this offering, the differences between the existing stockholders and the new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us,

 

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the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock and convertible preferred stock, cash received from the exercise of stock options, and the average price per share paid or to be paid to us at an assumed offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average
Price
Per Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     41,359,839                $ 71,288,961                $ 1.72   

New investors

            
  

 

 

    

 

 

   

 

 

    

 

 

   

Totals

        100   $                      100   $       
  

 

 

    

 

 

   

 

 

    

 

 

   

 

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options to purchase common stock are exercised, new investors will experience further dilution.

 

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full from us, our existing stockholders would own             % and our new investors would own             % of the total number of shares of our common stock outstanding upon the completion of this offering.

 

The number of shares of our common stock to be outstanding after this offering is based on the number of shares of our common stock outstanding as of December 31, 2013 and excludes:

 

   

7,789,720 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $3.83 per share;

 

   

1,093,326 shares of common stock issuable upon the vesting of restricted stock units that were outstanding as of December 31, 2013;

 

   

283,950 shares of common stock issuable upon the vesting of restricted stock units that were granted after December 31, 2013;

 

   

             shares of common stock issuable upon the conversion of the subordinated convertible promissory note with a utility partner dated March 8, 2013, based on an assumed initial public offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus; and

 

   

6,529,852 shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of 1,529,852 shares of common stock reserved for future issuance under our 2007 Stock Plan as of December 31, 2013, which shares will be added to the shares to be reserved under our 2014 Stock Incentive Plan, and 5,000,000 shares of common stock reserved for future issuance under our 2014 Stock Incentive Plan, which will become effective in connection with this offering, and shares that become available pursuant to provisions thereof that automatically increase the share reserves under the 2014 Stock Incentive Plan each year.

 

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SELECTED FINANCIAL DATA

 

The following selected statement of operations data for the years ended December 31, 2011, 2012 and 2013 and the balance sheet data as of December 31, 2012 and 2013 have been derived from our audited financial statements included elsewhere in this prospectus. The selected statement of operations data for the year ended December 31, 2010 and the balance sheet data as of December 31, 2011 are derived from our audited consolidated financial statements not included in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the following selected financial and other data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,  
     2010     2011     2012     2013  
     (In thousands, except per share amounts)  

Consolidated Statements of Operations Data:

        

Revenue

   $ 10,636      $ 28,746      $ 51,756      $ 88,703   

Cost of revenue(1)

     4,563        13,306        18,913        31,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     6,073        15,440        32,843        57,399   

Operating expenses(1):

        

Sales and marketing

     7,120        13,648        21,338        30,551   

Research and development

     6,837        14,372        16,134        27,087   

General and administrative

     5,780        8,716        7,730        13,578   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     19,737        36,736        45,202        71,216   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (13,664     (21,296     (12,359     (13,817

Other income (expense), net

     1        (1     54        (321
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (13,663     (21,297     (12,305     (14,138

Provision for income taxes

                   27        23   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,663   $ (21,297   $ (12,332   $ (14,161
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common stock outstanding(2):

        

Basic and diluted

     16,398        17,836        19,442        21,121   

Net income (loss) per share(2):

        

Basic and diluted

   $ (0.83   $ (1.19   $ (0.63   $ (0.67

Pro forma net income (loss) per share (unaudited)(2):

        

Basic and diluted

         $     

 

  (1)   Stock-based compensation expense was allocated as follows:

 

     Year Ended December 31,  
       2010          2011          2012          2013    
     (In thousands)  

Cost of revenue

   $ 11       $ 87       $ 137       $ 197   

Sales and marketing

     120         340         484         1,348   

Research and development

     133         382         447         939   

General and administrative

     122         151         119         1,141   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 386       $ 960       $ 1,187       $ 3,625   
  

 

 

    

 

 

    

 

 

    

 

 

 
  (2)   See Note 10 to our audited financial statements for an explanation of the method used to calculate basic and diluted net loss per share attributable to common stockholders, pro forma basic and diluted net loss per share attributable to common stockholders and the weighted-average number of shares used in the computation of the per share amounts.

 

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     December 31,  
     2011      2012     2013  
     (In thousands)  

Balance Sheet Data:

       

Cash and cash equivalents

   $ 28,333       $ 24,597      $ 28,819   

Working capital (deficit)

     12,062         (1,729     (11,851

Property and equipment, net

     3,403         6,127        10,813   

Total assets

     36,779         42,637        63,135   

Deferred revenue

     17,132         32,395        52,390   

Total indebtedness

                    3,673   

Total stockholders’ equity (deficit)

     12,248         1,986        (6,263

 

Non-GAAP Financial Measures

 

Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. We define adjusted EBITDA as net loss adjusted to exclude income tax provision, other income (expense), including interest, depreciation and amortization and stock-based compensation. Below, we have provided a reconciliation of adjusted EBITDA to our net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. Our adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate adjusted EBITDA in the same manner as we calculate the measure.

 

For limitations of this non-GAAP financial measure and further explanation of such measure, see “Summary—Summary Financial Data—Other Financial Metrics.”

 

The following table presents a reconciliation of adjusted EBITDA to our net loss, the most comparable GAAP measure, for each of the periods indicated:

 

     Year Ended December 31,  
     2010     2011     2012     2013  
     (In thousands)  

Reconciliation of Net Loss to Adjusted EBITDA:

        

Net loss

   $ (13,663   $ (21,297   $ (12,332   $ (14,161

Provision for income taxes

                   27        23   

Other (income) expense, including interest

     (1     1        (54     321   

Depreciation and amortization

     202        626        1,599        3,766   

Stock-based compensation

     386        960        1,187        3,625   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (13,076   $ (19,710   $ (9,573   $ (6,426
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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 Financial and Other Data” and the consolidated financial statements and related notes that are 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 “Risk Factors” or in other parts of this prospectus.

 

Overview

 

Opower is a leading provider of cloud-based software to the $2.2 trillion utility industry. Utilities use our software platform to deliver key customer-facing applications that reduce energy demand and improve customer perception of the utility. Our software analyzes energy data and presents personalized insights to consumers in order to motivate reductions in energy consumption. These reductions are valued as a source of energy much like a conventional power plant. We believe we are poised to transform the way the utility industry meets energy demand.

 

Our software platform helps redefine the relationship between utilities and their customers, and we have a track record of motivating consumers to take action. Our growth has been fueled by our focus on big data software architecture, user experience and, above all, scalable results. We offer a growing set of integrated software solutions, Opower Energy Efficiency, Opower Customer Engagement, Opower Demand Response and Opower Thermostat Management. As of December 31, 2013, we had 93 customers in eight countries. Our customers include 27 of the 50 largest electric utilities in the United States, including Commonwealth Edison, Duke Energy, First Energy, National Grid, Pacific Gas & Electric, Southern California Edison and Xcel Energy, as well as E.ON, Electricitie de France and Energy Australia internationally. Our leadership position has enabled us to build one of the largest energy datasets in the world: we have energy data from 37% of U.S. households on our platform, as well as data from millions of international households.

 

We generate revenue primarily from subscription fees from utilities for use on our platform, generally based upon the number of households and businesses served and the solutions selected. Although the number of households and businesses has some impact on our revenue, the number of households or businesses served is not directly correlated with revenue. The price we receive per household or business varies for each customer. For this reason, we do not treat the number of households or businesses served as one of our key performance indicators for our business. However, we do monitor this metric to understand the general adoption of our solutions by our customers.

 

We deliver our solutions to utilities through our cloud-based platform. New customers typically contract with us for 12 to 36 months and then renew for one year or more. The weighted-average contract term in 2013 was 24.5 months.

 

 

Opower was formed in 2007. We currently have four major product solutions.

 

   

In 2007, we launched our first solution, Energy Efficiency. This solution focuses on reducing energy consumption through a data analytics-driven, behavioral science-informed program.

 

   

In 2010, we started offering Customer Engagement solutions, which provide utilities with a web application that delivers user-friendly energy consumption and billing information. This solution helps households and businesses make informed decisions, and thereby save money and energy. It offers utilities a better way to engage their customers, and thereby strengthen their brand.

 

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In 2012, we started offering Thermostat Management, which is designed to interact with third-party hardware and to deliver engaging user experiences while also creating energy efficiency and demand response opportunities for our utility customers.

 

   

In 2013, we launched Demand Response, aimed at reducing peak demand for energy while not requiring any hardware installations to function.

 

We believe both of these newest solutions, Thermostat Management and Demand Response, offer significant growth potential, but both are still in a nascent stage with an immaterial impact on our revenue to date.

 

Our growth is driven by acquiring new customers and expanding with existing customers. We continue to grow domestically and internationally. We continue to acquire new customers in the United States and internationally. Our number of utility customers has increased from 63, 61 of which resided in the United States, as of December 31, 2011 to 93 customers in 8 countries as of December 31, 2013. We have expanded with existing customers by cross selling different solutions and adding households and businesses that use our platform. The number of households and businesses on our platform has grown from 1.4 million at December 31, 2010 to 32.1 million at December 31, 2013.

 

Our investments have yielded significant revenue growth over the past few years. For the years ended December 31, 2011, 2012 and 2013, our revenue was $28.7 million, $51.8 million and $88.7 million, respectively. This represents revenue growth of 71% for our most recent fiscal year. Our net losses for the years ended December 31, 2011, 2012 and 2013 were $21.3 million, $12.3 million and $14.2 million, respectively. We have grown from 162 employees as of December 31, 2010 to 465 employees as of December 31, 2013.

 

Key Factors Affecting Our Performance

 

Investing in Growth. We will continue to focus on long-term growth. We believe that our market opportunity is large and underpenetrated and we will continue to invest significantly in sales and marketing to grow our customer base, expand with existing customers, grow internationally and drive additional revenue. We also expect to invest in research and development to enhance our platform and develop complementary solutions. To support our expected growth and our transition to a public company, we plan to invest in other operational and administrative functions. We expect to use the proceeds from this offering to fund these growth strategies and do not expect to be profitable in the near future.

 

We believe that our sales and marketing, research and development and general and administrative costs will decrease as a percentage of revenue in the long term as we are able to reach economies of scale. With this increased operating leverage, we expect our gross and operating margins to increase in the long term. However, in the short term, we intend to focus on the growth of the business and expect our total operating expenses to increase, and have a short-term negative impact on our adjusted EBITDA and operating margin.

 

Adding New Utility Customers. Our customer base is a key indicator of our market penetration, growth and future revenue. We believe that we are positioned to grow significantly for many years to come. With 93 customers as of December 31, 2013, we believe we have a substantial opportunity to expand our number of utility customers in the coming years. There are approximately 1,300 utilities worldwide with the scale and customer base that could successfully deploy our solutions. The number of new customers signed may vary period to period for several reasons, including the long length and general inconsistency of our sales cycle.

 

Expanding with and Cross-Selling to Existing Customers. Our existing customers continue to represent a large opportunity for us to expand to more households and businesses and to cross-sell additional solutions. As of December 31, 2013, only 16% of our customers have licensed more than one of our solutions. Additionally, in December 2013, we delivered our energy efficiency solution to nearly 12 million households across 93 utilities, representing approximately 10% of the 115 million households that those utilities served.

 

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Key Performance Indicators for Our Business

 

We regularly review a number of metrics to measure our performance, formulate financial projections, evaluate growth trends and determine business strategy. In addition to the metrics discussed below, we also review gross margin and operating expenses, which we discuss in the “Basis of Presentation” section.

 

     Year Ended December 31,  
     2011     2012     2013  
     (Dollars in thousands)  

Financial Metrics:

      

Revenue

   $ 28,746      $ 51,756      $ 88,703   

Period-over-period percentage increase

       80     71

Adjusted EBITDA(1)

   $ (19,710   $ (9,573   $ (6,426

Operating Metrics:

      

Total customers(2)

     63        78        93   

 

  (1)   We define adjusted EBITDA as net loss plus provision for income taxes; other (income) expense, including interest; depreciation and amortization; and stock-based compensation. Adjusted EBITDA is not calculated in accordance with GAAP. A reconciliation of this non-GAAP measure to the most directly comparable GAAP-based measure along with a summary of the definition and its material limitations are included in “Summary—Summary Financial Data—Other Financial Metrics.”
  (2)   We define our number of customers at the end of a period as the number of distinct buying entities with which we have signed agreements and who have committed to a minimum level of non-refundable fees for which services are to be provided or are being provided.

 

Basis of Presentation

 

Revenue

 

We offer subscriptions to our cloud-based data analytics platform. We derive our revenue from fees for these subscriptions. Subscription fees primarily pay for the ongoing integration of utility data into our software platform and the analysis and presentation of this data to energy consumers.

 

We recognize revenue on our subscription fees ratably over the contract term beginning on the date the service is available to the customer, which typically coincides with website launch or first report generation to households and businesses. Our fees are non-refundable once billed, are generally collected in advance of service delivery, and our contracts typically have a term of one to five years. We record amounts that have been billed as deferred revenue and these amounts are recognized evenly over the contract term. Because payment terms may be quarterly for some customers, the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time. Accordingly, we do not believe that change in deferred revenue is an accurate indicator of future revenues for a given period of time. Setup fees, which tend not to provide stand-alone value, are recognized over the expected life of the customer relationship. We will continue to evaluate the length of the amortization period of the setup fees as we gain more experience with customers.

 

Cost of Revenue

 

Cost of revenue generally consists of information services necessary to perform data analysis, the costs of data center capacity, employee-related expenses, including salaries, benefits and stock-based compensation related to implementing, operating and servicing our internal applications, channel delivery fees, which includes printing and mailing for delivery of reports to utility customers, and amortization of internally capitalized software that delivers our services. In addition, we allocate a portion of overhead costs, including rent, information technology and employee benefit costs, to cost of revenue.

 

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Our cost of revenue is expensed as incurred and includes amortization of capitalized software. However, the related revenue for delivery of our services is deferred until commencement of delivery services and is recognized ratably over the related subscription term. Therefore, costs associated with delivering these services are not always expensed in the same period that revenue is recognized. Customer costs tend to be higher in the initial subscription year of a program based on the effort required to develop system integrations and match customer data.

 

Operating Expenses

 

Sales and Marketing. Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses, stock-based compensation, travel and commissions. They also include the cost of advertising, online marketing, promotional events, corporate communications, product marketing and other brand-building activities. We expense sales commissions at the time of contract signing.

 

We intend to continue to invest in sales and marketing activities to expand our business domestically and internationally. We expect to hire additional sales personnel in the United States and internationally. We also intend to expand our sales offices globally, including in the United Kingdom, Singapore and Japan. As we scale our sales and marketing activities in the short to medium term, we expect these expenses to increase in absolute dollars as well as a percentage of revenue.

 

Research and Development. Research and development costs consist primarily of personnel and related expenses, including salaries, benefits and stock-based compensation, research and development consulting fees and allocated overhead. Development costs other than those qualifying for capitalization as internally developed software are expensed as incurred.

 

Our research efforts focus on improving our understanding of the way in which energy consumers use energy and the ways in which the behaviors of those users can be influenced. Additionally, development efforts have focused on creating a scalable data analytics platform with the capability of capturing, analyzing and reporting on large amounts of data captured in small intervals. We also continue to focus development efforts on adding new features and applications, and enhancing the functionality of our platform. In the short term, we expect research and development expenses to increase in absolute dollars as well as on a percentage of revenue basis as we add new platform functionality and expand our system infrastructure.

 

General and Administrative. General and administrative expenses consist primarily of personnel and related expenses for accounting, executive, finance, human resources, legal, information technology and security and recruiting staff, including salaries, benefits, bonuses, stock-based compensation, professional fees, insurance premiums and allocated overhead.

 

We expect our general and administrative expenses to increase as we continue to expand our operations, hire additional personnel and transition from a private to a public company. As we transition to being a public entity, we expect to incur additional expense related to increased accounting and auditing services, increased outside counsel assistance, increased compliance requirements including filings with the Securities and Exchange Commission, and enhancing our internal control environment.

 

Other Income and Expenses. Other income and expenses consist primarily of interest income, interest expense and gains and losses related to foreign currency transactions. Interest income is income received primarily from deposits of cash and cash equivalents. Interest expense relates to interest incurred related to capital equipment leasing and on our outstanding note payable. Foreign exchange gains and losses relate to transactions denominated in currencies other than the functional currency of our entities.

 

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Results of Operations

 

The following tables set forth selected consolidated statement of operations data and such data as a percentage of total revenue for each of the periods indicated.

 

     Year Ended December 31,  
     2011     2012     2013  
     (In thousands)  

Consolidated Statements of Operations Data:

      

Revenue

   $ 28,746      $ 51,756      $ 88,703   

Cost of revenue(1)

     13,306        18,913        31,304   
  

 

 

   

 

 

   

 

 

 

Gross profit

     15,440        32,843        57,399   

Operating expenses(1):

      

Sales and marketing

     13,648        21,338        30,551   

Research and development

     14,372        16,134        27,087   

General and administrative

     8,716        7,730        13,578   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     36,736        45,202        71,216   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (21,296     (12,359     (13,817

Other income (expense), net

     (1     54        (321
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (21,297     (12,305     (14,138

Provision for income taxes

            27        23   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (21,297   $ (12,332   $ (14,161
  

 

 

   

 

 

   

 

 

 

 

  (1)   Stock-based compensation was allocated as follows:

 

     Year Ended December 31,  
       2011          2012          2013    
     (In thousands)  

Cost of revenue

   $ 87       $ 137       $ 197   

Sales and marketing

     340         484         1,348   

Research and development

     382         447         939   

General and administrative

     151         119         1,141   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $ 960       $ 1,187       $ 3,625   
  

 

 

    

 

 

    

 

 

 

 

     Year Ended December 31,  
       2011         2012         2013    

Percentage of Revenue:

      

Cost of revenue

     46     37     35

Gross margin

     54        63        65   

Operating expenses:

      

Sales and marketing

     47        41        34   

Research and development

     50        31        31   

General and administrative

     30        15        15   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     127        87        80   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (74     (24     (16

Other income (expense), net

                     
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (74     (24     (16

Provision for income taxes

                     
  

 

 

   

 

 

   

 

 

 

Net loss

     (74 %)      (24 %)      (16 )% 
  

 

 

   

 

 

   

 

 

 

 

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Years Ended December 31, 2012 and 2013

 

Revenue

 

       Year Ended December 31,           
         2012              2013              $ Change              % Change      
     (Dollars in thousands)  

Revenue

   $ 51,756       $ 88,703       $ 36,947         71

 

Revenue increased as a result of the addition of new customers and increased customer penetration as compared to the prior year. The number of customers increased from 78 as of December 31, 2012 to 93 as of December 31, 2013. Of the $36.9 million increase in revenue, expansions with existing customers contributed $28.6 million and new customers contributed $8.3 million to revenue for the year ended December 31, 2013. We increased customer penetration through expanding the number of households and businesses on previously deployed solutions and cross selling existing customers additional products. Price changes did not have a material impact on the year-over-year increase in revenue. International revenue was 3% and 10% of revenue for the years ended December 31, 2012 and 2013, respectively. We expect international revenue to continue to increase as a percentage of revenue going forward as we continue to expand our international sales presence.

 

Cost of Revenue, Gross Profit and Gross Margin

 

     Year Ended December 31,        
         2012             2013             $ Change              % Change      
     (Dollars in thousands)  

Cost of revenue

   $ 18,913      $ 31,304      $ 12,391         66

Gross profit

     32,843        57,399        24,556         75

Gross margin

     63     65     

 

The increase in cost of revenue was due to both higher volume and an increased cost of delivery. Specifically, $3.9 million of the increase related to increased volume of services over the prior year. In addition, $3.6 million of the increase was related to a January 2013 U.S. Postal Service determination that mailed home energy reports should be charged first class postage rates for residential delivery. A subsequent modification to our energy reports allowed us to return to standard postage rates during the third quarter of 2013. We expect postage and delivery costs to further decrease as a percentage of revenue as we shift toward digital channels thereby increasing our gross margin in the long term.

 

Our gross margin improved as we were able to realize lower paper report production costs based on the scale we achieved, partially offset by the $3.6 million increase related to the U.S. Postal Service determination. On an absolute dollar basis, employee compensation and related costs increased by $1.8 million as our headcount increased from December 31, 2012 to December 31, 2013. These new employees were primarily focused on implementing and delivering our services. The new delivery of expanded products including those delivered via digital channels and costs associated with warehousing an increased amount of data increased costs by $1.1 million. The amortization of capitalized internal-use software costs increased by $0.8 million due to continued investment in our software products.

 

Sales and Marketing

 

       Year Ended December 31,          
         2012             2013             $ Change              % Change      
    

(Dollars in thousands)

 

Sales and marketing

   $ 21,338      $ 30,551      $ 9,213         43

Percentage of revenue

     41     34     

 

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From December 31, 2012 to December 31, 2013, the headcount of our sales and marketing staff increased, which combined with higher commission expense related to increased contract bookings, drove $6.3 million of the increased sales and marketing expenses. We also increased spending on sales and marketing-related travel and marketing events by $1.6 million in 2013. Allocations related to information technology and rent, market and regulatory consulting as well as customer relationship management software expenses further increased expenses by $1.0 million in 2013.

 

We expect sales and marketing expenses to increase in absolute dollars and as a percentage of revenue in the near to medium term, as we continue to increase the size of the sales and marketing staff both domestically and internationally. Additionally, we expect non-headcount driven marketing expenses will increase as we attempt to increase brand awareness and sponsor additional marketing events, including a user conference in February 2014, with the aim of attracting new customers and expanding our footprint with existing customers.

 

Research and Development

 

       Year Ended December 31,          
         2012             2013             $ Change              % Change      
    

(Dollars in thousands)

 

Research and development

   $ 16,134      $ 27,087      $ 10,953         68

Percentage of revenue

     31     31     

 

From December 31, 2012 to December 31, 2013, the headcount of our research and development staff increased, which drove $6.3 million of the increased research and development expense. Spending related to external consultants engaged to support product development increased by $2.0 million as compared to the prior year. Increased travel, information technology and rent allocations, as well as development and integrated software, further increased expenses by $1.1 million. Amortization of internally capitalized software related to research activities also increased by $0.7 million over the prior year. Additionally, during the year ended December 31, 2013, we recorded a non-cash impairment of $0.6 million related to a capitalized internal-use software project termination related to the development of a stand-alone mobile app.

 

We expect research and development expenses will increase in absolute dollars, and in the near term also as a percentage of revenue, as we continue to invest in new product capabilities and focus on developing our products for international markets, which may involve different requirements than domestic markets.

 

General and Administrative

 

       Year Ended December 31,          
         2012             2013             $ Change              % Change      
    

(Dollars in thousands)

 

General and administrative

   $ 7,730      $ 13,578      $ 5,848         76

Percentage of revenue

     15     15     

 

From December 31, 2012 to December 31, 2013, headcount increased across our accounting, finance, human resources, legal and recruiting departments, which drove $3.5 million of the increase in general and administrative expenses. This headcount growth was required to support overall company growth. Travel related to international expansion, software for back office systems, financial services and consultants and insurance related to our growth combined to increase expenses by $1.2 million in 2013. External legal fees increased by $0.6 million in conjunction with international expansion and other matters requiring specialist expertise.

 

We expect general and administrative expenses will continue to grow in absolute dollars as we continue to invest in our infrastructure with a greater number of employees. Additionally, as we plan to become a public reporting company, general and administrative expenses are likely to increase further.

 

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Other Income (Expense), Net

 

       Year Ended December 31,                
         2012             2013             $ Change             % Change      
    

(Dollars in thousands)

 

Other income (expense), net

   $ 54      $ (321   $ (375     N/M

Percentage of revenue

     0     0    

 

*N/M – Not meaningful.

 

For the year ended December 31, 2013, other income (expense), net, decreased primarily due to interest expense of $0.2 million related to our loan from E.ON SE and usage of capital leases to increase data center capacity. In addition, fluctuation in the value of foreign currency led to a $0.2 million foreign currency loss, primarily related to transactions denominated in Australian Dollars. We continue to monitor our foreign currency exposure to determine whether we should implement a foreign currency hedging program. These losses were partially offset by $0.2 million of rental income related to an office sublease agreement.

 

Years Ended December 31, 2011 and 2012

 

Revenue

 

     Year Ended December 31,                
         2011              2012              $ Change              % Change      
     (Dollars in thousands)  

Revenue

   $ 28,746       $ 51,756       $ 23,010         80

 

Existing customers contributed $14.0 million of additional revenue while new customers added $9.0 million in revenue in 2012. The number of customers increased from 63 at December 31, 2011 to 78 at December 31, 2012. International revenue as a percentage of revenue increased from none in 2011 to 3% in 2012.

 

Cost of Revenue, Gross Profit and Gross Margin

 

     Year Ended December 31,               
         2011             2012             $ Change              % Change      
     (Dollars in thousands)  

Cost of revenue

   $ 13,306      $ 18,913      $ 5,607         42

Gross profit

     15,440        32,843        17,403         113

Gross margin

     54     63     

 

The increase in cost of revenue was primarily driven by increased postage costs of $2.6 million, while report production costs held steady as volume increases were offset by volume production discounts, and labor costs increased by $1.3 million over the prior year.

 

Sales and Marketing

 

     Year Ended December 31,               
         2011             2012             $ Change              % Change      
     (Dollars in thousands)  

Sales and marketing

   $ 13,648      $ 21,338      $ 7,690         56

Percentage of revenue

     47     41     

 

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Salaries and related expenses drove $5.8 million of the increase in sales and marketing expenses. Of that amount, an increase of $1.6 million related to commissions. Travel, regulatory consultant and allocated rent expenses added $1.4 million of expense in 2012.

 

Research and Development

 

     Year Ended December 31,               
         2011             2012             $ Change              % Change      
     (Dollars in thousands)  

Research and development

   $ 14,372      $ 16,134      $ 1,762         12

Percentage of revenue

     50     31     

 

This increase was driven mainly by a headcount increase from December 31, 2011 to December 31, 2012. Salaries and related expenses increased by $3.6 million, offset by an increase of $3.0 million for capitalized software, which decreased research and development expenses. The percentage of development expenses that were capitalized increased from 2011 to 2012 due to a change in the nature of our development work, which caused research and development expenses to decrease as a percentage of revenue. We do not expect the trend of declining research and development expenses as a percentage of revenue to continue in the near future. An increase in depreciation related to infrastructure investment as well as increased allocated rent expenses contributed $1.1 million of the increased expense.

 

General and Administrative

 

     Year Ended December 31,              
         2011             2012             $ Change             % Change      
     (Dollars in thousands)  

General and administrative

   $ 8,716      $ 7,730      $ (986     (11 %) 

Percentage of revenue

     30     15    

 

The decrease in general and administrative expenses primarily related to $1.0 million decrease in rent expense due to increased allocation of rent expense to other departments based on headcount.

 

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Quarterly Results of Operations

 

The following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2013. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results of operations are not necessarily indicative of our results of operations for a full year or any future period.

 

    Three Months Ended  
    March 31,
2012
    June 30,
2012
    Sept 30,
2012
    Dec 31,
2012
    March 31,
2013
    June 30,
2013
    Sept 30,
2013
    Dec 31,
2013
 
    (In thousands)        

Consolidated Statements of Operations Data:

               

Revenue

  $ 10,178      $ 11,727      $ 13,955      $ 15,896      $ 19,023      $ 21,229      $ 22,491      $ 25,960   

Cost of revenue(1)

    4,595        3,945        5,012        5,361        7,888        7,198        7,758        8,460   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    5,583        7,782        8,943        10,535        11,135        14,031        14,733        17,500   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses(1):

               

Sales and marketing

    4,448        5,168        5,763        5,959        6,193        6,953        7,826        9,579   

Research and development

    3,692        4,026        3,998        4,418        5,380        5,622        7,242        8,843   

General and administrative

    1,692        1,707        1,966        2,365        2,380        2,786        3,242        5,170   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    9,832        10,901        11,727        12,742        13,953        15,361        18,310        23,592   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (4,249     (3,119     (2,784     (2,207     (2,818     (1,330     (3,577     (6,092

Other income (expense), net

    43        (37     51        (3     112        (640     393        (186
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (4,206     (3,156     (2,733     (2,210     (2,706     (1,970     (3,184     (6,278

Provision for income taxes

                  12        15        7        26        (9     (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (4,206   $ (3,156   $ (2,745   $ (2,225   $ (2,713   $ (1,996   $ (3,175   $ (6,277
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1)   Stock-based compensation was allocated as follows:

 

    Three Months Ended  
    March 31,
2012
    June 30,
2012
    Sept 30,
2012
    Dec 31,
2012
    March 31,
2013
    June 30,
2013
    Sept 30,
2013
    Dec 31,
2013
 
    (In thousands)        

Cost of revenue

  $ 34      $ 31      $ 35      $ 37      $ 34      $ 37      $ 58      $ 68   

Sales and marketing

    116        118        152        98        80        127        431        710   

Research and development

    98        107        120        122        167        172        323        277   

General and administrative

    34        31        31        23        31        94        366        650   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stock-based compensation

  $ 282      $ 287      $ 338      $ 280      $ 312      $ 430      $ 1,178      $ 1,705   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Three Months Ended  
     March 31,
2012
    June 30,
2012
    Sept 30,
2012
    Dec 31,
2012
    March 31,
2013
    June 30,
2013
    Sept 30,
2013
    Dec 31,
2013
 

Percentage of revenue:

                

Cost of revenue

     45     34     36     34     41     34     34     33

Gross profit

     55        66        64        66        59        66        66        67   

Operating expenses:

                

Sales and marketing

     44        44        41        37        33        33        35        37   

Research and development

     36        34        29        28        28        26        32        34   

General and administrative

     17        15        14        15        13        13        14        20   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     97        93        84        80        74        72        81        91   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (42     (27     (20     (14     (15     (6     (16     (23

Other income (expense), net

                                 1        (3     2        (1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (42     (27     (20     (14     (14     (9     (14     (24

Provision for income taxes

                                                        
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (42 %)      (27 %)      (20 %)      (14 %)      (14 %)      (9 %)      (14 %)      (24 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Quarterly Trends

 

Our quarterly revenue has increased sequentially for all periods presented, primarily due to an increasing number of customers and increased sales to our existing customers. We expect both upselling to the existing customer base as well as new customer acquisition to continue to be a significant driver of revenue growth.

 

Total costs and expenses increased sequentially for all periods presented, primarily due to increased salary and related costs coinciding with an increase in the number of employees required to run our growing business.

 

Gross margin has generally increased over time from 55% in the three months ended March 31, 2012 to 67% for the three months ended December 31, 2013. However, gross margin decreased in the three months ended March 31, 2013, primarily due to increased costs related to energy reports delivered by the U.S. Postal Service. In January 2013, the U.S. Postal Service determined that these reports should be charged first class postage rates rather than standard mail rates, thereby increasing our postage cost. These charges continued through June 2013 when we were able to modify our product and energy report postage charges returned to the standard rate as customers converted to modified energy reports. In the long term, we expect gross margin to continue to increase as digital delivery becomes a higher percentage of our product mix. However, in the short to medium term, our gross margin may decrease as we enter new international markets in which we have yet to achieve efficiencies of scale.

 

Sales and marketing expenses grew sequentially over the periods primarily due to an expanding sales and marketing team and related expenses. While growing, research and development expenses have fluctuated due to increased amounts being capitalized related to software developed for internal use. General and administrative expenses grew sequentially related to increased costs required to support a growing business and will continue to increase as we prepare to be a public company as evidenced by the increased expenses in the third and fourth quarters of 2013 as we prepared for this offering.

 

Our quarterly results may fluctuate due to various factors affecting our performance. As noted above, we recognize revenue from subscription fees ratably over the term of the contract. Therefore, changes in our contracting activity in the near term may not be apparent as a change to our reported revenue until future periods. Most of our expenses are recorded as period costs and thus factors affecting our cost structure may be reflected in our financial results sooner than changes to our revenue.

 

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Liquidity and Capital Resources

 

As of December 31, 2013, our principal source of liquidity was cash and cash equivalents of $28.8 million, which were held for working capital purposes. Since our inception, we have financed our operations primarily through private placements of preferred stock, customer payments, exercises of options to purchase shares of common stock and, more recently, capital lease obligations and the E.ON SE loan.

 

In November 2010, we entered into a loan and security agreement for a $3.0 million secured revolving credit facility. In August 2013, we entered into an amended loan agreement increasing the revolving credit facility to $15.0 million. The loan contains various covenants that limit our other indebtedness, investments, liens and transactions. In addition, the loan contains financial covenants that require a minimum adjusted quick ratio and minimum cash balances. As of December 31, 2013, we were in compliance with each of these financial covenants and have not yet drawn on the facility.

 

In March 2013, we entered into a convertible loan agreement with E.ON SE, one of our utility customers, pursuant to which E.ON SE issued us a $2.5 million loan with an interest rate of 5% per year, compounding annually. The note matures and accumulated interest is due on March 8, 2016. The note becomes convertible into common stock in the event of an initial public offering with independent proceeds exceeding $20.0 million, a qualified private financing with independent proceeds exceeding $10.0 million, or in a non-qualified private financing with proceeds exceeding $10.0 million. In conversion, the loan and accumulated interest may convert at the option of the holder on a dollar value basis at a 12% discount from the offering or financing per share price. If we were to experience a change in control prior to conversion, we would have to repay 1.5 times the principal balance of the note as well as any accrued interest. For the year ended December 31, 2013, we recognized revenue of $1.3 million from our relationship with E.ON SE.

 

We believe our current cash and cash equivalents, cash flows from operations and amounts available under our loan agreements will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

 

The following table summarizes our cash flows for the periods indicated:

 

     Year Ended December 31,  
     2011     2012     2013  
     (In thousands)  

Net cash provided by (used in) operating activities

   $ (9,758   $ (22   $ 6,667   

Net cash used in investing activities

     (3,226     (4,326     (7,328

Net cash provided by financing activities

     1,125        569        4,908   

Effect of foreign exchange rate changes on cash and cash equivalents

     (17     43        (25
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (11,876   $ (3,736   $ 4,222   
  

 

 

   

 

 

   

 

 

 

 

Operating Activities

 

For the year ended December 31, 2013, operating activities provided $6.7 million in cash as compared to less than $0.1 million used for the year ended December 31, 2012. Positive cash flows in 2013 were driven largely by slower than anticipated hiring as we continue to seek additional qualified personnel, leading to our headcount being lower than forecasted. For the year ended December 31, 2013, the increase was primarily related to an increase in both deferred revenue of $20.0 million and accrued expenses of $1.9 million, partially offset by a combined $10.4 million increase in accounts receivable and prepaid expenses, all due to the growth in our business.

 

For the year ended December 31, 2012, operations used less than $0.1 million in cash as compared to a use of $9.8 million for the year ended December 31, 2011. Cash used for operations in 2012 primarily related to our net loss of $12.3 million, which was more than offset by $15.3 million of deferred revenue as subscription fees are typically billed and collected in advance of earning revenue. In 2011, the use was primarily related to our net loss of $21.3 million, which was partially offset by an increase of deferred revenue of $6.7 million and an increase in liabilities of $1.8 million.

 

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As we increase investments in sales and marketing and research and development, we expect that we will experience a net usage of cash flows from operations for fiscal year 2014.

 

Investing Activities

 

Cash used in investing activities for the year ended December 31, 2013 was $7.3 million compared to $4.3 million for the year ended December 31, 2012. For the year ended December 31, 2012, cash used in investing activities was $4.3 million as compared to $3.2 million in 2011. The primary use of cash for investing activities was for the purchase of equipment in all periods and the payment of salaries relating to the development of capitalized software for internal use.

 

Financing Activities

 

Cash provided by financing activities for the year ended December 31, 2013 was $4.9 million compared to $0.6 million for the year ended December 31, 2012. The increase was related to a $2.5 million loan from E.ON SE in 2013 and $2.8 million from the issuance of common stock upon the exercise of stock options. For the year ended December 31, 2012, cash provided by financing activities was $0.6 million as compared to $1.1 million in 2011, a change mainly driven by a $0.5 million decrease in the amount of proceeds received for the sale or issuance of common stock.

 

Commitments

 

As of December 31, 2012 and 2013, we had $1.4 million and $1.1 million, respectively, in letters of credit outstanding in favor of certain landlords for office space and collateralized as part of our secured loan agreement. To date, no amounts have been drawn against the letters, which renew annually and mature at various dates through September 2015.

 

Our principal commitments primarily consist of obligations under leases for office space, obligations under capital leases for equipment and notes payable. As of December 31, 2013, the future non-cancelable minimum payments under these commitments were as follows:

 

            Payments Due by Period  
     Total      Less than
1 Year
     1-2
Years
     3-5
Years
     More than
5 Years
 

Facilities leases

   $ 8,870       $ 4,376       $ 2,829       $ 1,665       $   

Capital lease obligations

     1,355         515         515         325           

Notes payable, including interest

     2,894                         2,894           
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,119       $ 4,891       $ 3,344       $ 4,884       $   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Off-Balance Sheet Arrangements

 

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such entities often being referred to as structured finance or special purpose entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

Critical Accounting Policies and Estimates

 

We prepare our financial statements and related notes in accordance with generally accepted accounting principles in the United States. Preparing the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses during the applicable periods. We base our estimates on historical experience and various other factors we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates, which may affect future financial statement presentation.

 

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We believe the assumptions and estimates associated with the following polices have the greatest potential impact on our financial statements: revenue recognition, stock-based compensation and income taxes.

 

Revenue Recognition

 

We generate revenue from the sale of cloud-based software solutions and related services to utilities on a subscription basis. Our software license terms typically last between one and five years in length. Our subscription contracts do not provide the right to take possession of the supporting software and grant limited access to our platform. Therefore, our arrangements are accounted for as service contracts. Revenue is recognized on a straight-line basis over the subscription term once sustained data processing commences. Our arrangements do not include general rights of return.

 

We begin to recognize revenue when all of the following criteria have been met:

 

   

Persuasive evidence of an arrangement exists;

 

   

Delivery has occurred;

 

   

The price is fixed or determinable; and

 

   

Collection is reasonably assured.

 

We provide two main subscription service deliverables: (i) data analytics services and (ii) web platform services. Data analytics services provide utility end users with information about their energy consumption through web, mobile applications, text message, email and mail channels. Web, and increasingly mobile platform, services provide utility end users the access to information about usage through a platform accessible via the utility’s web and mobile site as well as through a custom application. Generally, we sell these services in conjunction with one another, however, each service is able to operate independently, may be sold separately and, therefore each of the two main services has standalone value. Because of this standalone value, revenue from these services are recognized separately.

 

The accounting for the components of our revenue is in accordance with the guidance around multiple element revenue transactions. This guidance requires the allocation of revenue based on Vendor-Specific Objective Evidence (“VSOE”), Third-Party Evidence (“TPE”) or Best Estimate of Sales Price (“BESP”) in descending order. We are not able to determine VSOE or TPE for our deliverables as we do not sell deliverables independently and there are no third-party offerings that reasonably compare to our service. Therefore, we determine the selling prices of subscriptions to our services based on BESP.

 

In determining BESP, we analyze previous sales of our deliverables. Specifically, we value our product deliverables based on the number of households served or quantity and level of services to be performed. The BESP is the average price per household or per service per year. We review our pricing trends quarterly to ensure revenue is recognized consistently over multiple periods.

 

After we have determined the BESP of revenue that can be allocated to each deliverable based on the relative selling price method for bundled arrangements, we recognize the revenue for each deliverable based on the type of deliverable. For subscription service deliverables, we recognize the revenue on a straight-line basis over the term of the client arrangement. The weighted-average contract term in 2013 was 24.5 months. If any portion of our fee is contingent on a future deliverable, that portion of the revenue is deferred until the contractual requirement is no longer contingent. For set-up fees we recognize revenue over the expected customer relationship period.

 

We charge customers set-up fees at the initiation of new contracts. The set-up fees are deferred and recognized ratably over the expected customer relationship period. The corresponding set-up costs are expensed in the periods in which they are incurred.

 

Deferred revenue represents amounts billed to customers for which revenue has not yet been recognized. Deferred revenue represents unearned fees for which services have not been delivered and are expected to be delivered in the future.

 

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Table of Contents

Stock-Based Compensation

 

We recognize compensation related to stock options, including employee, consultant and non-employee director awards in the financial statements based on fair value. We estimate fair value of each option award on the grant date using the Black-Scholes option pricing model. Using this fair value, we recognize share-based compensation expense on a straight-line basis, net of forfeitures, over the requisite service period, which is typically four years. The awards typically expire ten years from the grant date.

 

Option pricing models require the input of highly subjective assumptions, including the fair value of the underlying common stock, the expected price volatility of the stock, risk-free interest rate, the expected term of the option and the expected stock dividend yield. To value our options, we used our best estimates. These estimates involve inherent uncertainties and the application of substantial judgment. If different assumptions are used, our share-based compensation could be materially different in the future.

 

We used the following assumptions in valuing our stock options:

 

Fair Value of Common Stock. Our stock is not publicly traded and, therefore, we must estimate the fair value of common stock as discussed in “—Common Stock Valuations.”

 

Volatility. We use the historical volatilities of a selected peer group as we do not have sufficient trading history to determine the volatility of our common stock. To select our peer group, we consider public enterprise cloud-based application providers that focus on a particular industry and contain a marketing component within their service offering. We intend to continue to rely on this information until a sufficient amount of historical information regarding the volatility of our own stock becomes available, or unless the circumstances change such that the identified companies are no longer similar to us.

 

Expected Term. The expected term represents the period that our option awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term, we have based our expected term on the simplified method available under GAAP.

 

Risk-Free Interest Rate. We use the implied yield available on U.S. Treasury zero-coupon bonds with an equivalent remaining term of the options for each option group to represent the risk-free interest rate.

 

Dividend Yield. We have not paid and do not expect to pay dividends and, therefore, we use a zero-percent dividend rate.

 

Once we have determined an estimated fair value, we adjust that value for expected forfeitures to represent the value of the award that we expect to vest. We estimate forfeitures based on a historical analysis of our actual forfeiture experience by employee and non-employee class. We recognize the expense on a straight-line basis over the requisite service period of the award. At the end of each period, we review the estimated forfeiture rate and, as applicable, make changes to the rate calculations to reflect new developments.

 

Our stock-based compensation expense for restricted stock units (“RSUs”) is estimated at the grant date based on the fair value of our common stock. Under our Amended and Restated 2007 Stock Plan, we are able to grant RSUs to domestic and international employees and other service providers. These RSUs vest upon the satisfaction of both a service condition and a performance condition. The standard service condition for RSUs is satisfied over a period of four years. The performance condition will be satisfied on the ear1ier of (i) 180 days after the effective date of this offering or (ii) the date of a change in control. The RSU shares are to be delivered no later than 30 days following the satisfaction of both the service and performance conditions.

 

Common Stock Valuations

 

Using the Black-Scholes model to estimate the fair value of share-based awards requires that we also estimate the fair value of the underlying common stock. Our board of directors estimated the fair value of our common stock

 

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at the time of each grant of share-based awards. To determine this value, our board of directors has considered input from management and an independent third-party valuation firm. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants (“AICPA”) Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Since the beginning of 2013, we have received monthly valuation reports of our common stock from an independent third-party valuation firm. The valuation firm has prepared contemporaneous valuation reports at the time of the grant of the share-based award. Our board of directors exercised reasonable judgment and considered numerous objective and subjective factors in making its fair value determinations. These factors include:

 

   

contemporaneous valuations performed by an independent third-party valuation firm;

 

   

the prices, rights, preferences and privileges of our convertible preferred stock relative to those of our common stock;

 

   

our actual operating and financial performance;

 

   

current business conditions and projections;

 

   

hiring of key personnel and the experience of our management;

 

   

the history of the company and the introduction of new services;

 

   

our stage of development;

 

   

our likelihood of achieving a liquidity event, such as an initial public offering or merger or acquisition of our company given prevailing market conditions;

 

   

illiquidity of share-based awards involving securities in a private company;

 

   

the market performance of comparable publicly traded companies; and

 

   

the U.S. and global capital market conditions.

 

In estimating the value of our common stock, our board of directors determined the equity value of the business by considering both market- and income-based approaches.

 

The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. This method determines a market multiple of similar publicly traded companies and uses that multiple to estimate the value of the subject company. We derived the multiple of comparable companies using a ratio of the market value of invested capital less cash to the last twelve month revenue. Generally, a group of five cloud-based platform companies were used in each valuation through August 2013. Management selected these companies in conjunction with the outside valuation firm because they have similar recurring fee models and a meaningful portion of those fees relate to direct-to-consumer marketing.

 

The income-based approach estimates value based on the expectation of future cash flows that a company will generate and the residual value of the company after the forecasted period. The future cash flows are discounted using a discount rate derived based on companies of a similar type and risk profile. Additionally, we applied a discount to recognize the lack of marketability due to being a closely held company.

 

The enterprise values determined by the market-based and income-based approaches are then allocated to the common stock using the Option Pricing Method (“OPM”) and the Probability Weighted Expected Return Method (“PWERM”).

 

The OPM treats common stock and convertible preferred stock as call options on a company’s enterprise value with exercise prices based on the liquidation preferences of the convertible preferred stock. Under this method, the common stock only has value if the funds available for distribution to stockholders exceed the value of the liquidation preference at the time of an assumed liquidity event. The value assigned to the common stock

 

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is the remaining value after preferred stock is liquidated. The OPM prices the call option using the Black-Scholes model. The OPM model is used when the range of possible future outcomes is difficult to predict. We only used the OPM model for valuations completed prior to 2012.

 

The PWERM relies on a forward-looking analysis to predict the possible future value of the company. Under this method, discrete future outcomes, including IPO and non-IPO scenarios, are weighted based on our estimate of the probability of each scenario. The PWERM is used when discrete future outcomes can be predicted with reasonable certainty based on a probability distribution.

 

For valuations starting in December 2011, we began using the Hybrid Method to determine the common stock value. The Hybrid Method uses similar discrete events as included in the PWERM, but in addition to these discrete events the OPM is also used. The Hybrid Method is useful when certain discrete future outcomes can be predicted but also accounts for less certainty than the OPM model.

 

Beginning in June 2013, in conjunction with the May 2013 revision of the AICPA guidelines surrounding independent valuations, we identified and modeled discrete scenarios in a traditional PWERM analysis.

 

The following table summarizes all stock option grants from January 1, 2013 through the date of this prospectus:

 

Stock Option Grants

   Number of
Shares Underlying
Options Granted
     Weighted-Average
Exercise Price
Per Share
     Estimated
Fair Value
Per Share used for
Financial  Reporting
 

February 2013

     118,000       $ 3.19       $ 3.19   

April 2013

     347,750         4.19         4.19   

May 2013

     174,250         4.39         4.39   

June 2013

     309,500         4.69         4.69   

July 2013

     124,000         6.07         13.44   

August 2013

     1,615,082         6.62         13.44   

November 2013

     414,125         15.20         15.20   

 

As of December 31, 2013, unrecognized stock-based compensation related to unvested stock options was $19.3 million.

 

As of December 31, 2013, the board of directors and compensation committee approved a total of 1,093,326 RSUs. Total unrecognized stock-based compensation related to these awards was $15.0 million as of December 31, 2013, however no stock-based compensation expense will be recognized until the qualifying event for the awards’ performance-based vesting becomes probable. In the quarter in which this offering is completed, we will begin recording the unrecognized stock-based compensation expense over a weighted-average period of approximately four years on a straight-line basis, net of estimated forfeitures.

 

We considered the following factors in connection with determining the fair market value of our common stock at each of the following grant dates:

 

February 2013 Grants

 

We determined a fair market value of $3.19 per share. The following considerations were used to complete the valuation:

 

   

A hybrid PWERM analysis determined an enterprise value of $181.1 million.

 

   

A discount rate of 35% based on an estimated cost of capital.

 

   

A lack of marketability discount of 30%.

 

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Liquidity events were weighted as 35% for an initial public offering and 65% to a merger, acquisition, or continuation as a private company.

 

   

Benchmarked companies increased relative to the prior valuation.

 

April 2013 Grants

 

We continued to perform consistent with revenue projections in the first quarter of 2013. Higher cost of revenue was offset by less than expected sales and research and development expenses, resulting in increased profitability against projections. We determined a fair market value of $4.19 per share, increasing from the prior valuations due to a continued positive macroeconomic climate, revenue growth consistent with prior projections and reduction in the estimated time to a liquidity event. Our performance increased the likelihood of an initial public offering when estimating specific liquidity events.

 

The following considerations were used to complete the valuation:

 

   

A hybrid PWERM analysis determined an enterprise value of $231.2 million.

 

   

A discount rate of 33% based on an estimated cost of capital.

 

   

A lack of marketability discount of 28%.

 

   

Liquidity events were weighted as 37% for an initial public offering and 63% to a merger, acquisition, or continuation as a private company.

 

   

Benchmarked companies increased relative to the prior valuation.

 

May 2013 Grants

 

We continued to perform consistent with revenue projections in the second quarter of 2013. Higher cost of revenue continued to be offset by less than expected sales and research and development expenses. We determined a fair market value of $4.39 per share, increasing from the prior valuation due to company revenue growth consistent with prior projections and a shorter time to liquidity based on the passage of time, which was partly offset by negative macroeconomic conditions. Our performance continued to increase the likelihood of an initial public offering when estimating specific liquidity events.

 

The following considerations were used to complete the valuation:

 

   

A hybrid PWERM analysis determined an enterprise value of $237.7 million.

 

   

A discount rate of 32% based on an estimated cost of capital.

 

   

A lack of marketability discount of 28%.

 

   

Liquidity events were weighted as 38% for an initial public offering and 62% to a merger, acquisition, or continuation as a private company.

 

   

Benchmarked companies decreased relative to the prior valuation.

 

June 2013 Grants

 

We continued to perform consistent with revenue projections in the second quarter of 2013. Higher cost of revenue continued to be offset by less than expected sales and research and development expenses. We determined a fair market value of $4.69 per share, increasing from the prior valuations due to company revenue growth consistent with prior projections and a shorter time to liquidity based on the passage of time, which was partly offset by negative macroeconomic conditions. Our performance continued to increase the likelihood of an initial public offering when estimating specific liquidity events. As part of this valuation, we included multiple exit scenarios, each with a separate weighting and discount for lack of marketability.

 

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The following considerations were used to complete the valuation:

 

   

A PWERM analysis determined an enterprise value of $274.8 million.

 

   

A discount rate of 31% based on an estimated cost of capital.

 

   

A weighted-average lack of marketability discount of 24% based on discrete exit scenarios.

 

   

Liquidity events were weighted as 43% for an initial public offering and 57% to a merger, acquisition, or continuation as a private company.

 

   

Benchmarked companies decreased relative to the prior valuation.

 

July and August 2013 Grants

 

We continued to perform consistent with revenue projections in the third quarter of 2013. Cost of revenue returned to expectations and operating expenses were less than projected. We continued to obtain contemporaneous valuations and issue option grants throughout the period. As of September 2013, we estimated the fair market value of our common stock to be $13.44 per share. This increased from the prior valuations mainly due to the reassessment of comparable companies.

 

The following considerations were used to complete the valuation:

 

   

A PWERM analysis determined an enterprise value of $775.8 million.

 

   

A discount rate of 25% based on an estimated cost of capital.

 

   

A weighted-average lack of marketability discount of 18% based on discrete exit scenarios.

 

   

Liquidity events were weighted 65% toward an initial public offering and 35% toward a merger, acquisition, or continuation as a private company.

 

Third Quarter Fair Value of Common Stock for Financial Reporting Purposes

 

During September 2013, we completed the process of selecting investment banking firms. As part of this process, we amended the comparable company group used to estimate the fair value of our common stock using the market approach in order to (i) include additional companies with a software-as-a-service business model, (ii) reflect examples of comparable companies that the underwriters identified to us during our underwriter selection process for this offering and (iii) include certain companies that became public in the first six months of 2013. Due to the difference in valuation of these companies by the market, there was a significant increase in the multiples that management was using to estimate the enterprise value of the company. At the same time as this process was being undertaken, we consented to third-party purchases of shares from existing common shareholders at prices ranging from $13.00 to $15.00. This per-share value of common stock is consistent with the value of $13.44 per share determined as part of our estimate of fair value of common stock in September 2013. Based upon this additional benchmark information and evidence from a secondary market, we concluded that the $13.44 value determined in September 2013 should be utilized and will be applied for financial reporting purposes to value all transactions that occurred in the third quarter of 2013. Management believes that the factors that drove the significant increase were a shift in the manner in which we were viewed by investors and a general increase in the value of cloud-based solution companies during the third quarter of 2013. During the third quarter, we granted options to purchase 1.7 million shares of our common stock, which represents 65% of the total stock-based awards granted in the first nine months of 2013. Based upon an estimated fair value of $13.44, the total fair value of the awards granted in the third quarter of 2013 is $16.1 million.

 

November 2013 Grants

 

We continued to perform consistent with revenue projections in the fourth quarter of 2013. Cost of revenue was in line with our expectations and operating expenses were less than projected. We estimated the fair market

 

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value of our common stock to be $15.20 per share. This increased from the prior valuations mainly due to revenue growth consistent with prior projections, a shorter time to liquidity based on the passage of time, and the performance of our comparable companies.

 

The following considerations were used to complete the valuation:

 

   

A PWERM analysis determined an enterprise value of $865.0 million.

 

   

A discount rate of 24% based on an estimated cost of capital.

 

   

A weighted-average lack of marketability discount of 14% based on discrete exit scenarios.

 

   

Liquidity events were weighted as 74% for an initial public offering and 26% to a merger, acquisition, or continuation as a private company.

 

December 2013 Grants

 

We continued to perform consistent with revenue projections in the fourth quarter of 2013. Cost of revenue was in line with our expectations and operating expenses were less than projected. We estimated the fair market value of our common stock to be $16.52 per share. This increased from the prior valuations mainly due to revenue growth consistent with prior projections, a shorter time to liquidity based on the passage of time, and the performance of our comparable companies.

 

The following considerations were used to complete the valuation:

 

   

A PWERM analysis determined an enterprise value of $917.0 million.

 

   

A discount rate of 23% based on an estimated cost of capital.

 

   

A weighted-average lack of marketability discount of 12% based on discrete exit scenarios.

 

   

Liquidity events were weighted as 76% for an initial public offering and 24% to a merger, acquisition, or continuation as a private company.

 

Income Taxes

 

We account for income taxes using the asset and liability method. Under the liability method, we determine deferred tax liabilities and assets based on the tax rates expected to be in effect during the years in which the liability is expected to be paid. The primary cause of the difference in the payment of the tax liabilities is a difference between the financial statement value and the tax basis of revenue and expenses. When it is more likely than not that some or all of our net deferred tax assets will not be realized, we record a valuation allowance. In determining the necessity of valuation allowances, we consider our projected future taxable income and the availability of tax planning strategies. We have recorded a full valuation allowance against our U.S. deferred tax assets because we have determined that it is more likely than not that our net deferred tax assets will not be realized. In the future, if we determine that we will be able to realize our net deferred tax assets, we will adjust the allowance, which would increase our income in the period the determination is made.

 

Quantitative and Qualitative Disclosures about Market Risk

 

Foreign Currency Exchange Risk

 

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the euro, British Pound Sterling and the Australian Dollar. A 10% fluctuation of foreign currency exchange rates would have an immaterial effect on our results of operations and cash flows. We have hedged a portion of our contracts, but have not instituted a full hedging program. We expect our international operations to continue to grow in the near term, and we are continually monitoring our foreign

 

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currency exposure to determine when we should expand the program. The substantial majority of our agreements have been and we expect will continue to be denominated in U.S. dollars.

 

Interest Rate and Market Sensitivity

 

We had cash and cash equivalents of $28.8 million as of December 31, 2013. Our investments are considered cash equivalents and primarily consist of money market funds backed by U.S. Treasury Bills and certificates of deposit. The carrying amount of our cash equivalents reasonably approximates fair value due to the short-term maturities of these instruments. The primary objective of our investments is the preservation of capital to fulfill liquidity needs. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. Due to the short-term nature of our portfolio, however, we do not believe an immediate 10% increase or decrease in the interest rates would have a material effect on the fair market value of our portfolio. We therefore do not expect our results of operations or cash flow to be materially affected by a sudden change in market interest rates.

 

We do not believe our cash equivalents have significant risk of default or illiquidity. While we believe our cash equivalents do not contain excessive risk, we cannot assure you that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits and are exposed to counterparty risk.

 

Inflation Risk

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

 

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BUSINESS

 

Overview

 

Opower is a leading provider of cloud-based software to the $2.2 trillion utility industry. Utilities use our software platform to deliver key customer-facing applications that reduce energy demand and improve customer perception of the utility. Our software analyzes energy data and presents personalized insights to consumers in order to motivate reductions in energy consumption. These reductions are valued as a source of energy much like a conventional power plant. We believe that we are poised to transform the way the utility industry meets energy demand.

 

Utilities face two critical challenges that our software is built to address. First, utilities are under political, regulatory and environmental pressure to build fewer power plants, find cleaner sources of fuel and keep rates low. In order to accomplish these goals, utilities implement energy efficiency and demand response programs, which reduce overall and peak usage. Regulatory mechanisms support these programs by compensating utilities for reducing usage. Second, utilities need to strengthen their customer relationships. In many parts of the world, utilities compete for customers, and therefore customer engagement is critical. In regulated markets, which include much of the United States, regulators reward utilities for improving customer satisfaction. Utilities committed an estimated $11 billion to energy efficiency, demand response and customer engagement programs in 2013 in an effort to address these two challenges.

 

Our software is replacing low-tech and hardware-intensive products. Alternative efficiency programs today primarily consist of subsidies for energy efficient products, such as air conditioners and light bulbs. A common residential demand response program is a decades-old hardware switch connected to a pager network that shuts off the consumer’s air conditioner. Utility marketing efforts are often limited to traditional mass market approaches, such as bus stop advertisements and television commercials. We are able to replace these programs because our software offers measurable results and a better return on investment to utilities when scaled. Our approach has improved customer sentiment metrics by a median of 6% and up to 10% in some cases and we helped utilities and their customers save over 1,900 gigawatt hours of energy in 2013.

 

We can embed our solutions within utilities’ websites, mobile applications and customer service interfaces, and deliver individualized emails, text messages, automated phone calls and mail. In the design of these consumer touch points, we apply behavioral science insights to actionable patterns identified by our proprietary data analytics engine, which analyzes hundreds of billions of energy usage data points. Our cloud-based platform is extensible and configurable, a necessity to accommodate our customers’ diverse needs on a single code base.

 

We have developed four interconnected solutions on our platform:

 

   

2007: Opower Energy Efficiency – Reports and alerts, via mail and email, that compare consumers’ energy use to their neighbors’ and provide targeted energy saving recommendations.

 

   

2010: Opower Customer Engagement Web, mobile, digital alerts and customer service applications that improve customer experience and streamline operations.

 

   

2012: Opower Thermostat Management Mobile and web applications that connect to third-party thermostats in order to control and optimize peak and overall HVAC utilization.

 

   

2013: Opower Demand Response – A zero-hardware solution consisting of near real-time text messages, email and automated phone alerts that motivates peak reductions in energy consumption.

 

We generate revenue from utilities by selling primarily multi-year subscriptions to our software. As of December 31, 2013, we served 93 utility customers in eight countries, including 27 of the 50 largest electric utilities in the United States. We have the opportunity to expand within these existing customers; for example, the average penetration of our Energy Efficiency solution is approximately 10% of our utility clients’ customer

 

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base. We believe our addressable market includes 1,300 electric and gas utilities worldwide, serving 650 million households and 60 million businesses.

 

Because our clients often provide us all of their energy data even when launching smaller programs, we currently manage data representing 37% of all U.S. residences. The scale and scope of this data enable us to better optimize the energy-saving performance of our programs and continually improve our pattern-matching algorithms. We share our proprietary cross-utility insights with our utility customers, and they see it as a valued benefit. We believe that as we grow, these network effects will continue to strengthen, and that these advantages give us a defensible leadership position.

 

We have experienced significant growth since our inception. Through our utility customers, we have increased the households we serve from 1.4 million in 2010 to 32.1 million in 2013. For the years ended December 31, 2011, 2012 and 2013, our revenue was $28.7 million, $51.8 million and $88.7 million, respectively, representing year-over-year revenue growth of 80% and 71%, respectively. We generated more than 90% of our revenue from annual recurring subscription fees in 2013. Because we believe our opportunity is large, we continue to invest significantly in our growth. As a result, we have generated net losses of $21.3 million, $12.3 million and $14.2 million in 2011, 2012 and 2013, respectively.

 

Utility Industry Background and Our Market Opportunity

 

Utilities operate in a highly regulated environment. Regulators review and approve capital expenditures and, in most markets, set the rates utilities charge their customers. In particular, regulators increasingly incentivize utilities to pursue energy efficiency and demand response, and place higher priority on better customer experience.

 

Key Industry Trends Affecting Utilities

 

Key trends affecting utilities include:

 

Regulators Prioritizing Energy Efficiency Over New Capacity. More than 25 U.S. states have enacted long-term energy efficiency resource standards, and these states account for over 61% of total U.S. electricity consumption. In order to incentivize efficiency, many states have “decoupled” their utilities, which means the utility’s revenue is no longer driven by energy sales. In non-decoupled states, regulators may incentivize efficiency by allowing the utility to recover the cost of the programs, earn their lost margin on energy sales, and in some cases, earn more on efficiency than they would on energy sales. For example, in California, Massachusetts, and Colorado not only are utilities spending billions of dollars on energy efficiency, they are also earning margins on energy efficiency that are comparable to their margin on delivered electricity. Specifically, they are earning an additional $85.9 million of annual profit from performance incentives, which translates to an additional 6.8% return. We believe this trend is likely to continue as long as efficiency remains less expensive than generation.

 

Similarly, the European Union adopted an Energy Efficiency Directive in October 2012 in order to ensure the achievement of its commitment to reduce emissions by 20% by 2020. In Asia and Latin America, rapid development, limited supply and government regulation and initiatives are also creating an imperative for energy saving measures.

 

Increasing Focus on Reducing Peak Demand. As it is for most large network providers, reducing peak demand is valuable for utilities. In fact, it also has become even more valuable as peak supply prices have gone up and as changing regulations have made it easier to sell energy reductions on par with supply. As a result, Navigant Research estimates that the global demand response market will grow to $5.8 billion in 2020. These same dynamics are at play in fast growing regions like Asia and South America, where demand response is needed to prevent shortages and blackouts.

 

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Baltimore Gas & Electric’s (BGE’s) recent smart meter case illustrates the value demand response holds out to utilities. Demand response made up 50% of BGE’s smart meter business case, and we estimate that smart meters will deliver $50 million of profit to the utility.

 

Changing Consumer Expectations. The widespread adoption of smartphones, mobile apps and social networking tools has changed the way consumers interact with their service providers. Yet direct communication between utilities and their customers has largely been limited to a once-a-month bill and negative events, such as power outages. This history has led to low customer satisfaction. Based on Net Promoter Scores, as of 2012, the utility industry had lower customer satisfaction than many other industries, including insurance, mobile telecom service, banking, supermarkets and automotive. The change in consumer expectations has led utilities to seek new communication tools. As a result, utilities are looking for services that can improve their relationship with their customers.

 

Increasing Data Available to Utilities. Smart meter rollouts continue to accelerate globally. According to a January 2013 IMS Research report, through the end of 2011 over 1.4 billion electricity meters were installed globally, of which 18% were smart meters. IMS projects smart meter penetration will increase to 35% of all electricity meters in 2016. Smart meters generate over 700 times more data than traditional meters, and this increase creates an opportunity for utilities to offer new services and analytics-driven insights for their customers. To date, most utilities have struggled to demonstrate the value of this data to consumers. In addition, the emergence of WiFi-enabled thermostats is likely to increase available energy data even further.

 

Increasing Competition. Over the past two decades, many countries and some U.S. states have separated the retail sale of energy from the generation, distribution and transmission of power. In these markets, competition among retail providers can be high, and customer retention is a challenge, with some utilities experiencing customer churn of more than 25% per year. In noncompetitive, or regulated, energy markets, other providers, such as rooftop solar contractors, are entering the market with products and services that threaten to disintermediate the utility. Utilities increasingly face the risk of disintermediation due to the rise of distributed generation such as solar power. All of these challenges mean that utilities must build deeper relationships with their customers.

 

The Opportunity for the Opower Solution

 

We believe our solutions give utilities greater returns than their historical options and, as a result, we expect to continue to grow our share of these large markets over time.

 

   

Energy Efficiency. In the U.S. alone, utilities spent $6.9 billion on electric efficiency in 2012. Since 2007, this spending has grown at a 21% CAGR, according to a July 2013 report from the Institute for Electric Innovation.

 

   

Demand Response. The global demand response market is projected to grow from $3.0 billion in 2013 to $5.8 billion in 2020, representing a CAGR of 10%, according to a second quarter 2013 report published by Navigant Research.

 

   

Customer Engagement. We believe that customer engagement is at the intersection of a number of markets for utilities, including customer billing and information systems, home energy management solutions and smart grid analytics. These markets are expected to grow from $4.1 billion in 2013 to $12.1 billion in 2020, representing a 17% CAGR, according to Navigant Research and Greentech Media.

 

Our solutions address a portion of each of these markets. Based on our internal analysis and industry experience, we estimate our addressable market opportunity to be at least $11 billion annually.

 

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Key Benefits to Utilities

 

The key benefits utilities derive from our solutions include:

 

Low Cost, Large Scale Energy Efficiency. We are able to cost-effectively drive energy efficiency results across millions of homes. As a result, for some utilities, our efficiency solution has become their single biggest source of residential energy savings. We typically deliver savings between $0.03 to $0.07 per kilowatt hour, whereas the average cost of electricity is $0.13 per kilowatt hour. Nearly all of our programs are measured via randomized control trials and validated by third parties.

 

Low Cost, Large Scale Residential Demand Response. Our software enables utilities to scale residential peak demand reductions by rapidly communicating with energy consumers. We do this by sending millions of customized text messages, emails and automated calls. In 2013, our first program has delivered promising initial results.

 

Improved Customer Satisfaction. Utilities have implemented our user-friendly solutions to increase customer satisfaction. Our platform delivers greater understanding of and control over energy consumption, which improves customer experience. We have surveyed over 30,000 energy consumers who receive our solutions. These consumers consistently report greater trust in their utility as a source of information, and they believe that the utility wants to help them save energy and money.

 

Reduced Cost to Serve. Utilities spend $6 billion annually on customer service. With our digital solutions, utilities can communicate with their customers through web and mobile applications, making interactions more cost effective and efficient. We believe this reduces customer service costs. Customer service software has been reducing the cost of service for a wide set of industries, but the utility industry has lagged behind.

 

Better Customer Engagement Technology. Our platform gives utilities the ability to deploy state-of-the-art technology for their customer communications, allowing them to reach and engage their customers across multiple channels with minimal effort. Much as next generation customer relationship management (“CRM”) software and digital marketing software have delivered significant value to enterprises globally, our solutions help utilities strengthen their relationships with their customers.

 

Network Effects. We have six years of experience working with industry leading utilities. Our large and growing energy dataset combined with our significant industry experience has caused many utilities to view us as a source of third-party benchmarking and industry knowledge. We believe we have reached a point of recognition in the industry whereby utilities use our data sets and insights in their decision-making.

 

Our Differentiated Approach

 

The key components of our differentiated approach are:

 

Highly Scalable Data Analytics Engine. We have built what we believe to be the most sophisticated data engine serving utilities. As of December 31, 2013, we have collected energy data from 52 million households and businesses aggregated from our utility customers. Our data analytics engine can process and analyze our vast data set and provide personalized insights to the households and businesses that our utility customers serve. For example, our data analytics engine allows us to predict customer bills and separate heating and cooling consumption from base load.

 

Cloud-Based Architecture. Our solutions are built on a cloud-based architecture and delivered through web and mobile applications, text message, email, phone and mail. We maintain a single version of our code base, that we deploy to all of our customers allowing them to receive new features and updates. In an industry that is accustomed to long term investments, the fact that our software is regularly updated at no added cost is a

 

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significant benefit. In addition, all of our products use the same platform, which makes it easier for clients to deploy our solutions cost effectively.

 

Intuitive User Experience Informed by Behavioral Science. An intuitive user experience and behavioral science are at the core of all of our solutions. We seek to change the habits of consumers by presenting realistic goals, encouragement and rewards. We use more than 40 behavioral science techniques such as loss language, normative comparisons and reciprocity to encourage utility customers to optimize their energy consumption.

 

Track Record of Measurable Results. We design our products to deliver measurable outcomes, which are necessary for utilities to meet their energy efficiency and demand response targets. We have 189 client years of results, and we believe this track record gives us a significant advantage over our competitors. Our approach to saving has been approved by regulators in 30 states, and that track record has strengthened our brand.

 

Our Growth Strategy

 

LOGO

 

The key elements of our growth strategy include:

 

Expand With Existing Customers. We see a significant opportunity to grow our revenue simply by expanding our presence within our existing customer base. Currently, our energy efficiency reports are deployed to 10% of households that our utility customers serve. Most of our utility customers initially purchase only one of our four solutions and deploy that initial solution to only a portion of their customers. Because all of our products help utilities improve their engagement with energy consumers, we believe that utilities will derive even greater benefits as they deploy additional solutions. Moreover, once a utility begins to send us its data, we can more easily roll out programs to additional households and businesses. We have a dedicated sales and customer service team to support these expansion opportunities within our customer base, and we plan to expand our domestic direct sales organization.

 

Win New Customers Globally. As of December 31, 2013, we had 93 utility customers in eight countries, yet we believe that there are approximately 1,300 utilities that could benefit from our solutions. To reach more of these potential customers, we are expanding our sales, marketing and regulatory efforts, in particular internationally. In 2013, the percentage of our revenue generated outside of the U.S. was 10% as compared to 3% in 2012. We recently expanded our international sales capabilities by increasing the size of our direct sales team in Europe. We plan to expand our direct sales organization in Japan, Singapore and the United Kingdom, and we believe that we have a large opportunity in parts of Asia and South America.

 

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Develop New Offerings on Our Industry Data Platform. Since we are a trusted partner, our customers often ask us to develop new offerings to meet their growing needs. These requests are increasingly central to our plans for growth. We have made, and will continue to make, significant investments to augment our platform to capture adjacent opportunities. For example, we recently developed our thermostat mobile app as a new solution that complements our other existing solutions. In addition, we believe our data is valuable as a platform for third-party application developers that want to build additional products or enhance their existing products by leveraging our data. Multiple utilities already use our application programming interfaces (“APIs”) to customize their customer engagement.

 

Focus on Gas and Electric Consumer Outcomes. From the outset, we have designed products that can deliver measurable changes in consumer behavior, which has been core to our success. We believe we can achieve more both with our existing solutions and through new products. We have focused and will continue to focus our research and development efforts to continue to improve outcomes for gas and electric consumers.

 

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Our Integrated Solutions

 

We provide utilities with the ability to meet energy efficiency and demand response targets, and improve customer engagement. Our solutions consist of:

 

Opower Energy Efficiency

 

Our energy efficiency solutions motivate customers to use less energy and participate in other energy efficiency programs. We send messages under the utility’s brand to households and businesses via email and mail. We also make web and mobile applications available to both consumers and customer service representatives. These tools take advantage of multiple data sources, which may include historical energy usage, billing data, past customer activity data, parcel data, demographic data, weather data and geo-location data. We deploy our energy efficiency solution in both legacy metering and smart meter environments.

 

LOGO

 

The key outbound components of our energy efficiency solution are:

 

   

Energy Reports. Our Energy Reports are sent by mail and email, typically under the utility’s brand. The reports use insights informed by behavioral science and personalized by our data analytics platform to provide customers with feedback on their energy usage. Key features include a comparison of customer’s usage to that of similar homes nearby, and targeted recommendations for how to decrease consumption. We have entered into agreements with utilities to provide similar Energy Reports to small- and medium-sized businesses (“SMBs”). Our SMB reports contain specialized insights and content based on specific business segments.

 

   

Smart Meter-Enabled Alerts and Emails. Smart meter data allows us to provide more frequent outreach and alerts based on customer usage patterns. Our weekly smart meter email reports are sent to energy consumers every week to give them a forecast of their coming bill, see their energy usage by day and get helpful insights on how to adjust their energy usage. Our Unusual Usage Alerts let residential consumers know in advance when they are on track for a high bill. The alerts are sent via email or text.

 

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We believe that our results, and our rigorous measurement of them, have been a key differentiator. Beginning with our very first deployment, we have created separate test and control groups so that we could accurately determine the impact of the information we provide. We generate energy savings of 1.5% to 2.5% per household on average across our programs. While small on a per customer basis, they result in massive savings for our utility customers when aggregated across their customer base. In 2013, our efficiency programs achieved over 1,900 gigawatt hours of energy savings, which includes savings from both electric and gas utilities. At average electricity prices in the United States, this would equate to $234.1 million of bill savings for consumers.

 

Opower Customer Engagement

 

LOGO

 

Our customer engagement solutions consist of:

 

Opower Web. Utilities embed our white-label web application into their customer-facing web site, enabling them to offer consumers both an intuitive user experience and better insight into energy consumption. Consumers can create energy savings plans, conduct virtual energy audits of their homes, view historical costs and compare rate plans. In addition, Opower Web provides context by explaining how customers’ energy usage compares to their neighbors’ and offering targeted recommendations for reducing costs. Utilities generally deploy our web applications to their entire residential service base, and often integrate our application with single sign-on authentication.

 

While our web application does not require smart meters, access to more data allows us to offer consumers greater insight. For example, utilities with smart meters can benefit from our patented usage disaggregation algorithm that separates heating, cooling and baseline energy consumption from a consumer’s energy usage, effectively conducting a remote audit of their home.

 

CSR Application. Our Customer Service Representatives (“CSR”) solution provides utility customer service representatives with relevant information about customers when they call their utility. The CSR solution allows customer service representatives to create online accounts, enroll customers to receive energy alerts through their preferred communication medium, update customer profiles, and provide energy management advice.

 

Rates Engine. Our rates engine supports utility adoption of time of use rates by analyzing cost data for energy consumers. It provides consumers with an hourly view of their energy costs, allows them to compare costs to previous months, performs bill forecasts at any point during the billing cycle, and simulates the cost impact of a customer changing rate plans or usage behavior.

 

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While described in this section, Opower Web and the Opower CSR application are also key parts of our energy efficiency and demand response solutions.

 

Opower Demand Response

 

LOGO

 

In 2012, we introduced our demand response solution, which enables utilities that have installed smart meters to broadly engage their residential customer base in demand response programs. Opower Demand Response functionality includes:

 

Peak Day Alerts. Our peak day alerts notify customers of “peak days” when electricity costs are the highest. These alerts can be delivered via text message, automated call and email.

 

Peak Day Feedback Reports. Our peak day feedback reports are sent to energy consumers following demand response events and provide detailed information about how a customer performed on a peak usage day. Reports include how much energy a customer saved, how much money the customer has earned and tips for how to save further in the future.

 

Although we believe our demand response solution offers significant growth potential, it is still in a nascent stage with an immaterial impact on our revenue to date.

 

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Opower Thermostat Management

 

In 2013, we introduced our thermostat software, a web and mobile application for consumers, which is paired with select third-party WiFi-enabled thermostat devices. With our software, utilities can provide their customers with remote control of their WiFi-enabled thermostat device through an intuitive, consumer-centric user interface. This enables utilities to achieve deep energy efficiency and demand response penetration in their residential service territories.

 

LOGO

 

Our thermostat software builds on our expertise in behavioral science and user design to drive energy savings. The software is also integrated with utility-directed demand response programs to deliver automated demand response.

 

Although we believe our thermostat software offers significant growth potential, it is still in a nascent stage with an immaterial impact on our revenue to date.

 

Our Technology

 

From our inception in 2007, we set out to build a proprietary cloud-based software platform for utilities. We believe our platform is more advanced and operates at greater scale than that of any of our competitors. We designed it to manage the large amount of data that utilities store in their internal systems as well as the accelerating volume of data available from today’s smart meters and smart grid infrastructure, and tomorrow’s thermostats and in-home devices. Our platform is capable of analyzing large volumes of data from disparate sources with rapid throughput and high availability in order to provide a variety of personalized, data-rich communications that drive measurable results.

 

Opower Data Integration System. Our data integration platform allows us to capture more than 100 different data attributes from both utilities and third parties and import both structured and unstructured data formats. We use Hadoop-distributed database technology to store a wide range of data including smart meter, program participation, demographic, weather, housing and geo-location data. This data integration system is capable of large-scale, low-latency imports in near-real time, which enables us to perform time-sensitive operations for our customers, like demand response. Our system imported and validated over 100 billion utility meter reads in 2013.

 

Big Data Analytics Engine. Our data platform leverages leading technologies such as Hadoop, Hive and HBase to analyze a wide variety of energy and third-party data. We have built our own proprietary batch

 

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processing system on top of our Hadoop cluster, it allows us to chain jobs, and start, stop and pause them. These key capabilities were critical for our enterprise applications and are not available today in popular NoSQL systems like Hadoop. We made these investments to surface insights for energy consumers. Our system can predict bills, detect energy usage anomalies and conduct a virtual audit of millions of homes by using a patent pending method of multivariate regression analysis. In addition, the system can utilize the 100 different data attributes to identify similar homes and supply customers with accurate and relevant neighbor comparisons.

 

Content Personalization Engine. Our engine is being built to sit on top of our big data analytic platform and allow us to target messages to consumers. Three key components in this engine are our event scheduling system, our high-level mark-up language for content design and our real-time segmentation tool. Our event scheduling system will ensure that messages go out at the most effective times and provide event and schedule-triggered messaging. Our high-level markup language will allow us to customize outbound communications with personalized data in very little time. In addition, our real-time segmentation tool automates the creation of customer segments that incorporate our insights into consumer behavior while allowing utilities to gain visibility, choice and speed in creating distinct customer experiences.

 

Outbound Pipeline. Our platform is capable of delivering millions of outbound messages in short time frames in order to meet the time-sensitive objectives of utilities. Our system synchronizes delivery of content across all channels—email, postal mail, text message and interactive voice response and generates graphically rich, channel-specific messages using lightweight markup language specific to each customer. The system provides high-fidelity monitoring to ensure that issues can be logged and addressed in real time.

 

Web and Mobile Engagement. In January 2012, we began refactoring our web platform, replacing server-side logic with client-side, Javascript-based rendering. This approach ensures consistency between desktop and mobile web browsers, and allows us to offer our utility clients access to the front-end code to extend and customize as they see fit. This is proving to be a significant advantage as we can significantly modify customer experiences without compromising our core engineering development.

 

Thermostat Management. Our thermostat platform integrates with select WiFi-enabled thermostat technologies using API-based technology, giving users the ability to control their thermostats with simple and intuitive user interfaces via mobile and the web. The thermostat web application has features for customers to enroll in their utility’s smart thermostat program, automatically recommending efficient settings, then communicating this information back to the utility and to the WiFi-enabled thermostat.

 

Security. We have been audited and certified as meeting SOC 2 Type 2 standards, which is an external audit and validation of the design and effectiveness of our data security controls. Our datacenters are SSAE-SOC 1 and Tier III certified. We encrypt data in transit via SSL with 128-bit encryption. Our platform is built with a defense in depth strategy, including firewalls, intrusion detection and prevention, role based access controls, and 24 x 7 monitoring. We are certified in accordance with the US-EU Safe Harbor Framework.

 

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Our Customers

 

We market and sell our products and solutions both to regulated and unregulated utilities. As of December 31, 2013, we had 93 utilities in 8 countries using one or more of our products. The following are our top 50 customers as of December 31, 2013 based on revenue in 2013:

 

AEP Indiana Michigan Power
AEP Ohio
Ameren Illinois
Arizona Public Service
Baltimore Gas & Electric (BGE)
Centerpoint Energy Arkansas
Centerpoint Energy Minnesota
Central Hudson Gas & Electric
Commonwealth Edison
Consumers Energy
DTE Energy Company
Efficiency Nova Scotia
Energy Trust of Oregon
Energy Australia

E.ON Sweden

E.ON UK

First Energy Met-Ed
First Energy Penelec
First Energy Potomac Edison
First Energy West Penn Power
Fort Collins Utilities
Georgia Power
Glendale Water & Power
Gulf Power
Hawaii Energy Efficiency

Indianapolis Power & Light

Louisville Gas and Electric
Mercury Energy
MidAmerican Energy
National Grid MA
National Grid NY
National Grid RI

Nicor Gas

Northern Indiana Public Service
NStar Electric
Orlando Utilities Commission
Pacific Gas & Electric (PG&E)
PacifiCorp Utah
PECO Energy
Pepco
PPL Electric Utilities
Progress Energy

Rochester Public Utilities

Seattle City Light
Southern California Edison
Southern Maryland Electric
Tuscon Electric Power
Vectren Energy Delivery
Xcel Energy Colorado
Xcel Energy Minnesota
 

 

Utilities using one or more of our products serve approximately 115 million households giving us a substantial opportunity to expand the amount of data in our platform from existing customers. We count as customers distinct buying entities, which in a few cases include multiple national or regional subsidiaries of large global utilities, as well as utilities for which we provide services through subcontracting arrangements.

 

Customer Case Studies

 

The following examples illustrate how our customers use our solutions:

 

Pacific Gas and Electric

 

Situation: Pacific Gas and Electric (“PG&E”) is a large investor-owned electric and gas utility with operations primarily in northern California. PG&E is one of the largest utilities in the United States with over 5 million customers, and it generates over $11 billion of revenue annually. PG&E was one of the first utilities in the U.S. to deploy smart meters. To enhance its customers’ experience, PG&E sought solutions that would allow customers to more effectively manage their energy consumption along with their smart meters.

 

Solutions and Benefits: PG&E initially selected our Customer Engagement solution in 2010. Since then, PG&E has also deployed our Energy Efficiency and our Thermostat Management solutions.

 

   

PG&E has deployed our Customer Engagement solution to integrate Opower content into PGE.com for all of its 5 million residential customers and 600,000 small business customers.

 

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Through our Energy Efficiency solution, PG&E mailed home energy reports to 230,000 of its customers in 2011 and increased that amount to over 900,000 customers as of December 31, 2013. These reports compare each household’s energy consumption to that of similar homes and provide customized recommendations to save energy.

 

   

In 2012, PG&E launched a pilot of our Thermostat Management solution. Our thermostat mobile app allows users to control the temperature in their home from anywhere and has succeeded in encouraging more efficient use of energy while driving high levels of customer satisfaction.

 

   

Since deploying our solutions, PG&E customers have saved over 250 GWh of combined electric and gas savings and an estimated $25 million on their electric bills.

 

Baltimore Gas & Electric

 

Situation: Baltimore Gas & Electric (“BGE”) is a large investor-owned electric and gas utility with operations primarily in Maryland. BGE provides service to more than 1.2 million customers and generates approximately $3 billion of revenue annually. In 2010, BGE was assessing ways to maximize return on investment from a smart meter investment. In addition, BGE was evaluating energy efficiency programs that it could deploy across its service territory. In 2012, BGE sought additional opportunities to reduce peak demand.

 

Solutions and Benefits: In 2010, BGE initially launched an Opower Energy Efficiency pilot to 25,000 households to assess the potential energy savings opportunity. Later in 2010, BGE developed a plan to provide customers with greater benefits from smart meters and chose to deploy our Customer Engagement and Energy Efficiency solutions. In 2012, following a four year pilot, BGE planned to launch peak-time-rebate pricing and communications to its entire residential customer base with smart meters. BGE chose Opower as their strategic partner for this program leveraging the Demand Response solution in the summer of 2013.

 

   

BGE is in the process of deploying our Energy Efficiency solution to over 1 million households with mailed and digital home energy reports that motivate a reduction in energy consumption.

 

   

BGE has deployed our Customer Engagement solution to integrate Opower content into BGE.com for all residential and small business customers with smart meters.

 

   

BGE uses our solutions to deliver Unusual Usage Alerts via email, text message and automated voice calls to notify their customers of higher than usual consumption intra-month and provide actionable advice on how to reduce consumption and lower their bill.

 

   

Our Demand Response solution was initially deployed to 300,000 residential customers in 2013 to provide peak-time-rebate pricing to its entire residential customer base with smart meters. We provided real-time alerts through email, text messages and automated voice calls offering consumers personalized insights on how to save energy and money on peak energy days. BGE’s program drove a reduction in consumption on those days. This program will be scaled to include 1.1 million BGE customers by 2015.

 

Centerpoint

 

Situation: Centerpoint is a large investor-owned natural gas delivery company that serves several markets in the United States including Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma and Texas. Centerpoint serves over 5 million customers and generates more than $9 billion of revenue annually. In 2010, Centerpoint was looking for a solution in Minnesota with the goal of delivering energy savings and of promoting other legacy efficiency programs, such as Home Energy Squad, water heaters and low-flow shower heads.

 

Solution and Benefit: Centerpoint partnered with Opower to create an Energy Efficiency solution which was launched in spring 2010.

 

   

The Minnesota Energy Efficiency program that we developed together with Centerpoint grew from 50,000 customers in 2010 to 200,000 customers in 2013.

 

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In the first two years of the program, energy consumers saved $2 million on their gas bill.

 

   

Various promotions ranging from a Tide cold-water detergent coupon to home audits yielded increases in customer participation in utility programs of up to 30%.

 

   

To date, the Opower Energy Efficiency programs deployed by Centerpoint have been expanded 560% since launch and now reach over 330,000 Centerpoint customers in Arkansas, Minnesota and Oklahoma.

 

E.ON UK

 

Situation: E.ON UK is a retail electric and gas provider owned by E.ON SE, a large investor-owned utility with operations primarily in Europe. E.ON UK serves approximately 5 million households across the United Kingdom.

 

Solution and Benefits: E.ON UK deployed our Customer Engagement solution in 2013 as part of its effort to enhance its brand by providing a superior experience to customers. E.ON UK is seeking to promote customer loyalty and maintain its leadership position in its highly competitive, unregulated retail market.

 

   

E.ON UK launched a customer-facing website known as the Saving Energy Toolkit to over 5 million customers using our solution.

 

   

We enable E.ON UK to deliver personalized insights and easy-to-understand information to each of their households detailing their energy consumption.

 

Glendale Water and Power

 

Situation: Glendale Water and Power (“GWP”) is a municipally owned utility serving over 100,000 customers in California.

 

Solution and Benefits: GWP initially deployed our Energy Efficiency solution in 2009 and in 2011, expanded the use of our platform to include our Customer Engagement solution.

 

   

GWP initially launched our Energy Efficiency solution in 2009 to 25,000 customers and has since increased its deployment to 46,000 customers as part of a portfolio of programs to help city residents use less electricity and save money.

 

   

This program has consistently delivered an average savings rate in excess of 2.5% per year, delivering more than $3 million in aggregate savings to GWP customers.

 

   

In 2010, GWP deployed our Customer Engagement solution to all of their 70,000 residential customers in order to provide tools to manage these customers’ energy use.

 

Competition

 

We believe our primary competitors are other energy efficiency and demand response programs that utilities may choose to implement. We often compete to capture a share of the utility’s budget that is set aside for energy efficiency or demand response. To a lesser extent, we also compete with other technology providers such as point solution companies and horizontal software vendors.

 

Other Energy Efficiency or Demand Response Programs. We often compete with efficiency and demand response programs that utilities can choose to implement. These programs, which vary widely in their approach and their cost to the utility, include CFL light-bulb subsidies, appliance recycling and rebate programs, rebates for building upgrades, renewable energy incentives and load control switches for demand response.

 

Point Solution Companies. There are a number of companies, such as Aclara, C3 Energy, Nest Labs (which was acquired by Google) and Tendril, that offer point solutions that compete with some of the features present in our platform. Typically, these solutions include web portals, customer care applications and consumer home energy management solutions.

 

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Horizontal Software Vendors. Vendors such as Oracle and SAP offer software that can be customized to address some of the needs of utilities. Google, which has contracted to purchase Nest Labs, previously provided energy efficiency software in beta form to energy consumers.

 

We believe that we generally compare favorably with our competitors because of the breadth of functionality within our software platform, our ability to engage and motivate energy consumers, the amount of utility specific data on our platform and the results that we have demonstrated for existing utility customers.

 

Our Culture and Employees

 

We believe that having a strong company culture and set of values is critical to our success. We have assembled an extremely talented group of employees, and we pride ourselves on recruiting elite, mission-driven talent for every part of our organization. We believe that our unique mission is a differentiator and helps us recruit world-class talent.

 

As of December 31, 2013, we had 465 employees, including 133 in sales, regulatory and marketing, 188 in research and development, and 144 in services, operations and general and administrative capacity. As of December 31, 2013, we had 448 employees in the United States and 17 employees internationally.

 

Sales, Regulatory and Marketing

 

As of December 31, 2013, our sales, regulatory and marketing teams were comprised of 133 employees. We expect these teams to grow substantially in pursuit of the large and global market for our solutions. In 2013, our average selling price for a new customer was approximately $1.0 million in license fees per year, with a weighted-average contract term of 24.5 months and a typical sales cycle of 6 to 24 months.

 

Our sales and regulatory teams are structured regionally, while our marketing team is organized by solution. Together, these commercial teams pursue our growth strategy of addressing new markets, securing new customers, expanding existing customers and rolling out new products and services. We staff these teams to work closely together and size them according to the opportunity we see for each solution in each region on a bottoms-up basis.

 

Research and Development

 

As of December 31, 2013, our research and development teams were comprised of 188 employees. We expect these teams to grow substantially in support of our research and development roadmap. Our research and development expenses totaled $14.4 million, $16.1 million and $27.1 million for the years ended December 31, 2011, 2012 and 2013, respectively. We plan to continue to invest significant resources in developing new products and enhancing our existing software platform.

 

Customer Service

 

We provide support services for our software, including:

 

   

Analytics and Consumer Marketing Services. We assist customers in understanding program results by creating custom segmentations and propensity modeling, performing consumer satisfaction analysis and creating tailored consumer marketing to affect the promotional goals of each utility.

 

   

Enablement and Extensibility Services. We provide enablement services such as data acquisition and integration, single-sign-on (“SSO”) integration, data migration work and services around enabling utilities to use Opower APIs in different elements of their technology programs.

 

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Intellectual Property

 

We protect our intellectual property through a combination of trademarks, domain names, copyrights, trade secrets and patents, as well as contractual provisions and restrictions on access to our proprietary technology.

 

We registered “Opower” as a trademark in the United States, Australia, Canada, the European Community, Japan and New Zealand. We also have filed other trademark applications in the United States and certain other jurisdictions, and will pursue additional trademark registrations to the extent we believe it would be beneficial and cost effective.

 

As of February 28, 2014, we had one issued patent and seven patent applications pending in the United States, which seek to cover proprietary techniques relevant to our products. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost effective.

 

We are the registered holder of a variety of domestic and international domain names that include “Opower” and similar variations.

 

In addition to the protection provided by our intellectual property rights, we enter into confidentiality and proprietary rights agreements with our employees, consultants, contractors and business partners. Our employees and contractors are also subject to invention assignment agreements. We further control the use of our proprietary technology and intellectual property through provisions in both the general and product-specific terms of use on our website.

 

Facilities

 

Our corporate headquarters is located in Arlington, Virginia, where we currently lease approximately 52,253 square feet of space under lease agreements that expire in November 2016. We lease approximately 24,394 square feet of space in San Francisco, California under a lease agreement that expires in May 2015. We also lease facilities for our employees in London, United Kingdom, Singapore and Japan.

 

We anticipate leasing additional office space in all short- and medium-term future periods to support our growth. We intend to further expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. However, we expect to incur additional expenses in connection with such new or expanded facilities.

 

Legal Proceedings

 

We are not a party to any material pending legal proceedings. From time to time we may be subject to legal proceedings and claims arising in the ordinary course of business.

 

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MANAGEMENT

 

Executive Officers and Directors

 

The following table provides information regarding our executive officers and directors as of February 1, 2014:

 

Name

   Age     

Position(s)

Executive Officers:

     

Daniel Yates

     36       Founder, Chairman, Chief Executive Officer and Director

Alex Laskey

     37       Founder, President and Director

Thomas G. Kramer

     43       Chief Financial Officer

Alex Kinnier

     38       Senior Vice President, Product Management and User Experience

Jeremy Kirsch

     39       Senior Vice President, Worldwide Sales, Regulatory and Business Development

Rick McPhee

     41       Senior Vice President, Engineering

Roderick Morris

     41       Senior Vice President, Marketing and Operations

Michael Sachse

     36       General Counsel and Senior Vice President, Regulatory Affairs

Non-Employee Directors:

     

Mark McLaughlin(2)(3)

     48       Director

Dipchand Nishar(2)

     45       Director

Gene Riechers(1)

     58       Director

Marcus Ryu(1)(3)

     40       Director

Jon Sakoda(2)

     36       Director

Harry Weller(1)(3)

     44       Director

 

  (1)   Member of the audit committee.
  (2)   Member of the compensation committee.
  (3)   Member of the nominating and governance committee.

 

Each executive officer serves at the discretion of our board of directors and holds office until his successor is duly elected and qualified or until his earlier resignation or removal. There are no family relationships among any of our directors or executive officers.

 

Executive Officers

 

Daniel Yates co-founded Opower and has served as our Chief Executive Officer since June 2007 and as a member of our board of directors since June 2007. Mr. Yates was appointed our Chairman of the board of directors in February 2014. Prior to founding Opower, Mr. Yates was the founder and chief executive officer at Edusoft, an educational software company that was acquired by Houghton Mifflin Company. Mr. Yates holds a Bachelor of Arts in computer science from Harvard University.

 

We believe that Mr. Yates is qualified to serve as a member of our board of directors because of his experience and perspective as our Chief Executive Officer and founder.

 

Alex Laskey co-founded Opower and has served as our President since June 2007 and as a member of our board of directors since June 2007. Mr. Laskey holds a Bachelor of Arts in history of science from Harvard University.

 

We believe that Mr. Laskey is qualified to serve as a member of our board of directors because of his experience and perspective as our President and founder.

 

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Thomas G. Kramer has served as our Chief Financial Officer since November 2011. From 2000 to 2011, Mr. Kramer served as Chief Financial Officer of Cvent, Inc., a cloud-based enterprise software company in the event-management space. Prior to that, Mr. Kramer served as a consultant at the Boston Consulting Group. Mr. Kramer holds a Masters in Business Administration from Harvard Business School and a Masters of Science in economics from the Norwegian School of Economics.

 

Alex Kinnier has served as our Senior Vice President, Product Management and User Experience since July 2012. From 2011 to 2012, Mr. Kinnier served as a partner at New Enterprise Associates. From 2008 to 2011, Mr. Kinnier served as a partner at Khosla Ventures. Prior to that, Mr. Kinnier was a group product manager at Google Inc. Mr. Kinnier holds a Masters in Business Administration from Harvard Business School and a Bachelor of Arts in chemical engineering from Lehigh University.

 

Jeremy Kirsch has served as our Senior Vice President, Worldwide Sales, Regulatory and Business Development since July 2008. From 2000 to 2008, Mr. Kirsch held leadership positions in sales, business development and marketing for several technology companies, including L-1 Identity Solutions, Inc., an identity solutions company acquired by Safrom S.A., Viisage Technology, Inc. an identity solutions company, and Art Technology Group, an eCommerce software company acquired by Oracle. Prior to that, Mr. Kirsch was a special operations officer with the United States Navy. Mr. Kirsch holds a Masters in Business Administration from the MIT Sloan School of Management and a Bachelor of Arts in economics from Stanford University.

 

Rick McPhee has served as our Senior Vice President, Engineering since March 2012. From 2008 to 2012, Mr. McPhee served as vice president, engineering, at Fortify Software, a Hewlett-Packard Company. From 2005 to 2008, Mr. McPhee served as vice president, engineering, at Vormetric, a data security company. Mr. McPhee holds a PhD in computer science from the University of Oxford and a Bachelor of Science in computer science from University of Glasgow.

 

Roderick Morris has served as our Senior Vice President, Marketing and Operations since September 2012. From April 2010 to August 2012, Mr. Morris served as our Senior Vice President, Consumer Marketing and Operations. From 2009 to 2010, Mr. Morris served as vice president, marketing, at Vovici, a cloud customer feedback company. Mr. Morris holds a Masters in Business Administration from the Graduate School of Business at Stanford University and a Bachelor of Business Administration and a Bachelor of Arts in philosophy from the University of Texas at Austin.

 

Michael Sachse has served as our General Counsel and Senior Vice President, Regulatory Affairs since June 2013, and has served as our General Counsel and regulatory affairs lead since March 2009. From April 2008 to December 2008, Mr. Sachse served as communications director for Jim Himes for Congress. Prior to that, Mr. Sachse was an attorney at Patterson Belknap. Mr. Sachse holds a Juris Doctorate from Harvard Law School and a Bachelor of Arts in history from Amherst College.

 

Non-Employee Directors

 

Mark McLaughlin has served as our director since October 2013. Mr. McLaughlin has served as president and chief executive officer and as a member of the board of directors of Palo Alto Networks, Inc., a network security company, since 2011, and as the chairman of the board of directors since 2012. From August 2009 through 2011, Mr. McLaughlin served as president and chief executive officer and as a director at VeriSign, Inc., a provider of Internet infrastructure services, and from January 2009 to August 2009, Mr. McLaughlin served as president and chief operating officer at VeriSign. From 2000 through 2007, Mr. McLaughlin served in several roles at VeriSign, including as executive vice president, products and marketing. In 2011, President Barack Obama appointed Mr. McLaughlin to serve on the President’s National Security Telecommunications Advisory Committee. Mr. McLaughlin holds a Bachelor of Science from the U.S. Military Academy at West Point and a Juris Doctor from Seattle University School of Law.

 

We believe that Mr. McLaughlin is qualified to serve as a member of our board of directors because of his experience as a public company executive and his knowledge of the technology industry.

 

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Dipchand Nishar has served on our board of directors since August 2013. Mr. Nishar has served as senior vice president, products and user experience at LinkedIn Corporation since 2011, and served as its vice president, products from 2009 until 2011. Prior to that, Mr. Nishar served in several roles, including most recently as the senior director of products for the Asia-Pacific region at Google Inc. from 2003 to 2009. Mr. Nishar holds a Masters in Business Administration from Harvard Business School, Master of Science in electrical engineering from University of Illinois, Urbana-Champaign, and a Bachelor of Technology from the Indian Institute of Technology.

 

We believe that Mr. Nishar is qualified to serve as a member of our board of directors because of his experience as a public company executive and his knowledge of the technology industry.

 

Gene Riechers has served on our board of directors since September 2011. Mr. Riechers has served as the vice chairman of EverFi, Inc., an educational technology company, since 2012. From 2002 to 2011, Mr. Riechers was a general partner of Valhalla Partners, a venture capital firm. Mr. Riechers holds a Masters in Business Administration from Loyola College and a Bachelor of Science in accounting from Pennsylvania State University.

 

We believe that Mr. Riechers is qualified to serve as a member of our board of directors because of his experience as a seasoned investor, a current and former director of many companies and his financial and accounting expertise.

 

Marcus Ryu has served on our board of directors since August 2013. Mr. Ryu has served as president and chief executive officer of Guidewire Software, Inc., a publicly-traded software company that sells to the insurance industry, since 2010 and as a member of its board of directors since 2001. From 2001 to 2010, Mr. Ryu served in various other management positions at Guidewire. Prior to founding Guidewire, from 2000 to 2001, Mr. Ryu was vice president of strategy at Ariba, Inc., a software-as-a-service provider of collaborative business commerce solutions for buying and selling goods and services. Mr. Ryu holds a Bachelor of Arts in economics from Princeton University and a Bachelor of Philosophy from New College, Oxford University.

 

We believe that Mr. Ryu is qualified to serve as a member of our board of directors because of his experience as a public company chief executive officer and his knowledge of selling software into a large vertical industry.

 

Jon Sakoda has served on our board of directors since October 2008. Mr. Sakoda is a partner of New Enterprise Associates, a venture capital firm, which he joined in 2006. Prior to joining New Enterprise Associates, Mr. Sakoda co-founded IMlogic, Inc., which was acquired by Symantec Corporation, and served as its chief technology officer and vice president of products from 2001 to 2006. Prior to that, Mr. Sakoda was an analyst at Goldman, Sachs & Co. Mr. Sakoda currently serves on the board of directors of several private companies. Mr. Sakoda holds a Bachelor of Arts in chemistry from Harvard University.

 

We believe that Mr. Sakoda is qualified to serve as a member of our board of directors because of his experience as a seasoned investor, a current and former director of many companies and his knowledge of the software industry.

 

Harry Weller has served on our board of directors since October 2008. Mr. Weller is a general partner of New Enterprise Associates, a venture capital firm, which he joined in 2002. Prior to that, Mr. Weller was a partner of FBR Technology Venture Partners. Mr. Weller currently serves on the board of directors of several private companies. Mr. Weller holds a Masters in Business Administration from Harvard Business School and a Bachelor of Science in physics from Duke University.

 

We believe that Mr. Weller is qualified to serve as a member of our board of directors because of his experience as a seasoned investor, a current and former director of many companies and his knowledge of the software industry.

 

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Codes of Business Conduct and Ethics

 

Prior to the completion of this offering, our board of directors will adopt a code of business conduct and ethics that will apply to all of our employees, directors and officers, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers.

 

Board of Directors

 

Our business and affairs are managed under the direction of our board of directors. The number of directors will be fixed by our board of directors, 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. Our board of directors will consist of eight directors, six of whom will qualify as “independent” under NYSE listing standards.

 

In accordance with our amended and restated certificate of incorporation and our amended and restated bylaws, immediately after the completion of this offering our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows:

 

   

the Class I directors will be Messrs. Yates, Riechers and Sakoda, and their terms will expire at the annual meeting of stockholders to be held in 2015;

 

   

the Class II directors will be Messrs. Ryu and Weller, and their terms will expire at the annual meeting of stockholders to be held in 2016; and

 

   

the Class III directors will be Messrs. Laskey, McLaughlin and Nishar, and their terms will expire at the annual meeting of stockholders to be held in 2017.

 

Any increase or decrease 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.

 

This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

 

Director Independence

 

Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his background, employment and affiliations, our board of directors has determined that Messrs. McLaughlin, Nishar, Riechers, Ryu, Sakoda and Weller do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of the NYSE. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in “Certain Relationships and Related Party Transactions.”

 

Lead Independent Director

 

Our board of directors has appointed Mr. Ryu to serve as our lead independent director. As lead independent director, Mr. Ryu will preside over periodic meetings of our independent directors, serve as a liaison between our Chairman of the board of directors and the independent directors, and perform such additional duties as our board of directors may otherwise determine and delegate.

 

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Committees of the Board of Directors

 

Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors.

 

Audit Committee

 

Immediately following the completion of this offering, our audit committee will consist of Messrs. Riechers, Ryu and Weller, with Mr. Riechers serving as Chairman. The composition of our audit committee meets the requirements for independence under current NYSE listing standards and SEC rules and regulations. Each member of our audit committee meets the financial literacy requirements of the NYSE listing standards. In addition, our board of directors has determined that Mr. Riechers is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act. Our audit committee will, among other things:

 

   

select a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

 

   

help to ensure the independence and performance of the independent registered public accounting firm;

 

   

discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management and the independent registered public accounting firm, our interim and year-end results of operations;

 

   

develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

 

   

review our policies on risk assessment and risk management;

 

   

review related party transactions;

 

   

obtain and review a report by the independent registered public accounting firm at least annually, that describes our internal control procedures, any material issues with such procedures, and any steps taken to deal with such issues; and

 

   

approve (or, as permitted, pre-approve) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm.

 

Our audit committee will operate under a written charter, to be effective prior to the completion of this offering, that satisfies the applicable rules of the SEC and the listing standards of the NYSE.

 

Compensation Committee

 

Immediately following the completion of this offering, our compensation committee will consist of Messrs. McLaughlin, Nishar and Sakoda, with Mr. Sakoda serving as Chairman. The composition of our compensation committee meets the requirements for independence under NYSE listing standards and SEC rules and regulations. Each member of the compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code. The purpose of our compensation committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee will, among other things:

 

   

review, approve and determine, or make recommendations to our board of directors regarding, the compensation of our executive officers;

 

   

administer our stock and equity incentive plans;

 

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review and approve, or make recommendations to our board of directors regarding, incentive compensation and equity plans; and

 

   

establish and review general policies relating to compensation and benefits of our employees.

 

Our compensation committee will operate under a written charter, to be effective prior to the completion of this offering, that satisfies the applicable rules of the SEC and the listing standards of the NYSE.

 

Nominating and Governance Committee

 

Immediately following the completion of this offering, our nominating and governance committee will consist of Messrs. McLaughlin, Ryu and Weller, with Mr. Weller serving as Chairman. The composition of our nominating and governance committee meets the requirements for independence under NYSE listing standards and SEC rules and regulations. Our nominating and governance committee will, among other things:

 

   

identify, evaluate and select, or make recommendations to our board of directors regarding, nominees for election to our board of directors and its committees;

 

   

evaluate the performance of our board of directors and of individual directors;

 

   

consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees;

 

   

review developments in corporate governance practices;

 

   

evaluate the adequacy of our corporate governance practices and reporting; and

 

   

develop and make recommendations to our board of directors regarding corporate governance guidelines and matters.

 

The nominating and governance committee will operate under a written charter, to be effective prior to the completion of this offering that satisfies the applicable listing requirements and rules of the NYSE.

 

Compensation Committee Interlocks and Insider Participation

 

None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

 

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EXECUTIVE COMPENSATION

 

Overview

 

The primary objective of our executive compensation program is to attract, motivate and retain employees at the executive level who contribute to our long-term success. We strive to provide compensation packages to our executives that are competitive, reward the achievement of our business objectives and effectively align their interests with those of our stockholders.

 

Summary Compensation Table

 

The following table sets forth summary information concerning compensation for the following persons: (i) all persons serving as our principal executive officer during 2013 and (ii) up to two of the most highly compensated of our other executive officers who received compensation during 2013 of at least $100,000 and who were executive officers on December 31, 2013. We refer to these persons as our “named executive officers” elsewhere in this prospectus. The following table includes all compensation earned by the named executive officers for the respective periods, regardless of whether such amounts were actually paid during the period.

 

Name and Principal Position

   Year      Salary ($)      Option
Awards  ($)(1)
    Non-Equity
Incentive Plan
Compensation($)
    All Other
Compensation($)(2)
     Total ($)  

Daniel Yates

          

Chief Executive Officer and Founder

     2013         250,000         7,928,934 (3)             1,200         8,180,134   
     2012         250,000                       1,200         251,200   

Alexander Laskey

          

President and Founder

     2013         244,198         5,549,643 (4)             7,002         5,800,843   

Jeremy Kirsch

          

Senior Vice President of Worldwide Sales, Regulatory and Business Development

     2013         240,000         193,501 (5)      59,000 (6)      6,619         499,120   

 

  (1)   The amounts reported represent the aggregate grant date fair value of the stock options awarded to the named executive officer in the fiscal year indicated, calculated in accordance with ASC Topic 718. Such grant date fair value does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in the notes to our audited financial statements included in this prospectus.
  (2)   Amounts represent payment of $50 per pay period for parking and public transportation expenses for each of the named executive officers. In addition, for Mr. Laskey, the amount reported includes $5,802 of short-term disability benefits paid by us and, for Mr. Kirsch, the amount reported includes $1,092 for golf clubs given to him on the fifth anniversary of his employment with us as well as an $4,327 for a trip for Mr. Kirsch for meeting or exceeding his sales goals paid by us.
  (3)   Represents an option to purchase 857,168 shares of common stock.
  (4)   Represents an option to purchase 603,914 shares of common stock.
  (5)   Represents an option to purchase 110,000 shares of common stock.
  (6)   The amount reported reflects bonus payments made to, or earned by, Mr. Kirsch based upon the achievement of certain quantitative sales performance goals as well as qualitative sales management goals for 2013.

 

Narrative Disclosure to the Summary Compensation Table

 

Employment Arrangements with our Named Executive Officers

 

Jeremy Kirsch. We have entered into an offer letter with Jeremy Kirsch. Mr. Kirsch currently receives a base salary of $240,000 and is eligible to receive a bonus for each six-month period of his employment based upon the achievement of certain performance goals. Pursuant to his employment agreement, if, following the consummation of a “corporate transaction” that constitutes a “triggering event,” each as defined in our Amended

 

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and Restated 2007 Stock Plan, or the 2007 Plan, we terminate Mr. Kirsch’s employment with us for any reason other than “cause,” death or “disability,” each as defined in the 2007 Plan, or Mr. Kirsch resigns his employment for “good reason,” as defined in the employment agreement, we will pay Mr. Kirsch severance of $50,000.

 

Outstanding Equity Awards at 2013 Year-End

 

The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2013. None of our named executive officers held unvested stock awards as of December 31, 2013.

 

     Option Awards (1)  

Name

   Grant
Date
    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
     Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
     Option
Exercise
Price ($)
     Option
Expiration
Date
 

Daniel Yates

     8/27/2013 (2)      13,850         55,400         7.22         8/27/2018   
     8/27/2013 (2)(3)      787,918                 6.56         8/27/2023   

Alexander Laskey

     8/27/2013 (2)      13,850         55,400         7.22         8/27/2018   
     8/27/2013 (2)(3)      534,664                 6.56         8/27/2023   

Jeremy Kirsch

     4/17/2013 (4)(5)              110,000         4.19         4/16/2023   
     9/14/2012 (5)(6)      14,166         25,834         2.59         9/13/2022   
     7/27/2008 (7)      747,000                 0.05         7/26/2018   

 

  (1)   Each stock option was granted pursuant to our 2007 Plan.
  (2)  

The shares underlying this option vest as follows: 1/60th of the shares underlying the option vest in equal monthly installments over 24 months beginning on September 30, 2013 and 1/40th of the shares underlying the option vest in equal monthly installments over the following 24 months.

  (3)   This option contains an early exercise feature and all shares underlying the option were exercisable upon grant.
  (4)   The shares underlying this option vest as follows: 25% of the shares underlying the option vest and become exercisable on July 1, 2014 and the remaining 75% of the shares underlying the option vest and become exercisable in equal monthly installments over the following 36 months.
  (5)   Fifty percent of the unvested shares underlying this option will vest and become exercisable as of immediately prior to the closing of a corporate transaction or the date of termination of employment, as applicable, in the event of corporate transaction that constitutes a triggering event (as such terms are defined in the 2007 Plan) if either (i) the successor corporation does not assume or substitute the stock option and the option is not terminated in exchange for a payment of cash, securities and/or other property or (ii) Mr. Kirsch’s continuous service status (as defined in the 2007 Plan) is terminated by us for any reason other than cause (as defined in the 2007 Plan), death or disability (as defined in the 2007 Plan) at any time following the consummation of such triggering event.
  (6)   The shares underlying this option vest as follows: 25% of the shares underlying the option vested and became exercisable on July 14, 2013 and the remaining 75% of the shares underlying the option vest and become exercisable in equal monthly installments over the following 36 months.
  (7)   The shares underlying this option vested as follows: 12.5% of the shares underlying the option vested on January 14, 2009, an additional 21.875% of the shares underlying the option vested on July 14, 2009 and the remaining shares underlying the option vested in equal monthly installments over the following 36 months.

 

Director Compensation

 

The following table presents the total compensation for each person who served as a non-employee member of our board of directors during 2013. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directors in the year ended December 31, 2013. All of our directors are entitled to reimbursement for reasonable travel expenses incurred in attending our board of directors meetings and committee meetings. Mr. Yates, our CEO and Founder, and Mr. Laskey, our President and Founder, receive no compensation for their service as directors, and the compensation received by Mr. Yates and Mr. Laskey as employees during 2013 is presented in the “Summary Compensation Table” above.

 

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Director Name

   Stock  Awards
($)(1)
     Option  Awards
($)(2)
     Total
($)
 

Mark McLaughlin(3)

     608,000                 608,000   

Dipchand Nishar(4)

     45,600         366,681         412,281   

Gene Riechers(5)

     76,000                 76,000   

Marcus Ryu(6)

     45,600         316,875         362,475   

Jon Sakoda

                       

Mark Sugarman

                       

Harry Weller

                       

 

 

  (1)  

The amounts reported represent the aggregate grant-date fair value of restricted stock units awarded to the director, calculated in accordance with ASC Topic 718. Such grant-date fair value does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant date fair value of the restricted stock units reported in this column are set forth in the notes to our audited financial statements included in this prospectus. All of the restricted stock units are subject to both a time-based condition and performance-based vesting, both of which must be satisfied prior to the expiration date in order for the restricted stock units to vest. 1/12th of the total restricted stock units shall satisfy the time-based condition on each of the monthly anniversaries of November 18, 2013, provided that (i) any portion of the restricted stock units that has not satisfied the time-based condition shall immediately satisfy such condition upon termination of the director’s continuous service status (as defined in the 2007 Plan) as a result of his death and (ii) 50% of the portion of the restricted stock units that have not satisfied the time-based condition shall satisfy such condition if (A) a corporate transaction (as defined in the 2007 Plan) has occurred, (B) the restricted stock units have been continued, assumed or substituted following the corporate transaction and (C) the director’s continuous service status is terminated without cause within one year after the consummation of such corporate transaction. The performance-based condition shall be satisfied on the first to occur of (a) a triggering event (as defined in the 2007 Plan) or (ii) the director’s continuous service status through the expiration of the lock-up period immediately following the consummation of this offering.

  (2)   The amounts reported represent the aggregate grant-date fair value of the stock options awarded to the director, calculated in accordance with ASC Topic 718. Such grant-date fair value does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in the notes to our audited financial statements included in this prospectus.
  (3)   Mr. McLaughlin was appointed to our board of directors effective October 10, 2013. As of December 31, 2013, Mr. McLaughlin held restricted stock units covering 40,000 shares of our common stock,
  (4)   Mr. Nishar was appointed to our board of directors effective August 27, 2013. As of December 31, 2013, Mr. Nishar held (i) restricted stock units covering 3,000 shares of our common stock, (ii) an option to purchase 40,000 shares of our common stock, which vests in 12 equal monthly installments beginning on August 27, 2013 and (iii) an option to purchase 2,500 shares of our common stock, which vests in 24 equal monthly installments beginning on April 1, 2013. The stock options held by Mr. Nishar are subject to an early exercise feature.
  (5)   As of December 31, 2013, Mr. Riechers held (i) restricted stock units covering 5,000 shares of our common stock, (ii) an option to purchase 28,000 shares of our common stock, which became fully vested on December 29, 2011 and (iii) an option to purchase 30,000 shares of our common stock, which vested in 24 equal monthly installments beginning on September 13, 2011.
  (6)   As of December 31, 2013, Mr. Ryu held (i) restricted stock units covering 3,000 shares of our common stock and (ii) an option to purchase 35,000 shares of our common stock, which vests in 12 equal monthly installments beginning on August 8, 2013 and is subject to an early exercise feature.

 

Following the completion of this offering, we intend to implement a formal policy pursuant to which our non-employee directors would be eligible to receive equity awards and annual cash retainers as compensation for service on our board of directors and committees of our board of directors.

 

Compensation Risk Assessment

 

We believe that our executive compensation program does not encourage excessive or unnecessary risk taking. This is primarily due to the fact that our compensation programs are designed to encourage our executive officers and other employees to remain focused on both short-term and long-term strategic goals. As a result, we do not believe that our compensation programs are reasonably likely to have a material adverse effect on our company.

 

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Employee Benefits Plans

 

2014 Stock Incentive Plan

 

Our 2014 Stock Incentive Plan (the “2014 Plan”) was adopted by our board of directors in February 2014 and approved by our stockholders in              2014 and will become effective immediately prior to the completion of this offering. The 2014 Plan will replace the 2007 Plan. The 2014 Plan allows the compensation committee to make equity-based incentive awards to our officers, employees, directors and other key persons (including consultants).

 

We have initially reserved 5,000,000 shares of our common stock for the issuance of awards under the 2014 Plan. In addition, the number of shares remaining available for grant under our 2007 Plan will be added to the shares available under our 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2015, by 5% of the outstanding number of shares of our common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee. This number of shares reserved under the 2014 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

 

The shares we issue under the 2014 Plan will be authorized but unissued shares or shares that we reacquire. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2014 Plan and the 2007 Plan will be added back to the shares of common stock available for issuance under the 2014 Plan.

 

Stock options and stock appreciation rights with respect to no more than 5,000,000 shares of common stock may be granted to any one individual in any one calendar year and the maximum “performance-based award” payable to any one individual under the 2014 Plan is 5,000,000 shares of stock or $2,000,000 in the case of cash-based awards. The maximum number of shares that may be issued as incentive stock options in any one calendar year period may not exceed 5,000,000 cumulatively increased on January 1, 2015 and on each January 1 thereafter by the lesser of 5% of the outstanding number of shares of our common stock on the immediately preceding December 31 or 5,000,000 shares.

 

The 2014 Plan will be administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2014 Plan. Persons eligible to participate in the 2014 Plan will be those full or part-time officers, employees, non-employee directors and other key persons (including consultants) as selected from time to time by our compensation committee in its discretion.

 

The 2014 Plan permits the granting of both (1) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. The option exercise price of each option will be determined by our compensation committee but may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each option will be fixed by our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.

 

Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of fair market value of the common stock on the date of grant.

 

Our compensation committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified

 

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vesting period. Our compensation committee may also grant shares of common stock that are free from any restrictions under the 2014 Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.

 

Our compensation committee may grant performance share awards to participants that entitle the recipient to receive awards of common stock upon the achievement of certain performance goals and such other conditions as our compensation committee shall determine. Our compensation committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock.

 

Our compensation committee may grant cash bonuses under the 2014 Plan to participants, subject to the achievement of certain performance goals.

 

Our compensation committee may grant awards of restricted stock, restricted stock units, performance shares or cash-based awards under the 2014 Plan that are intended to qualify as “performance-based compensation” under Section 162(m) of the Code. Such awards will only vest or become payable upon the attainment of performance goals that are established by our compensation committee and related to one or more performance criteria. The performance criteria that could be used with respect to any such awards include: total stockholder return, earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of our common stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity or investment, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. From and after the time that we become subject to Section 162(m) of the Code, the maximum award that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code that may be made to any one employee during any one calendar year period is 5,000,000 shares of common stock with respect to a stock-based award and $2,000,000 with respect to a cash-based award.

 

The 2014 Plan provides that upon the effectiveness of a “sale event,” as defined in the 2014 Plan, the successor entity may assume, continue or substitute for outstanding awards, as appropriately adjusted. To the extent that all awards are not assumed or continued or substituted by the successor entity, all such options and stock appreciation rights that are not exercisable immediately prior to the effective time of the sale event shall become fully exercisable as of the effective time of the sale event, all other awards with time-based vesting, conditions or restrictions, shall become fully vested and nonforfeitable as of the effective time of the sale event and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in the discretion of the compensation committee and all awards granted under the 2014 Plan shall terminate. In addition, in connection with the termination of the 2014 Plan upon a sale event, we may make or provide for a cash payment to participants holding options and stock appreciation rights equal to the difference between the per share cash consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights.

 

Our board of directors may amend or discontinue the 2014 Plan and our compensation committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder’s consent. Certain amendments to the 2014 Plan require the approval of our stockholders.

 

No awards may be granted under the 2014 Plan after the date that is ten years from the date of stockholder approval of the 2014 Plan. No awards under the 2014 Plan have been made prior to the date hereof.

 

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Amended and Restated 2007 Stock Plan

 

Our 2007 Plan was approved by our board of directors in July 2007 and was subsequently approved by our stockholders in August 2007. The 2007 Plan was most recently amended in February 2014. We have reserved an aggregate of 14,835,188 shares of our common stock for the issuance of options under the 2007 Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. Effective upon the closing of this offering, our board of directors has determined not to grant any further awards under our 2007 Plan.

 

Currently, the shares of common stock underlying any awards that are forfeited, canceled, repurchased, expire or are otherwise terminated (other than by exercise) under the 2007 Plan are added to the shares of common stock available for issuance under the 2007 Plan. Upon the effectiveness of the 2014 Plan, such shares will be added to the shares of common stock available for issuance under the 2014 Plan.

 

Our board of directors has acted as administrator of the 2007 Plan. The administrator has the power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, and to determine the specific terms and conditions of each award, subject to the provisions of the 2007 Plan. Persons eligible to participate in the 2007 Plan are our employees and consultants as selected from time to time by the administrator in its discretion.

 

The 2007 Plan permits the granting of (1) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (2) options that do not so qualify. The administrator determines at what time or times each option may be exercised. In addition, the 2007 Plan permits the granting of restricted shares of common stock and restricted stock units.

 

Restricted stock units granted under the 2007 Plan are typically subject to both time and performance-based vesting. The performance based vesting is generally achieved upon the first to occur of a triggering event, as defined in the 2007 Plan, or continued service with us through the expiration of the lock-up period following our initial public offering. The time-based vesting generally occurs over four years from the date of grant with 25% of the restricted stock units vesting after one year and the remaining 75% vesting in 12 equal quarterly installments thereafter.

 

The 2007 Plan provides that upon the occurrence of a “corporate transaction,” as defined in the 2007 Plan, all outstanding stock options will either be assumed or substituted by the successor entity or terminated in exchange for a payment of cash, securities and/or other property equal to the fair market value of the vested portion of the stock option over the aggregate exercise price of the vested portion of such stock option. All stock options that are not assumed or substituted shall terminate upon the consummation of the corporate transaction.

 

No awards may be granted under the 2007 Plan after the date that is ten years from the date the 2007 Plan was adopted by our board of directors.

 

Our Board of Directors has also Adopted the UK Sub-Plan to the 2007 Plan (the “UK Sub-Plan”), to Apply to Grants made to Our Employees and Employees of Our United Kingdom Subsidiary who are also Tax Residents of the United Kingdom (the “UK Service Providers”). The UK Sub-Plan Allows us to Grant Options to the UK Service Providers Under the 2007 Plan Under Similar Terms to those in the 2007 Plan.

 

Senior Executive Cash Incentive Bonus Plan

 

In February 2014, our board of directors adopted the Senior Executive Cash Incentive Bonus Plan (the “Bonus Plan”). The Bonus Plan provides for cash bonus payments based upon the attainment of performance targets established by our compensation committee. The payment targets will be related to financial and operational measures or objectives with respect to our company (the “Corporate Performance Goals”), as well as individual performance objectives.

 

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Our compensation committee may select Corporate Performance Goals from among the following: cash flow (including, but not limited to, operating cash flow and free cash flow); revenue; earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of our common stock; economic value-added; funds from operations or similar measure; acquisitions or strategic transactions; operating income (loss); return on capital, assets, equity or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of our common stock; bookings, new bookings or renewals; sales or market shares; number of customers; number of new customers or customer references; operating income and/or net annual recurring revenue, any of which may be measured in absolute terms, as compared to any incremental increase, in terms of growth, as compared to results of a peer group, against the market as a whole, compared to applicable market indices and/or measured on a pre-tax or post-tax basis.

 

Each executive officer who is selected to participate in the Bonus Plan will have a target bonus opportunity set for each performance period. The bonus formulas will be adopted in each performance period by the compensation committee and communicated to each executive. The Corporate Performance Goals will be measured at the end of each performance period after our financial reports have been published or such other appropriate time as the compensation committee determines. If the Corporate Performance Goals and individual performance objectives are met, payments will be made as soon as practicable following the end of each performance period. Subject to the rights contained in any agreement between the executive officer and us, an executive officer must be employed by us on the bonus payment date to be eligible to receive a bonus payment. The Bonus Plan also permits the compensation committee to approve additional bonuses to executive officers in its sole discretion.

 

401(k) Plan

 

We maintain a tax-qualified retirement plan (the “401(k) Plan”), that provides eligible employees with an opportunity to save for retirement on a tax-advantaged basis. All participants’ interests in their contributions are 100% vested when contributed. Historically, we have not made any matching contributions to the 401(k) Plan. Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. The 401(k) Plan is intended to qualify under Sections 401(a) and 501(a) of the Code.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements and indemnification arrangements, discussed, when required, in the sections titled “Management” and “Executive Compensation” and the registration rights described in the section titled “Description of Capital Stock—Registration Rights,” the following is a description of each transaction since January 1, 2011 and each currently proposed transaction in which:

 

   

we have been or are to be a participant;

 

   

the amount involved exceeded or exceeds $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.

 

Investor Rights Agreement

 

On November 24, 2010, we entered into an Amended and Restated Investor Rights Agreement with the holders of our outstanding convertible preferred stock, including entities affiliated with MHS Capital Partners, New Enterprise Associates, Accel Partners and KPCB Holdings, which each hold more than 5% of our outstanding capital stock, and Daniel Yates and Alex Laskey, our co-founders. In addition, the father of Jeremy Kirsch, one of our executive officers, is a limited partner of entities affiliated with MHS Capital Partners. As of December 31, 2013, the holders of 34,644,328 shares of our common stock, including our common stock issuable in connection with the automatic conversion of all outstanding shares of our convertible preferred stock into common stock, are entitled to rights with respect to the registration of their shares following this offering under the Securities Act. See the section titled “Description of Capital Stock—Registration Rights” for more information regarding these registration rights.

 

Consulting Agreement

 

On September 12, 2011, we entered into a Consulting Agreement with Gene Riechers, one of our directors, to provide strategic and management consulting for us. This Consulting Agreement terminated on December 23, 2011. In connection with the services provided by Mr. Riechers pursuant to this agreement, we paid Mr. Riechers approximately $82,000 and granted him an option to purchase 28,000 shares of our common stock which became fully vested on December 29, 2011.

 

Other Transactions

 

We have granted stock options to our executive officers and certain of our directors. See the sections titled “Executive Compensation—Outstanding Equity Awards at 2013 Year-End” and “Management—Director Compensation” for a description of these options.

 

We have entered into change in control arrangements with certain of our executive officers that, among other things, provide for certain severance and change in control benefits.

 

Other than as described above under this section titled “Certain Relationships and Related Person Transactions,” since January 1, 2011, we have not entered into any transactions, nor are there any currently proposed transactions, between us and a related party where the amount involved exceeds, or would exceed, $120,000, and in which any related person had or will have a direct or indirect material interest. We believe the terms of the transactions described above were comparable to terms we could have obtained in arm’s-length dealings with unrelated third parties.

 

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Limitation of Liability and Indemnification of Officers and Directors

 

Prior to the completion of this offering, we expect to adopt an amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:

 

   

any breach of their duty of loyalty to our company or our stockholders;

 

   

any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

   

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

   

any transaction from which they derived an improper personal benefit.

 

Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

 

In addition, prior to the completion of this offering, we expect to adopt amended and restated bylaws which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

 

Further, prior to the completion of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements will also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

 

The limitation of liability and indemnification provisions that are expected to be included in our amended and restated certificate of incorporation, amended and restated bylaws and in indemnification agreements that we enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request

 

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as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

 

We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.

 

Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.

 

The underwriting agreement provides for indemnification by the underwriters of us and our officers, directors and employees for certain liabilities arising under the Securities Act or otherwise.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

Policies and Procedures for Related Party Transactions

 

Following the completion of this offering, the audit committee of our board of directors will have the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director, executive officer, nominee for director or greater than 5% beneficial owner of our common stock, in each case since the beginning of the most recently completed year, and their immediate family members. Our audit committee charter will provide that the audit committee shall review and approve or disapprove any related party transactions. As of the date of this prospectus, we have not adopted any formal standards, policies or procedures governing the review and approval of related party transactions, but we expect that our audit committee will do so in the future.

 

All of the transactions described in the foregoing were entered into prior to the adoption of this policy. Accordingly, each was approved by disinterested members of our board of directors after making a determination that the transaction was executed on terms no less favorable than those that could have been obtained from an unrelated third party.

 

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PRINCIPAL STOCKHOLDERS

 

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of December 31, 2013, and as adjusted to reflect the sale of common stock offered by us in this offering assuming no exercise of the underwriters’ option to purchase additional shares, for:

 

   

each of our named executive officers;

 

   

each of our directors;

 

   

all of our directors and executive officers as a group; and

 

   

each person known by us to be the beneficial owner of more than five percent of any class of our voting securities.

 

We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have deemed shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of December 31, 2013 to be outstanding and to be beneficially owned by the person holding the option for the purpose of computing the percentage ownership of that person but have not treated them as outstanding for the purpose of computing the percentage ownership of any other person.

 

We have based percentage ownership of our common stock before this offering on 41,359,839 shares of our common stock outstanding as of December 31, 2013, which includes 19,246,714 shares of common stock resulting from the automatic conversion of all outstanding shares of our convertible preferred stock upon the completion of this offering, as if this conversion had occurred as of December 31, 2013. Percentage ownership of our common stock after this offering assumes our sale of              shares of common stock in this offering.

 

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Opower, Inc., 1515 North Courthouse Road, 8th Floor, Arlington, Virginia 22201.

 

     Shares Beneficially Owned
Prior to the Offering
    Shares Beneficially
Owned After the
Offering
     Number      Percentage     Number    Percentage

Principal Stockholders:

          

Entities affiliated with New Enterprise Associates(1)

     8,997,290         21.8     

Entities affiliated with MHS(2)

     3,432,718         8.3        

Entities affiliated with Accel(3)

     2,247,192         5.4        

Entities affiliated with Kleiner Perkins Caufield & Byers(4)

     2,247,192         5.4        

Named Executive Officers and Directors:

          

Daniel Yates(5)

     9,463,474         22.4        

Jeremy Kirsch(6)

     1,107,833         2.6        

Alex Laskey(7)

     7,312,122         17.4        

Mark McLaughlin(8)

                    

Dipchand Nishar(9)

     52,500         *        

Gene Riechers(10)

     58,000         *        

Marcus Ryu(11)

     117,000         *        

Jon Sakoda

                    

Harry Weller

                    

All directors and executive officers as a group (14 persons)(12)

     19,823,570         44.8        

 

  *   Less than one percent (1%).

 

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  (1)   Consists of (i) 8,989,766 shares of common stock held of record by New Enterprise Associates 12, Limited Partnership (“NEA 12”) and (ii) 7,524 shares of common stock held of record by NEA Ventures 2008, L.P. (“Ven 2008”). The shares directly held by NEA 12 are indirectly beneficially owned by NEA Partners 12, Limited Partnership (“NEA Partners 12”), the sole general partner of NEA 12, NEA 12 GP, LLC (“NEA 12 LLC”), the sole general partner of NEA Partners 12, and each of the individual managers (collectively, the “Managers”) of NEA 12 LLC, who are M. James Barrett, Peter J. Barris, Forest Baskett, Ryan D. Drant, Patrick J. Kerins, Krishna “Kittu” Kolluri and Scott D. Sandell. The Managers share voting and dispositive power with regard to the shares directly held by NEA 12. Karen P. Welsh, the general partner of Ven 2008, shares voting and dispositive power with regard to the shares directly held by Ven 2008. The address of each of the entities identified in this footnote is c/o New Enterprise Associates, Inc., 1954 Greenspring Drive, Suite 600, Timonium, Maryland 21093.
  (2)   Consists of (i) 3,215,427 shares of common stock held of record by MHS Capital Partners, L.P. and (ii) 217,291 shares of common stock held of record by MHS Capital Principals, L.L.C. MHS Capital Management, L.L.C. is the sole general partner of MHS Capital Partners, L.P. and the sole manager of MHS Capital Principals, L.L.C. Mark Sugarman is the sole member of MHS Capital Management, L.L.C. and may be deemed to share voting and investment power over the shares of common stock held by MHS Capital Partners, L.P. and MHS Capital Principals, L.L.C. The address of each of the entities identified in this footnote is 333 Bush Street, Suite 2250, San Francisco, California 94104.
  (3)   Consists of (i) 1,913,259 shares of common stock held of record by Accel X L.P., (ii) 143,596 shares of common stock held of record by Accel X Strategic Partners L.P and (iii) 190,337 shares of common stock held of record by Accel Investors 2010 L.L.C. Accel X Associates L.L.C. (“A10A”) is the general partner of Accel X L.P. and Accel X Strategic Partners L.P. Andrew G. Braccia, James W. Breyer, Kevin J. Efrusy, Sameer K. Gandhi, Theresia Gouw, Ping Li, Tracy L. Sedlock and Richard P. Wong are the managing members of A10A and may be deemed to share voting and dispositive power over the shares held by Accel X L.P. and Accel X Strategic Partners L.P. Andrew G. Braccia, James W. Breyer, Kevin J. Efrusy, Sameer K. Gandhi, Theresia Gouw, Ping Li, Tracy L. Sedlock and Richard P. Wong are the managing members of Accel Investors 2010 L.L.C. and may be deemed to share voting and dispositive power over the shares held by Accel Investors 2010 L.L.C. The address of each of the entities identified in this footnote is 428 University Ave Palo Alto, California 94301.
  (4)   Shares are held for convenience in the name of “KPCB Holdings, Inc. as nominee” for KPCB Green Growth Fund LLC, and individuals and entities each of whom exercise their own voting and dispositive control over such shares. The managing member for KPCB Green Growth Fund, LLC is KPCB GGF Associates, LLC. The voting and dispositive control over these shares is shared by individual managing directors of KPCB GGF Associates, LLC, none of whom has veto power. Mr. Kortlang, a member of the board of directors of KPCB GGF Associates, LLC, may be deemed to share voting and dispositive power with respect to the shares held by KPCB Green Growth Fund, LLC. The address for KPCB Green Growth Fund, LLC is 2750 Sand Hill Road, Menlo Park, California 94025.
  (5)   Consists of (i) 6,846,582 shares of common stock held of record by Mr. Yates, (ii) 1,700,000 shares of common stock held of record by the Yates-Whitman 2013 Annuity Trust #1, (iii) 50,000 shares of common stock held of record by Ivan Jellinek and Monica Jellinek, who have granted an irrevocable proxy to Mr. Yates, (iv) 1,274 shares of common stock held of record by Pierre Poussard and Mary Winston Nicklin, who have granted an irrevocable proxy to Mr. Yates, (v) 50,000 shares of common stock held of record by Ralph Aaron Yates, Dorit Strauss Yates and Daniel Joseph Yates, Trustees of the Ralph Aaron Yates and Dorit Strauss Yates Declaration of Trust Dated December 19, 1990, who have granted an irrevocable proxy to Mr. Yates, and (vi) 815,618 shares of common stock subject to outstanding options that are exercisable within 60 days of December 31, 2013.

 

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  (6)   Consists of (i) 220,000 shares of common stock held of record by Mr. Kirsch, (ii) 62,500 shares of common stock held of record by The Jeremy E. Kirsch 2013 Five-Year Grantor Retained Annuity Trust, (iii) 62,500 shares of common stock held of record by The Jeremy E. Kirsch 2013 Three-Year Grantor Retained Annuity Trust and (iv) 762,833 shares of common stock subject to outstanding options that are exercisable within 60 days of December 31, 2013.
  (7)   Consists of (i) 4,649,756 shares of common stock held of record by Mr. Laskey, (ii) 1,900,000 shares of common stock held of record by Laskey-A Investment Trust, (iii) 33,334 shares of common stock held of record by Baruch Farbiarz and Elsa Farbiarz, who have granted an irrevocable proxy to Mr. Laskey, (iv) 33,334 shares of common stock held of record by Adam Farbiarz, who has granted an irrevocable proxy to Mr. Laskey, (v) 50,000 shares of common stock held of record by Jacob Laskey, who has granted an irrevocable proxy to Mr. Laskey, (vi) 33,334 shares of common stock held of record by Michael Farbiarz and Megan Lewis, who have granted an irrevocable proxy to Mr. Laskey, (vii) 50,000 shares of common stock held of record by Richard Laskey and Abbie Laskey, who have granted an irrevocable proxy to Mr. Laskey, and (viii) 562,364 shares of common stock subject to outstanding options that are exercisable within 60 days of December 31, 2013.
  (8)   Mr. McLaughlin was appointed to our board of directors in October 2013.
  (9)   Consists of (i) 42,500 shares of common stock held of record by Mr. Nishar and (ii) 10,000 shares of common stock held of record by Nishar Family Trust dated October 8, 2008.
  (10)   Consists of 58,000 shares of common stock subject to outstanding options that are exercisable within 60 days of December 31, 2013.
  (11)   Consists of 117,000 shares of common stock held of record by Mr. Ryu.
  (12)   Consists of (i) 16,946,277 shares of common stock held of record and (ii) 2,877,293 shares of common subject to outstanding options that are exercisable within 60 days of December 31, 2013.

 

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DESCRIPTION OF CAPITAL STOCK

 

General

 

The following description summarizes the most important terms of our capital stock, as they are expected to be in effect upon the closing of this offering. We expect to adopt an amended and restated certificate of incorporation and amended and restated bylaws in connection with this offering, and this description summarizes the provisions that are expected to be included in such documents. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in “Description of Capital Stock,” you should refer to our amended and restated certificate of incorporation and amended and restated bylaws and investor rights agreement, which are or will be included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law. Immediately following the closing of this offering, our authorized capital stock will consist of 500,000,000 shares of common stock, $0.000005 par value per share, and 25,000,000 shares of undesignated preferred stock, $0.000005 par value per share.

 

Assuming the conversion of all outstanding shares of our convertible preferred stock into shares of our common stock, which will occur upon the completion of this offering, as of December 31, 2013, there were 41,359,839 shares of our common stock outstanding, held by 245 stockholders of record, and no shares of our convertible preferred stock outstanding. Our board of directors is authorized, without stockholder approval, except as required by the listing standards of the NYSE, to issue additional shares of our capital stock.

 

Common Stock

 

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.

 

Voting Rights

 

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our amended and restated certificate of incorporation. Our amended and restated certificate of incorporation establishes a classified board of directors that is divided into three classes with staggered three-year terms. Only the directors in one class will be subject to election by a plurality of the votes cast at each annual meeting of our stockholders, with the directors in the other classes continuing for the remainder of their respective three-year terms.

 

No Preemptive or Similar Rights

 

Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.

 

Right to Receive Liquidation Distributions

 

If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

 

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Preferred Stock

 

Following this offering, 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 plan to issue any shares of preferred stock.

 

Equity Awards

 

As of December 31, 2013, we had outstanding options to purchase an aggregate of 7,789,720 shares of our common stock, with a weighted-average exercise price of $3.83, and 1,093,326 outstanding restricted stock units pursuant to our Amended and Restated 2007 Stock Plan, which was adopted in July 2007 and last amended in February 2014.

 

Registration Rights

 

After the completion of this offering, certain holders of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended (the “Securities Act”). These registration rights are contained in our Amended and Restated Investor Rights Agreement (the “IRA”), dated as of November 24, 2010. We, along with certain holders of our common stock and the holders of our Series A, Series B and Series C preferred stock are parties to the IRA. The registration rights set forth in the IRA will expire two years following the completion of this offering, or, with respect to any particular stockholder, when such stockholder is able to sell all of its shares pursuant to Rule 144 of the Securities Act or a similar exemption during any 90-day period. We will pay the registration expenses (other than underwriting discounts, selling commissions and stock transfer taxes) of the holders of the shares registered pursuant to the registrations described below. In an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include. In connection with this offering, each stockholder that has registration rights agreed not to sell or otherwise dispose of any securities without the prior written consent of the underwriters for a period of 180 days after the date of this prospectus. See “Underwriters” for more information regarding such restrictions.

 

Demand Registration Rights

 

After the completion of this offering, the holders of approximately 19,246,714 shares of our common stock will be entitled to certain demand registration rights. If we determine that it would be seriously detrimental to 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. Additionally, we will not be required to effect a demand registration during the period beginning with 90 days prior to our good faith estimate of the date of the filing of, and ending up to 180 days following the effectiveness of, a registration statement relating to the public offering of our common stock.

 

Piggyback Registration Rights

 

After the completion of this offering, if we propose to register the offer and sale of our common stock under the Securities Act, in connection with the public offering of such common stock the holders of up to approximately 34,593,054 shares of our common stock will be entitled to certain “piggyback” registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other

 

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limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to (1) a registration related to a company stock plan, (2) 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 (3) a registration in which the only common stock being registered is common stock issuable upon the conversion of debt securities that are also being registered, the holders of these shares are entitled to notice of the registration and have the right, subject to certain limitations, to include their shares in the registration.

 

S-3 Registration Rights

 

After the completion of this offering, the holders of up to approximately 19,246,714 shares of our common stock may make a written request that we register the offer and sale of their shares on a registration statement on Form S-3 if we are eligible to file a registration statement on Form S-3 so long as the request covers at least that number of shares with an anticipated offering price, net of underwriting discounts and commissions, of at least $2.0 million. These stockholders may make an unlimited number of requests for registration on Form S-3; however, we will not be required to effect a registration on Form S-3 if we have effected two such registrations within the 12 month period preceding the date of the request. Additionally, if we determine that it would be seriously detrimental to 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.

 

Anti-Takeover Provisions

 

The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws, which are summarized below, may have the effect of delaying, deferring or discouraging another person from acquiring control of our company. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

 

Delaware Law

 

We are governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales or other transactions resulting in a financial benefit to the stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing a change in our control.

 

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 board of directors or 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. In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors and promotes continuity of management.

 

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Classified Board. Our amended and restated certificate of incorporation and amended and restated bylaws will provide that our board of directors is classified into three classes of directors. A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See “Management—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, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws. Our amended and restated bylaws will further provide that special meetings of our stockholders may be called only by a majority of our board of directors, the Chairman of our board of directors, our Chief Executive Officer or our President, thus prohibiting a stockholder from calling a special meeting. These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.

 

   

Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our 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 may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

   

No Cumulative Voting. The Delaware General Corporation Law provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation will not provide for cumulative voting.

 

   

Directors Removed Only for Cause. Our amended and restated certificate of incorporation will provide that stockholders may remove directors only for cause.

 

   

Amendment of Charter Provisions. Any amendment of the above provisions in our amended and restated certificate of incorporation would require approval by holders of at least two-thirds of our then outstanding common stock.

 

   

Issuance of Undesignated Preferred Stock. Our board of directors will have the authority, without further action by the stockholders, to issue up to 25,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means.

 

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 for the listing of our common stock on the NYSE under the symbol “OPWR.”

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.

 

Following the completion of this offering, based on the number of shares of our capital stock outstanding as of December 31, 2013, we will have a total of              shares of our common stock outstanding. Of these outstanding shares, all of the              shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.

 

The remaining outstanding shares of our common stock will be deemed “restricted securities” as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. In addition, all of our executive officers, directors and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus. As a result of these agreements and the provisions of our investor rights agreement described above under “Description of Capital Stock—Registration Rights,” subject to the provisions of Rule 144 or Rule 701, based on an assumed offering date of December 31, 2013, shares will be available for sale in the public market as follows:

 

   

beginning on the date of this prospectus, the              shares of common stock sold in this offering will be immediately available for sale in the public market;

 

   

beginning 90 days after the date of this prospectus,              additional shares of common stock may become eligible for sale in the public market upon the satisfaction of certain conditions as set forth in “—Lock-Up Agreements,” of which              shares would be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below;

 

   

beginning 181 days after the date of this prospectus,              additional shares of common stock will become eligible for sale in the public market, of which              shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below; and

 

   

the remainder of the shares of common stock will be eligible for sale in the public market from time to time thereafter, subject in some cases to the volume and other restrictions of Rule 144, as described below.

 

Lock-Up Agreements

 

We, our executive officers, directors and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock, have agreed or will agree that, subject to certain exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Morgan Stanley & Co. LLC and Goldman, Sachs & Co., dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our capital stock. Morgan Stanley & Co. LLC and Goldman, Sachs & Co. may, in their discretion, and with our consent, release any of the securities subject to these lock-up agreements at any time. These agreements, and the exceptions thereto, are described in “Underwriters.”

 

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Rule 144

 

In general, under Rule 144 as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

 

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period, a number of shares that does not exceed the greater of:

 

   

1% of the number of shares of our common stock then outstanding, which will equal approximately              shares immediately after this offering; or

 

   

the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

 

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Rule 701

 

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.

 

Registration Rights

 

Pursuant to an investor rights agreement, the holders of up to 34,593,054 shares of our common stock (including shares issuable upon the conversion of our outstanding convertible preferred stock upon the completion of this offering), or their transferees, will be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. See “Description of Capital Stock—Registration Rights” for a description of these registration rights. If the offer and sale of these shares is registered, the shares will be freely tradable without restriction under the Securities Act, and a large number of shares may be sold into the public market.

 

Registration Statement on Form S-8

 

We intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of common stock issued or reserved for issuance under our Amended and Restated 2007 Stock Plan and our 2014 Stock Incentive Plan. We expect to file this registration statement as promptly as possible after the completion of this offering. Shares covered by this registration statement will be eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates, vesting restrictions and any applicable lock-up agreements and market standoff agreements.

 

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Stock Options

 

As of December 31, 2013, options to purchase a total of 7,789,720 shares of common stock pursuant to our Amended and Restated 2007 Stock Plan were outstanding, of which options to purchase 4,271,414 shares were exercisable, and no options were outstanding or exercisable under our 2014 Stock Incentive Plan. We intend to file a registration statement on Form S-8 under the Securities Act as promptly as possible after the completion of this offering to register shares that may be issued pursuant to our Amended and Restated 2007 Stock Plan and our 2014 Stock Incentive Plan. The registration statement on Form S-8 is expected to become effective immediately upon filing, and shares covered by the registration statement will then become eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates, vesting restrictions and any applicable lock-up agreements and market standoff agreements. See “Executive Compensation—Employee Benefits Plans” for a description of our equity incentive plans.

 

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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

 

The following is a summary of certain material U.S. federal income tax considerations to non-U.S. holders (as defined below) relating to the acquisition, ownership and disposition of common stock pursuant to this offering. This summary deals only with common stock held as a capital asset (within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, (the “Code”)) by a holder and does not discuss the U.S. federal income tax considerations applicable to a holder that is subject to special treatment under U.S. federal income tax laws, including, but not limited to: a dealer in securities or currencies; a bank or other financial institution; a regulated investment company; a real estate investment trust; a tax-exempt organization; an insurance company; a person holding common stock as part of a hedging, integrated, conversion or straddle transaction or a person deemed to sell common stock under the constructive sale provisions of the Code; a trader in securities that has elected the mark-to-market method of accounting; a person liable for alternative minimum tax; an entity that is treated as a partnership for U.S. federal income tax purposes; a person that received such common stock in connection with services provided; a U.S. person whose “functional currency” is not the U.S. dollar; a “controlled foreign corporation”; a “passive foreign investment company”; a corporation that accumulates earnings to avoid U.S. federal income taxes; or certain former citizens or long-term residents of the United States.

 

This summary is based upon provisions of the Code, applicable U.S. Treasury regulations promulgated thereunder, published rulings and judicial decisions, all as in effect as of the date hereof. Those authorities may be changed, perhaps retroactively, or may be subject to differing interpretations, which could result in U.S. federal income tax consequences different from those discussed below. This summary does not address all aspects of U.S. federal income tax, does not deal with all tax considerations that may be relevant to stockholders in light of their personal circumstances and does not address the Medicare tax imposed on certain investment income or any state, local, foreign, gift, estate or alternative minimum tax considerations. We have not sought any ruling from the Internal Revenue Service (the “IRS”) with respect to the statements made and the conclusions reached in this summary, and there can be no assurance that the IRS will agree with such statements and conclusions.

 

For purposes of this discussion, a “U.S. holder” is a beneficial holder of common stock that is: 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 in or 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 taxation regardless of its source; or a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

 

For purposes of this discussion a “non-U.S. holder” is a beneficial holder of common stock that is neither a U.S. holder nor a partnership (or any other entity or arrangement that is treated as a partnership) for U.S. federal income tax purposes. However, neither the term U.S. holder nor the term non-U.S. holder includes any entity or other person that is subject to special treatment under the Code. If a partnership (or an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes) holds common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding common stock is urged to consult its own tax advisors.

 

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR SPECIFIC SITUATIONS, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS (INCLUDING THE U.S. FEDERAL ESTATE AND GIFT TAX LAWS).

 

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Distributions on our Common Stock

 

Distributions with respect to common stock, if any, generally will constitute dividends for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Any portion of a distribution in excess of current or accumulated earnings and profits will be treated as a return of capital and will first be applied to reduce the holder’s tax basis in its common stock, but not below zero. Any remaining amount will then be treated as gain from the sale or exchange of the common stock and will be treated as described under the section titled “—Disposition of our Common Stock” below.

 

Distributions treated as dividends that are paid to a non-U.S. holder, if any, with respect to shares of our common stock will be subject to U.S. federal withholding tax at a rate of 30% (or lower applicable income tax treaty rate) of the gross amount of the dividends unless the dividends are effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States.

 

If a non-U.S. holder is engaged in a trade or business in the United States and dividends with respect to the common stock are effectively connected with the conduct of that trade or business and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment, then although the non-U.S. holder will generally be exempt from the 30% U.S. federal withholding tax, provided certain certification requirements are satisfied, the non-U.S. holder will be subject to U.S. federal income tax on those dividends on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. Any such effectively connected income received by a foreign corporation may, under certain circumstances, be subject to an additional branch profits tax equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits for the taxable year, as adjusted under the Code. To claim the exemption from withholding with respect to any such effectively connected income, the non-U.S. holder must generally furnish to us or our paying agent a properly executed IRS Form W-8ECI (or applicable successor form). A non-U.S. holder of shares of common stock who wishes to claim the benefit of an exemption or reduced rate of withholding tax under an applicable treaty must furnish to us or our paying agent a valid IRS Form W-8BEN (or applicable successor form) certifying such holder’s qualification for the exemption or reduced rate. If a non-U.S. holder is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, it may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.

 

Disposition of our Common Stock

 

Non-U.S. holders may recognize gain upon the sale, exchange or other taxable disposition of our common stock. Such gain generally will not be subject to U.S. federal income tax unless: (i) that gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment maintained by the non-U.S. holder); (ii) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or (iii) our common stock constitutes a “U.S. real property interest” by reason of our status as a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period preceding the date of disposition or the holder’s holding period for our common stock, and certain other requirements are met. We believe that we are not and we do not anticipate becoming a “U.S. real property holding corporation” (“USRPHC”) for U.S. federal income tax purposes.

 

Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if the non-U.S. holder actually or constructively holds more than 5% of such regularly traded common stock at any time during the shorter of the five-year period preceding such non-U.S. holder’s disposition of, or such non-U.S. holder’s holding period for, our common stock.

 

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If a non-U.S. holder is an individual described in clause (i) of the preceding paragraph, the non-U.S. holder will generally be subject to tax on a net income basis at the regular graduated U.S. federal individual income tax rates in the same manner as if such holder were a resident of the United States, unless an applicable income tax treaty provides otherwise. If the non-U.S. holder is an individual described in clause (ii) of the preceding paragraph, the non-U.S. holder will generally be subject to a flat 30% tax on the gain, which may be offset by U.S. source capital losses even though the non-U.S. holder is not considered a resident of the United States, provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. If a non-U.S. holder is a foreign corporation that falls under clause (i) of the preceding paragraph, it will be subject to tax on a net income basis at the regular graduated U.S. federal corporate income tax rates in the same manner as if it were a resident of the United States and, in addition, the non-U.S. holder may be subject to the branch profits tax at a rate equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits.

 

Information Reporting and Backup Withholding Tax

 

We report to our non-U.S. holders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. All distributions to holders of common stock are subject to any applicable withholding. Information reporting requirements apply even if no withholding was required because the distributions were effectively connected with the non-U.S. holder’s conduct of a United States trade or business or withholding was reduced or eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Under U.S. federal income tax law, interest, dividends and other reportable payments may, under certain circumstances, be subject to “backup withholding” at the then applicable rate. Backup withholding, however, generally will not apply to distributions on or gross proceeds from the disposition of our common stock paid to a non-U.S. holder, provided the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or IRS Form W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax and the appropriate information is timely supplied to the IRS.

 

Foreign Account Tax Compliance Act

 

New rules in the Code will impose withholding taxes on certain types of payments made to “foreign financial institutions” (as specially defined under these rules) and certain other non-U.S. entities if certification, information reporting and other specified requirements are not met. The legislation imposes a 30% withholding tax on “withholdable payments” if they are paid to a foreign financial institution or to a foreign non-financial entity, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations and other specified requirements are satisfied or (ii) the foreign non-financial entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner and other specified requirements are satisfied. “Withholdable payment” generally means (i) any payment of interest, dividends, rents and certain other types of generally passive income if such payment is from sources within the United States and (ii) any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends from sources within the United States (including, for example, our common stock). If the payee is a foreign financial institution, it will be required to, among other things, undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and agree to other requirements. If an investor does not provide us with the information necessary to comply with the legislation, it is possible that distributions to such investor that are attributable to withholdable payments, such as dividends, will be subject to the 30% withholding tax. Under final Treasury regulations and administrative guidance, any obligation to withhold from payments made to a foreign financial

 

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institution or a foreign non-financial entity under the Foreign Account Tax Compliance Act with respect to dividends on our common stock will not begin until July 1, 2014 and with respect to the gross proceeds of a sale or other disposition of our common stock will not begin until January 1, 2017. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Prospective investors should consult their own tax advisers regarding this legislation.

 

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UNDERWRITERS

 

Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC and Goldman, Sachs & Co. are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them the number of shares indicated below:

 

Underwriter

   Number of
Shares

Morgan Stanley & Co. LLC

  

Goldman, Sachs & Co.

  

Allen & Company LLC

  

Pacific Crest Securities LLC

  

Canaccord Genuity Inc.

  

Cowen and Company, LLC

  
  

 

Total

  
  

 

 

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale and their right to reject any order in whole or in part. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ option to purchase additional shares described below.

 

The underwriters initially propose to offer part of the shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

 

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to              additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.

 

The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional              shares of common stock.

 

     Per Share      Total  
        No Exercise      Full Exercise  

Public offering price

   $                    $                    $                

Underwriting discounts and commissions to be paid by us

   $         $         $     

Proceeds, before expenses, to us

   $         $         $     

 

The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $            . We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $30,000.

 

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The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.

 

We have applied to list our common stock on the NYSE under the trading symbol “OPWR.”

 

We and all of our directors and officers and the holders of substantially all of our outstanding stock and stock options have agreed or will agree that, without the prior written consent of Morgan Stanley & Co. LLC and Goldman, Sachs & Co. on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus, or the restricted period:

 

   

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock;

 

   

file any registration statement with the Securities and Exchange Commission relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or

 

   

enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock;

 

whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of Morgan Stanley & Co. LLC and Goldman, Sachs & Co. on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock other than a registration statement on Form S-8 with respect to our 2014 Plan and 2007 Plan described in this prospectus.

 

The lock-up restrictions described in the foregoing do not apply to our directors, officers and other holders of substantially all of our outstanding stock, stock options and warrants with respect to:

 

   

transactions relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares; provided that no filing under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) shall be required or shall be voluntarily made in connection with subsequent sales of common stock or other securities acquired in such open market transactions;

 

   

transfers of shares of common stock or any security convertible into or exercisable or exchangeable for common stock (i) to the spouse, domestic partner, parent, child or grandchild (each, an “immediate family member”) of the holder or to a trust formed for the benefit of an immediate family member, (ii) by bona fide gift, will or intestacy, (iii) if the holder is a corporation, partnership or other business entity (A) to another corporation, partnership or other business entity that controls, is controlled by or is under common control with the holder or (B) as part of a disposition, transfer or distribution without consideration by the holder to its equity holders or (iv) if the holder is a trust, to a trustor or beneficiary of the trust; provided that in the case of any transfer or distribution pursuant to this exception, (i) each donee, transferee or distributee shall sign and deliver a lock-up letter substantially in the form entered into by the holder and (ii) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of common stock, shall be required or shall be voluntarily made during the restricted period;

 

   

the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of common stock, provided that (i) such plan does not provide for the transfer of common stock during the restricted period and (ii) to the extent a public announcement or filing under the Exchange

 

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Act, if any, is required of or voluntarily made by or on behalf of the holder or us regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of common stock may be made under such plan during the restricted period;

 

   

the sale and transfer of shares of common stock by the holders to the underwriters in this offering;

 

   

the receipt by the holders from us of shares of common stock upon the exercise of an option, or the disposition of shares of common stock to us in a transaction solely in connection with the payment of taxes due with respect to the cashless exercise of an option, net settlement of restricted stock units or the vesting of restricted stock, insofar as such option, restricted stock unit or restricted stock was outstanding prior to the date of this prospectus pursuant to a plan or agreement disclosed in this prospectus, provided that no public reports, including but not limited to filings under Section 16 of the Exchange Act, will be required to be filed or will be voluntarily made by the holder within 30 days after the date of this prospectus, and after such 30th day, any public report or filing under Section 16 of the Exchange Act relating to (i) an exercise of a stock option shall clearly indicate in the footnotes thereto that no shares were sold by the reporting person and that the shares received upon exercise of the stock option are subject to a lock-up agreement with the underwriters of this offering and (ii) the disposition of shares of common stock to us in a transaction pursuant to this exception shall clearly indicate in the footnotes thereto that such disposition of shares was solely to us;

 

   

the transfer of shares of common stock or any security convertible into or exercisable or exchangeable for common stock that occurs by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, provided that each such transferee shall sign and deliver a lock-up letter substantially in the same form as executed by the holder;

 

   

in connection with the conversion of the outstanding preferred stock into shares of common stock immediately prior to the closing of this offering;

 

   

the transfer of shares of common stock to us in connection with the repurchase of shares of common stock issued pursuant to an employee benefit plan disclosed in this prospectus or pursuant to the agreements pursuant to which such shares were issued, provided that no public reports, including but not limited to filings under Section 16 of the Exchange Act, will be required to be filed or will be voluntarily made by the holder within 30 days after the date of this prospectus, and after such 30th day, any public report or filing under Section 16 of the Exchange Act relating to the disposition of shares of common stock to us in a transaction pursuant to this exception shall clearly indicate in the footnotes thereto that such transfer of shares was solely to us; and

 

   

the transfer of shares of common stock or any security convertible into or exercisable or exchangeable for common stock pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the common stock involving a change of control of us, provided that until such tender offer, merger, consolidation or other such transaction is completed, the common stock owned by the holder shall otherwise remain subject to the restrictions contained in the lock-up agreement. For purposes of this exception, “change of control” shall mean the transfer (whether by tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than the underwriters pursuant to this offering), of shares of common stock if, after such transfer, such person or group of affiliated persons would hold at least a majority of the outstanding voting securities of us (or the surviving entity).

 

The lock-up restrictions described in the foregoing do not apply solely to us with respect to:

 

   

the shares of common stock to be sold by us in this offering;

 

   

the issuance by us of shares of common stock upon the exercise of an option or warrant, settlement of a restricted stock unit or the conversion of a security outstanding on the date hereof pursuant to stock plans or other agreements disclosed in this prospectus;

 

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the issuance by us of shares or options to purchase shares of common stock pursuant to the our equity plans disclosed in this prospectus;

 

   

the filing by us of a registration statement on Form S-8 or a successor form thereto; and

 

   

the entry into an agreement providing for the issuance by us of shares of common stock or any security convertible into or exercisable for shares of common stock in connection with (i) the acquisition by us or any of our subsidiaries of the securities, business, property or other assets of another person or entity or pursuant to an employee benefit plan assumed by us in connection with such acquisition, and the issuance of any such securities pursuant to any such agreement or (ii) joint ventures, commercial relationships or other strategic transactions, and the issuance of any such securities pursuant to any such agreement; provided that in the case of this exception, the aggregate number of shares of common stock that we may sell or issue or agree to sell or issue pursuant this exception shall not exceed % of the total number of shares of our common stock issued and outstanding immediately following the completion of the transactions contemplated in this prospectus and all recipients of shares of common stock or any security convertible into or exercisable for shares of common stock shall enter into a “lock-up” agreement substantially in the form entered into by our other securityholders in connection with this offering.

 

Morgan Stanley & Co. LLC and Goldman, Sachs & Co., in their sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time with or without notice. In the event Morgan Stanley & Co. LLC and Goldman, Sachs & Co. release any common stock and other securities subject to the lock-up agreements held by our officers and directors, we have agreed to publicly announce the impending release or waiver at least two business days before the effective date of the release or waiver.

 

In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the option. The underwriters can close out a covered short sale by exercising the option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the option. The underwriters may also sell shares in excess of the option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time. These activities may be effected in the over-the-counter market or otherwise.

 

We and the several underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

 

A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representative may agree to allocate a number of shares of common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters that may make Internet distributions on the same basis as other allocations.

 

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The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us or our affiliates, 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 may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments (directly, as collateral securing other obligations or otherwise). The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

 

Pricing of the Offering

 

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.

 

Selling Restrictions

 

European Economic Area

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

  (a)   to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

  (b)   to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or

 

  (c)   in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

 

For the purposes of this provision, the expression an “offer to the public” in relation to any shares of our common stock 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 of our common stock to be offered so as to enable an investor to decide to purchase any shares of our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

 

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United Kingdom

 

Each underwriter has represented and agreed that:

 

  (a)   it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and

 

  (b)   it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom.

 

Hong Kong

 

Shares of our common stock may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to shares of our common stock may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares of our common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

 

Japan

 

Shares of our common stock have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any shares of our common stock, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

 

Singapore

 

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares of our common stock may not be circulated or distributed, nor may the shares of our common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), 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.

 

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Where shares of our common stock are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired shares of our common stock under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

 

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LEGAL MATTERS

 

Goodwin Procter LLP, Menlo Park, California, which has acted as our counsel in connection with this offering, will pass upon the validity of the shares of common stock being offered by this prospectus. The underwriters have been represented by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Washington, District of Columbia.

 

EXPERTS

 

The consolidated financial statements as of December 31, 2012 and 2013, and for each of the three years in the period ended December 31, 2013, included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

 

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 common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified by the filed exhibit. You may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

 

As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934 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.opower.com. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

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OPOWER, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     F-2   

Consolidated Balance Sheets

     F-3   

Consolidated Statements of Operations

     F-4   

Consolidated Statements of Comprehensive Loss

     F-5   

Consolidated Statements of Stockholders’ Equity (Deficit)

     F-6   

Consolidated Statements of Cash Flows

     F-7   

Notes to Consolidated Financial Statements

     F-8   

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of Opower, Inc.:

 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows present fairly, in all material respects, the financial position of Opower, Inc. and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ PricewaterhouseCoopers LLP

 

McLean, Virginia

March 3, 2014

 

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OPOWER, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

    December 31,     Pro
Forma
December  31,

2013
(Note 2)
 
    2012     2013    
                (Unaudited)  

Assets

     

Current assets

     

Cash and cash equivalents

  $ 24,597      $ 28,819      $ 28,819   

Accounts receivable, net

    10,489        20,228        20,228   

Prepaid expenses and other current assets

    1,330        1,988        1,988   
 

 

 

   

 

 

   

 

 

 

Total current assets

    36,416        51,035        51,035   

Property and equipment, net

    6,127        10,813        10,813   

Other assets

    94        1,287        1,287   
 

 

 

   

 

 

   

 

 

 

Total assets

  $ 42,637      $ 63,135      $ 63,135   
 

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

     

Current liabilities

     

Accounts payable

  $ 1,124      $ 1,163      $ 1,163   

Accrued expenses

    1,775        4,452        4,452   

Deferred revenue

    31,413        50,623        50,623   

Accrued compensation and benefits

    3,427        4,817        4,817   

Other current liabilities

    406        1,831        1,831   
 

 

 

   

 

 

   

 

 

 

Total current liabilities

    38,145        62,886        62,886   

Deferred revenue

    982        1,767        1,767   

Notes payable

           2,418          

Other liabilities

    1,524        2,327        1,939   
 

 

 

   

 

 

   

 

 

 

Total liabilities

    40,651        69,398        66,592   
 

 

 

   

 

 

   

 

 

 

Commitments and contingencies (see Note 6)

     

Stockholders’ Equity (Deficit)

     

Convertible preferred stock

     

Series A preferred stock

     

Par value $0.000005 per share—5,378 shares authorized, issued, and outstanding as of December 31, 2012 and 2013; liquidation preference of $1,545 as of December 31, 2012 and 2013; no shares issued and outstanding pro forma

    1,466        1,466          

Series B preferred stock

     

Par value $0.000005 per share—8,376 shares authorized; 8,251 issued and outstanding as of December 31, 2012 and 2013; liquidation preference of $16,448 as of December 31, 2012 and 2013; no shares issued and outstanding pro forma

    16,355        16,355          

Series C preferred stock

     

Par value $0.000005 per share—5,674 shares authorized; 5,618 issued and outstanding as of December 31, 2012 and 2013; liquidation preference of $50,000 as of December 31, 2012 and 2013; no shares issued and outstanding pro forma

    49,872        49,872          
 

 

 

   

 

 

   

 

 

 

Total convertible preferred stock

    67,693        67,693          
 

 

 

   

 

 

   

 

 

 

Common stock, par value $0.000005 per share—62,000 shares authorized; 20,303 and 22,113 issued and outstanding as of December 31, 2012 and 2013, respectively;              shares issued and outstanding pro forma

                    

Additional paid-in capital

    3,439        9,407        79,906   

Treasury stock

    (1              

Accumulated deficit

    (69,082     (83,243     (83,243

Accumulated other comprehensive loss

    (63     (120     (120
 

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

    1,986        (6,263     (3,457
 

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity (deficit)

  $ 42,637      $ 63,135      $ 63,135   
 

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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OPOWER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

     Year Ended December 31,  
     2011     2012     2013  

Revenue

   $ 28,746      $ 51,756      $ 88,703   

Cost of revenue

     13,306        18,913        31,304   
  

 

 

   

 

 

   

 

 

 

Gross profit

     15,440        32,843        57,399   

Operating expenses

      

Sales and marketing

     13,648        21,338        30,551   

Research and development

     14,372        16,134        27,087   

General and administrative

     8,716        7,730        13,578   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     36,736        45,202        71,216   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (21,296     (12,359     (13,817

Other income (expense)

      

Gain (loss) on foreign currency

     (2     54        (220

Interest expense

                   (187

Other, net

     1               86   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (21,297     (12,305     (14,138

Provision for income taxes

            27        23   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (21,297   $ (12,332   $ (14,161
  

 

 

   

 

 

   

 

 

 

Weighted-average common stock outstanding

      

Basic and diluted

     17,836        19,442        21,121   

Net loss per share:

      

Basic and diluted

   $ (1.19   $ (0.63   $ (0.67

Pro forma weighted-average common stock outstanding

      

Basic and diluted

      

Pro forma net loss per share (unaudited):

      

Basic and diluted

       $     

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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OPOWER, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

     Year Ended December 31,  
     2011     2012     2013  

Net loss

   $ (21,297   $ (12,332   $ (14,161

Other comprehensive income (loss)

      

Foreign currency translation

     (17     51        (40

Unrealized gain (loss) on hedge transactions, net

            (97     (17
  

 

 

   

 

 

   

 

 

 

Total other comprehensive loss

     (17     (46     (57
  

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   $ (21,314   $ (12,378   $ (14,218
  

 

 

   

 

 

   

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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OPOWER, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

 

    Convertible Preferred Stock           Additional
Paid-in
Capital
    Treasury
Stock
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
    Total
Stockholders’
Equity
(Deficit)
 
    Series A     Series B     Series C     Series SC     Common Stock            
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount            

Balance at December 31, 2010

    5,378      $ 1,466        8,251      $ 16,355        5,618      $ 49,872        998      $ 90        17,130      $      $ 74      $      $ (35,453   $      $ 32,404   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of common stock

                                                            844               198                             198   

Issuance of restricted stock

                                                            443                                             

Conversion of Series SC preferred shares

                                              (998     (90     998               90                               

Stock-based compensation

                                                                          960                             960   

Foreign currency translation

                                                                                               (17     (17

Net loss

                                                                                        (21,297            (21,297
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    5,378      $ 1,466        8,251      $ 16,355        5,618      $ 49,872             $        19,415      $      $ 1,322      $      $ (56,750   $ (17   $ 12,248   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of common stock

                                                            912               629                             629   

Vesting of restricted stock

                                                                          360                             360   

Repurchase of common stock

                                                            (1                   (1                   (1

Tax settlements related to equity-based plans

                                                            (23            (59                          (59

Stock-based compensation

                                                                          1,187                             1,187   

Foreign currency translation

                                                                                               51        51   

Unrealized loss on hedge transactions, net

                                                                                               (97     (97

Net loss

                                                                                        (12,332            (12,332
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

    5,378      $ 1,466        8,251      $ 16,355        5,618      $ 49,872             $        20,303      $      $ 3,439      $ (1   $ (69,082   $ (63   $ 1,986   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of common stock

                                                            1,810               1,744        1                      1,745   

Vesting of common stock subject to
repurchase

                                                                          478                             478   

Stock-based compensation

                                                                          3,746                             3,746   

Foreign currency translation

                                                                                               (40     (40

Unrealized loss on hedge transactions, net

                                                                                               (17     (17

Net loss

                                                                                        (14,161            (14,161
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

    5,378      $ 1,466        8,251      $ 16,355        5,618      $ 49,872             $        22,113      $      $ 9,407      $      $ (83,243   $ (120   $ (6,263
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

OPOWER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Year Ended December 31,  
     2011     2012     2013  

Operating Activities

      

Net loss

   $ (21,297   $ (12,332   $ (14,161

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

      

Depreciation and amortization

     626        1,599        3,766   

Stock-based compensation expense

     960        1,187        3,625   

Non-cash interest expense

                   159   

Asset impairment

                   640   

Other

     4        3        27   

Changes in assets and liabilities

      

Accounts receivable

     (1,089     (6,504     (9,668

Prepaid expenses and other current assets

     (359     (320     (720

Other assets

     98        (44     (383

Accounts payable

     998        (618     339   

Accrued expenses

     431        804        1,886   

Accrued compensation and benefits

     1,394        1,089        1,387   

Deferred revenue

     6,697        15,268        19,995   

Other liabilities

     1,779        (154     (225
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (9,758     (22     6,667   
  

 

 

   

 

 

   

 

 

 

Investing Activities

      

Additions to property and equipment

     (3,379     (4,330     (7,331

Proceeds from sale of assets

     2        4        3   

Transfers from restricted cash

     151                 
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (3,226     (4,326     (7,328
  

 

 

   

 

 

   

 

 

 

Financing Activities

      

Proceeds from issuance of common stock

     198        629        2,797   

Proceeds from issuance of restricted stock

     927                 

Repurchase of common stock

            (1       

Tax settlements related to equity-based plans

            (59       

Issuance of notes payable

                   2,500   

Payment of offering costs

                   (273

Principal payments on capital lease obligations

                   (116
  

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     1,125        569        4,908   
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (17     43        (25

Net increase (decrease) in cash and cash equivalents

     (11,876     (3,736     4,222   

Cash and cash equivalents, beginning of period

     40,209        28,333        24,597   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 28,333      $ 24,597      $ 28,819   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information

      

Cash paid for income taxes, net of tax refunds

   $      $ 1      $ 9   

Cash paid for interest

                   21   

Supplemental disclosure of non-cash investing and financing activities

      

Conversion of Series SC preferred stock

   $ 90      $      $   

Assets acquired under capital leases

                   1,432   

Accrued property and equipment purchases

                   247   

Capitalized stock-based compensation

                   121   

Vesting of common stock subject to repurchase

                   478   

Accrued deferred offering costs

                   539   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-7


Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.    Company Overview

 

Opower, Inc. (“Opower” or “the Company”) is a cloud-based software provider to the utility industry. Utilities use the Company’s software platform to deliver key customer-facing applications that reduce energy demand and improve customer perception of the utility. The Company’s software analyzes energy data and presents personalized insights to consumers in order to motivate reductions in energy consumption.

 

2.    Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements include the accounts of Opower and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Significant items subject to such estimates include revenue recognition, the useful lives and recoverability of property and equipment, stock-based compensation and income taxes. Actual results could differ significantly from those estimates.

 

Unaudited Pro Forma Consolidated Balance Sheet

 

Upon the consummation of the initial public offering contemplated by the Company, all of the outstanding shares of convertible preferred stock will automatically convert into 19.2 million shares of common stock and the notes payable will convert into              shares of common stock based upon the midpoint of the price range set forth on the cover of this prospectus. The unaudited pro forma consolidated balance sheet as of December 31, 2013 has been prepared assuming the conversion of the convertible preferred stock and notes payable into common stock.

 

Cash and Cash Equivalents

 

The Company considers cash on deposit and all investments with original maturities of three months or less to be cash and cash equivalents.

 

Accounts Receivable

 

Accounts receivable are derived from services to be delivered to utility providers and are stated at their net realizable value. Each month the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and accounts receivable. The Company maintains the majority of its cash and cash equivalents with one financial institution, which management believes to be financially sound and with minimal credit risk. The Company’s deposits periodically exceed amounts guaranteed by the Federal Deposit Insurance Corporation.

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

To manage accounts receivable risk, the Company monitors and evaluates the credit worthiness of its customers and maintains an allowance for doubtful accounts as deemed necessary. Collection efforts from long-established utilities have been historically successful, so the Company believes credit risk to be low.

 

The following table summarizes those customers who represented at least 10% of revenue or accounts receivable for the periods presented:

 

     Revenue     Accounts Receivable  
     Year Ended
December 31,
    December 31,  
     2011     2012     2013     2012     2013  

Customer A

     17     15     14     *        *   

Customer B

     13     14     13     32     22

Customer C

     *        *        *        10     10

Customer D

     *        *        11     *        *   

Customer E

     *        *        *        *        12

 

  * = Represented   less than 10%

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation and amortization. Major additions or improvements that significantly add to productive capacity or extend the life of an asset are capitalized, whereas repairs and maintenance are expensed as incurred.

 

Depreciation and amortization are calculated on a straight-line basis over the lesser of the estimated useful life of the related assets or the related capital lease term. The estimated useful lives by asset classification are as follows:

 

Equipment

   2 to 5 years

Software

   3 years

Furniture and fixtures

   7 years

Leasehold improvements

   Lesser of remaining term or estimated useful life

 

The cost of assets and related depreciation is removed from the related accounts on the balance sheet when assets are sold or disposed. Any related gains or losses on asset disposals are reflected in operating expenses.

 

Software Development Costs

 

The Company capitalizes certain software development costs, consisting primarily of personnel and related expenses for employees and third parties who devote time to their respective projects. Internal-use software costs are capitalized during the application development stage, which is when the research stage is complete and management has committed to a project to develop software that will be used for its intended purpose. Any costs incurred during subsequent efforts to significantly upgrade and enhance the functionality of the software are also capitalized. Capitalized software costs are included in property and equipment on the consolidated balance sheets. Amortization of internal-use software costs begins once the project is substantially complete and the software is ready for its intended purpose. These capitalized costs are amortized on a straight-line basis over their estimated useful life.

 

Evaluation of Long-Lived Assets

 

The Company evaluates the recoverability of its long-lived assets for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of long-

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

lived assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. There was no impairment of long-lived assets during the years ended December 31, 2011 and 2012. During the year ended December 31, 2013, we recorded a non-cash asset impairment related to long-lived assets of $0.6 million classified within research and development on the consolidated statements of operations. The charge relates to a capitalized internal-use software project termination.

 

Fair Value Measurement

 

The Company applies fair value accounting for all financial assets and liabilities that are reported at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a defined three-tier hierarchy to classify and disclose the fair value of assets and liabilities on both the date of their initial measurement as well as all subsequent periods. The hierarchy prioritizes the inputs used to measure fair value by the lowest level of input that is available and significant to the fair value measurement. The three levels are described as follows:

 

   

Level 1: Observable inputs. Quoted prices in active markets for identical assets and liabilities;

 

   

Level 2: Observable inputs other than the quoted price. Includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets and amounts derived from valuation models where all significant inputs are observable in active markets; and

 

   

Level 3: Unobservable inputs. Includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions.

 

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification as of each reporting period.

 

Derivative Financial Instruments

 

The Company has entered into derivative contracts to reduce the risk that foreign currency exchange rate fluctuations will adversely affect its cash flows and earnings. These derivative contracts are designed to be hedging instruments, meaning any changes in cash flow are expected to be completely offset by the hedging derivative due to the fact that the critical terms of the forward contracts and forecasted sales transactions are aligned. The Company’s unsettled foreign currency derivative contracts are recorded at their fair value as either assets or liabilities on the consolidated balance sheets and are marked-to-market at the end of each reporting period. Unrealized gains and losses from the cash flow hedges are recognized as part of other comprehensive income to the extent the hedge is effective. These gains and losses are recognized in the consolidated statements of operations in revenue once the forward contracts are settled and the forecasted transaction they are designed to hedge has impacted the statements of operations. Any portions of the hedging arrangement deemed to be ineffective are recognized in the consolidated statements of operations immediately.

 

The Company entered into a convertible debt agreement that contained certain conversion features and a change in control premium that were deemed to represent derivative financial instruments valued collectively (see Note 5 for further details). The fair value of the derivative was measured at inception and recorded as a non-current liability on the consolidated balance sheet. This derivative financial instrument is re-measured and marked-to-market at the end of each reporting period, and changes in fair value from period to period are recognized within other income (expense), net on the statements of operations.

 

F-10


Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue Recognition

 

The Company derives its revenue from contractual agreements with utility providers based on a service provided to those utilities, which includes analyzing data provided by the utilities and using that data to encourage utility customers to reduce energy consumption. The Company generates substantially all of its revenue from service contracts.

 

The Company has assessed its revenue arrangements to determine when multiple deliverables exist and if separate accounting is required for those deliverables. Revenue for subscription-based service contracts is segregated into separate accounting units, the predominant units of which are data analysis and web tools, and recognized on a straight-line basis over the related service period for each accounting unit.

 

The Company recognizes revenues when the following criteria have been met:

 

   

Persuasive evidence of an arrangement exists: A signed contract or any other written documentation from the customer that confirms their explicit acceptance of a specific statement of work is deemed to represent persuasive evidence of an arrangement.

 

   

Delivery has occurred: For data analysis, delivery is considered to have occurred once a data connection with a utility has been configured and reports can be generated. For web tools, delivery is considered to have occurred once the web service is live and accessible by end-users.

 

   

The price is fixed or determinable: The Company considers the contract price to be fixed or determinable once the fees are contractually agreed upon with the customer.

 

   

Collection is reasonably assured: Each customer is evaluated for creditworthiness both at the inception of their arrangement and periodically throughout the period of time over which payments are due. Collection is deemed reasonably assured if the Company expects that the customer has the intent and ability to pay all amounts due, as scheduled. If it is determined that collection is not reasonably assured, revenue is deferred and recognized only upon cash collection.

 

Revenue recognition for each contract corresponds directly with the service period. The service period begins from the point at which data analysis is provided to the utility or the web tools application is made available. The revenue recognition start date begins when delivery has occurred, which occurs approximately seven months after a contract is signed. Service may last from one to five years and contracts typically include the ability to terminate for breach of contract, convenience, insolvency or regulatory changes. Annual license fees, which are usually collected in advance of program launch, and data management fees, which are billed quarterly in advance, are both non-refundable.

 

The Company uses the best estimate of selling price (“BESP”) to determine the relative selling prices for the purpose of allocating consideration received for each contract for accounting purposes. The BESP is determined by a historical analysis of selling prices for similar services provided by the Company. The prices are reviewed quarterly to ensure the accuracy of the estimated value on new contracts.

 

The Company charges customers set-up fees at the initiation of new contracts. The set-up fees are deferred and recognized ratably over the expected customer relationship period. The corresponding set-up costs are expensed in the periods in which they are incurred.

 

For contracts that include variable revenue amounts, the related portion of variable revenue is deferred until the amounts are fixed or determinable and the Company is reasonably assured that the amounts due are collectible. In addition, the Company enters into certain contracts that contain performance guarantees or service-level requirements. For contracts with performance guarantees or service-level requirements, the related portion of revenue that may be refunded to the customer is not recognized until the performance criteria are met or the customer’s right to refunds or credits lapses.

 

F-11


Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Deferred Revenue

 

Deferred revenue consists of amounts billed to or collected from clients for which the related revenue has not yet been recognized due to one or more of the aforementioned revenue recognition criteria having not been met. Deferred revenue to be recognized in the succeeding twelve month period is classified as current deferred revenue and the remaining amounts are classified as non-current deferred revenue.

 

Cost of Revenue

 

Cost of revenue consists primarily of report printing and shipping costs, data analysis and communication costs, hosting costs, personnel costs related to software implementation and maintenance, the cost to train and support customers, the cost of licenses to access consolidated information about energy consumers, depreciation of fixed assets and amortization expense associated with capitalized software.

 

Sales and Marketing Costs

 

Advertising costs are expensed as incurred and relate to promotional materials for customers and general brand exposure. These costs amounted to $0.6 million, $0.5 million, and $0.5 million for the years ended December 31, 2011, 2012 and 2013, respectively.

 

Research and Development Costs

 

Research and development focuses on developing improved data analysis tools, increased effectiveness of communicating information to energy consumers and enhanced website portals for integration with customer websites. Research and development expenses consist primarily of personnel and related expenses and the cost of third party service providers. These costs are expensed as incurred except for software development costs qualifying for capitalization.

 

Leases

 

The Company leases all of its office space and enters into various other operating lease agreements in conducting its business. At the inception of each lease, the Company evaluates the lease agreement to determine whether the lease is an operating or capital lease. Operating lease expenses are recognized in the statements of operations on a straight-line basis over the term of the related lease. Some of the Company’s lease agreements may contain renewal options, tenant improvement allowances, rent holidays or rent escalation clauses. When such items are included in a lease agreement, the Company records a deferred rent asset or liability on the consolidated balance sheets equal to the difference between the rent expense and future minimum lease payments due. The rent expense related to these items is recognized on a straight-line basis in the statements of operations over the terms of the leases.

 

The cost of property and equipment acquired under capital lease arrangements represents the lesser of the present value of the minimum lease payments or the fair value of the leased asset as of the inception of the lease.

 

Stock-Based Compensation

 

The Company applies the fair value method to recognize compensation expense for stock-based awards. Using this method, the estimated grant-date fair value of the award is recognized on a straight-line basis over the requisite service period based on the portion of the award that is expected to vest. For non-employee awards, the Company adjusts any unvested portions of the award to fair value at each reporting date.

 

F-12


Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company utilizes the Black-Scholes option pricing model to estimate the grant-date fair value of option awards. The exercise price of option awards is set to equal the estimated fair value of the common stock at the date of the grant. In the case of a ten percent or more shareholder, the exercise price is set to equal 110% of the estimated fair value of the common stock at the date of grant. The following weighted-average assumptions are also used to calculate the estimated fair value of option awards:

 

   

Expected volatility: The expected volatility of the Company’s shares is estimated using the historical volatility of a peer group of public companies over the most recent period commensurate with the estimated expected term of the awards. The Company’s selected peer group includes public enterprise cloud-based application providers that focus on a particular industry and contain a marketing component within their service offering.

 

   

Expected term: For employee stock option awards, the Company uses an estimated term equal to the weighted period between the vesting period and the contract life of the option. This method is known as the simplified method and is utilized due to the Company’s relatively short history. For non-employees, the Company uses an expected term equal to the remaining contract term.

 

   

Dividend yield: The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero.

 

   

Risk-free interest rate: The Company bases the risk-free interest rate on the implied yield available on a U.S. Treasury note with a term equal to the estimated expected term of the awards.

 

An estimated forfeiture rate is applied based on an analysis of historical option holder activity. Each quarter, the forfeiture rate is revised as needed to reflect the impact of new forfeitures that occurred.

 

The Company also may provide restricted stock awards or restricted stock units to employees. Stock-based compensation cost for these awards is measured based on the fair value of the Company’s common stock on the grant date.

 

Foreign Currency

 

The Company’s operations located outside of the United States where the local currency is the functional currency are translated into U.S. dollars using the current rate method. Results of operations are translated at the average rate of exchange for the period. Assets and liabilities are translated at the closing rates on the period end date. Gains and losses on translation of these accounts are accumulated and reported as a separate component of equity and other comprehensive income (loss). Gains and losses on foreign currency transactions are recognized in the consolidated statements of operations as a component of other income (expense).

 

Income Taxes

 

The Company uses the asset and liability approach for the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases, including net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted statutory tax rates applicable to the future years in which the deferred amounts are expected to be settled or realized. A valuation allowance is recorded against deferred tax assets when it is more likely than not that a tax benefit will not be realized. In determining whether a valuation allowance is necessary, the Company takes into account factors such as earnings history, expected future earnings, carryback and carryforward periods and tax planning strategies that could potentially enhance the likelihood of deferred tax asset utilization.

 

F-13


Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Tax positions for the Company and its subsidiaries are subject to income tax audits by multiple tax jurisdictions throughout the world. Income tax positions are assessed based upon management’s evaluation of the facts, circumstances and information available at the reporting date, and the Company recognizes the tax benefit if it is more likely than not that the position is sustainable upon examination by the taxing authority based on the technical merits of the issue. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority.

 

The Company recognizes interest and penalties related to income tax matters in its provision for income taxes. The effect of tax rate changes is recognized in the tax provision within the period the rate changes are enacted.

 

The Company considers unremitted earnings of foreign subsidiaries to be invested indefinitely. No U.S. income taxes or foreign withholding taxes are provided on such permanently reinvested earnings. Deferred income tax liabilities will be recognized, net of any foreign tax credits, on any foreign subsidiary earnings that are determined to no longer be indefinitely invested. The Company has not estimated the deferred tax liabilities associated with the permanently reinvested earnings as it is impractical to do so.

 

Comprehensive Loss

 

Comprehensive loss consists of two components, net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that are recorded as a separate element of stockholders’ equity (deficit) and are excluded from net loss. The Company’s other comprehensive income (loss) is comprised of foreign currency translation adjustments and unrealized gains or losses on hedge transactions.

 

Net Income (Loss) per Share

 

The Company’s basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The weighted-average common shares outstanding is adjusted for shares subject to repurchase such as unvested restricted stock and unvested stock options that have been exercised.

 

The Company’s diluted net income (loss) per share is calculated by giving effect to all potentially dilutive common stock equivalents when determining the weighted-average number of common shares outstanding. For purposes of the dilutive net income (loss) per share calculation, convertible preferred stock, convertible notes payable, options to purchase common stock, unvested restricted stock and restricted stock units are considered to be common stock equivalents.

 

The Company has issued securities other than common stock that participate in dividends (“participating securities”), and therefore utilizes the two-class method to calculate net income (loss) per share. These participating securities include convertible preferred stock and unvested common stock subject to repurchase. The two-class method requires a portion of net income to be allocated to the participating securities to determine the net income attributable to common stockholders. Net income attributable to the common stockholders is equal to the net income less assumed periodic preferred stock dividends with any remaining earnings, after deducting assumed dividends, to be allocated on a pro rata basis between the outstanding common and preferred stock as of the end of each period.

 

Operating Segment

 

Operating segments are defined as components of a business that can earn revenue and incur expenses for which discrete financial information is available that is evaluated on a regular basis by the chief operating

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

decision maker (“CODM”) to decide how to allocate resources and assess performance. The Company’s CODM, the Chief Executive Officer, reviews consolidated results of operations to make decisions, therefore the Company views its operations and manages its business as one operating segment.

 

Recently Issued Accounting Standards

 

In February 2013, FASB issued a new accounting standard requiring disclosure of items reclassified from other comprehensive income (loss) to net income. This guidance is effective for periods beginning after December 15, 2012, and early application is permitted. The Company adopted the guidance effective January 1, 2012 and it did not have a material impact on its consolidated financial statements.

 

In July 2013, the FASB issued guidance stating that a liability related to an unrecognized tax benefit should be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance is effective on a prospective basis for annual and interim periods beginning after December 15, 2013, but early adoption and retrospective application are permitted. The Company does not expect that this guidance will have a material effect on its consolidated financial statements.

 

3.    Fair Value Measurements

 

Derivative Financial Instruments

 

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and December 31, 2013 (in thousands):

 

     December 31, 2012      December 31, 2013  
     Fair Value     Level 1      Level 2     Level 3      Fair Value     Level 1      Level 2      Level 3  

Foreign currency derivative contracts

   $ (52   $       $ (52   $       $ (41   $       $ (41    $   

Convertible debt derivative

                                   (388                     (388
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ (52   $       $ (52   $       $ (429   $       $ (41    $ (388
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

The foreign currency derivative contracts are classified within Level 2 because they are valued using alternative pricing sources and models utilizing observable market inputs for similar instruments. The fair value measurement of the convertible debt derivative was determined through the use of a probability-weighted expected return model (“PWERM”). The PWERM considers the timing and cash flows related to each potential conversion scenario and applies a percentage likelihood of occurrence in order to develop an estimated fair value for the instrument as a whole. This valuation methodology is based on unobservable estimates and judgments, and therefore is classified as a Level 3 fair value measurement.

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table presents a reconciliation of the convertible debt derivative instrument measured at fair value as of December 31, 2012 and December 31, 2013 using significant unobservable inputs, and the amount of loss recorded in the Company’s consolidated statements of operations as a result of changes in fair value (in thousands):

 

Convertible debt derivative

      

Balance as of December 31, 2012

   $   

Initial valuation on date of issuance

     (241

Revaluation

     (147
  

 

 

 

Balance as of December 31, 2013

   $ (388
  

 

 

 

 

All of the Company’s derivative financial instruments amounts are classified on the consolidated balance sheets as other current liabilities and other liabilities, and none are designated for trading or speculative purposes.

 

Other Fair Value Disclosures

 

The fair value of the Company’s notes payable was determined based on a discounted cash flow analysis using Level 2 inputs based on quoted market prices for similar instruments that are not active. As of December 31, 2013, the carrying amount and fair value of the notes payable was $2.4 million (See Note 5 for further discussion).

 

4.    Property and Equipment

 

The following table provides further detail on property and equipment (in thousands):

 

     December 31,  
     2012     2013  

Equipment

   $ 2,563      $ 4,595   

Software

     3,427        8,947   

Furniture and fixtures

     266        306   

Leasehold improvements

     1,898        2,038   

Construction-in-process

     138        440   
  

 

 

   

 

 

 

Total property and equipment

   $ 8,292      $ 16,326   

Accumulated depreciation and amortization

     (2,165     (5,513
  

 

 

   

 

 

 

Total property and equipment, net

   $ 6,127      $ 10,813   
  

 

 

   

 

 

 

 

As of December 31, 2012, the gross carrying amount of property and equipment included no capital lease obligations. As of December 31, 2013, the gross carrying amount of property and equipment includes computer equipment under capital leases with a cost basis of $1.4 million. Accumulated depreciation related to this computer equipment was $0.2 million as of December 31, 2013, and interest expense for the same period was immaterial. As of December 31, 2013, the total capital lease obligation was $1.3 million and recorded on the consolidated balance sheets as other current liabilities and other liabilities.

 

Capitalized internal-use software costs are also included in property and equipment. During the years ended December 31, 2012 and 2013, the Company capitalized $3.2 million and $6.3 million of these software development costs, respectively. The net book value of capitalized internal use software was $2.8 million and $6.4 million as of December 31, 2012 and 2013, respectively. Amortization expense related to capitalized internal-use software was $0.5 million and $2.2 million for the year ended December 31, 2012 and 2013, respectively.

 

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OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table represents a detailed breakout of depreciation and amortization expense as recorded in the consolidated statements of operations (in thousands):

 

     Year Ended
December 31,
 
         2011              2012              2013      

Cost of revenue

   $ 187       $ 453       $ 1,503   

Sales and marketing

     83         84         203   

Research and development

     123         523         1,547   

General and administrative

     233         539         513   
  

 

 

    

 

 

    

 

 

 

Total

   $ 626       $ 1,599       $ 3,766   
  

 

 

    

 

 

    

 

 

 

 

5.    Debt

 

Line of Credit—Silicon Valley Bank

 

In November 2010, the Company entered into a loan and security agreement with Silicon Valley Bank (“SVB”) that included a $3.0 million revolving line of credit. The original agreement contained certain affirmative covenants related to the timely delivery of financial information to SVB, as well as certain customary negative covenants. Amounts drawn on the revolving line of credit would bear interest at a floating rate of prime plus 1%.

 

In August 2013, the Company renewed its revolving line of credit with SVB for two years, maturing August 2015, and increased the availability under its revolving line to $15.0 million. The amount of borrowings available under the agreement at any time may not exceed 80% of eligible accounts receivable at such time and any amounts borrowed are collateralized by substantially all of the Company’s assets. Amounts drawn on the revolving line of credit bear interest at a floating rate of either the LIBOR plus 200 basis points or the prime rate, at the Company’s election for each draw. The agreement contains certain affirmative covenants related to the timely delivery of financial information to SVB, as well as certain customary negative covenants. The agreement also includes a financial covenant related to the Company’s short-term liquidity. As of December 31, 2013, there were no amounts outstanding under the revolving line of credit, and the Company was in compliance with all financial and non-financial covenants.

 

Convertible Note

 

In March 2013, the Company signed a framework agreement for the provision of services to various operating entities with E.ON SE, one of its utility customers. Pursuant to the agreement, E.ON SE provided a $2.5 million loan to the Company and in return received a convertible note equal to the original principal amount of the loan. The note matures on March 8, 2016. Interest on the note accrues at a rate of 5% per annum compounding annually, and is due and payable with the principal amount at the earlier of (i) the time of conversion or (ii) the maturity date.

 

Conversion of the note into the Company’s common stock occurs automatically on or before the maturity date if the Company either (i) completes an initial public offering or (ii) executes a round of private financing, subject to certain conditions. The value of the conversion will be equal to the principal plus any unpaid interest as of the conversion date, and the number of shares received by E.ON SE will be calculated based on a note conversion price equal to (i) 88% of the IPO price or (ii) 88% of the price paid for the financing round. In the event of a Liquidation Transaction as defined in the Company’s Amended and Restated Certificate of Incorporation prior to the repayment or conversion in full of this Note, the Company shall repay this Note in cash equal to (i) 1.5 times the outstanding principal plus (ii) any accrued but unpaid interest on this Note, at the consummation of such Liquidation Transaction.

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The conversion feature resulting in a variable number of shares and the put feature related to the change in control represent embedded derivative financial instruments which have been valued as a single compound derivative and are reflected as a non-current liability on the balance sheet. On the date of convertible note issuance, there was an effective discount of $0.2 million on the note.

 

The following table details the balances associated with the liability components of the notes payable balance as of December 31, 2013 (in thousands):

 

     December 31,
2013
 

Notes payable (face value)

   $ 2,500   

Accrued interest

     102   

Unamortized note discount

     (184
  

 

 

 

Notes payable, net

   $ 2,418   
  

 

 

 

 

6.    Commitments and Contingencies

 

Operating and Capital Leases

 

The Company leases domestic office space in Arlington, Virginia and San Francisco, California, as well as international office space in Japan, Singapore and the United Kingdom. All leases are non-cancelable operating lease agreements that expire at various dates through 2016 and include renewal options.

 

In June 2013, the Company entered into a master lease agreement with a financing company. The agreement allows for the Company to lease eligible equipment purchases. Each lease has a 36 month term, payable in equal monthly installments with the exception of the first and final payments which are prorated based on a midmonth convention. The Company has accounted for the leases under the master lease agreement as capital leases. The weighted-average interest rate implicit in the leases was 6%.

 

A summary of gross and net lease commitments as of December 31, 2013 is as follows (in thousands):

 

Year ending December 31,

   Operating
Leases
     Capital
Leases
 

2014

   $ 4,376       $ 515   

2015

     2,829         515   

2016

     1,665         325   

2017

               

2018

               
  

 

 

    

 

 

 
   $ 8,870       $ 1,355   
  

 

 

    

 

 

 

Less:

     

Amounts representing interest

             99   

Minimum payments to be received from subleases

     524           
  

 

 

    

 

 

 

Total lease obligation

   $ 8,346       $ 1,256   
  

 

 

    

 

 

 

 

Rent expense under operating leases was $1.3 million, $2.1 million, and $3.0 million for the years ended December 31, 2011, 2012 and 2013, respectively.

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Letters of Credit

 

As of December 31, 2012 and 2013, the Company had outstanding letters of credit totaling $1.4 million and $1.1 million, respectively, in connection with securing its leased office space. The outstanding amounts for Arlington and San Francisco are $1.0 million and $0.1 million, respectively, and both letters of credit remain outstanding as of December 31, 2013.

 

Contingencies and Indemnifications

 

In January 2013, the Company received notification from the United States Postal Service (“USPS”) that its energy efficiency reports will no longer be classified as Standard Mail per a review of the required conditions, and therefore subject to a higher postage rate. The Company appealed the USPS decision and was temporarily required to pay first class postage rates for its energy efficiency reports. In June 2013, the Company modified the format of its energy efficiency reports in order to meet the conditions required by the USPS to qualify for standard postage rates going forward.

 

In the normal course of business, the Company enters into contracts and agreements that may contain representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made in the future, but have not yet been made. The Company has not paid any claims or been required to defend any actions related to indemnification obligations. However, the Company could incur costs in the future as a result of indemnification obligations.

 

In accordance with its bylaws, the Company has indemnification obligations to its officers, directors, employees and agents (other than directors and officers) for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims, and the Company has a director and officer insurance policy that enables it to recover a portion of any future claims.

 

7.    Stockholders’ Equity

 

The Company had two classes of stock outstanding as of December 31, 2012 and 2013, preferred stock and common stock.

 

Preferred Stock

 

The Company is authorized to issue 19.4 million shares of preferred stock, for which an equivalent amount of common shares are reserved for conversion. As of December 31, 2012 and 2013, there were 19.2 million shares of Series A preferred stock (“Series A”), Series B preferred stock (“Series B”) and Series C preferred stock (“Series C”) that remained issued and outstanding.

 

The following table summarizes all issuances of preferred stock through December 31, 2013 (in thousands, except per share amounts):

 

            Shares      Price
Per  Share
     Offering
Costs
     Outstanding
as of
December 31,

2013
     Conversion
Price

per Share
 

Issue Year

   Class      Authorized      Issued              

2010

     Series C         5,674         5,618       $ 8.90       $ 128         5,618       $ 8.90   

2008

     Series B         8,376         8,251         1.99         93         8,251         1.99   

2007

     Series A         5,378         5,378         0.29         80         5,378         0.29   

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Series A, Series B and Series C preferred stockholders possess the following rights and privileges:

 

Board of Directors

 

The holders of Series A and Series B stock shall each be entitled to elect one member of the Board of Directors. Each class may also remove and replace their respective elected director. The holders of Series C stock have no specific Board of Director member election rights; however they are entitled to vote along with common stock holders as a single class on an as-converted basis to elect any remaining directors and fill any vacancies caused by resignation, death or removal of such directors.

 

Voting

 

The Series A, Series B and Series C preferred stockholders shall vote together with all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company. Series A, Series B and Series C preferred stockholders are entitled to the number of votes equal to the number of shares of common stock to which their shares could be converted.

 

Conversion

 

At any time, Series A, Series B and Series C preferred stockholders may convert their shares to common stock on a one-for-one basis (adjusted for dilutive issuances, splits and combinations). Automatic conversion takes place upon the sale of common stock in an underwritten public offering resulting in aggregate cash proceeds to the Company of at least $50.0 million.

 

Dividends

 

In the event the Company declares and pays any non-stock dividends on its common stock, the Company must also pay to the holders of Series A, Series B and Series C preferred stock dividends at the same rate as if the preferred shares had been converted to common stock. The Board of Directors may declare and pay dividends to holders of Series A, Series B and Series C preferred stock out of legally available funds prior to any declaration or payment of dividend on common stock. Dividends are non-cumulative and, if declared, would be paid at a rate of $0.02299 per share, $0.15948 per share and $0.712 per share per year on each share of outstanding Series A, Series B and Series C preferred stock, respectively. Any remaining dividends shall be allocated to holders of all classes of stock, pro-rata based on the number of common stock shares held (assuming conversion of all other classes into common stock).

 

Liquidation preference

 

Upon any liquidation event (deemed or actual), including a merger, a sale of a majority of the Company’s assets or a majority of its intellectual property, a dissolution or a winding up of the Company, the holders of Series A, Series B and Series C preferred stock shall be entitled to be paid $0.28738 per adjusted share, $1.9935 per adjusted share and $8.90 per adjusted share, respectively, prior to any distribution to holders of common stock. In the case of insufficient funds for preferred payments, the funds would be distributed ratably in proportion to the preferential amounts the preferred stockholders are entitled to receive. In the event of a deemed liquidation event, only the proceeds related to the transaction are required to be distributed. After the preferential payments have been made in full, any additional remaining assets shall be distributed ratably to the holders of common stock.

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Anti-dilution rights

 

The conversion prices of Series A, Series B and Series C preferred stock are subject to anti-dilution adjustments to reduce dilution in the event of an equity issuance by the Company (other than Board approved employee incentives, including stock options) at a purchase price less than the then-applicable conversion price of the Series A, Series B and Series C preferred stock, respectively.

 

Protective provisions

 

For so long as at least 0.5 million adjusted shares of Series A, at least 0.5 million adjusted shares of Series B or at least 0.5 million adjusted shares of Series C remain outstanding, consent of the holders of at least a majority of the then outstanding Series A, Series B or Series C preferred stock, respectively, shall be required to: (i) alter or change the rights, preferences or privileges of the shares, (ii) increase or decrease the total number of authorized shares, (iii) increase the number of shares reserved for future issuance under the Company’s 2007 Stock Plan or adopt any new stock purchase plan, stock incentive compensation or similar stock plan without approval by a majority of the Board of Directors, (iv) authorize the issuance of any other equity security, including any security convertible into or exercisable for any equity security, having a preference over, or being on a parity with, the respective series of preferred stock with respect to voting, dividends, redemption, conversion or upon liquidation, (v) redeem, purchase or otherwise acquire any shares of common stock (other than pursuant to equity incentive agreements with service providers giving the Company the right to repurchase shares upon the termination of services), (vi) amend or waive any provision of the Company’s Amended and Restated Certificate of Incorporation or Bylaws, (vii) grant, sell or issue any additional shares, options or stock appreciation rights to the founders of the Company without approval by a majority of the Board of Directors, (viii) effect a liquidation transaction, (ix) increase or decrease the size of the Board of Directors and (x) declare or pay any dividend or distribution of capital. For so long as 0.5 million shares of Series A, Series B or Series C preferred stock remain outstanding, the rights of a particular series may not be changed without the approval of a majority of the stockholders within that series, nor may the number of shares authorized within a series be altered without approval by a majority of the holders of that series.

 

Common Stock

 

The Company is authorized to issue 62.0 million shares of common stock. As of December 31, 2012 and 2013, there were 20.3 million and 22.1 million shares of common stock issued and outstanding, respectively. Common stock is issued from the pool of authorized stock upon the exercise of stock options or vesting of restricted stock.

 

The Company is authorized to grant the right to purchase common stock subject to specific conditions and restrictions, otherwise referred to as “restricted stock”. In December 2011, the Company sold 0.4 million shares of restricted stock to its Chief Financial Officer at $2.09 per share, the fair value of the Company’s common stock at that time, for a total purchase price of $0.9 million. The restricted stock vests over a three year period; 36% vests after the first year and the remaining shares vest ratably over the following two years.

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table summarizes the activity of the Company’s outstanding restricted stock for the years ended December 31, 2012 and 2013 (in thousands, expect per share amounts):

 

     Restricted
Shares
    Weighted-
Average
Grant Date
Fair Value
 

Balance as of December 31, 2011

     444      $ 2.09   

Vested

     (172     2.09   
  

 

 

   

Balance as of December 31, 2012

     272      $ 2.09   
  

 

 

   

Vested

     (159     2.09   
  

 

 

   

Balance as of December 31, 2013

     113      $ 2.09   
  

 

 

   

 

In the event of a termination of services for any reason, any unvested shares of restricted stock are subject to a repurchase option by the Company at the original purchase price. The initial funds received for the restricted common stock are recorded as a liability and are subsequently reclassified to equity over time as the restricted stock vests and they are released from the repurchase option. The total repurchase option liability related to restricted stock was $0.6 million and $0.2 million as of December 31, 2012 and 2013, respectively.

 

Accumulated Other Comprehensive Income (Loss)

 

Other comprehensive income (loss) is comprised of certain gains and losses that are excluded from net income under GAAP and instead recorded as a separate element of stockholders’ equity (deficit). The Company’s other comprehensive income consists of foreign currency translation adjustments resulting from the translation of the Company’s foreign subsidiaries whose functional currency is their respective local currency, as well as any unrealized gains or losses on the Company’s unsettled foreign currency derivative contracts.

 

The following table summarizes the activity for each component of accumulated other comprehensive income (in thousands):

 

     Foreign
currency
translation
    Foreign
currency
derivative
instruments
    Accumulated
other
comprehensive
loss
 

Balance as of December 31, 2010

   $      $      $   

Other comprehensive income (loss)

     (17            (17
  

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2011

   $ (17   $      $ (17
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     51        (97     (46
  

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2012

   $ 34      $ (97   $ (63
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications

     (40     (28     (68

Reclassifications to net income

            11        11   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (40     (17     (57
  

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2013

   $ (6   $ (114   $ (120
  

 

 

   

 

 

   

 

 

 

 

Gains (losses) on cash flow hedges are recognized in the consolidated statements of operations in revenue—see Note 2 for further details.

 

F-22


Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8.    Stock-Based Compensation

 

Stock Plan

 

On August 1, 2007, the Company adopted the 2007 Stock Plan under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options and restricted stock units (“RSUs”). Employee equity awards generally vest over a four year period and have graded vesting schedules. The vesting terms for non-employee equity awards varies for each individual who is providing services to the Company. RSUs and stock options generally expire seven and ten years from the date of grant, respectively.

 

As of December 31, 2013, the total shares of common stock reserved for issuance was 16.4 million, 1.5 million of which were available for issuance. During 2013, the Board of Directors approved additions of 4.3 million reserved shares under the 2007 Stock Plan.

 

Stock Option Activity

 

Recent stock option activity under the 2007 Stock Plan is summarized in the following table (in thousands, except time period and per share amounts):

 

     Options
Outstanding
    Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term
(Years)
     Aggregate
Intrinsic
Value(1)
 

Balance as of December 31, 2011

     6,047      $ 1.39         8.3         6,771   

Granted

     2,466        2.30         

Exercised

     (927     0.72         

Forfeited

     (604     1.99         
  

 

 

         

Balance at December 31, 2012

     6,982      $ 1.74         8.1       $ 7,362   
  

 

 

         

Granted

     3,103        7.02         

Exercised

     (1,810     1.55         

Forfeited

     (465     2.68         

Cancelled

     (20     2.13         
  

 

 

         

Balance at December 31, 2013

     7,790      $ 3.83         7.6       $ 98,814   
  

 

 

         

Vested and expected to vest after December 31, 2013

     7,623      $ 3.75         8.0       $ 97,360   

Exercisable at December 31, 2013

     4,271        3.16         7.6         57,062   

 

  (1)   Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

 

The 2007 Stock Plan allows for grants of immediately exercisable stock options. The Company has the right to purchase any unvested, but issued common shares at the original exercise price during the repurchase period following an employee’s termination. The consideration received for an exercise of an unvested option is considered to be a deposit of the exercise price. The related dollar amount is recorded as other current liabilities and other liabilities on the Company’s consolidated balance sheets and will be reclassified to equity as the Company’s repurchase right lapses. There were no stock options subject to repurchase as of December 31, 2012. As of December 31, 2013, there were 0.3 million unvested stock options subject to repurchase at an aggregate exercise price of $0.9 million.

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table summarizes additional information on stock option grants, vesting and exercises (in thousands):

 

     Year Ended December 31,  
     2011      2012      2013  

Total fair value of stock options granted

   $ 3,487       $ 2,491       $ 20,919   

Total fair value of shares vested

     764         1,172         2,427   

Total intrinsic value of stock options exercised

     1,796         1,514         8,258   

Cash received from stock options exercised

     198         629         2,797   

 

The Company applied the following weighted-average assumptions to estimate the fair value of employee stock options using the Black-Scholes option pricing model:

 

     Year Ended December 31,  
         2011             2012             2013      

Expected volatility

     50     43     51

Expected term (in years)

     5.9        6.0        6.0   

Dividend yield

            

Risk-free interest rate

     2     1     1

 

Non-Employee Stock Options

 

In certain instances, the Company grants stock options to non-employee board members, consultants or advisors in return for services provided. These options were granted under the 2007 Plan and are included in the option summary tables above.

 

Stock options granted to non-employees during the years ended December 31, 2012 and 2013 were immaterial. As of December 31, 2013, there were 0.1 million non-employee stock options outstanding at a weighted-average exercise price of $2.66. Of those outstanding non-employee options, 0.1 million were vested and exercisable.

 

RSU Activity

 

During 2013, the Company granted 1.1 million RSUs with a weighted-average grant-date fair value of $15.48, all of which remained outstanding as of December 31, 2013. The number of RSUs granted to non-employee board members and consultants as of December 31, 2013 was less than 0.1 million.

 

Stock-Based Compensation Expense

 

Stock-based compensation expense is included in the consolidated statements of operations within the following line items (in thousands):

 

     Year Ended December 31,  
         2011              2012              2013      

Cost of revenue

   $ 87       $ 137       $ 197   

Sales and marketing

     340         484         1,348   

Research and development

     382         447         939   

General and administrative

     151         119         1,141   
  

 

 

    

 

 

    

 

 

 

Total

   $ 960       $ 1,187       $ 3,625   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

As of December 31, 2013, there was $19.3 million of unrecognized stock-based compensation expense related to unvested stock options granted to employees and non-employee service providers which is expected to be recognized over a weighted-average period of 3.0 years. For the year ended December 31, 2013, total capitalized stock-based compensation expense was $0.1 million.

 

As of December 31, 2013, no stock-based compensation expense had been recognized for RSUs due to a qualifying event for the awards’ performance-based vesting component that was not considered probable as of that date. The total unrecognized stock-based compensation expense relating to these RSUs was $15.0 million as of December 31, 2013.

 

9.    Income Taxes

 

For the years ended December 31, 2011, 2012 and 2013, the income tax provision for continuing operations is composed of state tax expense and foreign tax expense for the Company’s consolidated international subsidiaries.

 

The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2011, 2012 and 2013:

 

     December 31,  
     2011     2012     2013  

U.S. federal income tax rate

     34     34     34

State taxes

     4     4     4

Change in valuation allowance

     (37 %)      (39 %)      (31 %) 

Changes in state tax rate

     2     1     4

Stock compensation

     (1 %)      (3 %)      (4 %) 

Meals and entertainment

     (1 %)      (1 %)      (2 %) 

Other, net

     (1 %)      4     (5 %) 
  

 

 

   

 

 

   

 

 

 

Effective tax rate

            
  

 

 

   

 

 

   

 

 

 

 

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OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes versus those used for income tax purposes are reflected in deferred income taxes. The components of the Company’s deferred tax assets and liabilities, as well as the related valuation allowance as of December 31, 2012 and 2013, are as follows (in thousands):

 

     December 31,  
     2012     2013  

Deferred tax assets

    

Accrued compensation and benefits

   $ 605      $ 1,182   

Deferred rent liability

     619        483   

Stock compensation

     88        485   

Deferred income

     523        1,017   

Net operating loss carryforward

     18,995        23,081   

Other

     17        14   
  

 

 

   

 

 

 

Total deferred tax assets

   $ 20,847      $ 26,262   
  

 

 

   

 

 

 

Deferred tax liabilities

    

Depreciation and amortization

   $ 852      $ 1,854   

Other

     51        63   
  

 

 

   

 

 

 

Total deferred tax liabilities

   $ 903      $ 1,917   
  

 

 

   

 

 

 

Valuation allowance

     (19,944     (24,345
  

 

 

   

 

 

 

Net deferred tax assets

   $      $   
  

 

 

   

 

 

 

 

Based on the Company’s limited operating history and cumulative operating losses to date, management believes that it is more likely than not that the Company’s deferred tax assets would not be fully realized. Accordingly, a valuation allowance for the entire deferred tax asset amount has been recorded.

 

As of December 31, 2013, the Company had U.S. federal net operating loss carryforwards of approximately $58.3 million. These amounts will be available to reduce future taxable income and will begin to expire in 2027. Approximately $0.7 million of the net operating loss carryforwards have not been recognized as they related to benefits associated with stock option exercises that have not reduced current taxes payable.

 

These net operating loss carryforwards may be used to offset future taxable income and thereby reduce the Company’s U.S. federal income taxes otherwise payable. Section 382 of the Internal Revenue Code of 1986, as amended, (“Section 382”) imposes an annual limit on the ability of a corporation that undergoes an ownership change to use its net operating loss carryforwards to reduce its tax liability. In the event of certain changes in the Company’s stockholder base, the Company’s ability to utilize certain net operating losses to offset future taxable income in any particular year will be limited pursuant to Section 382.

 

In addition to the Company’s U.S. federal net operating loss carryforwards, the Company also had net operating loss carryforwards in a number of states in which it operates. In the event of an ownership change, the ability to utilize state net operating losses may be limited by annual limitations similar to those described in Section 382.

 

To date, there have been no tax benefits recognized related to uncertain tax positions. The Company does not anticipate a material change in the unrecognized tax benefits in the next twelve months.

 

The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to its net operating loss carryforwards, the Company’s income tax returns generally remain subject to examination by federal and most state tax authorities.

 

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OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

10.    Net Income (Loss) Per Share

 

The following table summarizes the calculation of the Company’s basic and diluted net income (loss) per share under the two-class method attributable to common stockholders during the years ended December 31, 2011, 2012 and 2013 (in thousands, except per share amounts):

 

     Year Ended December 31,  
     2011     2012     2013  

Numerator:

      

Net loss

   $ (21,297   $ (12,332   $ (14,161

Non-cumulative dividends to preferred stockholders

                     
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (21,297   $ (12,332   $ (14,161
  

 

 

   

 

 

   

 

 

 

Denominator:

      

Weighted-average common stock outstanding, basic

     17,836        19,442        21,121   

Effect of potentially dilutive stock options

                     
  

 

 

   

 

 

   

 

 

 

Weighted-average common stock outstanding, diluted

     17,836        19,442        21,121   
  

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (1.19   $ (0.63   $ (0.67
  

 

 

   

 

 

   

 

 

 

 

The Company computes net loss per share of common stock in conformity with the two-class method required for participating securities. The Company considers all series of convertible preferred stock to be participating securities, as the holders of the preferred stock are entitled to receive a non-cumulative dividend on a pari-passu basis in the event that a dividend is paid on common stock. The Company also considers unvested restricted common stock and the shares issued upon the early exercise of stock options that are subject to repurchase to be participating securities, because holders of such shares have dividend rights in the event a dividend is paid on common stock. The holders of all series of convertible preferred stock, and the holders of early exercised shares subject to repurchase do not have a contractual obligation to share in the losses of the Company. As such, the Company’s net losses for the years ended December 31, 2011, 2012 and 2013 were not allocated to these participating securities.

 

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OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Pro Forma Net Income (Loss) per Share (Unaudited)

 

Pro forma basic and diluted net loss per share were computed to give effect to the automatic conversion of Series A, Series B and Series C convertible preferred stock and the convertible note (see Note 5) using the if-converted method as though the conversion had occurred as of the beginning of the period or the original date of issuance, if later. The following table summarizes the calculation of the Company’s pro forma basic and diluted net income (loss) per share for the year ended December 31, 2013 (in thousands, except per share amounts):

 

     Pro Forma
Year Ended
December 31,
2013
 

Numerator:

  

Net loss

   $ (14,161

Non-cumulative dividends to preferred stockholders

       
  

 

 

 

Net loss attributable to common stockholders

   $ (14,161
  

 

 

 

Denominator:

  

Weighted-average common stock outstanding, basic

     21,121   

Adjustment to reflect assumed conversion of preferred stock

     19,247   

Adjustment to reflect assumed conversion of convertible debt

  
  

 

 

 

Pro forma weighted-average common stock outstanding, basic

  

Effect of potentially dilutive stock options and restricted stock

       
  

 

 

 

Pro forma weighted-average common stock outstanding, diluted

  
  

 

 

 
  
  

 

 

 

Pro forma net loss per share, basic and diluted

  
  

 

 

 

 

Anti-Dilutive Shares Excluded

 

The following potential shares were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):

 

     Year Ended December 31,  
     2011      2012      2013  

Convertible preferred stock

     19,247         19,247         19,247   

Stock options

     6,047         6,982         7,790   

Restricted stock units

                     1,093   

Common stock subject to repurchase

     444         272         408   
  

 

 

    

 

 

    

 

 

 
     25,738         26,501         28,538   
  

 

 

    

 

 

    

 

 

 

 

In addition, the Company has also excluded the convertible note payable from the calculation of diluted net loss per share attributable to common stockholders because the conversion is contingent on future events.

 

11.    Geographic Information

 

For the years ended December 31, 2012 and 2013, approximately 97% and 90% of the Company’s revenue was generated by customers located in the United States, respectively. There was no international revenue in 2011. All of the Company’s long-lived assets currently reside in the United States.

 

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OPOWER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

12.    Employee Benefit and Retirement Plans

 

The Company has a defined contribution 401(k) retirement and savings plan (the “401k Plan”) to provide retirement benefits for all eligible employees of the Company. Employees that are at least 21 years of age are eligible to participate in the 401k Plan immediately upon hiring. Under the 401k Plan, eligible employees may contribute up to 100% of either pre-tax compensation or after-tax compensation through a Roth 401(k) deferral contribution, up to the annual Internal Revenue Service dollar limit for the applicable year. To date, the Company has not made any matching contributions to this plan.

 

13.    Valuation and Qualifying Accounts

 

Changes in valuation and qualifying accounts consisted of the following (in thousands):

 

           Additions                      
     Beginning
Balance
    Charged to
Operations
    Charged to
Deferred
Revenue
    Write-offs      Deductions      Ending
Balance
 

2011

              

Allowance for doubtful accounts

   $      $      $      $       $       $   

Deferred tax valuation allowance

     (7,743     (7,904                            (15,647

2012

              

Allowance for doubtful accounts

   $      $      $      $       $       $   

Deferred tax valuation allowance

     (15,647     (4,297                            (19,944

2013

              

Allowance for doubtful accounts

   $      $      $ (361   $       $       $ (361

Deferred tax valuation allowance

     (19,944     (4,401                            (24,345

 

14.    Subsequent Events

 

The Company completed its subsequent events assessment through March 3, 2014.

 

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LOGO

 

OPOWER


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LOGO

 

 

 

 


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PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

 

The following table sets forth all expenses to be paid by us, other than underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee, and the NYSE listing fee.

 

SEC registration fee

   $12,880

FINRA filing fee

     15,500

NYSE listing fee

          *    

Printing and engraving

          *    

Legal fees and expenses

          *    

Accounting fees and expenses

          *    

Custodian transfer agent and registrar fees

          *    

Miscellaneous

          *    
  

 

Total

   $     *    
  

 

 

*   

To be completed by amendment.

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

 

Section 145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents.

 

Prior to the completion of this offering, we expect to adopt an amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:

 

   

any breach of their duty of loyalty to our company or our stockholders;

 

   

any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

   

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

   

any transaction from which they derived an improper personal benefit.

 

Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

 

In addition, prior to the completion of this offering, we expect to adopt amended and restated bylaws which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be

 

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made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Our amended and restated bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

 

Further, prior to the completion of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements will also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

 

The limitation of liability and indemnification provisions that are expected to be included in our amended and restated certificate of incorporation, amended and restated bylaws and in indemnification agreements that we enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

 

We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.

 

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act and otherwise.

 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

 

Since January 1, 2011, we made sales of the following unregistered securities:

 

From January 1, 2011 through December 31, 2013, we granted to our employees, consultants and other service providers options to purchase an aggregate of 8,230,334 shares of common stock under our Amended and Restated 2007 Stock Plan at exercise prices ranging from $2.09 to $15.20 per share.

 

From January 1, 2011 through December 31, 2013, we issued and sold to our employees, consultants and other service providers an aggregate of 3,580,918 shares of common stock upon the exercise of options under our Amended and Restated 2007 Stock Plan at exercise prices ranging from $0.045 to $6.56 per share, for an aggregate exercise price of $3,662,263.

 

From January 1, 2011 through December 31, 2013, we granted to our employees, consultants and other service providers 1,093,326 restricted stock units under our Amended and Restated 2007 Stock Plan.

 

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In December 2011, we sold to an employee an aggregate of 443,613 shares of restricted common stock under our Amended and Restated 2007 Stock Plan at a price of $2.09 per share for a total purchase price of $927,151.

 

We believe these transactions were exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about Opower.

 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

  (a)   Exhibits.

 

See the Exhibit Index on the page immediately following the signature page for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.

 

  (b)   Financial Statement Schedules.

 

All schedules are omitted because the required information is either not present, not present in material amounts or is presented within the consolidated financial statements included in the prospectus that is part of this registration statement.

 

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 by the Registrant for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

The undersigned Registrant hereby undertakes that:

 

  (1)   For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

  (2)   For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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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 County of Arlington, Commonwealth of Virginia, on March 3, 2014.

 

OPOWER, INC.

By:

 

/s/ Daniel Yates

 

Daniel Yates

  Chief Executive Officer

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel Yates and Thomas Kramer, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Registration Statement on Form S-1 of Opower, Inc., and any or all amendments (including post-effective amendments) thereto and any new registration statement with respect to the offering contemplated thereby filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

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 and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ Daniel Yates

Daniel Yates

  

Chief Executive Officer and Director

(Principal Executive Officer)

  March 3, 2014

/s/ Thomas G. Kramer

Thomas G. Kramer

  

Chief Financial Officer

(Principal Accounting and Financial Officer)

  March 3, 2014

/s/ Alex Laskey

Alex Laskey

  

Director

  March 3, 2014

/s/ Mark McLaughlin

Mark McLaughlin

  

Director

  March 3, 2014

/s/ Dipchand Nishar

Dipchand Nishar

  

Director

  March 3, 2014

/s/ Gene Riechers

Gene Riechers

  

Director

  March 3, 2014

/s/ Marcus Ryu

Marcus Ryu

  

Director

  March 3, 2014

/s/ Jon Sakoda

Jon Sakoda

  

Director

  March 3, 2014

/s/ Harry Weller

Harry Weller

  

Director

  March 3, 2014

 

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EXHIBIT INDEX

 

Exhibit
Number

    

Description

  1.1       Form of Underwriting Agreement.
  3.1       Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect.
  3.2       Form of Amended and Restated Certificate of Incorporation of the Registrant to be in effect immediately prior to the completion of this offering.
  3.3       Bylaws of the Registrant, as currently in effect.
  3.4       Form of Amended and Restated Bylaws of the Registrant to be adopted immediately prior to the completion of this offering.
  4.1*       Form of common stock certificate of the Registrant.
  4.2       Amended and Restated Investors’ Rights Agreement, dated November 24, 2010, by and among the Registrant and certain of its stockholders.
  5.1*       Opinion of Goodwin Procter LLP.
  10.1       Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.
  10.2#       Amended and Restated 2007 Stock Plan, as amended, and forms of agreement thereunder.
  10.3#       2014 Stock Incentive Plan and forms of agreement thereunder.
  10.4#       Senior Executive Cash Incentive Bonus Plan
  10.5       Deed of Lease between the Registrant and MEPT Courthouse Tower, LLC dated November 3, 2010.
  10.6#       Offer Letter between the Registrant and Alexander Laskey dated September 21, 2011.
  10.7#       Employment Agreement between the Registrant and Thomas Kramer dated November 14, 2011.
  10.8#       Offer Letter between the Registrant and Alex Kinnier dated May 2, 2012.
  10.9#       Offer Letter between the Registrant and Jeremy Kirsch dated September 21, 2011.
  10.10#       Offer Letter between the Registrant and Rick McPhee dated February 4, 2012.
  10.11#       Offer Letter between the Registrant and Roderick Morris dated August 29, 2012.
  21.1       Subsidiaries of the Registrant.
  23.1       Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
  23.2*       Consent of Goodwin Procter LLP (included in Exhibit 5.1).
  24.1       Power of Attorney (see page II-4 of this Registration Statement on Form S-1).

 

* To be filed by amendment.
#   Indicates management contract or compensatory plan, contract or agreement.

EX-1.1

Exhibit 1.1

[] Shares

OPOWER, INC.

COMMON STOCK, PAR VALUE $0.000005 PER SHARE

UNDERWRITING AGREEMENT

[], 2014


[], 2014

Morgan Stanley & Co. LLC

Goldman, Sachs & Co.

c/o Morgan Stanley & Co. LLC

1585 Broadway

New York, New York 10036

Goldman, Sachs & Co.

200 West Street

New York, New York 10282

Ladies and Gentlemen:

Opower, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several Underwriters named in Schedule II hereto (the “Underwriters”) for whom Morgan Stanley & Co. LLC and Goldman, Sachs & Co. (collectively, the “Representatives”) are acting as Representatives, an aggregate of [] shares of the common stock, par value $0.000005 per share (“Common Stock”), of the Company (the “Firm Shares”).

The Company also proposes to issue and sell to the several Underwriters not more than an additional [] shares of Common Stock (the “Additional Shares”) if and to the extent that the Representatives, as managers of the offering, shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares of common stock granted to the Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the “Shares.” The shares of Common Stock to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the “Common Stock.”

The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement, including a prospectus, relating to the Shares. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the “Securities Act”), is hereinafter referred to as the “Registration Statement”; the prospectus in the form first used to confirm sales of Shares (or in the form first made available to the Underwriters by the Company to meet requests of purchasers pursuant to Rule 173 under the Securities Act) is hereinafter referred to as the “Prospectus.” If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the “Rule 462 Registration Statement”), then any reference herein to the term “Registration Statement” shall be deemed to include such Rule 462 Registration Statement.


For purposes of this Underwriting Agreement (this “Agreement”), “free writing prospectus” has the meaning set forth in Rule 405 under the Securities Act, “Time of Sale Prospectus” means the most recent preliminary prospectus contained in the Registration Statement at the time of its effectiveness, together with the documents, pricing information and free writing prospectuses, if any, set forth in Schedule III hereto, and “broadly available road show” means a “bona fide electronic road show” as defined in Rule 433(h)(5) under the Securities Act that has been made available without restriction to any person. As used herein, the terms “Registration Statement,” “preliminary prospectus,” “Time of Sale Prospectus” and “Prospectus” shall include the documents, if any, incorporated by reference therein as of the date hereof.

1. Representations and Warranties. The Company represents and warrants to and agrees with each of the Underwriters that:

(a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the knowledge of the Company, threatened by the Commission.

(b) (i) The Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, will not, as of the date of such amendment or supplement, contain any 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, (ii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, will comply as of the date of any such amendment or supplement in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder, (iii) the Time of Sale Prospectus does not, and at the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers and at the Closing Date (as defined in Section 4), the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (iv) each broadly available road show, if any, when considered together with the Time of Sale Prospectus, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (v) as of the applicable filing date, the Closing Date and the Option Closing Date (as defined in Section 2), as the case may be, the Prospectus does not contain and, as amended or supplemented, if applicable, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this

 

2


paragraph do not apply to statements or omissions in the Registration Statement, the Time of Sale Prospectus or the Prospectus based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.

(c) The Company is not an “ineligible issuer” in connection with the offering pursuant to Rules 164, 405 and 433 under the Securities Act. Any free writing prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Each free writing prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or will comply in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder. Except for the free writing prospectuses, if any, identified in Schedule III hereto, and electronic road shows, if any, each furnished to you before first use, the Company has not prepared, used or referred to, and will not, without your prior consent, prepare, use or refer to, any free writing prospectus.

(d) PricewaterhouseCoopers LLP (“PWC”), who have certified certain financial statements of the Company, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder.

(e) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware, has the corporate power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole.

(f) Each subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its organization (to the extent such concepts are applicable under such laws), has the corporate power and authority to own its property and to conduct its business as described in the Time of Sale Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification (to the extent such concepts are applicable under such laws), except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; 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 by the Company, free and clear of all liens, encumbrances, equities or claims.

 

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(g) This Agreement has been duly authorized, executed and delivered by the Company.

(h) The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in each of the Time of Sale Prospectus and the Prospectus.

(i) The shares of Common Stock outstanding prior to the issuance of the Shares to be sold by the Company have been duly authorized and are validly issued, fully paid and non-assessable.

(j) The Shares to be sold by the Company have been duly authorized and, when issued, delivered and paid for in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and the issuance of such Shares will not be subject to any preemptive or similar rights that have not been validly waived.

(k) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement will not contravene any provision of applicable law or the certificate of incorporation or bylaws of the Company or any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares.

(l) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Prospectus.

(m) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject (i) other than proceedings accurately described in all material respects in the Time of Sale Prospectus and proceedings that would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, or on the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by the Time of

 

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Sale Prospectus or (ii) that are required to be described in the Registration Statement or the Prospectus and are not so described in all material respects; and there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described in all material respects or filed as required.

(n) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder.

(o) The Company is not, and after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in 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.

(p) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole.

(q) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole.

(r) Except as described in the Time of Sale Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement.

 

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(s) Neither the Company nor any of its subsidiaries or controlled affiliates, nor any director, officer, or employee, nor, to the Company’s knowledge, any agent or representative of the Company or of any of its subsidiaries or controlled affiliates acting on behalf of the Company or any of its subsidiaries or controlled affiliates, has taken (or has any plans to take) any action in furtherance of an offer, payment, promise to pay, or authorization or approval of the payment or giving of money, property, gifts or anything else of value, directly or indirectly, to any “government official” (including any officer or employee of a government or government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office) to influence official action or secure an improper advantage; and the Company and its subsidiaries and controlled affiliates have conducted their businesses in compliance with applicable anti-corruption laws, including the Foreign Corrupt Practices Act of 1977 and the Bribery Act 2010 of the United Kingdom, and have instituted and maintain and will continue to maintain policies and procedures designed to promote and achieve compliance with such laws and with the representation and warranty contained herein.

(t) The operations of the Company and its subsidiaries are and have been conducted at all times in material compliance with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Company and its subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Anti-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 Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

(u) (i) Neither the Company nor any of its subsidiaries, nor any director, officer, or employee thereof, nor, to the Company’s knowledge, any agent, controlled affiliate or representative of the Company or any of its subsidiaries, is an individual or entity (“Person”) that is, or is owned or controlled by a Person that is:

(A) the subject of any sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), the United Nations Security Council (“UNSC”), the European Union (“EU”), Her Majesty’s Treasury (“HMT”), or other relevant sanctions authority (collectively, “Sanctions”), nor

(B) located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Cuba, Iran, North Korea, Sudan and Syria).

 

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(ii) Neither the Company nor any of its subsidiaries will, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person:

(A) to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or

(B) in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise).

(iii) For the past 5 years, the Company and its subsidiaries have not knowingly engaged in, are not now knowingly engaged in, and will not knowingly engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.

(v) Subsequent to the respective dates as of which information is given in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, (i) the Company and its subsidiaries have not incurred any material liability or obligation, direct or contingent, nor entered into any material transaction; (ii) the Company has not purchased any of its outstanding capital stock (other than from its employees or other service providers in connection with the termination of their service pursuant to plans or agreements described in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus), nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock other than ordinary and customary dividends; and (iii) there has not been any material change in the capital stock, short-term debt or long-term debt of the Company and its subsidiaries, except in each case as described in each of the Registration Statement, the Time of Sale Prospectus and the Prospectus, respectively.

(w) The Company and its subsidiaries do not own any real property. The Company and its subsidiaries have good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects except such as are described in the Time of Sale Prospectus or such as do not materially affect the value of such property and do not materially 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, to the Company’s knowledge, enforceable leases with such

 

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exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries, in each case except as described in the Time of Sale Prospectus.

(x) The Company and its subsidiaries own or possess, or can acquire on commercially reasonable terms, all material patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names currently employed by them in connection with the business now operated by them, except where the failure to own, possess or acquire any of the foregoing would not result in a material adverse effect on the Company and its subsidiaries, taken as a whole, and neither the Company nor any of its subsidiaries has received any written notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company and its subsidiaries, taken as a whole.

(y) No material labor dispute with the employees of the Company or any of its subsidiaries exists, except as described in the Time of Sale Prospectus, or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors that would have a material adverse effect on the Company and its subsidiaries, taken as a whole.

(z) The Company and its subsidiaries, taken as a whole, are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; neither the Company nor any of its subsidiaries has been refused any insurance coverage sought or applied for; and neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, except as described in the Time of Sale Prospectus.

(aa) The Company and its subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to obtain such certificates, authorizations or permits, individually or in the aggregate, would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the Company and its subsidiaries, taken as a whole, except as described in the Time of Sale Prospectus.

 

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(bb) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Time of Sale Prospectus, since the end of the Company’s most recent audited fiscal year, there has been (i) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (ii) no change in the Company’s internal control over financial reporting that has materially adversely affected, or is reasonably likely to materially adversely affect, the Company’s internal control over financial reporting.

(cc) Except as described in the Time of Sale Prospectus, the Company has not sold, issued or distributed any shares of Common Stock during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants.

(dd) The Company and each of its subsidiaries have filed all federal, state, local and foreign tax returns required to be filed through the date of this Agreement or have requested extensions thereof (except where the failure to file would not, individually or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole) and have paid all taxes required to be paid thereon (except for cases in which the failure to file or pay would not have a material adverse effect on the Company and its subsidiaries, taken as a whole, or, except as currently being contested in good faith and for which reserves required by U.S. GAAP have been created in the financial statements of the Company), and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company nor any of its subsidiaries have any written notice or knowledge of any tax deficiency which could reasonably be expected to be determined adversely to the Company or its subsidiaries and which could reasonably be expected to have a material adverse effect on the Company and its subsidiaries, taken as a whole.

(ee) From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.

 

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(ff) The Company (i) has not alone engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and (ii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule I hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.

(gg) As of the time of each sale of the Shares in connection with the offering when the Prospectus is not yet available to prospective purchasers, none of (A) the Time of Sale Prospectus, (B) any free writing prospectus, when considered together with the Time of Sale Prospectus, and (C) any individual Written Testing-the-Waters Communication, when considered together with the Time of Sale Prospectus, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(hh) The Company and each of its subsidiaries have complied, and are presently in compliance with, its privacy policies and third-party obligations (imposed by applicable law, contract or otherwise) regarding the collection, use, transfer, storage, protection, disposal and disclosure by the Company and its subsidiaries of personally identifiable information, except to the extent that the failure to do so would not reasonably be expected to have a material adverse effect on the Company and its subsidiaries, taken as a whole.

(ii) Nothing has come to the attention of the Company that has caused it to reasonably believe that the industry-related and market-related data included in the Time of Sale Prospectus and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.

2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedule II hereto opposite its name at $[] a share (the “Purchase Price”).

 

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On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the Underwriters the Additional Shares, and the Underwriters shall have the right to purchase, severally and not jointly, up to [] Additional Shares at the Purchase Price, provided, however, that the amount paid by the Underwriters for any Additional Shares shall be reduced by an amount per share equal to any dividends declared by the Company and payable on the Firm Shares but not payable on such Additional Shares. You may exercise this right on behalf of the Underwriters in whole or from time to time in part by giving written notice not later than 30 days after the date of this Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by the Underwriters and the date on which such shares are to be purchased. Each purchase date must be at least two business days after the written notice is given and may not be earlier than the closing date for the Firm Shares nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. On each day, if any, that Additional Shares are to be purchased (an “Option Closing Date”), each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as you may determine) that bears the same proportion to the total number of Additional Shares to be purchased on such Option Closing Date as the number of Firm Shares set forth in Schedule II hereto opposite the name of such Underwriter bears to the total number of Firm Shares.

The Company hereby agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the Prospectus (the “Restricted Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or any other securities so owned convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (iii) file any registration statement with the Commission relating to the offering of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock.

The restrictions contained in the preceding paragraph shall not apply to (i) the Shares to be sold hereunder, (ii) the issuance by the Company of shares of Common Stock upon the exercise of an option or warrant, settlement of a restricted stock unit or the conversion of a security outstanding on the date hereof pursuant to stock plans or other agreements disclosed in the Time of Sale Prospectus, (iii) the issuance by the Company of shares or options to purchase shares of Common Stock pursuant to the Company’s equity plans disclosed in the Time of Sale Prospectus, (iv) the filing by the Company of a registration statement on Form S-8 or a successor form thereto, (v) the entry into an agreement providing for the issuance by the Company of shares of Common

 

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Stock or any security convertible into or exercisable for shares of Common Stock in connection with the acquisition by the Company or any of its subsidiaries of the securities, business, property or other assets of another person or entity or pursuant to an employee benefit plan assumed by the Company in connection with such acquisition, and the issuance of any such securities pursuant to any such agreement or (vi) the entry into an agreement providing for the issuance of shares of Common Stock or any security convertible into or exercisable for shares of Common Stock in connection with joint ventures, commercial relationships or other strategic transactions, and the issuance of any such securities pursuant to any such agreement; provided that in the case of clauses (v) and (vi), the aggregate number of shares of Common Stock that the Company may sell or issue or agree to sell or issue pursuant to clauses (v) and (vi) shall not exceed 5% of the total number of shares of the Company’s Common Stock issued and outstanding immediately following the completion of the transactions contemplated by this agreement and all recipients of shares of Common Stock or any security convertible into or exercisable for shares of Common Stock shall enter into a “lock-up” agreement substantially in the form of Exhibit A hereto.

If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 5(f) hereof 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 Exhibit B hereto through a major news service at least two business days before the effective date of the release or waiver.

3. Terms of Public Offering. The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at $[] a share (the “Public Offering Price”) and to certain dealers selected by you at a price that represents a concession not in excess of $[] a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of $[] a share, to any Underwriter or to certain other dealers.

4. Payment and Delivery. Payment for the Firm Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on [], 2014, or at such other time on the same or such other date, not later than [], 2014, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the “Closing Date.”

Payment for any Additional Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 a.m., New York City time, on the date specified in the corresponding notice described in Section 2 or at such other time on the same or on such other date, in any event not later than [], 2014, as shall be designated in writing by you.

 

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The Firm Shares and Additional Shares shall be registered in such names and in such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the applicable Option Closing Date, as the case may be. The Firm Shares and Additional Shares shall be delivered to you on the Closing Date or an Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor.

5. Conditions to the Underwriters’ Obligations. The obligations of the Company to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than [] (New York City time) on the date hereof.

The several obligations of the Underwriters are subject to the following further conditions:

(a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date:

(i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any of the securities of the Company or any of its subsidiaries by any “nationally recognized statistical rating organization,” as such term is defined in Section 3(a)(62) of the Exchange Act; and

(ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Time of Sale Prospectus that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus.

(b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed on behalf of the Company by an executive officer of the Company, to the effect set forth in Section 5(a)(i) above and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened.

 

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(c) The Underwriters shall have received on the Closing Date an opinion of Goodwin Procter LLP, outside counsel for the Company (“Goodwin Procter”), dated the Closing Date, in the form and substance satisfactory to the Representatives and in the form previously agreed to between you or your counsel and Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters (“WSGR”);

(d) The Underwriters shall have received on the Closing Date an opinion of WSGR, counsel for the Underwriters, dated the Closing Date, in the form and substance satisfactory to the Representatives.

With respect to certain provisions included in the opinions to be delivered pursuant to Sections 5(c) and 5(d) above, Goodwin Procter and WSGR, may state that their opinions and beliefs are based upon their participation in the preparation of the Registration Statement, the Time of Sale Prospectus and the Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification, except as specified.

The opinion of Goodwin Procter described in Section 5(c) above shall be rendered to the Underwriters at the request of the Company and shall so state therein.

(e) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from PWC, 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 Time of Sale Prospectus and the Prospectus; provided that the letter delivered on the Closing Date shall use a “cut-off date” not earlier than the date hereof.

(f) The “lock-up” agreements, each substantially in the form of Exhibit A hereto, between you and certain stockholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date.

(g) The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the delivery to you on the applicable Option Closing Date of the following:

(i) a certificate, dated the Option Closing Date and signed on behalf of the Company by an executive officer of the Company, confirming that the certificate delivered on the Closing Date pursuant to Section 5(b) hereof remains true and correct as of such Option Closing Date;

 

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(ii) an opinion of Goodwin Procter, outside counsel for the Company, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 5(c) hereof;

(iii) an opinion of WSGR, counsel for the Underwriters, dated the Option Closing Date, relating to the Additional Shares to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 5(d) hereof;

(iv) a letter dated the Option Closing Date, in form and substance satisfactory to the Underwriters, from PwC substantially in the same form and substance as the letter furnished to the Underwriters pursuant to Section 5(e) hereof; provided that the letter delivered on the Option Closing Date shall use a “cut-off date” not earlier than three business days prior to such Option Closing Date; and

(v) such other documents as you may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares to be sold on such Option Closing Date and other matters related to the issuance of such Additional Shares.

6. Covenants of the Company. The Company covenants with each Underwriter as follows:

(a) To furnish to you, without charge, six (6) signed copies of the Registration Statement (including exhibits thereto) and for delivery to each other Underwriter a conformed copy of the Registration Statement (without exhibits thereto) and to furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(e) or 6(f) below, as many copies of the Time of Sale Prospectus, the Prospectus and any supplements and amendments thereto or to the Registration Statement as you may reasonably request.

(b) Before amending or supplementing the Registration Statement, the Time of Sale Prospectus or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule.

(c) To furnish to you a copy of each proposed free writing prospectus to be prepared by or on behalf of, used by, or referred to by the Company and not to use or refer to any proposed free writing prospectus to which you reasonably object.

 

15


(d) Not to take any action that would result in an Underwriter or the Company being required to file with the Commission pursuant to Rule 433(d) under the Securities Act a free writing prospectus prepared by or on behalf of the Underwriter that the Underwriter otherwise would not have been required to file thereunder.

(e) If the Time of Sale Prospectus is being used to solicit offers to buy the Shares at a time when the Prospectus is not yet available to prospective purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Time of Sale Prospectus in order to make the statements therein, in the light of the circumstances, not misleading, or if any event shall occur or condition exist as a result of which the Time of Sale Prospectus conflicts with the information contained in the Registration Statement then on file, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Time of Sale Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to any dealer upon request, either amendments or supplements to the Time of Sale Prospectus so that the statements in the Time of Sale Prospectus as so amended or supplemented will not, in the light of the circumstances when the Time of Sale Prospectus is delivered to a prospective purchaser, be misleading or so that the Time of Sale Prospectus, as amended or supplemented, will no longer conflict with the Registration Statement, or so that the Time of Sale Prospectus, as amended or supplemented, will comply with applicable law.

(f) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus (or in lieu thereof the notice referred to in Rule 173(a) of the Securities Act) is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with applicable law.

(g) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request;

 

16


provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

(h) To make generally available to the Company’s security holders and to you as soon as practicable an earning statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the date of this Agreement which shall satisfy the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder.

(i) If the Company is not a U.S. person for U.S. federal income tax purposes, the Company will deliver to each Underwriter (or its agent), on or before the Closing Date, (i) a certificate with respect to the Company’s status as a “United States real property holding corporation,” dated not more than thirty (30) days prior to the Closing Date, as described in Treasury Regulations Sections 1.897-2(h) and 1.1445-2(c)(3), and (ii) proof of delivery to the IRS of the required notice, as described in Treasury Regulations 1.897-2(h)(2).

(j) The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Shares within the meaning of the Securities Act and (b) completion of the Restricted Period referred to in Section 2.

(k) If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.

7. Expenses. Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company agrees to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company’s counsel and the Company’s accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, any free writing prospectus prepared by or on behalf of, used by, or referred to by the Company and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities

 

17


hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or legal investment memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 6(g) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky or legal investment memorandum, (iv) all filing fees and the reasonable fees and disbursements of counsel to the Underwriters incurred in connection with the review and qualification of the offering of the Shares by the Financial Industry Regulatory Authority, provided that such fees and expenses payable by the Company pursuant to subsections (iii) and (iv) are not to exceed $30,000, (v) all fees and expenses in connection with the preparation and filing of the registration statement on Form 8-A relating to the Common Stock and all costs and expenses incident to listing the Shares on the [], (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the preparation or dissemination of any electronic road show, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and one-half of the cost of any aircraft chartered in connection with the road show (the remaining half of the cost to be paid by the Underwriters), (ix) the document production charges and expenses associated with printing this Agreement and (x) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 9 entitled “Indemnity and Contribution” and the last paragraph of Section 11 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make.

8. Covenants of the Underwriters. Each Underwriter severally covenants with the Company not to take any action that would result in the Company being required to file with the Commission under Rule 433(d) a free writing prospectus prepared by or on behalf of such Underwriter that otherwise would not be required to be filed by the Company thereunder, but for the action of the Underwriter.

9. Indemnity and Contribution.

(a) The Company agrees to indemnify and hold harmless each Underwriter, each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and each affiliate of any Underwriter within the meaning of Rule 405 under the Securities Act from and against any and all losses, claims, damages and

 

18


liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any “road show” as defined in Rule 433(h) under the Securities Act (a “road show”), or the Prospectus or any amendment or supplement thereto, or any Written Testing-the-Waters Communication or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Underwriter furnished to the Company in writing by such Underwriter through you expressly for use therein.

(b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, the directors of the Company, the officers of the Company who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus, the Time of Sale Prospectus or any amendment or supplement thereto, any issuer free writing prospectus as defined in Rule 433(h) under the Securities Act, any Company information that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act, any road show or the Prospectus or any amendment or supplement thereto, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through you expressly for use in the Registration Statement, any preliminary prospectus, the Time of Sale Prospectus, any issuer free writing prospectus, any road show, or the Prospectus or any amendment or supplement thereto.

(c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 9(a), or 9(b), such person (the “indemnified party”) shall promptly notify the person against whom such indemnity may be sought (the “indemnifying party”) in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party

 

19


may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for (i) the fees and expenses of more than one separate firm (in addition to any local counsel) for all Underwriters and all persons, if any, who control any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act or who are affiliates of any Underwriter within the meaning of Rule 405 under the Securities Act, (ii) the fees and expenses of more than one separate firm (in addition to any local counsel) for the Company, its directors, its officers who sign the Registration Statement and each person, if any, who controls the Company within the meaning of either such Section. In the case of any such separate firm for the Underwriters and such control persons and affiliates of any Underwriters, such firm shall be designated in writing by the Representatives. In the case of any such separate firm for the Company, and such directors, officers and control persons of the Company, such firm shall be designated in writing by the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement (i) includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding, 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.

 

20


(d) To the extent the indemnification provided for in Section 9(a), or 9(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand from the offering of the Shares or (ii) if the allocation provided by clause 9(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(d)(i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, 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 hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand 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 or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters’ respective obligations to contribute pursuant to this Section 9 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint.

(e) The Company and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 9 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 in Section 9(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 9(d) shall be deemed to include, subject to the limitations set forth above, any 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 Section 9, 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 Securities Act) shall

 

21


be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.

(f) The indemnity and contribution provisions contained in this Section 9 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter, any person controlling any Underwriter or any affiliate of any Underwriter or the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares.

10. Termination. The Underwriters may terminate this Agreement by notice given by you to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on, or by, as the case may be, any of the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Market, the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, which, for the avoidance of doubt, shall not include secondary markets for privately-held securities, (iii) a material disruption in securities settlement, payment or clearance services in the United States shall have occurred, (iv) any moratorium on commercial banking activities shall have been declared by Federal or New York State authorities or (v) there shall have occurred any outbreak or escalation of hostilities, or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and which, singly or together with any other event specified in this clause (v), makes it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus or the Prospectus. Notwithstanding anything in this Agreement to the contrary, if this Agreement is terminated pursuant to clauses (i), (iii), (iv) or (v) of this Section 10, then the obligation of the Company to reimburse the expenses of the Underwriters set forth in clauses (iii) and (iv) of Section 7 are also terminated and of no further effect.

11. Effectiveness; Defaulting Underwriters. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.

If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule II bears to the aggregate number of Firm Shares set forth opposite the names of all such

 

22


non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 11 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter and the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement, in the Time of Sale Prospectus, in the Prospectus or in any other documents or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares to be sold on such Option Closing Date or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.

If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder.

12. Entire Agreement. (a) This Agreement, together with any contemporaneous written agreements and any prior written agreements (to the extent not superseded by this Agreement) that relate to the offering of the Shares, represents the entire agreement between the Company, on the one hand, and the Underwriters, on the other, with respect to the preparation of any preliminary prospectus, the Time of Sale Prospectus, the Prospectus, the conduct of the offering, and the purchase and sale of the Shares.

(b) The Company acknowledges that in connection with the offering of the Shares: (i) the Underwriters have acted at arms length, are not agents of, and owe no fiduciary duties to, the Company or any other person, (ii) the

 

23


Underwriters owe the Company only those duties and obligations set forth in this Agreement and prior written agreements (to the extent not superseded by this Agreement), if any, and (iii) the Underwriters may have interests that differ from those of the Company. The Company waives to the full extent permitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Shares.

13. Counterparts. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

14. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.

15. USA Patriot Act. 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.

16. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement.

17. Notices. All communications hereunder shall be in writing and effective only upon receipt and if to the Underwriters shall be delivered, mailed or sent to you in care of Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department and Goldman, Sachs & Co. 200 West Street, New York, NY 10282, Attention: Registration Department; if to the Company shall be delivered, mailed or sent to Opower, Inc., 1515 North Courthouse Road, 8th Floor, Arlington, Virginia 22201, Attention: Michael Sachse, with a copy (which shall not constitute notice) to Goodwin Procter LLP, 135 Commonwealth Drive, Menlo Park, California 94025, Attention: Richard A. Kline.

[signature pages follow]

 

24


Very truly yours,
OPOWER, INC.
By:  

 

  Name:
  Title:

Accepted as of the date hereof

Morgan Stanley & Co. LLC

Goldman, Sachs & Co.

 

Acting severally on behalf of themselves and the several Underwriters named in Schedule II hereto

By:   Morgan Stanley & Co. LLC
By:  

 

  Name:
  Title:
By:   Goldman, Sachs & Co.
By:  

 

  Name:
  Title:

 

25


SCHEDULE I

Written Testing-the-Waters Communications

Written communications to potential investors in reliance on Section 5(d) of the Securities Act of 1933, as amended, were provided as follows:

 

I-1


SCHEDULE II

 

Underwriter

   Number of Firm Shares
To Be Purchased
 

Morgan Stanley & Co. LLC

     []   

Goldman, Sachs & Co.

     []   

Allen & Company LLC

     []   

Pacific Crest Securities LLC

     []   

Canaccord Genuity Inc.

     []   

Cowen and Company, LLC

     []   
  

 

 

 

Total

     []   
  

 

 

 

 

II-1


SCHEDULE III

Time of Sale Prospectus

 

1. Preliminary Prospectus issued [date]

 

2. [identify all free writing prospectuses filed by the Company under Rule 433(d) of the Securities Act]

 

3. [free writing prospectus containing a description of terms that does not reflect final terms, if the Time of Sale Prospectus does not include a final term sheet]

 

4. [orally communicated pricing information such as price per share and size of offering if a Rule 134 pricing term sheet is used at the time of sale instead of a pricing term sheet filed by the Company under Rule 433(d) as a free writing prospectus]

 

III-1


EXHIBIT A

FORM OF LOCK-UP LETTER

            , 2013

Morgan Stanley & Co. LLC

Goldman, Sachs & Co.

c/o Morgan Stanley & Co. LLC

1585 Broadway

New York, New York 10036

Goldman, Sachs & Co.

200 West Street

New York, New York 10282

Ladies and Gentlemen:

The undersigned understands that Morgan Stanley & Co. LLC (“Morgan Stanley”) and Goldman, Sachs & Co. (together with Morgan Stanley, the “Representatives”) propose to enter into an Underwriting Agreement (the “Underwriting Agreement”) with Opower, Inc., a Delaware corporation (the “Company”), providing for the public offering (the “Public Offering”) by the several Underwriters, including the Representatives (the “Underwriters”), of shares of the Common Stock, par value $0.000005 per share, of the Company (the “Common Stock”).

To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus (the “Restricted Period)” relating to the Public Offering (the “Prospectus”), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock beneficially owned (as such term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), by the undersigned or any other securities so owned convertible into or exercisable or exchangeable for Common Stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (a) transactions relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the Public Offering, provided that no filing under Section 16(a) of the Exchange Act shall be

 

A-1


required or shall be voluntarily made in connection with subsequent sales of Common Stock or other securities acquired in such open market transactions, (b) transfers of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock (i) to the spouse, domestic partner, parent, child or grandchild (each, an “immediate family member”) of the undersigned or to a trust formed for the benefit of an immediate family member, (ii) by bona fide gift, will or intestacy, (iii) if the undersigned is a corporation, partnership or other business entity (A) to another corporation, partnership or other business entity that controls, is controlled by or is under common control with the undersigned or (B) as part of a disposition, transfer or distribution without consideration by the undersigned to its equity holders or (iv) if the undersigned is a trust, to a trustor or beneficiary of the trust; provided that in the case of any transfer or distribution pursuant to this clause (b), (i) each donee, transferee or distributee shall sign and deliver a lock-up letter substantially in the form of this letter and (ii) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of Common Stock, shall be required or shall be voluntarily made during the Restricted Period, (c) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that (i) such plan does not provide for the transfer of Common Stock during the Restricted Period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of Common Stock may be made under such plan during the Restricted Period, (d) the sale and transfer of shares of Common Stock by the undersigned to the Underwriters in the Public Offering, (e) the receipt by the undersigned from the Company of shares of Common Stock upon the exercise of an option, or the disposition of shares of Common Stock to the Company in a transaction solely in connection with the payment of taxes due with respect to the cashless exercise of an option, net settlement of restricted stock units or the vesting of restricted stock, insofar as such option, restricted stock unit or restricted stock is outstanding as of the date hereof or as of the date of the Prospectus pursuant to a plan or agreement disclosed in the Prospectus, provided that no public reports, including but not limited to filings under Section 16 of the Exchange Act, will be required to be filed or will be voluntarily made by the undersigned within 30 days after the date of the Prospectus, and after such 30th day, any public report or filing under Section 16 of the Exchange Act relating to (i) an exercise of a stock option shall clearly indicate in the footnotes thereto that no shares were sold by the reporting person and that the shares received upon exercise of the stock option are subject to a lock-up agreement with the underwriters of the Public Offering and (ii) the disposition of shares of Common Stock to the Company in a transaction pursuant to this clause (e) shall clearly indicate in the footnotes thereto that such disposition of shares was solely to the Company, (f) the transfer of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock that occurs by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, provided that each such transferee shall sign and deliver a lock-up letter substantially in the form of this letter, (g) in connection with the conversion of the outstanding preferred stock of the Company into shares of Common Stock, (h) the transfer of shares of Common Stock to the Company in connection with the

 

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repurchase of shares of Common Stock issued pursuant to an employee benefit plan disclosed in the Prospectus or pursuant to the agreements pursuant to which such shares were issued, provided that no public reports, including but not limited to filings under Section 16 of the Exchange Act, will be required to be filed or will be voluntarily made by the undersigned within 30 days after the date of the Prospectus, and after such 30th day, any public report or filing under Section 16 of the Exchange Act relating to the disposition of shares of Common Stock to the Company in a transaction pursuant to this clause (h) shall clearly indicate in the footnotes thereto that such transfer of shares was solely to the Company, and (i) the transfer of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of the Common Stock involving a change of control of the Company, provided that until such tender offer, merger, consolidation or other such transaction is completed, the Common Stock owned by the undersigned shall otherwise remain subject to the restrictions contained in this agreement. For purposes of clause (i) in the preceding sentence, “change of control” shall mean the transfer (whether by tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an Underwriter pursuant to the Public Offering), of shares of Common Stock if, after such transfer, such person or group of affiliated persons would hold at least a majority of the outstanding voting securities of the Company (or the surviving entity). In addition, the undersigned agrees that, without the prior written consent of the Representatives on behalf of the Underwriters, it will not, during the Restricted Period, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. 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.

If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed shares of Common Stock the undersigned may purchase in the Public 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 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. 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 if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.

 

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The undersigned understands that the Company and the Underwriters are relying upon this agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns. This agreement shall automatically terminate upon the earliest to occur, if any, of (a) the date that the Company advises the Representatives, in writing, prior to the execution of the Underwriting Agreement, that it has determined not to proceed with the Public Offering, (b) the date of termination of the Underwriting Agreement if prior to the closing of the Public Offering, or (c) May 31, 2014 if the Public Offering of the Shares has not been completed by such date.

 

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Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters.

 

Very truly yours,

 

(Print Exact Name of Stockholder)

 

(Signature)

 

(Print Name of Signatory, if Applicable)

 

(Print Title of Signatory, if Applicable)

 

 

(Address)

 

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EXHIBIT B

FORM OF WAIVER OF LOCK-UP

            , 20    

[Name and Address of

Officer or Director

Requesting Waiver]

Dear Mr./Ms. [Name]:

This letter is being delivered to you in connection with the offering by Opower, Inc., a (the “Company”) of [] shares of common stock, $0.000005 par value per share (the “Common Stock”), of the Company and the lock-up letter dated             , 20     (the “Lock-up Letter”), executed by you in connection with such offering, and your request for a [waiver] [release] dated             , 20    , with respect to                  shares of Common Stock (the “Shares”).

The Representatives hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective             , 20    ; provided, however, that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].

Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.

Very truly yours,


Acting severally on behalf of themselves and the several

Underwriters named in Schedule I hereto

 

Morgan Stanley & Co. LLC
By:  

 

  Name:
  Title:
Goldman Sachs & Co.
By:  

 

  Name:
  Title:

 

cc: Company

 

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FORM OF PRESS RELEASE

Opower, Inc.

[Date]

Opower, Inc. (the “Company”) announced today that Morgan Stanley & Co. LLC and Goldman, Sachs & Co., the book-running managers in the Company’s recent public sale of                  shares of 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.

 

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EX-3.1

Exhibit 3.1

FOURTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

OPOWER, INC.

The undersigned, Alexander Laskey, hereby certifies that:

1. He is the duly elected and acting President of OPOWER, INC., a Delaware corporation.

2. The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on June 14, 2007 under the name “Positive Energy, Inc.” and that on September 29, 2009 this corporation changed its name to OPOWER, INC.

3. The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows:

ARTICLE I

The name of the corporation is OPOWER, INC. (the “Corporation”).

ARTICLE II

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle, ZIP code 19808. The name of its registered agent at such address is Corporation Service Company.

ARTICLE III

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.

ARTICLE IV

(A) Classes of Stock. The Corporation is authorized to issue three classes of stock to be designated, respectively, “Common Stock”, “Preferred Stock” and “SC Preferred Stock.” The total number of shares which the Corporation is authorized to issue is 85,028,252 shares, each with a par value of $0.000005 per share. 62,000,000 shares shall be Common Stock, 19,428,252 shares shall be Preferred Stock, and 3,600,000 shares shall be SC Preferred Stock.

(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred Stock authorized by this Fourth Amended and Restated Certificate of Incorporation (the “Restated Certificate”) may be issued from time to time in one or more series. The first series of Preferred Stock shall be designated “Series A Preferred Stock” and shall consist of 5,377,872 shares. The


second series of Preferred Stock shall be designated “Series B Preferred Stock” and shall consist of 8,376,222 shares. The third series of Preferred Stock shall be designated “Series C Preferred Stock” and shall consist of 5,674,158 shares. The rights, preferences, privileges, and restrictions granted to and imposed on Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are as set forth below in this Article IV(B).

1. Dividend Provisions. The holders of shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the SC Preferred Stock or Common Stock, at the rate of (i) $0.02299 per share (as adjusted for stock splits, stock dividends, reclassification and the like) per annum on each outstanding share of Series A Preferred Stock, (ii) $0.15948 per share (as adjusted for stock splits, stock dividends, reclassification and the like), per annum on each outstanding share of Series B Preferred Stock, and (ii) $0,712 per share (as adjusted for stock splits, stock dividends, reclassification and the like), per annum on each outstanding share of Series C Preferred Stock, payable quarterly when, as and if declared by the Board of Directors of the Corporation (the “Board of Directors”). Such dividends shall not be cumulative. After payment of such dividends, any additional dividends shall be distributed among the holders Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, SC Preferred Stock and Common Stock pro rata (based on the number of shares of Common Stock then held by each holder, assuming conversion of all Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and SC Preferred Stock into Common Stock).

2. Liquidation.

(a) Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be entitled to receive, pari passu among each other and prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock or SC Preferred Stock by reason of their ownership thereof, an amount per share equal to (i) $0.28738 per share (as adjusted for stock splits, stock dividends, reclassification and the like) for each share of Series A Preferred Stock then held by them, plus declared but unpaid dividends, (ii) $1.9935 per share (as adjusted for stock splits, stock dividends, reclassification and the like) for each share of Series B Preferred Stock then held by them, plus declared but unpaid dividends, and (iii) $8.90 per share (as adjusted for stock splits, stock dividends, reclassification and the like) for each share of Series C Preferred Stock then held by them, plus declared but unpaid dividends. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. Notwithstanding anything to the contrary herein, the distribution upon a Liquidation Transaction required by this Section 2(a) may not be waived except with the written consent of the holders of (i) a majority of

 

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the outstanding shares of Series A Preferred Stock (voting as a separate class), with respect to the distribution to the holders of Series A Preferred Stock, (ii) a majority of the outstanding shares of Series B Preferred Stock (voting as a separate class), with respect to the distribution to the holders of Series B Preferred Stock, and (iii) a majority of the outstanding shares of Series C Preferred Stock (voting as a separate class), with respect to the distribution to the holders of Series C Preferred Stock.

(b) Remaining Assets. Upon the completion of the distribution required by Section 2(a) above, if assets remain in the Corporation, the holders of SC Preferred Stock (on an as converted to Common Stock basis) and the holders of the Common Stock shall receive all of the remaining assets of the Corporation pari passu among each other. Notwithstanding the above, for purposes of determining the amount each holder of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is entitled to receive with respect to a Liquidation Transaction, as defined below, each such holder of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be deemed to have converted (regardless of whether such holder actually converted) such holder’s shares of such Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock into shares of Common Stock immediately prior to such Liquidation Transaction if, as a result of an actual conversion, such holder would receive, in the aggregate, an amount greater than the amount that would be distributed to such holder if such holder did not convert such Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock into shares of Common Stock. If any such holder shall be deemed to have converted shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock into Common Stock pursuant to this paragraph, then such holder shall not be entitled to receive any distribution that would otherwise be made to holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock that have not converted (or have not been deemed to have converted) into shares of Common Stock.

(c) Certain Acquisitions.

(i) Deemed Liquidation. For purposes of this Section 2, a liquidation, dissolution, or winding up of the Corporation shall be deemed to occur if the Corporation shall (i) sell, convey or otherwise dispose of all or substantially all of its property or business in a single transaction or a series of related transactions, (ii) merge with or into or consolidate with any other corporation, limited liability company or other entity (other than a wholly-owned subsidiary of the Corporation), or (iii) sell, convey, transfer, provide an exclusive license for or covenant not to commercially exploit all or substantially all of the Corporation’s intellectual property, in a single transaction or series of related transactions (any liquidation, dissolution winding up in such transaction, a “Liquidation Transaction”), provided that none of the following shall be considered a Liquidation Transaction: (A) a merger effected exclusively for the purpose of changing the domicile of the Corporation, (B) an equity financing in which the Corporation is the surviving corporation, or (C) a transaction in which the stockholders of the Corporation immediately prior to the transaction own 50% or more of the voting securities of the surviving corporation following the transaction. In the event of a merger or consolidation of the Corporation that is deemed pursuant to this section to be a Liquidation Transaction, all references in this Section 2 to “assets of the Corporation” shall be deemed instead to refer to the aggregate consideration to be paid to the holders of the Corporation’s capital stock in such merger or consolidation. Nothing in this subsection 2(c)(i) shall require the distribution to stockholders of anything other than proceeds of such transaction in the event of a merger or consolidation of the Corporation.

 

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(ii) Valuation of Consideration. In the event of a deemed liquidation as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:

(A) Securities not subject to investment letter or other similar restrictions on free marketability:

(1) If traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities over the ten (10) trading day period ending three (3) days prior to the closing of a Liquidation Transaction;

(2) If actively traded over-the-counter, the value shall be deemed to be the average of (i) the average of the last bid and ask prices or (ii) the closing sale prices (whichever is applicable) over the twenty (20) trading day period ending three (3) days prior to the closing; and

(3) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors.

(B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as specified above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.

(iii) Notice of Liquidation Transaction. The Corporation shall give each holder of record of Preferred Stock written notice of any impending Liquidation Transaction not later than 10 days prior to the stockholders’ meeting called to approve such Liquidation Transaction, or 10 days prior to the closing of such Liquidation Transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such Liquidation Transaction. The first of such notices shall describe the material terms and conditions of the impending Liquidation Transaction and the provisions of this Section 2, and the Corporation shall thereafter give such holders prompt notice of any material changes. Unless such notice requirements are waived, the Liquidation Transaction shall not take place sooner than 10 days after the Corporation has given the first notice provided for herein or sooner than 10 days after the Corporation has given notice of any material changes provided for herein. Notwithstanding the other provisions of this Restated Certificate, all notice periods or requirements in this Restated Certificate may be shortened or waived, either before or after the action for which notice is required, upon the written consent of the holders of a majority of the outstanding voting shares of Preferred Stock.

(iv) Effect of Noncompliance. In the event the requirements of this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing

 

4


of the Liquidation Transaction to be postponed until the requirements of this Section 2 have been complied with, or cancel such Liquidation Transaction, in which event the rights, preferences, privileges and restrictions of the holders of Preferred Stock shall revert to and be the same as such rights, preferences, privileges and restrictions existing immediately prior to the date of the first notice referred to in Section 2(c)(iii).

3. Redemption. The Preferred Stock is not redeemable by the Corporation or at the option of any holder.

4. Conversion. The holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall have conversion rights as follows:

(a) Right to Convert. Subject to Section 4(c), each share of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) $0.28738 in the case of Series A Preferred Stock, (ii) $1.9935 in the case of Series B Preferred Stock and (ii) $8.90 in the case of Series C Preferred Stock, by the Preferred Stock Conversion Price applicable to such share (the conversion rate for Series A Preferred Stock into Common Stock, for Series B Preferred Stock into Common Stock and for Series C Preferred Stock into Common Stock, as applicable, is referred to herein as the “Conversion Rate”), determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial “Preferred Stock Conversion Price” shall be $0.28738 per share of Series A Preferred Stock, $1.9935 per share of Series B Preferred Stock and $8.90 per share of Series C Preferred Stock. Each such initial Preferred Stock Conversion Price shall be subject to adjustment as set forth in Section 4(d).

(b) Automatic Conversion.

(i) Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Rate at the time in effect for such share immediately upon the earlier of (i) except as provided below in Section 4(c), the Corporation’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, (the “Securities Act”) that results in aggregate cash proceeds to the Corporation of not less than $50,000,000 (net of underwriting discounts and commissions) or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock, voting together as a separate class.

(ii) Each share of Series B Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Rate at the time in effect for such share immediately upon the earlier of (i) except as provided below in Section 4(c), the Corporation’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), that results in aggregate cash proceeds to the Corporation of not less than $50,000,000 (net of underwriting discounts and commissions) or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series B Preferred Stock, voting together as a separate class.

 

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(iii) Each share of Series C Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Rate at the time in effect for such share immediately upon the earlier of (i) except as provided below in Section 4(c), the Corporation’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, (the “Securities Act”) that results in aggregate cash proceeds to the Corporation of not less than $50,000,000 (net of underwriting discounts and commissions) or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series C Preferred Stock, voting together as a separate class.

(c) Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert such Preferred Stock into shares of Common Stock, the holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such series of Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of such series of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. If the conversion is in connection with an underwritten public offering of securities registered pursuant to the Securities Act the conversion may, at the option of any holder tendering such Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event any such holder shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities.

(d) Preferred Stock Conversion Price Adjustments for Certain Dilutive Issuances, Splits and Combinations. The Preferred Stock Conversion Price of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be subject to adjustment from time to time as follows:

(i) Issuance of Additional Stock below Purchase Price. If the Corporation should issue, at any time after the date upon which any shares of Series C Preferred Stock were first issued (the “Purchase Date”), any Additional Stock (as defined below) without consideration or for a consideration per share less than the Preferred Stock Conversion Price for Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as applicable and in effect immediately prior to the issuance of such Additional Stock, the Preferred Stock Conversion Price for such series in effect immediately prior to each such issuance shall automatically be adjusted as set forth in this Section 4(d)(i), unless otherwise provided in this Section 4(d)(i).

 

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(A) Adjustment Formula. Whenever the Preferred Stock Conversion Price is adjusted pursuant to this Section 4(d)(i), the new Preferred Stock Conversion Price shall be determined by multiplying the Preferred Stock Conversion Price then in effect by a fraction, (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (the “Outstanding Common”) plus the number of shares of Common Stock that the aggregate consideration received by the Corporation for such issuance would purchase at such Preferred Stock Conversion Price, and (y) the denominator of which shall be the number of shares of Outstanding Common plus the number of shares of such Additional Stock. For purposes of the foregoing calculation, the term “Outstanding Common” shall include shares of Common Stock deemed issued pursuant to Section 4(d)(i)(E) below.

(B) Definition of “Additional Stock”. For purposes of this Section 4(d)(i), “Additional Stock” shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by the Corporation after the Purchase Date other than:

(1) Common Stock issued pursuant to stock dividends, stock splits or similar transactions, as described in Section 4(d)(ii) hereof;

(2) Up to 8,290,584 shares of Common Stock issued or issuable to employees, consultants or directors of the Corporation directly or pursuant to a stock option plan or restricted stock plan approved by the Board of Directors, or such additional number of shares of Common Stock as approved by the Board of Directors, including the Series A Director (as defined below) and the Series B Director (as defined below);

(3) Capital stock, or options or warrants to purchase capital stock, issued to financial institutions, equipment lessors, brokers or similar persons in connection with commercial credit arrangements, equipment financings, commercial property lease transactions or similar transactions approved by the Board of Directors, including the Series A Director and the Series B Director;

(4) Shares of Common Stock or Preferred Stock issuable upon conversion or exercise of convertible or exercisable securities outstanding as of the date of this Restated Certificate including, without limitation, warrants, notes or options;

(5) Capital stock, or warrants or options to purchase capital stock, issued in connection with bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors, including the Series A Director and the Series B Director;

(6) Shares of Common Stock or Preferred Stock issued or issuable upon conversion of Preferred Stock and SC Preferred Stock;

(7) Shares of Common Stock issued or issuable in a public offering prior to or in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock;

 

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(8) Capital stock issued or issuable to an entity as a component of any business relationship with such entity primarily for the purpose of (A) joint venture, technology licensing or development activities, (B) distribution, supply or manufacture of the Corporation’s products or services or (C) any other arrangements involving corporate partners that are primarily for purposes other than raising capital, the terms of which business relationship with such entity are approved by the Board of Directors, including the Series A Director and the Series B Director; and

(9) Shares of Common Stock issued or issuable with the affirmative vote of at least a majority of the then outstanding shares of the Series A Preferred Stock, the Series B Preferred Stock, or the Series C Preferred Stock, as applicable, in each case voting as a separate class, for which the issuance would otherwise result in an adjustment to the Preferred Stock Conversion Price of such respective series of Preferred Stock.

(C) No Fractional Adjustments. No adjustment of the Preferred Stock Conversion Price for Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be made in an amount less than one cent per share, provided that any adjustments which are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three years from the date of the event giving rise to the adjustment being carried forward.

(D) Determination of Consideration. In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Board of Directors irrespective of any accounting treatment.

(E) Deemed Issuances of Common Stock. In the case of the issuance (whether before, on or after the Purchase Date) of securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (“Common Stock Equivalents”), the following provisions shall apply for all purposes of this Section 4(d)(i):

(1) The aggregate maximum number of shares of Common Stock deliverable upon conversion, exchange or exercise (assuming the satisfaction of any conditions to convertibility, exchangeability or exercisability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) of any Common Stock Equivalents and subsequent conversion, exchange or exercise thereof shall be deemed to have been issued at the time such securities were issued or such Common Stock Equivalents were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related Common Stock Equivalents (excluding any cash received on account of accrued interest or accrued dividends),

 

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plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution adjustments) upon the conversion, exchange or exercise of any Common Stock Equivalents (the consideration in each case to be determined in the manner provided in Section 4(d)(i)(D).

(2) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon conversion, exchange or exercise of any Common Stock Equivalents, other than a change resulting from the antidilution provisions thereof, the Preferred Stock Conversion Price of any series of Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the conversion, exchange or exercise of such Common Stock Equivalents.

(3) Upon the termination or expiration of the convertibility, exchangeability or exercisability of any Common Stock Equivalents, the Preferred Stock Conversion Price of any series of Preferred Stock, to the extent in any way affected by or computed using such Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Common Stock Equivalents that remain convertible, exchangeable or exercisable) actually issued upon the conversion, exchange or exercise of such Common Stock Equivalents.

(4) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Section 4(d)(i)(E)(l) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 4(d)(i)(E)(2) or 4(d)(i)(E)(3).

(F) No Increased Preferred Stock Conversion Price. Notwithstanding any other provisions of this Section (4)(d)(i), except to the limited extent provided for in Sections 4(d)(i)(E)(2) and 4(d)(i)(E)(3), no adjustment of the Preferred Stock Conversion Price pursuant to this Section 4(d)(i) shall have the effect of increasing the Preferred Stock Conversion Price above the Preferred Stock Conversion Price in effect immediately prior to such adjustment.

(ii) Stock Splits and Dividends. In the event the Corporation should at any time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or Common Stock Equivalents without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Preferred Stock Conversion Price of each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents with the number of shares issuable with respect to Common Stock Equivalents determined from time to time in the manner provided for deemed issuances in Section 4(d)(i)(E).

 

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(iii) Reverse Stock Splits. If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Preferred Stock Conversion Price for any series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares.

(e) Other Distributions. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 4(d)(i) or 4(d)(ii), then, in each such case for the purpose of this Section 4(e), the holders of each series of Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

(f) Recapitalizations. If at any time or from time to time there shall be a recapitalization of Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or in Section 2) provision shall be made so that the holders of each series of Preferred Stock shall thereafter be entitled to receive upon conversion of such Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of such Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Preferred Stock Conversion Price then in effect and the number of shares purchasable upon conversion of such Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable.

(g) No Fractional Shares and Certificate as to Adjustments.

(i) No fractional shares shall be issued upon the conversion of any share or shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. If the conversion would result in any fractional share, the Corporation shall, in lieu of issuing any such fractional share, pay the holder thereof an amount in cash equal to the fair market value of such fractional share on the date of conversion, as determined in good faith by the Board of Directors.

 

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(ii) Upon the occurrence of each adjustment or readjustment of the Preferred Stock Conversion Price of any series of Preferred Stock pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Preferred Stock Conversion Price for each series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of each series of Preferred Stock.

(h) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Preferred Stock, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

(i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of such series of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of such series of Preferred Stock, in addition to such other remedies as shall be available to the holders of such Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Restated Certificate.

(j) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder’s address appearing on the books of the Corporation.

(k) No Impairment. The Corporation will not without first obtaining the consent of the holders of a majority in interest of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a single class, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Section 4 by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Preferred Stock under this Section 4 against impairment.

 

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5. Voting Rights.

(a) Except as expressly provided by this Restated Certificate or as provided by law, the holders of Preferred Stock shall have the same voting rights as the holders of Common Stock and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation, and the holders of Common Stock and the Preferred Stock shall vote together as a single class on all matters. Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held, and each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Preferred Stock could be converted. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

(b) Election of Directors. At each election of directors of the Corporation, (i) for so long as at least one share of Series A Preferred Stock remains outstanding, the holders of Series A Preferred Stock, voting as a separate class, shall be entitled to elect one (1) director, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director (the “Series A Director”); and (ii) the holders of Common Stock, voting as a separate class, shall be entitled to elect four (4) directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors; (iii) for so long as at least one share of Series B Preferred Stock remains outstanding, the holders of Series B Preferred Stock, voting as a separate class, shall be entitled to elect one (1) director, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director (the “Series B Director”); and (iv) the holders of Common Stock, SC Preferred Stock and Preferred Stock, voting together as a single class on an as-converted to Common Stock basis, shall be entitled to elect any remaining directors and to fill any vacancy caused by the resignation, death or removal of such directors.

6. Protective Provisions.

(a) So long as at least 500,000 shares of Preferred Stock are outstanding (as adjusted for stock splits, stock dividends, reclassification and the like), the Corporation shall not (by amendment, merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Preferred Stock, voting together as a single class and on an as-converted basis:

(i) alter or change the rights, preferences or privileges of the shares of Preferred Stock;

(ii) increase or decrease the total number of authorized shares of Preferred Stock;

 

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(iii) increase the number of shares of Corporation stock reserved for future issuance under the Corporation’s 2007 Stock Plan, or adopt any new stock purchase plan, stock incentive compensation or similar stock plan, without approval by a majority of the Board of Directors;

(iv) authorize the issuance of any other equity security, including any security (other than Series C Preferred Stock) convertible into or exercisable for any equity security, having a preference over, or being on a parity with, the Preferred Stock with respect to voting (other than the pari passu voting rights of the Preferred Stock and Common Stock), dividends, redemption, conversion or upon liquidation;

(v) redeem, purchase or otherwise acquire (or pay into or set funds aside for a sinking fund for such purpose) any share or shares of Preferred Stock, SC Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the redemption or repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary of the Corporation pursuant to agreements under which the Corporation has the option to repurchase such shares upon termination of employment, or through the exercise of any right of first refusal;

(vi) amend this Restated Certificate or the Bylaws of the Corporation so as to affect adversely the shares of the Preferred Stock;

(vii) grant, sell or issue any additional shares, options, or stock appreciation rights of the Corporation to Alexander Laskey or Daniel Yates without approval by a majority of the Board of Directors;

(viii) effect a Liquidation Transaction;

(ix) increase or decrease the size of the Board of Directors; or

(x) declare or pay any dividend or distribution of capital.

(b) So long as at least 500,000 shares of Series A Preferred Stock are outstanding (as adjusted for stock splits, stock dividends, reclassification and the like), the Corporation shall not (by amendment, merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting together as a separate class, (i) amend, alter or repeal any provision of this Restated Certificate or the Corporation’s Bylaws in a manner that alters or changes the voting or other powers, preferences, or other special rights, privileges or restrictions of the Series A Preferred Stock so as to affect the Series A Preferred Stock adversely and in a manner different than any other series of Preferred Stock (it being understood that a series of Preferred Stock shall not be affected differently as a result of the proportional differences in the amounts of respective issue prices, liquidation preferences and redemption prices that arise out of differences in the original issue price of different series of Preferred Stock), or (ii) increase or decrease the total number of authorized shares of Series A Preferred Stock.

 

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(c) So long as at least 500,000 shares of Series B Preferred Stock are outstanding (as adjusted for stock splits, stock dividends, reclassification and the like), the Corporation shall not (by amendment, merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock, voting together as a separate class, (i) amend, alter or repeal any provision of this Restated Certificate or the Corporation’s Bylaws in a manner that alters or changes the voting or other powers, preferences, or other special rights, privileges or restrictions of the Series B Preferred Stock so as to affect the Series B Preferred Stock adversely and in a manner different than any other series of Preferred Stock (it being understood that a series of Preferred Stock shall not be affected differently as a result of the proportional differences in the amounts of respective issue prices, liquidation preferences and redemption prices that arise out of differences in the original issue price of different series of Preferred Stock), or (ii) increase or decrease the total number of authorized shares of Series B Preferred Stock.

(d) So long as at least 500,000 shares of Series C Preferred Stock are outstanding (as adjusted for stock splits, stock dividends, reclassification and the like), the Corporation shall not (by amendment, merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock, voting together as a separate class, (i) amend, alter or repeal any provision of this Restated Certificate or the Corporation’s Bylaws in a manner that alters or changes the voting or other powers, preferences, or other special rights, privileges or restrictions of the Series C Preferred Stock so as to affect the Series C Preferred Stock adversely and in a manner different than any other series of Preferred Stock (it being understood that a series of Preferred Stock shall not be affected differently as a result of the proportional differences in the amounts of respective issue prices, liquidation preferences and redemption prices that arise out of differences in the original issue price of different series of Preferred Stock), or (ii) increase or decrease the total number of authorized shares of Series C Preferred Stock.

7. Status of Converted Stock. In the event any shares of Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and shall not be issuable by the Corporation. This Restated Certificate shall be appropriately amended to effect the corresponding reduction in the Corporation’s authorized capital stock.

(C) SC Preferred Stock. The rights, preferences, privileges, and restrictions granted to and imposed on the SC Preferred Stock are as set forth below in this Article IV(C).

1. Dividend Rights. Subject to the preference accorded in Section 1 of Article IV(B) to holders of Preferred Stock, the holders of shares of SC Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends (other than payable solely in Common Stock) as may be declared from time to time by the Board of Directors on a pro rata basis with the holders of Common Stock and Preferred Stock, based on the number of shares of Common Stock held by each (assuming conversion of all the Preferred Stock and SC Preferred Stock into Common Stock).

 

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2. Liquidation. In the event of any liquidation, dissolution, winding up of the Corporation, or any Liquidation Transaction either voluntary or involuntary, the remaining assets of the Corporation available for distribution to stockholders, subject to the preference accorded to holders of Preferred Stock in Section 2 of Article IV(B), shall be distributed among the holders of the SC Preferred Stock and the holders of Common Stock pro rata based upon the number of shares of Common Stock held by each (assuming conversion of all the SC Preferred Stock into Common Stock).

3. Redemption. The SC Preferred Stock is not redeemable at the option of any holder.

4. Conversion. The holders of the SC Preferred Stock shall have conversion rights as follows:

(a) Right to Convert to Common Stock. Each share of SC Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $0.0000625 by the SC Preferred Stock Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. Any transfer of shares of SC Preferred Stock that is not (i) made in connection with an Equity Financing (as such term is defined in Section 4(g) below), or (ii) authorized by a majority of the Board of Directors, including the Series A Director and the Series B Director, shall be deemed an election of an option to convert such shares into Common Stock and each such transferred share of SC Preferred Stock shall automatically convert into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $0.0000625 by the “SC Preferred Stock Conversion Price” applicable to such share, determined as hereafter provided, effective immediately prior to such transfer (the conversion rate for SC Preferred Stock into Common Stock, the “SC Preferred Stock Conversion Rate”). The initial SC Preferred Stock Conversion Price per share of SC Preferred Stock shall be $0.0000625. Such initial SC Preferred Stock Conversion Price shall be subject to adjustment as set forth in Section 4(d)(iii).

(b) Automatic Conversion. Each share of SC Preferred Stock shall automatically be converted into shares of Common Stock at the SC Preferred Stock Conversion Rate at the time in effect for such share immediately upon the earlier of (A) except as provided below in Section 4(c), the Corporation’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act which results in aggregate cash proceeds to the Corporation of not less than $20,000,000 (net of underwriting discounts and commissions), (B) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of SC Preferred Stock, (C) immediately following such time as the holders of SC Preferred Stock have sold shares of SC Preferred Stock resulting in (x) the conversion of such shares of SC Preferred Stock to Subsequent Preferred Stock (as defined below), and (y) aggregate cash proceeds to the holders of SC Preferred Stock (including all prior sales of SC Preferred Stock) of $20,000,000, or (D) August 7, 2011.

 

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(c) Mechanics of Conversion. Before any holder of SC Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such SC Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of SC Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of such SC Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date, [f the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act the conversion may, at the option of any holder tendering such SC Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event any such holder shall not be deemed to have converted such SC Preferred Stock until immediately prior to the closing of such sale of securities.

(d) SC Preferred Stock Conversion Price Adjustments for Certain Splits and Combinations. The SC Preferred Conversion Price shall be subject to adjustment from time to time as follows:

(i) Stock Splits and Dividends. In the event the Corporation should at any time or from time to time after the Purchase Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock without a commensurate split or subdivision of the SC Preferred Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “SC Preferred Common Stock Equivalents”) without payment of any consideration by such holder for the additional shares of Common Stock or the SC Preferred Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the SC Preferred Stock Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate number of shares of Common Stock outstanding and those issuable with respect to such SC Preferred Common Stock Equivalents with the number of shares issuable with respect to SC Preferred Common Stock Equivalents determined from time to time as provided in Section 4(d)(iii) below.

(ii) Reverse Stock Splits. If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination or reverse split of the outstanding shares of Common Stock, then, following the record date of such combination or reverse split, the SC Preferred Stock Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares.

 

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(iii) Adjustment Formula. The following provisions shall apply for purposes of this Section 4(d)(iii):

(A) The aggregate maximum number of shares of Common Stock deliverable upon conversion or exercise of SC Preferred Common Stock Equivalents (assuming the satisfaction of any conditions to convertibility or exercisability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) shall be deemed to have been issued at the time such SC Preferred Common Stock Equivalents were issued.

(B) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon conversion or exercise of such SC Preferred Common Stock Equivalents including, but not limited to, a change resulting from the antidilution provisions thereof, the SC Preferred Stock Conversion Price, to the extent in any way affected by or computed using such SC Preferred Common Stock Equivalents, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities.

(C) Upon the termination or expiration of the convertibility or exercisability of any such SC Preferred Common Stock Equivalents, the SC Preferred Stock Conversion Price, to the extent in any way affected by or computed using such SC Preferred Common Stock Equivalents, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and SC Preferred Common Stock Equivalents which remain convertible or exercisable) actually issued upon the conversion or exercise of such SC Preferred Common Stock Equivalents.

(e) No Fractional Shares and Certificate as to Adjustments. No fractional shares shall be issued upon the conversion of any share or shares of the SC Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. The number of shares issuable upon such conversion shall be determined on the basis of the total number of shares of SC Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.

(f) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the SC Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of such SC Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of such SC Preferred Stock, in addition to such other remedies as shall be available to the holder of such SC Preferred Stock, the

 

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Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation.

(g) Right to Convert to Preferred Stock. Each share of SC Preferred Stock that is not subject to a repurchase option in favor of the Corporation based upon continued service to the Corporation shall automatically convert into shares of any subsequent series of preferred stock (“Subsequent Preferred Stock”) of the Corporation at the Conversion Ratio effective immediately upon the purchase by an investor of such share of SC Preferred Stock in connection with an Equity Financing (as defined below). “Conversion Ratio” shall mean, for each Equity Financing, the inverse of the ratio at which a share of Subsequent Preferred Stock issued in such Equity Financing is convertible into Common Stock of the Corporation (i.e. 1 divided by such conversion ratio), and “Equity Financing” shall mean an equity financing of the Corporation following December 1, 2007 in which the Corporation signs a purchase agreement and sells and issues at least $500,000 worth of Subsequent Preferred Stock of the Corporation. By way of example only, in the event that one share of Subsequent Preferred Stock issued in the Equity Financing is convertible into two shares of Common Stock, the Conversion Ratio shall be one-half (1/2).

(h) Notices. Any notice required by the provisions of this Section 4 to be given to the holders of shares of SC Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder’s address appearing on the books of the Corporation. Any notice required by the provisions of this Section 4 to be given to the Corporation shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to the Corporation’s Board of Directors at the principal business address of the Corporation.

5. Voting Rights. The holder of each share of SC Preferred Stock shall have the right to one vote for each share of Common Stock into which such SC Preferred Stock could then be directly converted (without first being converted to another series of Preferred Stock), and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock only, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote, except as required by law.

6. Status of Converted Stock. In the event any shares of SC Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and shall not be issuable by the Corporation. This Restated Certificate shall be appropriately amended to effect the corresponding reduction in the Corporation’s authorized capital stock.

 

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(D) Common Stock.

1. Dividend Rights. Subject to the preference accorded to holders of Series A Preferred Stock and Series B Preferred Stock in Section 1 of Article IV(B), the holders of shares of Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors pro rata with the holders of Preferred Stock and the SC Preferred Stock, based on the number of shares of Common Stock held by each (assuming conversion of all the Preferred Stock and SC Preferred Stock into Common Stock).

2. Liquidation Rights. In the event of any Liquidation Transaction, the remaining assets of the Corporation available for distribution to stockholders, subject to the preference accorded to holders of Series A Preferred Stock and Series B Preferred Stock in Section 2 of Article IV(B), shall be distributed among the holders of the SC Preferred Stock and the holders of Common Stock pro rata based upon the number of shares of Common Stock held by each (assuming conversion of all the SC Preferred Stock into Common Stock).

3. Redemption. The Common Stock is not redeemable at the option of any holder.

4. Voting Rights. Each holder of Common Stock shall have the right to one vote per share of Common Stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.

ARTICLE V

The Board of Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation.

ARTICLE VI

Elections of directors need not be by written ballot unless otherwise provided in the Bylaws of the Corporation.

ARTICLE VII

(A) To the fullest extent permitted by the General Corporation Law of the State of Delaware, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

(B) The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person, such person’s testator or intestate is or was a director or officer of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director or officer at the request of the Corporation or any predecessor to the Corporation.

 

19


(C) Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of the Corporation’s Certificate of Incorporation inconsistent with this Article VII, shall eliminate or reduce the effect of this Article VII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ARTICLE VIII

The Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.”

* * *

 

20


The foregoing Fourth Amended and Restated Certificate of Incorporation has been duly adopted by this corporation’s Board of Directors and stockholders in accordance with the applicable provisions of Sections 228, 242 and 245 of the Delaware General Corporation Law.

Executed at Arlington, Virginia on November 23, 2010.

 

/s/ Alexander Laskey

Alexander Laskey, President

EX-3.2

Exhibit 3.2

FIFTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

OPOWER, INC.

Opower, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows:

1. The name of the Corporation is Opower, Inc. The date of the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was June 14, 2007 (the “Original Certificate”) under the name “Positive Energy, Inc.” and that on September 29, 2009 this corporation changed its name to Opower, Inc.

2. This Fifth Amended and Restated Certificate of Incorporation (the “Certificate”) amends, restates and integrates the provisions of the Fourth and Restated Certificate of Incorporation that was filed with the Secretary of State of the State of Delaware on November 23, 2010 (the “Amended and Restated Certificate”), and was duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”).

3. The text of the Amended and Restated Certificate is hereby amended and restated in its entirety to provide as herein set forth in full.

ARTICLE I

The name of the Corporation is Opower, Inc.

ARTICLE II

The address of the Corporation’s registered office in the State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust 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 DGCL.


ARTICLE IV

CAPITAL STOCK

The total number of shares of capital stock which the Corporation shall have authority to issue is Five Hundred Twenty Five Million (525,000,000), of which (i) Five Hundred Million (500,000,000) shares shall be a class designated as common stock, par value $0.000005 per share (the “Common Stock”), and (ii) Twenty-Five Million (25,000,000) shares shall be a class designated as undesignated preferred stock, par value $0.000005 per share (the “Undesignated Preferred Stock”).

Except as otherwise provided in any certificate of designations of any series of Undesignated Preferred Stock, the number of authorized shares of the class of Common Stock or Undesignated Preferred Stock may from time to time be increased or decreased (but not below the number of shares of such class outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation irrespective of the provisions of Section 242(b)(2) of the DGCL.

The powers, preferences and rights of, and the qualifications, limitations and restrictions upon, each class or series of stock shall be determined in accordance with, or as set forth below in, this Article IV.

A. COMMON STOCK

Subject to all the rights, powers and preferences of the Undesignated Preferred Stock and except as provided by law or in this Certificate (or in any certificate of designations of any series of Undesignated Preferred Stock):

(a) the holders of the Common Stock shall have the exclusive right to vote for the election of directors of the Corporation (the “Directors”) and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; 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 (or on any amendment to a certificate of designations of any series of Undesignated Preferred Stock) that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of Undesignated Preferred Stock if the holders of such affected series of Undesignated Preferred Stock are entitled to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to this Certificate (or pursuant to a certificate of designations of any series of Undesignated Preferred Stock) or pursuant to the DGCL;

(b) dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends, but only when and as declared by the Board of Directors or any authorized committee thereof; and

 

2


(c) upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock.

B. UNDESIGNATED PREFERRED STOCK

The Board of Directors or any authorized committee thereof is expressly authorized, to the fullest extent permitted by law, to provide by resolution or resolutions for, out of the unissued shares of Undesignated Preferred Stock, the issuance of the shares of Undesignated Preferred Stock in one or more series of such stock, and by filing a certificate of designations pursuant to applicable law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof.

ARTICLE V

STOCKHOLDER ACTION

1. Action without Meeting. Any action required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be taken or effected by a written consent of stockholders in lieu thereof.

2. Special Meetings. Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office, and special meetings of stockholders may not be called by any other person or persons. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation.

ARTICLE VI

DIRECTORS

1. General. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided herein or required by law.

2. Election of Directors. Election of Directors need not be by written ballot unless the By-laws of the Corporation (the “By-laws”) shall so provide.

 

3


3. Number of Directors; Term of Office. The number of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The Directors, other than those who may be elected by the holders of any series of Undesignated Preferred Stock, shall be classified, with respect to the term for which they severally hold office, into three classes. The initial Class I Directors of the Corporation shall be Dan Yates, Gene Richards and Jon Sakoda; the initial Class II Directors of the Corporation shall be Harry Weller and Marcus Ryu; and the initial Class III Directors of the Corporation shall be Alex Laskey, Mark McLaughlin and Dipchand Nichar. The initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2015, the initial Class II Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2016, and the initial Class III Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2017. At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Notwithstanding the foregoing, the Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation, death or removal.

Notwithstanding the foregoing, whenever, pursuant to the provisions of Article IV of this Certificate, the holders of any one or more series of Undesignated Preferred Stock shall have the right, voting separately as a series or together with holders of other such series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate and any certificate of designations applicable to such series.

4. Vacancies. Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors and to fill vacancies in the Board of Directors relating thereto, any and all vacancies in the Board of Directors, however occurring, including, without limitation, by reason of an increase in the size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely and exclusively by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors, and not by the stockholders. Any Director appointed in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director’s successor shall have been duly elected and qualified or until his or her earlier resignation, death or removal. Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors, when the number of Directors is increased or decreased, the Board of Directors shall, subject to Article VI.3 hereof, determine the class or classes to which the increased or decreased number of Directors shall be apportioned; provided, however, that no decrease in the number of Directors shall shorten the term of any incumbent Director. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, shall exercise the powers of the full Board of Directors until the vacancy is filled.

5. Removal. Subject to the rights, if any, of any series of Undesignated Preferred Stock to elect Directors and to remove any Director whom the holders of any such series have

 

4


the right to elect, any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office (i) only with cause and (ii) only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock then entitled to vote at an election of Directors. At least forty-five (45) days prior to any annual or special meeting of stockholders at which it is proposed that any Director be removed from office, written notice of such proposed removal and the alleged grounds thereof shall be sent to the Director whose removal will be considered at the meeting.

ARTICLE VII

LIMITATION OF LIABILITY

A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (a) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any transaction from which the Director derived an improper personal benefit. If the DGCL is amended after the effective date of this Certificate 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.

Any amendment, repeal or modification of this Article VII by either of (i) the stockholders of the Corporation or (ii) an amendment to the DGCL, shall not adversely affect any right or protection existing at the time of such amendment, repeal or modification with respect to any acts or omissions occurring before such amendment, repeal or modification of a person serving as a Director at the time of such amendment, repeal or modification.

ARTICLE VIII

AMENDMENT OF BY-LAWS

1. Amendment by Directors. Except as otherwise provided by law, the By-laws of the Corporation may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the Directors then in office.

2. Amendment by Stockholders. The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class.

 

5


ARTICLE IX

AMENDMENT OF CERTIFICATE OF INCORPORATION

The Corporation reserves the right to amend or repeal this Certificate in the manner now or hereafter prescribed by statute and this Certificate, and all rights conferred upon stockholders herein are granted subject to this reservation. Whenever any vote of the holders of capital stock of the Corporation is required to amend or repeal any provision of this Certificate, and in addition to any other vote of holders of capital stock that is required by this Certificate or by law, such amendment or repeal shall require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, at a duly constituted meeting of stockholders called expressly for such purpose; provided, however, that the affirmative vote of not less than 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, shall be required to amend or repeal any provision of Article V, Article VI, Article VII, Article VIII or Article IX of this Certificate.

[End of Text]

 

6


THIS FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as of this          day of                     ,     .

 

OPOWER, INC.
By:  

 

Name:  

 

Title:  

 


EX-3.3

Exhibit 3.3

 

AMENDED AND RESTATED BYLAWS

OF

OPOWER, INC.


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 Stockholders’ Meetings

     2   

2.5

 

Manner Of Giving Notice; Affidavit Of Notice

     2   

2.6

 

Quorum

     2   

2.7

 

Adjourned Meeting; Notice

     2   

2.8

 

Organization; Conduct of Business

     2   

2.9

 

Voting

     3   

2.10

 

Waiver Of Notice

     3   

2.11

 

Stockholder Action By Written Consent Without A Meeting

     3   

2.12

 

Record Date For Stockholder Notice; Voting; Giving Consents

     4   

2.13

 

Proxies

     5   

ARTICLE III DIRECTORS

     5   

3.1

 

Powers

     5   

3.2

 

Number Of Directors

     5   

3.3

 

Election, Qualification And Term Of Office Of Directors

     5   

3.4

 

Resignation And Vacancies

     5   

3.5

 

Place Of Meetings; Meetings By Telephone

     6   

3.6

 

Regular Meetings

     6   

3.7

 

Special Meetings; Notice

     6   

3.8

 

Quorum

     7   

3.9

 

Waiver Of Notice

     7   

3.10

 

Board Action By Written Consent Without A Meeting

     7   

3.11

 

Fees And Compensation Of Directors

     8   

3.12

 

Approval Of Loans To Officers

     8   

3.13

 

Removal Of Directors

     8   

3.14

 

Chairman Of The Board Of Directors

     8   

ARTICLE IV COMMITTEES

     8   

4.1

 

Committees Of Directors

     8   

4.2

 

Committee Minutes

     9   

4.3

 

Meetings And Action Of Committees

     9   

ARTICLE V OFFICERS

     9   

5.1

 

Officers

     9   

5.2

 

Appointment Of Officers

     9   

 

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5.3

  

Subordinate Officers

     9   

5.4

  

Removal And Resignation Of Officers

     10   

5.5

  

Vacancies In Offices

     10   

5.6

  

Chief Executive Officer

     10   

5.7

  

President

     10   

5.8

  

Vice Presidents

     10   

5.9

  

Secretary

     10   

5.10

  

Chief Financial Officer

     11   

5.11

  

Representation Of Shares Of Other Corporations

     11   

5.12

  

Authority And Duties Of Officers

     11   

ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS

     12   

6.1

  

Indemnification Of Directors And Officers

     12   

6.2

  

Indemnification Of Others

     12   

6.3

  

Payment Of Expenses In Advance

     12   

6.4

  

Indemnity Not Exclusive

     12   

6.5

  

Insurance

     13   

6.6

  

Conflicts

     13   

ARTICLE VII RECORDS AND REPORTS

     13   

7.1

  

Maintenance And Inspection Of Records

     13   

7.2

  

Inspection By Directors

     14   

ARTICLE VIII GENERAL MATTERS

     14   

8.1

  

Checks

     14   

8.2

  

Execution Of Corporate Contracts And Instruments

     14   

8.3

  

Stock Certificates; Partly Paid Shares

     14   

8.4

  

Special Designation On Certificates

     15   

8.5

  

Lost Certificates

     15   

8.6

  

Construction; Definitions

     15   

8.7

  

Dividends

     15   

8.8

  

Fiscal Year

     15   

8.9

  

Seal

     16   

8.10

  

Transfer Of Stock

     16   

8.11

  

Stock Transfer Agreements

     16   

8.12

  

Registered Stockholders

     16   

8.13

  

Facsimile Signature

     16   

8.14

  

Restrictions on Transfer

     16   

ARTICLE IX AMENDMENTS

     17   

 

ii


AMENDED AND RESTATED BYLAWS

OF

OPOWER, INC.

ARTICLE I

CORPORATE OFFICES

1.1 Registered Office. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is Corporation Service Company.

1.2 Other Offices. The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business.

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 of Directors. In the absence of any such designation, stockholders’ meetings shall be held at the registered office of the corporation.

2.2 Annual Meeting. The annual meeting of stockholders shall be held on such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted.

2.3 Special Meeting. A special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board, the president or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting.

If a special meeting is called by any person or persons other than the Board of Directors, the president or the chairman of the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.


2.4 Notice Of Stockholders’ Meetings. All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these Amended and Restated Bylaws (the “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 hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called.

2.5 Manner Of Giving Notice; Affidavit Of Notice. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic mail or other electronic transmission, in the manner provided in Section 232 of the Delaware General Corporation Law. An affidavit of the secretary or an assistant secretary or of the transfer 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.

2.6 Quorum. The holders of a majority of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, shall have power to adjourn the meeting to another place (if any), date or time.

2.7 Adjourned Meeting; Notice. When a meeting is adjourned to another place (if any), date or time, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place (if any), thereof and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the place (if any), date and time of the adjourned meeting 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 shall be given to each stockholder of record entitled to vote at the meeting.

2.8 Organization; Conduct of Business.

(a) Such person as the Board of Directors may have designated or, in the absence of such a person, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as Chairman of the meeting. In the absence of the Secretary of the Corporation, the Secretary of the meeting shall be such person as the Chairman of the meeting appoints.

 

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(b) The Chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. The date and time of opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

2.9 Voting. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).

Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively.

2.10 Waiver Of Notice. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice, or any waiver of notice by electronic transmission, unless so required by the certificate of incorporation or these Bylaws.

2.11 Stockholder Action By Written Consent Without A Meeting. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is (i) signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and (ii) delivered to the Corporation in accordance with Section 228(a) of the Delaware General Corporation Law.

Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date the earliest dated consent is delivered to the Corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Corporation in the manner prescribed in this Section. A telegram, cablegram, electronic mail or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for purposes of this Section to the extent permitted by law. Any such consent shall be delivered in accordance with Section 228(d)(1) of the Delaware General Corporation Law.

 

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Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing (including by electronic mail or other electronic transmission as permitted by law). If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware.

2.12 Record Date For Stockholder Notice; Voting; Giving Consents. 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, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action.

If the Board of Directors does not so fix a record date:

(a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

(b) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent (including consent by electronic mail or other electronic transmission as permitted by law) is delivered to the corporation.

(c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

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, if such adjournment is for thirty (30) days or less; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

 

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2.13 Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by an instrument in writing or by an electronic transmission permitted by law filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, facsimile, electronic or telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware.

ARTICLE III

DIRECTORS

3.1 Powers. Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

3.2 Number Of Directors. The number of directors constituting the entire Board of Directors shall be six (6) directors. Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director’s term of office expires.

3.3 Election, Qualification And Term Of Office Of Directors. Except as provided in Section 3.4 of these Bylaws, and unless otherwise provided in the certificate of incorporation, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.

Unless otherwise specified in the certificate of incorporation, elections of directors need not be by written ballot.

3.4 Resignation And Vacancies. Any director may resign at any time upon written notice to the attention of the Secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.

 

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Unless otherwise provided in the certificate of incorporation or these Bylaws:

(a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

(b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.

3.5 Place Of Meetings; Meetings By Telephone. The Board of Directors of the corporation 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 of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, 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 shall constitute presence in person at the meeting.

3.6 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board.

3.7 Special Meetings; Notice. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors.

 

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Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, facsimile, electronic transmission, or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. If the notice is delivered personally or by facsimile, electronic transmission, telephone or telegram, it shall be delivered at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting. The notice need not specify the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

3.8 Quorum. At all meetings of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, 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.

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

3.9 Waiver Of Notice. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.

3.10 Board Action By Written Consent 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 of Directors, 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, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

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Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

3.11 Fees And Compensation Of Directors. Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

3.12 Approval Of Loans To Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.

3.13 Removal Of Directors. Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

3.14 Chairman Of The Board Of Directors. The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation.

ARTICLE IV

COMMITTEES

4.1 Committees Of Directors. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate 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 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 of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the

 

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resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporate Law of Delaware to be submitted to stockholders for approval or (ii) adopting, amending or repealing 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 of Directors when required.

4.3 Meetings And Action Of Committees. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

ARTICLE V

OFFICERS

5.1 Officers. The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, a chief executive officer, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person.

5.2 Appointment Of Officers. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.

5.3 Subordinate Officers. The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.

 

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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 an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom the power of removal is conferred by the Board of Directors.

Any officer may resign at any time by giving written notice 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; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. 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 of Directors.

5.6 Chief Executive Officer. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the corporation (if such an officer is appointed) shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

5.7 President. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

5.8 Vice Presidents. In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board.

5.9 Secretary. The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.

 

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The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.

5.10 Chief Financial Officer. The chief financial officer shall be the treasurer and shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.

The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws.

5.11 Representation Of Shares Of Other Corporations. The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations 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 the person having such authority.

5.12 Authority And Duties Of Officers. In addition to the foregoing authority and duties, 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 designated from time to time by the Board of Directors or the stockholders.

 

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ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS

6.1 Indemnification Of Directors And Officers. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a “director” or “officer” of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

6.2 Indemnification Of Others. The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an “employee” or “agent” of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

6.3 Payment Of Expenses In Advance. Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that the indemnified party is not entitled to be indemnified as authorized in this Article VI.

6.4 Indemnity Not Exclusive. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation

 

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6.5 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, partnership, joint venture, trust or other enterprise 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 General Corporation Law of Delaware.

6.6 Conflicts. No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:

(a) That it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

ARTICLE VII

RECORDS AND REPORTS

7.1 Maintenance And Inspection Of Records. The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.

A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in each such stockholder’s name, shall be open to the examination of any such stockholder for a period of at least ten (10) days prior to the meeting in the manner provided by law. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This 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.

 

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7.2 Inspection By Directors. Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

ARTICLE VIII

GENERAL MATTERS

8.1 Checks. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.

8.2 Execution Of Corporate Contracts And Instruments. The Board of Directors, 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. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

8.3 Stock Certificates; Partly Paid Shares. The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. 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, 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

 

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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.

8.4 Special Designation On 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 back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock 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.

8.5 Lost Certificates. Except as provided in this Section 8.5, 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 previously 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 the 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.

8.6 Construction; Definitions. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

8.7 Dividends. The directors of the corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) 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 directors of the corporation 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.

8.8 Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.

 

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8.9 Seal. The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.

8.10 Transfer Of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.

8.11 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 of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.

8.12 Registered Stockholders. The corporation 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, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

8.13 Facsimile Signature. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

8.14 Restrictions on Transfer.

(a) Notwithstanding anything to the contrary in these Bylaws, a stockholder shall not transfer, whether by sale, gift or otherwise, Restricted Shares (as such term is defined below) to any person unless such transfer is approved by the Board of Directors prior to such transfer. “Restricted Shares” are shares of the Corporation’s Common Stock (other than shares of the Corporation’s Common Stock issued or issuable upon conversion of shares of the Corporation’s SC Preferred Stock or Preferred Stock): (1) that were issued prior to the approval by the Board of Directors of the Bylaw amendment adding this Section 8.14 of Article VIII (the “Transfer Restriction Amendment”) on January 21, 2011 (the “Board Approval Date”) and are owned by stockholders who approved the Transfer Restriction Amendment after the Board Approval Date; and (2) issued after the Board Approval Date. Any purported transfer of any Restricted Shares effected in violation of this Section 8.14 shall be null and void and shall have no force or effect and the Corporation shall not register any such purported transfer.

(b) Any stockholder seeking the approval of the Board of Directors of a transfer of some or all of its shares shall give written notice thereof to the Secretary of the Corporation that shall include: (1) the name of the stockholder; (2) the proposed transference; (3)

 

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the number of shares the transfer of which approval is thereby requested; and (4) the purchase price, if any, of the shares proposed for transfer. The Corporation may require the stockholder to supplement its notice with such additional information as the Corporation may request.

(c) Certificates representing shares of stock issued after the Board Approval Date shall have impressed on, printed on, written on or otherwise affixed to them the following legend:

THE TRANSFER OF SECURITIES REPRESENTED HEREBY IS SUBJECT TO RESTRICTIONS REQUIRING APPROVAL OF THE BOARD OF DIRECTORS PURSUANT TO AND IN ACCORDANCE WITH SECTION 8.14 OF THE CORPORATION’S AMENDED AND RESTATED BYLAWS, A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS. THE CORPORATION SHALL NOT REGISTER OR OTHERWISE RECOGNIZE OR GIVE EFFECT TO ANY PURPORTED TRANSFER OF SHARES OF STOCK THAT DOES NOT COMPLY WITH SECTION 8.14 OF THE CORPORATION’S AMENDED AND RESTATED BYLAWS.

The Corporation shall take all such actions as are practicable to cause the certificates representing shares issued prior to the Board Approval Date that are subject to the restrictions on transfer set forth in this Section to contain the foregoing legend.

ARTICLE IX

AMENDMENTS

The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.

 

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CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS

OF

OPOWER, INC.

CERTIFICATE BY SECRETARY OF ADOPTION

The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary of OPOWER, Inc., a Delaware corporation, and that the foregoing Bylaws were adopted as the Amended and Restated Bylaws of the corporation on January 21, 2011, by the Board of Directors of this corporation.

Executed on January 21, 2011.

 

/s/ Donald M. Keller, Jr.

Donald M. Keller, Jr., Secretary

EX-3.4

Exhibit 3.4

AMENDED AND RESTATED

BY-LAWS

OF

OPOWER, INC.

(the “Corporation”)

ARTICLE I

Stockholders

SECTION 1. Annual Meeting. The annual meeting of stockholders (any such meeting being referred to in these By-laws as an “Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen (13) months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings also shall be deemed to refer to any special meeting(s) in lieu thereof.


SECTION 2. Notice of Stockholder Business and Nominations.

(a) Annual Meetings of Stockholders.

(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this By-law as to such nomination or business. For the avoidance of doubt, the foregoing clause (ii) shall be the exclusive means for a stockholder to bring nominations or business properly before an Annual Meeting (other than matters properly brought under Rule 14a-8 (or any successor rule) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and such stockholder must comply with the notice and other procedures set forth in Article I, Section 2(a)(2) and (3) of this By-law to bring such nominations or business properly before an Annual Meeting. In addition to the other requirements set forth in this By-law, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.

(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this By-law, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this By-law and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or business proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by this By-law. To be timely, a stockholder’s written notice shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the one-year anniversary of the preceding year’s Annual Meeting; provided, however, that in the event the Annual Meeting is first convened more than thirty (30) days before or more than sixty (60) days after such anniversary date, or if no Annual Meeting were held in the preceding year, notice by the stockholder to be timely must be received by the Secretary of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as “Timely Notice”). Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholder’s notice shall be timely if received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation. Such stockholder’s Timely Notice shall set forth:

 

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(A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected);

(B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest in such business of each Proposing Person (as defined below);

(C) (i) the name and address of the stockholder giving the notice, as they appear on the Corporation’s books, and the names and addresses of the other Proposing Persons (if any) and (ii) as to each Proposing Person, the following information: (a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares of any class or series of capital stock of the Corporation as to which such Proposing Person or any of its affiliates or associates has a right to acquire beneficial ownership at any time in the future, (b) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates, directly or indirectly, holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and disclosure, for each such Synthetic Equity Interest, as to (x) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such Proposing Person, (y) whether or not such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest, (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation, (d) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, and (e) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (a) through (e) are referred to, collectively, as “Material Ownership Interests”) and (iii) a description of the material terms of all

 

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agreements, arrangements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation;

(D) (i) a description of all agreements, arrangements or understandings by and among any of the Proposing Persons, or by and among any Proposing Persons and any other person (including with any proposed nominee(s)), pertaining to the nomination(s) or other business proposed to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s); and

(E) a statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the “Solicitation Statement”).

For purposes of this Article I of these By-laws, the term “Proposing Person” shall mean the following persons: (i) the stockholder of record providing the notice of nominations or business proposed to be brought before a stockholders’ meeting, and (ii) the beneficial owner(s), if different, on whose behalf the nominations or business proposed to be brought before a stockholders’ meeting is made. For purposes of this Section 2 of Article I of these By-laws, the term “Synthetic Equity Interest” shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called “stock borrowing” agreement or arrangement, the purpose or effect of which is to, directly or indirectly: (a) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any shares of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.

 

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(3) A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to such Annual Meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the Annual Meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth (8th) business day prior to the date of the Annual Meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).

(4) Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this By-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with the second sentence of Article I, Section 2(a)(2), a stockholder’s notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

(b) General.

(1) Only such persons who are nominated in accordance with the provisions of this By-law shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this By-law or in accordance with Rule 14a-8 under the Exchange Act. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-law. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this By-law. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this By-law, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.

 

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(2) Except as otherwise required by law, nothing in this Article I, Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director or any other matter of business submitted by a stockholder.

(3) Notwithstanding the foregoing provisions of this Article I, Section 2, if the nominating or proposing stockholder (or a qualified representative of the stockholder) does not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Article I, Section 2, to be considered a qualified representative of the proposing stockholder, a person must be authorized by a written instrument 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 written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, to the presiding officer at the meeting of stockholders.

(4) For purposes of this By-law, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(5) Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of (i) stockholders to have proposals included in the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor rule), as applicable, under the Exchange Act and, to the extent required by such rule, have such proposals considered and voted on at an Annual Meeting or (ii) the holders of any series of Undesignated Preferred Stock to elect directors under specified circumstances.

SECTION 3. Special Meetings. Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office. The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation and stockholder proposals of other business shall not be brought before a special meeting of stockholders to be considered by the stockholders unless such special meeting is held in lieu of an annual meeting of stockholders in accordance with Article I, Section 1 of these By-laws, in which case such special meeting in lieu thereof shall be deemed an Annual Meeting for purposes of these By-laws and the provisions of Article I, Section 2 of these By-laws shall govern such special meeting.

 

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SECTION 4. Notice of Meetings; Adjournments.

(a) A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books. Without limiting the manner by which notice may otherwise be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (“DGCL”).

(b) Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called.

(c) Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed, or waiver of notice by electronic transmission is provided, before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

(d) The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these By-laws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under this Article I of these By-laws.

(e) When any meeting is convened, the presiding officer may adjourn the meeting if (i) no quorum is present for the transaction of business, (ii) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (iii) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than thirty (30) days from the meeting date, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record

 

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entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amended and/or restated, the “Certificate”) or these By-laws, is entitled to such notice.

SECTION 5. Quorum. A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article I. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

SECTION 6. Voting and Proxies. Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation as of the record date, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.

SECTION 7. Action at Meeting. When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors.

SECTION 8. Stockholder Lists. The Secretary or an Assistant Secretary (or the Corporation’s transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten (10) days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of

 

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each stockholder. Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

SECTION 9. Presiding Officer. The Board of Directors shall designate a representative to preside over all Annual Meetings or special meetings of stockholders, provided that if the Board of Directors does not so designate such a presiding officer, then the Chairman of the Board, if one is elected, shall preside over such meetings. If the Board of Directors does not so designate such a presiding officer and there is no Chairman of the Board or the Chairman of the Board is unable to so preside or is absent, then the Chief Executive Officer, if one is elected, shall preside over such meetings, provided further that if there is no Chief Executive Officer or the Chief Executive Officer is unable to so preside or is absent, then the President shall preside over such meetings. The presiding officer at any Annual Meeting or special meeting of stockholders shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 4 and 5 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.

SECTION 10. Inspectors of Elections. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.

ARTICLE II

Directors

SECTION 1. Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.

 

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SECTION 2. Number and Terms. The number of directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The directors shall hold office in the manner provided in the Certificate.

SECTION 3. Qualification. No director need be a stockholder of the Corporation.

SECTION 4. Vacancies. Vacancies in the Board of Directors shall be filled in the manner provided in the Certificate.

SECTION 5. Removal. Directors may be removed from office only in the manner provided in the Certificate.

SECTION 6. Resignation. A director may resign at any time by giving written notice to the Chairman of the Board, if one is elected, the President or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.

SECTION 7. Regular Meetings. The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.

SECTION 8. Special Meetings. Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairman of the Board, if one is elected, or the President. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.

SECTION 9. Notice of Meetings. Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairman of the Board, if one is elected, or the President or such other officer designated by the Chairman of the Board, if one is elected, or the President. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least forty-eight (48) hours in advance of the meeting. Such notice shall be deemed to be delivered when hand-delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if sent by facsimile transmission or by electronic mail or other form of electronic communications. A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the

 

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beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

SECTION 10. Quorum. At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.

SECTION 11. Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.

SECTION 12. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Such consent shall be treated as a resolution of the Board of Directors for all purposes.

SECTION 13. Manner of Participation. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.

SECTION 14. Presiding Director. The Board of Directors shall designate a representative to preside over all meetings of the Board of Directors, provided that if the Board of Directors does not so designate such a presiding director or such designated presiding director is unable to so preside or is absent, then the Chairman of the Board, if one is elected, shall preside over all meetings of the Board of Directors. If both the designated presiding director, if one is so designated, and the Chairman of the Board, if one is elected, are unable to preside or are absent, the Board of Directors shall designate an alternate representative to preside over a meeting of the Board of Directors.

SECTION 15. Committees. The Board of Directors, by vote of a majority of the directors then in office, may elect one or more committees, including, without limitation, a Compensation Committee, a Nominating & Corporate Governance Committee and an Audit Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated. Except as the Board of Directors may

 

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otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.

SECTION 16. Compensation of Directors. Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and who receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.

ARTICLE III

Officers

SECTION 1. Enumeration. The officers of the Corporation shall consist of a President, a Treasurer, a Secretary and such other officers, including, without limitation, a Chairman of the Board of Directors, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.

SECTION 2. Election. At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the President, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.

SECTION 3. Qualification. No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time.

SECTION 4. Tenure. Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

SECTION 5. Resignation. Any officer may resign by delivering his or her written resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective upon receipt, unless the resignation otherwise provides.

SECTION 6. Removal. Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.

 

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SECTION 7. Absence or Disability. In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.

SECTION 8. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

SECTION 9. President. The President shall, subject to the direction of the Board of Directors, have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 10. Chairman of the Board. The Chairman of the Board, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 11. Chief Executive Officer. The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation. He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 14. Secretary and Assistant Secretaries. The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose. In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities. Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

 

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SECTION 15. Other Powers and Duties. Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.

ARTICLE IV

Capital Stock

SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the Chairman of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporation’s stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.

SECTION 2. Transfers. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.

SECTION 3. Record Holders. Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of

 

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stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.

SECTION 4. Record Date. 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 or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

SECTION 5. Replacement of Certificates. In case of the alleged loss, destruction or mutilation of a certificate of stock of the Corporation, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.

ARTICLE V

Indemnification

SECTION 1. Definitions. For purposes of this Article:

(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, (iii) as a Non-Officer Employee of the Corporation, or (iv) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

 

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(b) “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

(c) “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

(d) “Expenses” means all attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

(e) “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;

(f) “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

(g) “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;

(h) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

(i) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) fifty percent (50%) or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) fifty percent (50%) or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

 

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SECTION 2. Indemnification of Directors and Officers.

(a) Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in this Section 2.

(1) Actions, Suits and Proceedings Other than By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

(2) Actions, Suits and Proceedings By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.

(3) Survival of Rights. The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.

(4) Actions by Directors or Officers. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or

 

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Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.

SECTION 3. Indemnification of Non-Officer Employees. Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.

SECTION 4. Determination. Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

SECTION 5. Advancement of Expenses to Directors Prior to Final Disposition.

(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified

 

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against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these By-laws.

(b) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.

(c) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition.

(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

(b) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

 

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SECTION 7. Contractual Nature of Rights.

(a) The provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Article V nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article V shall eliminate or reduce any right conferred by this Article V in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article V 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 distributes of such person.

(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.

SECTION 9. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.

 

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SECTION 10. Other Indemnification. The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”). Any indemnification or advancement of Expenses under this Article V owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.

ARTICLE VI

Miscellaneous Provisions

SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.

SECTION 2. Seal. The Board of Directors shall have power to adopt and alter the seal of the Corporation.

SECTION 3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairman of the Board, if one is elected, the Chief Executive Officer, President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or the executive committee of the Board may authorize.

SECTION 4. Voting of Securities. Unless the Board of Directors otherwise provides, the Chairman of the Board, if one is elected, the Chief Executive Officer, the President or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by the Corporation.

SECTION 5. Resident Agent. The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

SECTION 6. Corporate Records. The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record

 

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addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at an office of its counsel, at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.

SECTION 7. Certificate. All references in these By-laws to the Certificate shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.

SECTION 8. Exclusive Jurisdiction of Delaware Courts. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (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 director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Certificate or By-laws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 8.

SECTION 9. Amendment of By-laws.

(a) Amendment by Directors. Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.

(b) Amendment by Stockholders. These By-laws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose in accordance with these By-Laws, by the affirmative vote of at least seventy-five percent (75%) of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these By-laws, or other applicable law.

SECTION 10. Notices. If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.

SECTION 11. Waivers. A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in such a waiver.

 

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EX-4.2

Exhibit 4.2

OPOWER, INC.

SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

November 24, 2010


OPOWER, INC.

SECOND AMENDED AND RESTATED

INVESTORS’ RIGHTS AGREEMENT

This Second Amended and Restated Investors’ Rights Agreement (this “Agreement”) is made as of November 24, 2010, by and among OPOWER, Inc., a Delaware corporation (the “Company”), the holders of Series A Preferred Stock and Series B Preferred Stock (the “Prior Investors”) and/or Series C Preferred Stock of the Company listed on Exhibit A hereto, each of which is herein referred to as an “Investor,” and Daniel Yates and Alexander Laskey, each of whom is herein referred to as a “Founder.”

RECITALS

A. The Company, the Founders and the Prior Investors have previously entered into an Amended and Restated Investors’ Rights Agreement dated as of October 16, 2008 (the “Prior Rights Agreement”).

B. The Company and certain of the Investors (the “Series C Investors”) have entered or will enter into a Series C Preferred Stock Purchase Agreement (the “Purchase Agreement”) of even date herewith pursuant to which the Company desires to sell to the Series C Investors and the Series C Investors desire to purchase from the Company shares of the Company’s Series C Preferred Stock (the “Series C Preferred Stock”) and the Founders desire to sell to certain of the Series C Investors and certain of the Series C Investors desire to purchase from the Founders shares of the Company’s Series SC Preferred Stock. A condition to the Series C Investors’ obligations under the Purchase Agreement is that the Company, the Founders and the Investors enter into this Agreement in order to provide the Investors and Founders with certain rights to register shares of the Company’s common stock (“Common Stock”), including Common Stock issuable upon conversion of the Series C Preferred Stock held by the Investors and in order to provide the Investors with, among other rights, (i) certain rights to receive or inspect information pertaining to the Company, and (ii) a right of first offer with respect to certain issuances by the Company of its securities. The Company, the Prior Investors and the Founders each desire to induce the Series C Investors to purchase shares of Series C Preferred Stock pursuant to the Purchase Agreement by agreeing to the terms and conditions set forth herein.

C. The undersigned satisfy the requirements set forth in Section 3.4 of the Prior Rights Agreement for amendments thereto, and desire to (i) amend and restate the Prior Rights Agreement in its entirety as set forth in this Agreement and (ii) waive any right of first offer under Section 2.3 of the Prior Rights Agreement in connection with the sales of Series C Preferred Stock under the Purchase Agreement.


AGREEMENT

The parties hereby agree as follows:

1. Registration Rights. The Company and the Investors covenant and agree as follows:

1.1 Definitions. For purposes of this Agreement:

(a) The term “Exchange Act” means the Securities Exchange Act of 1934, as amended (and any successor thereto) and the rules and regulations promulgated thereunder;

(b) The term “Form S-3” means such form under the Securities Act as in effect on the date hereof or any successor form under the Securities Act that permits significant incorporation by reference of the Company’s subsequent public filings under the Exchange Act;

(c) The term “Founders’ Stock” means the shares of Common Stock issued to the Founders;

(d) The term “Holder” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 of this Agreement;

(e) The term “Qualified IPO” means a firm commitment underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on Form S-l under the Securities Act of 1933, as amended, which results in aggregate cash proceeds to the Company of $50,000,000 (net of underwriting discounts and commissions);

(f) The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document;

(g) The term “Registrable Securities” means (i) the shares of Common Stock issuable or issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, other than shares for which registration rights have terminated pursuant to Section 1.15 hereof, (ii) the shares of Founders’ Stock; provided, however, that for the purposes of Section 1.2, 1.4 or 1.13 the Founders’ Stock shall not be deemed Registrable Securities and the Founders shall not be deemed Holders, and (iii) any other shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares listed in (i) and (ii); provided, however, that the foregoing definition shall exclude in all cases any Registrable Securities sold by a person or entity in a transaction in which his, her or its rights under this Agreement are not assigned pursuant to Section 1.12. Notwithstanding the foregoing, Common Stock or other securities shall only be treated as Registrable Securities if and so long as (A) they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, (B) they have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale, or (C) the Holder thereof is entitled to exercise any right provided in Section 1 in accordance with Section 1.15 below;

 

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(h) The number of shares of “Registrable Securities then outstanding” shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities;

(i) The term “SEC” means the Securities and Exchange Commission; and

(j) The term “Securities Act” means the Securities Act of 1933, as amended (and any successor thereto) and the rules and regulations promulgated thereunder.

1.2 Request for Registration.

(a) If the Company shall receive at any time after the earlier of (i) November 30, 2013 or (ii) six months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a transaction pursuant to Rule 145 under the Securities Act), a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of at least 30% of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $10,000,000), then the Company shall, within 10 days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 1.2(b), use its best efforts to file as soon as practicable, and in any event within 90 days of the receipt of such request, a registration statement under the Securities Act covering all Registrable Securities which the Holders request to be registered within 20 days of the mailing of such notice by the Company.

(b) If the Holders initiating the registration request hereunder (“Initiating Holders”) intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by a majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any Holder to include Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all participating Holders thereof, including the Initiating

 

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Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each participating Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.

(c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its holders of capital stock for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 120 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period.

(d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2:

(i) After the Company has effected three (3) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective;

(ii) During the period starting with the date 90 days prior to the Company’s good faith estimate of the date of filing of, and ending on a date 90 days after the effective date of, a registration subject to Section 1.3 hereof unless such offering is the initial public offering of the Company’s securities, in which case, ending on a date 180 days after the effective date of such registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or

(iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below.

1.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for holders of capital stock other than the Holders) any of its stock under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a transaction covered by Rule 145 under the Securities Act, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered, or any registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within 20 days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered.

 

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1.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of not less than 10% of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than $2,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its holders of capital stock for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any 12-month period; (iv) if the Company has, within the 12-month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.4; (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; or (vi) during the period ending 180 days after the effective date of a registration statement subject to Section 1.3.

(c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively.

1.5 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities

 

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registered thereunder, keep such registration statement effective for up to 120 days, or until the distribution described in such registration statement is completed, if earlier. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.

(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for up to 120 days, or until the distribution described in such registration statement is completed, if earlier.

(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and, at the request of any such Holder, the Company will, as soon as reasonably practicable, file and furnish to all such Holders a supplement or amendment to such prospectus (to the extent prepared by or on behalf of the Company) so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in light of the circumstances under which they were made.

(g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed.

 

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(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

(i) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters.

1.6 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder’s Registrable Securities. The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement if, as a result of the application of the preceding sentence, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company’s obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.4(b)(2), whichever is applicable.

1.7 Expenses of Registration.

(a) Demand Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2.

(b) Company Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications of Registrable Securities pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.12), including (without limitation) all registration, filing, and qualification

 

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fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company.

(c) Registration on Form S-3. All expenses incurred in connection with a registration requested pursuant to Section 1.4, including (without limitation) all registration, filing, qualification, printers’ and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, and counsel for the Company, and any underwriters’ discounts or commissions associated with Registrable Securities, shall be borne by the Company.

1.8 Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under Section 1.3 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by holders of capital stock to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling security holders according to the total amount of securities entitled to be included therein owned by each selling security holder or in such other proportions as shall mutually be agreed to by such selling security holders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below 25% of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company’s securities, in which case, the selling security holders may be excluded if the underwriters make the determination described above and no other holder’s securities are included or (ii) any securities held by a Founder be included if any securities held by any selling Holder that is not also a Founder are excluded. For purposes of the preceding parenthetical concerning apportionment, for any selling security holder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and holders of capital stock of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling security holder,” and any pro-rata reduction with respect to such “selling security holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “selling security holder,” as defined in this sentence.

1.9 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

 

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1.10 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) 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, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable to any Holder, underwriter or controlling person for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person.

(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that in no event shall any indemnity under this subsection 1.10(b) exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder.

 

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(c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10.

(d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided, that in no event shall any contribution by a Holder under this subsection 1.10(d), when combined with the amounts paid or payable by such Holder pursuant to subsection 1.10(b), exceed the net proceeds from the offering received by such Holder, except in the case of willful fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

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(f) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

1.11 Reports Under the Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after 90 days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;

(b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective;

(c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 under the Securities Act (at any time after 90 days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.

1.12 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee (i) of at least 200,000 shares of such securities (subject to adjustment for stock splits, stock dividends, reclassification or the like) (or if the transferring Holder owns less than 200,000 shares of such securities, then all Registrable Securities held by the transferring Holder), (ii) that is a subsidiary, parent, partner, limited partner, retired partner, member, retired member or holder of capital stock of a Holder, (iii) that is an affiliated fund or entity of the Holder, which means with respect to a limited liability company or a limited liability partnership, a fund or entity managed by the same manager or managing member or general partner or management company or by an entity controlling, controlled by, or under common control with such manager or managing member or general

 

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partner or management company (such a fund or entity, an “Affiliated Fund”), (iv) who is a Holder’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (such a relation, a Holder’s “Immediate Family Member”, which term shall include adoptive relationships), or (v) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member; provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if the transferee agrees to be bound by this Agreement and immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of (x) a partnership who are partners or retired partners of such partnership or (y) a limited liability company who are members or retired members of such limited liability company (including Immediate Family Members of such partners or members who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership or limited liability company; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 1.

1.13 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within 120 days of the effective date of any registration effected pursuant to Section 1.2.

1.14 Lock-Up Agreement.

(a) Lock-Up Period; Agreement. In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing such offering of the Company’s securities, each Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days plus an additional 34 days as may be required to comply with applicable regulation, following the effective date of any underwritten registration statement of the Company filed under the Securities Act) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company’s initial public offering. The foregoing provisions of Section 1.14 shall not apply to any sale of any shares pursuant to an underwriting agreement.

 

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Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s initial public offering that are consistent with this Section 1.14 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.

(b) Limitations. The obligations described in Section 1.14(a) shall apply only if all officers, directors and 1% securityholders of the Company enter into similar agreements, and shall not apply to a registration relating solely to employee benefit plans, or to a registration relating solely to a transaction pursuant to Rule 145 under the Securities Act.

(c) Stop-Transfer Instructions. In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the securities of each Holder (and the securities of every other person or entity subject to the restrictions in Section 1.14(a)).

(d) Transferees Bound. Each Holder agrees that, prior to the Company’s initial public offering, it will not transfer securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Section 1.14.

1.15 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (i) two years following the consummation of a Qualified IPO, (ii) such time as the Company’s Common Stock is publicly traded and Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder’s shares during a three-month period without registration, or (iii) upon termination of the Agreement, as provided in Section 3.1.

2. Covenants of the Company.

2.1 Delivery of Financial Statements. For so long as MHS Capital Partners, L.P. (“MHS Capital”) holds a majority of the issued and outstanding Series A Preferred Stock, and so long as Puressence Limited (“Puressence”) and New Cycle Capital Partners, L.P. (“New Cycle”) hold at least 20% of the issued and outstanding Series A Preferred Stock originally issued (or in the case of New Cycle, transferred) to them, and so long as New Enterprise Associates 12, Limited Partnership (“NEA”) holds greater than 50% of the issued and outstanding Series B Preferred Stock, and so long as Accel X, L.P. (together with its affiliates, “Accel”) holds at least 50% of the issued and outstanding Series C Preferred Stock originally issued to them, and so long as KPCB Holdings, Inc. (“KPCB”) holds at least 50% of the issued and outstanding Series C Preferred Stock originally issued to them, the Company shall deliver to each of NEA, Accel and KPCB, respectively, and, upon their written request, each of MHS Capital, Puressence, New Cycle, respectively:

(a) as soon as practicable, but in any event within 90 days after the end of each fiscal year of the Company, unless otherwise waived by the Company’s Board of Directors (the “Board”), an unaudited income statement for such fiscal year, an unaudited balance sheet of the Company and statement of shareholders’ equity as of the end of such year,

 

13


and an unaudited statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“GAAP”) consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period(s) specified; provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board, including the director elected by the holders of a majority of the Series A Preferred Stock (the “Series A Director”) and the director elected by the holders of a majority of the Series B Preferred Stock (the “Series B Director”), determines that it is in the best interest of the Company to do so;

(b) as soon as practicable, but in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, unless otherwise waived by the Board, an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period(s) specified, subject to normal year-end audit adjustment; provided that the foregoing shall not restrict the right of the Company to change its accounting principles consistent with GAAP, if the Board of Directors, including the Series A Director and the Series B Director, determines that it is in the best interest of the Company to do so; and

(c) as soon as practicable, but in any event at least 30 days prior to the end of each fiscal year, unless otherwise waived by the Board, including the Series A Director and the Series B Director, a budget and business plan for the next fiscal year, prepared on a monthly basis, and, as soon as prepared, any other budgets or revised budgets prepared by the Company.

2.2 Inspection. The Company shall permit each of NEA, MHS Capital, Puressence and New Cycle (each, an “Inspection Party”) (except for an Inspection Party reasonably deemed by the Company to be a competitor of the Company), at such Inspection Party’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Inspection Party; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential information (unless the Inspection Party enters into a confidentiality agreement in a form reasonably acceptable to the Company).

2.3 Right of First Offer. Subject to the terms and conditions specified in this Section 2.3, the Company hereby grants to the following “Pro Rata Holders” (i) NEA, (ii) MHS Capital, (iii) Accel, (iv) KPCB and (v) Thiry-O’Leary Living Trust Dated March 8, 1990, New Cycle, Puressence Limited and Pinky Swear Trust (each such holder described in clause (v), a “Series A Pro Rata Holder, and together the “Series A Pro Rata Holders”) a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.3, with the exception of Section 2.3(a), (w) NEA includes any general

 

14


partners, managing members and affiliates of NEA, including Affiliated Funds (x) MHS Capital includes any general partners, managing members and affiliates of MHS Capital, including Affiliated Funds, (y) Accel includes any general partners, managing members and affiliates of Accel, including Affiliated Funds and (z) KPCB includes any general partners, managing members and affiliates of KPCB, including Affiliated Funds. If NEA, MHS Capital, Accel, KPCB or a Pro Rata Holder chooses to exercise the right of first offer, it may designate as purchasers under such right itself or its partners, members or affiliates, including Affiliated Funds, in such proportions as it deems appropriate.

Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock (“Shares”), the Company shall first make an offering of such Shares to the Pro Rata Holders in accordance with the following provisions:

(a) The Company shall deliver a notice (the “RFO Notice”) to the Pro Rata Holders stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares.

(b) Within 15 calendar days after delivery of the RFO Notice:

(i) NEA may elect to purchase or obtain, at the price and on the terms specified in the RFO Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issuable upon conversion of all Series B Preferred Stock bears to the sum of (A) total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities) and (B) shares of Common Stock issuable to employees, consultants or directors pursuant to a stock option plan, restricted stock plan, or other stock plan approved by the Board of Directors, and

(ii) MHS Capital may elect to purchase or obtain, at the price and on the terms specified in the RFO Notice, up to that portion of such Shares which equals 72.8% of the Series A Pro Rata (as defined below), and each Series A Pro Rata Holder may elect to purchase or obtain, at the price and on the terms specified in the RFO Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issuable upon conversion of all Series A Preferred Stock then held by such Series A Pro Rata Holder bears to the sum of (A) the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities) and (B) shares of Common Stock issuable to employees, consultants or directors pursuant to a stock option plan, restricted stock plan, or other stock plan approved by the Board of Directors. The “Series A Pro Rata” shall mean the proportion that the number of shares of Common Stock issuable upon conversion of all Series A Preferred Stock then held bears to the sum of (A) total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities) and (B) shares of Common Stock issuable to employees, consultants or directors pursuant to a stock option plan, restricted stock plan, or other stock plan approved by the Board of Directors.

 

15


(iii) Accel and KPCB may each elect to purchase or obtain, at the price and on the terms specified in the RFO Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issuable upon conversion of all Series C Preferred Stock then held by such Investor bears to the sum of (A) the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities) and (B) shares of Common Stock issuable to employees, consultants or directors pursuant to a stock option plan, restricted stock plan, or other stock plan approved by the Board of Directors. Such purchase(s) under clauses (i), (ii) and (iii) shall be completed at the same closing as that of any third party purchasers or at an additional closing thereunder.

(c) The Company may, during the 45-day period following the expiration of the period provided in subsection 2.3(b) hereof, offer the remaining unsubscribed portion of the Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the RFO Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to NEA, MHS Capital, Accel, KPCB and the Series A Pro Rata Holders in accordance herewith.

(d) The right of first offer in this Section 2.3 shall not be applicable to (i) the issuance of securities excluded from the definition of Additional Stock as set forth in Article IV(B)(4)(d)(i)(B) of the Company’s Fourth Amended and Restated Certificate of Incorporation, as the same may be amended or waived from time to time (the “Restated Charter”), and (ii) the issuance of Series C Preferred Stock and Series C Preferred Stock including without limitation as a result of the transfer and conversion of shares of Series SC Preferred Stock. By executing this Agreement, NEA, MHS Capital and each Series A Pro Rata Holder hereby waives any right of first offer under Section 2.3 of the Prior Rights Agreement in connection with the issuances of Series C Preferred Stock including without limitation as a result of the conversion of shares of Series SC Preferred Stock. In addition to the foregoing, the right of first offer in this Section 2.3 shall not be applicable to NEA, MHS Capital, Accel, KPCB or any Series A Pro Rata Holder, respectively, if (i) at the time of such subsequent securities issuance, NEA, MHS Capital, Accel, KPCB or such Series A Pro Rata Holder, respectively, is not an “accredited investor,” as that term is then defined in Rule 501(a) under the Securities Act, and (ii) such subsequent securities issuance is otherwise being offered only to accredited investors.

2.4 Employee Agreements. The Company will cause each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement, substantially in the form attached hereto as Exhibit B. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any of the above-referenced agreements or any restricted stock agreement between the Company and any employee, without the consent of the Board of Directors, NEA and MHS Capital.

 

16


2.5 Insurance. The Company shall use its commercially reasonable best efforts to obtain within ninety (90) days of the date hereof, (i) general liability, (ii) casualty, (iii) employment practices, (iv) errors and omissions, and (v) directors and officers insurance policies in an amount satisfactory to the Board of Directors and will use commercially reasonable best efforts to cause such insurance policies to be maintained.

2.6 Termination of Covenants.

(a) The covenants set forth in Sections 2.1 through 2.4 shall terminate as to each Holder and be of no further force or effect (i) immediately prior to the consummation of a Qualified IPO, or (ii) upon termination of the Agreement, as provided in Section 3.1.

(b) The covenants set forth in Sections 2.1 and 2.2 shall terminate as to each Holder and be of no further force or effect when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act, if this occurs earlier than the events described in subsection (a) immediately above.

3. Miscellaneous.

3.1 Termination. This Agreement shall terminate, and have no further force and effect, when the Company shall consummate a transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Company pursuant to the Restated Charter.

3.2 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements relating to the subject matter hereof existing between the parties hereto are expressly canceled.

3.3 Successors and Assigns. Except as otherwise provided in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties (including transferees of any of the Preferred Stock or any Common Stock issued upon conversion thereof). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

3.4 Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding, not including the Founders’ Stock; provided, however, that if such amendment or waiver is with respect to Sections 1 or 3 and has the effect of affecting the Founders’ Stock (i) in a manner different than securities issued to the Investors and (ii) in a manner adverse to the interests of the holders of the Founders’ Stock, then such amendment shall require the consent of the holder or holders of a majority of the Founders’ Stock; provided, further, that except as set forth in subsection 2.3(d), the right of first offer set forth in Section 2.3 may not be waived or amended with respect to any issuance of Shares without the written consent of the holders of a majority of the Registrable Securities then held by Pro Rata Holders not acquiring such Shares. Notwithstanding the foregoing, the Company may

 

17


amend this Agreement solely to add a party, who after the date of this Agreement acquires shares of the Company’s Series C Preferred Stock pursuant to the terms of the Purchase Agreement (including as contemplated by Section 6.18 thereof). Any such additional party, by executing a counterpart signature page to this Agreement, shall become an Investor for all purposes and shall be bound by all of the applicable provisions under this Agreement. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each party to the Agreement, whether or not such party has signed such amendment or waiver, each future holder of all such Registrable Securities, and the Company.

3.5 Notices. Unless otherwise provided, any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by facsimile, or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party’s address or facsimile number as set forth on Exhibit A hereto or as subsequently modified by written notice.

3.6 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and (c) the balance of the Agreement shall be enforceable in accordance with its terms.

3.7 Governing Law. This Agreement and all acts and transactions pursuant hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of laws.

3.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

3.9 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

3.10 Aggregation of Stock. All shares of the Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

3.11 Amendment and Restatement of Prior Rights Agreement. The Prior Rights Agreement is hereby amended and restated in its entirety as set forth in this Agreement and is of no further force or effect.

[Signature Page Follows]

 

18


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE COMPANY:

 

OPOWER, INC.

By:   /s/ Daniel Yates
  (Signature)
Name: Daniel Yates
Title: Chief Executive Officer

Address:

1515 N Courthouse Road, Suite 610

Arlington VA 22201

THE FOUNDERS:

 

DANIEL YATES

/s/ Daniel Yates
(Signature)

Address:

1515 N Courthouse Road, Suite 610

Arlington VA 22201

ALEXANDER LASKEY

/s/ Alexander Laskey
(Signature)

Address:

1515 N Courthouse Road, Suite 610

Arlington VA 22201


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:

 

Accel X L.P.

By:   Accel X Associates L.L.C.
Its General Partner
By:   /s/ Illegible
Attorney in Fact
Accel X Strategic Partners L.P.
By:   Accel X Associates L.L.C.
Its General Partner
By:   /s/ Illegible
Attorney in Fact
Accel Investors 2010 L.L.C.
By:   /s/ Illegible
Attorney in Fact
Addresses for notices:

J. Peter Wagner

Rich Zamboldi

Accel Partners

428 University Avenue

Palo Alto, CA 94301

(            )             -            - Tel.

(            )             -            – Fax

[redacted]@accel.com

[redacted]@accel.com


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:

 

KPCB Holdings, Inc., as nominee

By:   /s/ Illegible
Its:   President

Address:

2750 Sand Hill Road

Menlo Park, CA 94025


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:

 

New Enterprise Associates 12, Limited Partnership

By: NEA Partners 12, Limited Partnership, its general partner
By:   NEA 12 GP, LLC, its general partner
By:   /s/ Illegible                        , General Counsel
NEA Ventures 2008, Limited Partnership
By:   /s/ Illegible                                , Vice President

Address:

1954 Greenspring Drive, Suite 600

Timonium, MD 21093-4135

Telephone: (            )             -            

Fax: (            )             -            


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:

 

MHS CAPITAL PARTNERS, L.P.

By:   /s/ Mark Sugarman
  (Signature)
Name: Mark Sugarman
Title: GP

Address:

C/O ITN

1 Market Street

Steuart tower suite 1010

SF, CA 94105

Phone: (            )             -            

Fax: (            )             -            


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:
MHS CAPITAL PRINCIPALS FUND
By:   /s/ Mark Sugarman
  (Signature)
Name: Mark Sugarman
Title: Managing Member

Address:

C/O ITN

1 Market Street

Steuart tower suite 1010

SF, CA 94105

Phone: (        )         -            

Fax: (        )         -            


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:
NEW CYCLE CAPITAL PARTNERS, L.P.
By:  

NEW CYCLE CAPITAL, L.P.

General Partner

By:  

NCC MANAGEMENT, LLC

General Partner

By:   /s/ Benjamin D. Black
  (Signature)
Benjamin D. Black, Managing Member

Address:

410 Jessie Street, Suite 501

San Francisco, CA 941031

Email: [redacted]@newcyclecapital.com

Phone: (        )         -            


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:
PURESSENCE LIMITED
By:   /s/ Illegible
  (Signature)
Name: For: Chaumont (Directors) Limited
Title: Corporate Director

Address:

Sir Walter Raleigh House

48/50 Esplanade

St Helier

Jersey

JE1 4HH

Channel Islands

Phone: +44         -            
Fax: +44         -            
25/11/2010


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:
PINKY SWEAR TRUST
By:   /s/ Hadi Partovi
  (Signature)
Name: Hadi Partovi
Title: Trustee
Address: [Redacted]
Phone: (        )         -            
Fax: (        )         -            


The parties have executed this Second Amended and Restated Investors’ Rights Agreement of OPOWER, Inc. as of the date first above written.

 

THE INVESTORS:
THIRY-O’LEARY LIVING TRUST DATED MARCH 8, 1990
By:   /s/ Denise M. O’Leary, /s/ Kent J. Thiry
  (Signature)
Name: Denise M. O’Leary, Kent J. Thiry
Title: Trustees

Address:

[Redacted]

Telephone: (        )         -            
Fax: (        )         -            

EX-10.1

Exhibit 10.1

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made as of              by and between Opower, Inc., a Delaware corporation (the “Company”), and              (“Indemnitee”).

RECITALS

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;

WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;

WHEREAS, the Certificate of Incorporation (the “Charter”) and the Bylaws (the “Bylaws”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”);

WHEREAS, the Charter, the Bylaws 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 of directors, officers and other persons with respect to indemnification;

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;

WHEREAS, it is reasonable and prudent 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, regardless of any amendment or revocation of the Charter or the Bylaws, 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 indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;

[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by [Name of Fund/Sponsor] which Indemnitee and [Name of Fund/Sponsor] intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided in this Agreement, with the Company’s acknowledgment and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve or continue to serve on the Board.]

 

1


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/officer] of the Company. Indemnitee may at any time and for any reason resign from [any] such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed 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) “Change in Control” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

(b) “Corporate Status” describes the status of a person as a current or former [director/officer] of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.

(c) “Enforcement Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.

(d) “Enterprise” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee.

(e) “Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket 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 or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.

 

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(f) “Independent Counsel” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(g) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a [director/officer] of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as a [director/officer] of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, 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; provided, however, that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.

Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee to the extent set forth in 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, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she 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 his or her conduct was unlawful.

Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or

 

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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, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have 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”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

Section 7. Exclusions. Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:

(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise[; provided that the foregoing shall not affect the rights of Indemnitee or the Fund Indemnitors as set forth in Section 13(c)];

(b) to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law;

 

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(c) [to indemnify for any reimbursement of, or payment to, the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company pursuant to Section 304 of SOX or any formal policy of the Company adopted by the Board (or a committee thereof), or any other remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;]

(d) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided, however, that this Section 7(d) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or

(e) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).

Section 8. Advancement of Expenses. Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made 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. Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.

Section 9. Procedure for Notification and Defense of Claim.

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.

 

5


(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.

(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.

(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.

Section 10. Procedure Upon Application for Indemnification.

(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: (x) [if a Change in Control shall have occurred] [and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company], by Independent Counsel in a written opinion to the Board; or (y) [in any other case] [if a Change in Control shall not have occurred]: (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which

 

6


indemnification is sought. In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination. Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board [; provided that, if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her legal capacity as a director of the Company, the Independent Counsel shall be selected by Indemnitee] [if a Change in Control shall not have occurred or, if a Change in Control shall have occurred, by Indemnitee]. Indemnitee [or the Company, as the case may be,] may, within ten (10) days after written notice of such selection, deliver to the Company [or Indemnitee, as the case may be,] 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 shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If 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 twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

Section 11. Presumptions and Effect of Certain Proceedings.

(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is

 

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entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

Section 12. Remedies of Indemnitee.

(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all

 

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respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

(c) If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, 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 shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.

(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.

Section 13. Non-exclusivity; Survival of Rights; Insurance; [Primacy of Indemnification;] Subrogation.

(a) The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater

 

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benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.

(c) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [Name of Fund/Sponsor] and certain of [its][their] affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter and/or Bylaws (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 13(c).]

(d) [Except as provided in paragraph (c) above,] [I/i]n the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee [(other than against the Fund Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(e) [Except as provided in paragraph (c) above,] [T/t]he Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.

 

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Section 14. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a [director/officer] of the Company or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 15. Severability. If any provision or provisions of this Agreement shall be 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) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 16. 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 or continue to serve as a [director/officer] of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a [director/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 Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

Section 17. Modification and Waiver. No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the

 

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parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.

Section 18. 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, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

Section 19. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

(a) If to Indemnitee, at such address as Indemnitee shall provide to the Company.

(b) If to the Company to:

1515 N Courthouse Rd, 8th Floor

Arlington, VA 22201

Attention: General Counsel

or to any other address as may have been furnished to Indemnitee by the Company.

Section 20. 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, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise 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 transactions.

Section 21. Internal Revenue Code Section 409A. The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “Code”),

 

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which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.

Section 22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(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 shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (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) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) 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 23. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

OPOWER, INC.
By:  

 

  Name:
  Title:
 

 

[Name of Indemnitee]


EX-10.2

Exhibit 10.2

OPOWER, INC.

AMENDED AND RESTATED 2007 STOCK PLAN

(as amended through February 28, 2014)

1. Purposes of the Plan. The purposes of this 2007 Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants, and to promote the success of the Company’s business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant of an Option and subject to the applicable provisions of Section 422 of the Code and the regulations promulgated thereunder. Restricted Stock may also be granted under the Plan.

2. Definitions. As used herein, the following definitions shall apply:

(a) “Administrator” means the Board or a Committee.

(b) “Affiliate” means an entity other than a Subsidiary which, together with the Company, is under common control of a third person or entity.

(c) “Applicable Laws” means all applicable laws, rules, regulations and requirements, including, but not limited to, all applicable U.S. federal or state laws, any Stock Exchange rules or regulations, and the applicable laws, rules or regulations of any other country or jurisdiction where Options or Restricted Stock are granted under the Plan or Participants reside or provide services, as such laws, rules, and regulations shall be in effect from time to time.

(d) “Award” means any award of an Option, Restricted Stock or Restricted Stock Units under the Plan.

(e) “Board” means the Board of Directors of the Company.

(f) “California Participant” means a Participant whose Award is issued in reliance on Section 25102(o) of the California Corporations Code.

(g) “Cashless Exercise” means a program approved by the Administrator in which payment of the Option exercise price or tax withholding obligations may be satisfied, in whole or in part, with Shares subject to the Option, including by delivery of an irrevocable direction to a securities broker (on a form prescribed by the Administrator) to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate exercise price and, if applicable, the amount necessary to satisfy the Company’s withholding obligations.

(h) “Cause” for termination of a Participant’s Continuous Service Status will exist (unless another definition is provided for in the applicable Option Agreement, Restricted Stock Purchase Agreement, Restricted Stock Unit Agreement, employment agreement or other applicable written agreement) if the Participant’s Continuous Service Status is terminated for any of the following reasons: (i) Participant’s willful failure to perform his or her duties and


responsibilities to the Company or Participant’s violation of any written Company policy; (ii) Participant’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in injury to the Company; (iii) Participant’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Participant’s material breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether a Participant’s Continuous Service Status has been terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Participant. 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.

(i) “Code” means the Internal Revenue Code of 1986, as amended.

(j) “Committee” means one or more committees or subcommittees of the Board consisting of two (2) or more Directors (or such lesser or greater number of Directors as shall constitute the minimum number permitted by Applicable Laws to establish a committee or sub-committee of the Board) appointed by the Board to administer the Plan in accordance with Section 4 below.

(k) “Common Stock” means the Company’s common stock, par value $0.000005 per share, as adjusted in accordance with Section 15 below.

(l) “Company” means OPOWER, Inc., a Delaware corporation.

(m) “Consultant” means any person, including an advisor but not an Employee, who is engaged by the Company, or any Parent, Subsidiary or Affiliate, to render services (other than capital-raising services) and is compensated for such services, and any Director whether compensated for such services or not.

(n) “Continuous Service Status” means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Service Status as an Employee or Consultant shall not be considered interrupted or terminated in the case of: (i) Company approved sick leave; (ii) military leave; (iii) any other bona fide leave of absence approved by the Company, provided that if an Employee is holding an Incentive Stock Option and such leave exceeds three (3) months, such Employee’s service as an Employee for the sole purpose of holding an Incentive Stock Option shall be deemed terminated on the first (1st) day following such three (3)-month period and the Incentive Stock Option shall thereafter automatically become a Nonstatutory Stock option unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to a written Company policy. Also, Continuous Service Status as an Employee or Consultant shall not be considered interrupted or terminated in the case of a transfer between locations of the Company or between the Company, its Parents, Subsidiaries or Affiliates, or their respective successors, or a change in status from an Employee to a Consultant or from a Consultant to an Employee.

 

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(o) “Director” means a member of the Board.

(p) “Disability” means “disability” within the meaning of Section 22(e)(3) of the Code.

(q) “Employee” means any person employed by the Company, or any Parent, Subsidiary or Affiliate, with the status of employment determined pursuant to such factors as are deemed appropriate by the Administrator in its sole discretion, subject to any requirements of the Applicable Laws, including the Code. The payment by the Company of a director’s fee shall not be sufficient to constitute “employment” of such director by the Company or any Parent, Subsidiary or Affiliate.

(r) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(s) “Fair Market Value” means, as of any date, the per share fair market value of the Common Stock, as determined by the Administrator in good faith on such basis as it deems appropriate and applied consistently with respect to Participants. Whenever possible, the determination of Fair Market Value shall be based upon the per share closing price for the Shares as reported in the Wall Street Journal for the applicable date.

(t) “Family Members” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships) of the Participant, any person sharing the Participant’s household (other than a tenant or employee), a trust in which these persons (or the Participant) have more than 50% of the beneficial interest, a foundation in which these persons (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than 50% of the voting interests.

(u) “Incentive Stock Option” means an Option intended to, and which does, in fact, qualify as an incentive stock option within the meaning of Section 422 of the Code.

(v) “Involuntary Termination” means (unless another definition is provided for in the applicable Option Agreement, Restricted Stock Purchase Agreement, Restricted Stock Unit Agreement, employment agreement or other applicable written agreement) the termination of a Participant’s Continuous Service Status other than for death or Disability or for Cause by the Company or a Subsidiary, Parent, Affiliate or successor thereto, as appropriate.

(w) “Listed Security” means any security of the Company that is listed or approved for listing on a national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc.

(x) “Nonstatutory Stock Option” means an Option not intended to, or does not, in fact, qualify as an Incentive Stock Option.

(y) “Option” means a stock option granted pursuant to the Plan.

 

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(z) “Option Agreement” means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of an Option granted under the Plan and includes any documents attached to or incorporated into such Option Agreement, including, but not limited to, a notice of stock option grant and a form of exercise notice.

(aa) “Option Exchange Program” means a program approved by the Administrator whereby outstanding Options (i) are exchanged for Options with a lower exercise price, Restricted Stock, cash or other property or (ii) are amended to decrease the exercise price as a result of a decline in the Fair Market Value of the Common Stock.

(bb) “Optioned Stock” means Shares that are subject to an Option or that were issued pursuant to the exercise of an Option.

(cc) “Optionee” means an Employee or Consultant who receives an Option.

(dd) “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of grant of the Award, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

(ee) “Participant” means any holder of one or more Awards or Shares issued pursuant to an Award.

(ff) “Plan” means this 2007 Stock Plan.

(gg) “Restricted Stock” means Shares acquired pursuant to a right to purchase Common Stock granted pursuant to Section 11 below.

(hh) “Restricted Stock Unit” means an Award of phantom stock units granted pursuant to Section 12 below, which may be settled in cash or Shares as determined by the Administrator.

(ii) “Restricted Stock Unit Agreement” means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of Restricted Stock Units granted under the Plan and includes any documents attached to such agreement.

(jj) “Restricted Stock Purchase Agreement” means a written document, the form(s) of which shall be approved from time to time by the Administrator, reflecting the terms of Restricted Stock granted under the Plan and includes any documents attached to such agreement.

(kk) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision.

 

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(ll) “Share” means a share of Common Stock, as adjusted in accordance with Section 15 below.

(mm) “Stock Exchange” means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time.

(nn) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of grant of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

(oo) “Ten Percent Holder” means a person who owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary measured as of an Award’s date of grant.

(pp) “Triggering Event” means:

(i) a sale, transfer or disposition of all or substantially all of the Company’s assets other than to (A) a corporation or other entity of which at least a majority of its combined voting power is owned directly or indirectly by the Company, (B) a corporation or other entity owned directly or indirectly by the holders of capital stock of the Company in substantially the same proportions as their ownership of Common Stock, or (C) an Excluded Entity (as defined in subsection (ii) below); or

(ii) any merger, consolidation or other business combination transaction of the Company with or into another corporation, entity or person, other than a transaction with or into another corporation, entity or person in which the holders of at least a majority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding in the continuing entity or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction (an “Excluded Entity).

Notwithstanding anything stated herein, a transaction shall not constitute a “Triggering Event” if its sole purpose is to change the state of the Company’s incorporation, or to create a holding company that will be owned in substantially the same proportions by the persons who hold the Company’s securities immediately before such transaction. For clarity, the term ‘‘Triggering Event” as defined herein shall not include stock sale transactions whether by the Company or by the holders of capital stock.

3. Stock Subject to the Plan. Subject to the provisions of Section 15 of the Plan, the maximum aggregate number of Shares that may be issued under the Plan is 16,445,907 Shares, all of which may be issued under the Plan pursuant to Incentive Stock Options. The Shares

 

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issued under the Plan may be authorized, but unissued, or reacquired Shares. If an Award should expire or become unexercisable for any reason without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares that were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. In addition, any Shares which are retained by the Company upon exercise of an Award in order to satisfy the exercise or purchase price for such Award or any withholding taxes due with respect to such Award shall be treated as not issued and shall continue to be available under the Plan. Shares issued under the Plan and later repurchased by the Company at the original purchase price paid for the Shares (including without limitation upon repurchase by the Company in connection with the termination of a Participant’s Continuous Service Status) shall again be available for future grant under the Plan. Any Shares issued under the Plan and later repurchased by the Company pursuant to any other repurchase right of the Company shall not be available for future grant under the Plan.

4. Administration of the Plan.

(a) General. The Plan shall be administered by the Board or a Committee, or a combination thereof, as determined by the Board. The Plan may be administered by different administrative bodies with respect to different classes of Participants and, if permitted by Applicable Laws, the Board may authorize one or more officers of the Company to make Awards under the Plan to Employees and Consultants (who are not subject to Section 16 of the Exchange Act) within parameters specified by the Board.

(b) Committee Composition. If a Committee has been appointed pursuant to this Section 4, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of any Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies (however caused) and dissolve a Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws and, in the case of a Committee administering the Plan in accordance with the requirements of Rule 16b-3 or Section 162(m) of the Code, to the extent permitted or required by such provisions.

(c) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its sole discretion:

(i) to determine the Fair Market Value of the Common Stock in accordance with Section 2(s) above, provided that such determination shall be applied consistently with respect to Participants under the Plan;

(ii) to select the Employees and Consultants to whom Awards may from time to time be granted;

(iii) to determine the number of Shares to be covered by each Award;

 

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(iv) to approve the form(s) of agreement(s) and other related documents used under the Plan;

(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder, which terms and conditions include but are not limited to the exercise price or purchase price, the time or times when Awards may vest and/or be exercised (which may be based on performance criteria), the circumstances (if any) when vesting will be accelerated or forfeiture restrictions will be waived, and any restrictions or limitation regarding any Award, Optioned Stock, Restricted Stock or Restricted Stock Unit;

(vi) to amend any outstanding Award or agreement related to any Optioned Stock, Restricted Stock or Restricted Stock Unit, including any amendment adjusting vesting (e.g., in connection with a change in the terms or conditions under which such person is providing services to the Company), provided that no amendment shall be made that would materially or adversely affect the rights of any Participant without his or her consent;

(vii) to determine whether and under what circumstances an Option may be settled in cash under Section 10(c) instead of Common Stock;

(viii) to implement an Option Exchange Program and establish the terms and conditions of such Option Exchange Program, provided that no amendment or adjustment to an Option that would materially and adversely affect the rights of any Optionee shall be made without his or her consent;

(ix) to grant Awards to, or to modify the terms of any outstanding Option Agreement, Restricted Stock Purchase Agreement or Restricted Stock Unit Agreement or any agreements related to any Option Stock, Restricted Stock or Restricted Stock Units held by Participants who are foreign nationals or are employed outside the United States, with such terms and conditions as the Administrator deems necessary or appropriate to accommodate differences in local law, tax policy or custom that deviate from the terms and conditions set forth in this Plan to the extent necessary or appropriate to accommodate such differences; and

(x) to construe and interpret the terms of the Plan, any Option Agreement, Restricted Stock Purchase Agreement, or Restricted Stock Unit Agreement, and any agreement related to any Optioned Stock, Restricted Stock or Restricted Stock Unit, which constructions, interpretations and decisions shall be final and binding on all Participants.

(d) Indemnification. To the maximum extent permitted by Applicable Laws, each member of the Committee (including officers of the Company, if applicable), or of the Board, as applicable, shall be indemnified and held harmless by the Company against and from (i) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or pursuant to the terms and conditions of any Award except for actions taken in bad faith or failures to act in bad faith, and (ii) any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction

 

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of any judgment in any such claim, action, suit, or proceeding against him or her, provided that such member shall give the Company an opportunity, at its own expense, to handle and defend any such claim, action, suit or proceeding before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation, Certificate of Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under any other power that the Company may have to indemnify or hold harmless each such person.

(e) Delegation of Authority to Grant Awards. Subject to applicable law, the Administrator, in its discretion, may delegate to the Chief Executive Officer or Chief Financial Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Awards to individuals who are (i) not subject to the reporting and other provisions of Section 16 of the Exchange Act and (ii) not “covered employees” within the meaning of Section 162(m) of the Code. Any such delegation by the Administrator shall include a limitation as to the amount of Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price, if any, and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.

5. Eligibility.

(a) Recipients of Grants. Nonstatutory Stock Options, Restricted Stock and Restricted Stock Units may be granted to Employees and Consultants.

(b) Type of Option. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.

(c) ISO $100,000 Limitation. Notwithstanding any designation under Section 5(b), to the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(c), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares subject to an Incentive Stock Option shall be determined as of the date of the grant of such Option.

(d) No Employment Rights. Neither the Plan nor any Award shall confer upon any Employee or Consultant any right with respect to continuation of an employment or consulting relationship with the Company (any Parent or Subsidiary), nor shall it interfere in any way with such Employee’s or Consultant’s right or the Company’s (Parent’s or Subsidiary’s) right to terminate his or her employment or consulting relationship at any time, with or without cause.

 

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6. Term of Plan. The Plan shall become effective upon its adoption by the Board of Directors. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 17 below.

7. Term of Option. The term of each Option shall be the term stated in the Option Agreement; provided that the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement and provided further that, in the case of an Incentive Stock Option granted to a person who at the time of such grant is a Ten Percent Holder, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement.

8. Limitation on Grants to Participants. On and after such time, if any, as the Common Stock becomes a Listed Security and subject to adjustment as provided in Section 15 below, the maximum aggregate number of Shares that may be subject to Awards granted to any one person under this Plan for any fiscal year of the Company shall be 1,000,000 Shares, provided that such limitation shall be 1,500,000 Shares during the fiscal year of any person’s initial year of service with the Company.

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option shall be such price as is determined by the Administrator and set forth in the Option Agreement, but shall be subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who at the time of grant is a Ten Percent Holder, the per Share exercise price shall be no less than 110% of the Fair Market Value on the date of grant;

(B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value on the date of grant;

(ii) Except as provided in subsection (iii) below, in the case of a Nonstatutory Stock Option the per Share exercise price shall be such price as is determined by the Administrator, provided that, if the per Share exercise price is less than 100% of the Fair Market Value on the date of grant, it shall otherwise comply with all Applicable Laws, including Section 409A of the Code;

(iii) In the case of a Nonstatutory Stock Option that is intended to qualify as performance-based compensation under Section 162(m) of the Code and is granted on or after the date, if ever, on which the Common Stock becomes a Listed Security, the per Share exercise price shall be no less than 100% of the Fair Market Value on the date of grant; and

(iv) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction.

 

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(b) Permissible Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option and to the extent required by Applicable Laws, shall be determined at the time of grant) and may consist entirely of (1) cash; (2) check; (3) to the extent permitted under Applicable Laws, delivery of a promissory note with such recourse, interest, security and redemption provisions as the Administrator determines to be appropriate (subject to the provisions of Section 153 of the Delaware General Corporation Law); (4) cancellation of indebtedness; (5) other previously owned Shares that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised; (6) a Cashless Exercise; (7) such other consideration and method of payment permitted under Applicable Laws; or (8) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company and the Administrator may, in its sole discretion, refuse to accept a particular form of consideration at the time of any Option exercise.

10. Exercise of Option.

(a) General.

(i) Exercisability. Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, consistent with the terms of the Plan and reflected in the Option Agreement, including vesting requirements and/or performance criteria with respect to the Company, and Parent or Subsidiary, and/or the Optionee.

(ii) Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the vesting of Options shall be tolled during any unpaid leave of absence; provided, however, that in the absence of such determination, vesting of Options shall be tolled during any such unpaid leave (unless otherwise required by the Applicable Laws). Notwithstanding the foregoing, in the event of military leave, vesting shall toll during any unpaid portion of such leave, provided that, upon a Optionee’s returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to Options to the same extent as would have applied had the Optionee continued to provide services to the Company (or any Parent or Subsidiary, if applicable) throughout the leave on the same terms as he or she was providing services immediately prior to such leave.

(iii) Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share. The Administrator may require that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent an Optionee from exercising the full number of Shares as to which the Option is then exercisable.

(iv) Procedures for and Results of Exercise. An Option shall be deemed exercised when written notice of such exercise has been received by the Company in accordance with the terms of the Option Agreement by the person entitled to exercise the Option

 

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and the Company has received full payment for the Shares with respect to which the Option is exercised and has paid, or made arrangements to satisfy, any applicable withholding requirements in accordance with Section 13 below. The exercise of an Option shall result in a decrease in the number of Shares that thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(v) Rights as Holder of Capital Stock. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a holder of capital stock shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 15 below.

(b) Termination of Employment or Consulting Relationship. The Administrator shall establish and set forth in the applicable Option Agreement the terms and conditions upon which an Option shall remain exercisable, if at all, following termination of an Optionee’s Continuous Service Status, which provisions may be waived or modified by the Administrator at any time. To the extent that an Option Agreement does not specify the terms and conditions upon which an Option shall terminate upon termination of an Optionee’s Continuous Service Status, the following provisions shall apply:

(i) General Provisions. If the Optionee (or other person entitled to exercise the Option) does not exercise the Option to the extent so entitled within the time specified below, the Option shall terminate and the Optioned Stock underlying the unexercised portion of the Option shall revert to the Plan. In no event may any Option be exercised after the expiration of the Option term as set forth in the Option Agreement (and subject to Section 7).

(ii) Termination other than Upon Disability or Death or for Cause. In the event of termination of an Optionee’s Continuous Service Status other than under the circumstances set forth in subsections (iii) through (v) below, such Optionee may exercise any outstanding Option at any time within 30 days following such termination to the extent the Optionee is vested in the Optioned Stock.

(iii) Disability of Optionee. In the event of termination of an Optionee’s Continuous Service Status as a result of his or her Disability, such Optionee may exercise any outstanding Option at any time within six (6) months following such termination to the extent the Optionee is vested in the Optioned Stock.

(iv) Death of Optionee. In the event of the death of an Optionee during the period of Continuous Service Status since the date of grant of any outstanding Option, or within three (3) months following termination of Optionee’s Continuous Service Status, the Option may be exercised by the Optionee’s estate, or by a person who acquired the right to exercise the Option by bequest or inheritance, at any time within twelve (12) months following the date of death or, if earlier, the date the Optionee’s Continuous Service Status terminated, but only to the extent the Optionee is vested in the Optioned Stock.

 

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(v) Termination for Cause. In the event of termination of an Optionee’s Continuous Service Status for Cause, any outstanding Option (including any vested portion thereof) held by such Optionee shall immediately terminate in its entirety upon first notification to the Optionee of termination of the Optionee’s Continuous Service Status for Cause. If an Optionee’s Continuous Service Status is suspended pending an investigation of whether the Optionee’s Continuous Service Status will be terminated for Cause, all the Optionee’s rights under any Option, including the right to exercise the Option, shall be suspended during the investigation period. Nothing in this Section 10(b)(v) shall in any way limit the Company’s right to purchase unvested Shares issued upon exercise of an Option as set forth in the applicable Option Agreement.

(c) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted under the Plan based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made.

11. Restricted Stock.

(a) Rights to Purchase. When a right to purchase Restricted Stock is granted under the Plan, the Administrator shall advise the recipient in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid (which shall be as determined by the Administrator, subject to Applicable Laws, including any applicable securities laws), and the time within which such person must accept such offer. The permissible consideration for Restricted Stock shall be determined by the Administrator and shall be the same as is set forth in Section 9(b) with respect to exercise of Options. The offer to purchase Shares shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

(b) Repurchase Option.

(i) General. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the Participant’s Continuous Service Status for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original purchase price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine.

(ii) Leave of Absence. The Administrator shall have the discretion to determine whether and to what extent the lapsing of Company repurchase rights shall be tolled during any leave of absence; provided, however, that in the absence of such determination, such lapsing shall be tolled during any leave (unless otherwise required by the Applicable Laws). Notwithstanding the foregoing, in the event of military leave, the lapsing of Company repurchase rights shall toll during any unpaid portion of such leave, provided that, upon a Participant’s returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she

 

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shall be given vesting credit with respect to Shares purchased pursuant to the Restricted Stock Purchase Agreement to the same extent as would have applied had the Participant continued to provide services to the Company (or any Parent or Subsidiary, if applicable) throughout the leave on the same terms as he or she was providing services immediately prior to such leave.

(c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock Purchase Agreements need not be the same with respect to each Participant.

(d) Rights as a Holder of Capital Stock. Once the Restricted Stock is purchased, the Participant shall have the rights equivalent to those of a holder of capital stock, and shall be a record holder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Restricted Stock is purchased, except as provided in Section 15 of the Plan.

12. Restricted Stock Units.

(a) Nature of Restricted Stock Units. The Administrator may, in its sole discretion, grant to an eligible person under Section 5(a) hereof Restricted Stock Units under the Plan. The Administrator shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Vesting conditions may be based on Continuous Service Status, achievement of pre-established performance goals and objectives and/or other such criteria as the Administrator may determine. Upon the grant of Restricted Stock Units, the Participant and the Company shall enter into a Restricted Stock Unit Agreement. The terms and conditions of each such Restricted Stock Unit Agreement shall be determined by the Administrator and may differ among individual Awards and grantees. On or promptly following the vesting date or dates applicable to any Restricted Stock Unit, but in no event later than March 15 of the year following the year in which such vesting occurs, such Restricted Stock Unit(s) shall be settled in the form of cash or Shares, as specified in the Restricted Stock Unit Agreement. Restricted Stock Units may not be sold, assigned, transferred, pledged, or otherwise encumbered or disposed of.

(b) Rights as a Holder of Capital Stock. A Participant shall have the rights equivalent to those of a holder of capital stock, and shall be a record holder, only as to Shares, if any, acquired upon settlement of Restricted Stock Units. A Participant shall not be deemed to have acquired any such Shares unless and until the Restricted Stock Units shall have been settled in Shares pursuant to the terms of the Plan and the Restricted Stock Unit Agreement, the Company shall have issued and delivered a certificate representing the Shares to the grantee (or transferred on the records of the Company with respect to uncertificated Share), and the Participant’s name has been entered in the books of the Company as a holder of capital stock.

(c) Termination. Except as may otherwise be provided by the Administrator either in the Restricted Stock Unit Agreement or in writing after the Restricted Stock Unit Agreement is issued, a Participant’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the Participant’s cessation of Continuous Service Status for any reason.

 

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13. Taxes.

(a) As a condition of the grant, vesting and exercise of an Award, the Participant (or in the case of the Participant’s death or a permitted transferee, the person holding or exercising the Award) shall make such arrangements as the Administrator may require for the satisfaction of any applicable U.S. federal, state or local tax withholding obligations or foreign tax withholding obligations that may arise in connection with such Award. The Company shall not be required to issue any Shares under the Plan until such obligations are satisfied.

(b) The Administrator may permit a Participant (or in the case of the Participant’s death or a permitted transferee, the person holding or exercising the Award) to satisfy all or part of his or her tax withholding obligations by Cashless Exercise or by surrendering Shares (either directly or by stock attestation) that he or she previously acquired; provided that, unless the Cashless Exercise is an approved broker-assisted Cashless Exercise, the Shares tendered for payment have been previously held for a minimum duration (e.g., to avoid financial accounting charges to the Company’s earnings), or as otherwise permitted to avoid financial accounting charges under applicable accounting guidance, amounts withheld shall not exceed the amount necessary to satisfy the Company’s tax withholding obligations at the minimum statutory withholding rates, including, but not limited to, U.S. federal and state income taxes, payroll taxes, and foreign taxes, if applicable. Any payment of taxes by surrendering Shares to the Company may be subject to restrictions, including, but not limited to, any restrictions required by rules of the Securities and Exchange Commission.

14. Non-Transferability of Options.

(a) General. Except as set forth in this Section 14, Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by an Optionee will not constitute a transfer. An Option may be exercised, during the lifetime of the holder of the Option, only by such holder or a transferee permitted by this Section 14.

(b) Limited Transferability Rights. Notwithstanding anything else in this Section 14, the Administrator may in its sole discretion grant Nonstatutory Stock Options that may be transferred by instrument to an inter vivos or testamentary trust in which the Options are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift to Family Members. Notwithstanding the foregoing, beginning with (i) the period when the Company begins to rely on the exemption described in Rule 12h-1(f)(1) promulgated under the Exchange Act, as determined by the Board in its sole discretion, and (ii) ending on the earlier of (A) the date when the Company ceases to rely on such exemption, as determined by the Board in its sole discretion, or (B) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, an Option, or prior to exercise, the Shares subject to the Option, may not be pledged, hypothecated or otherwise transferred or disposed of, in any manner, including by entering into any short position, any “put equivalent position” or any “call

 

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equivalent position” (as defined in Rule 16a-1(h) and Rule 16a-1(b) of the Exchange Act, respectively), other than to (i) persons who are Family Members through gifts or domestic relations orders, or (ii) to an executor or guardian of the Participant upon the death or disability of the Participant. Notwithstanding the foregoing sentence, the Board, in its sole discretion, may permit transfers to the Company or in connection with a Corporate Transaction (as defined below) or other acquisition transactions involving the Company to the extent permitted by Rule 12h-l(f).

15. Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions.

(a) Changes in Capitalization. Subject to any action required under Applicable Laws by the holders of capital stock of the Company, (i) the numbers and class of Shares or other stock or securities: (x) available for future Awards under Section 3 above, (y) set forth in Section 8 above, and (z) covered by each outstanding Award, (ii) the price per Share covered by each such outstanding Option, and (iii) any repurchase price per Share applicable to Shares issued pursuant to any Award, shall be proportionately adjusted by the Administrator in the event of a stock split, reverse stock split, stock dividend, combination, consolidation, recapitalization (including a recapitalization through a large nonrecurring cash dividend) or reclassification of the Shares, subdivision of the Shares or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, a rights offering, a reorganization, merger, spin-off, split-up, change in corporate structure or other similar occurrence. Any adjustment by the Administrator pursuant to this Section 15(a) shall be made in the Administrator’s sole and absolute discretion and shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Award. If, by reason of a transaction described in this Section 15(a) or an adjustment pursuant to this Section 15(a), a Participant’s Award agreement or agreement related to any Optioned Stock or Restricted Stock covers additional or different shares of stock or securities, then such additional or different shares, and the Award agreement or agreement related to the Optioned Stock or Restricted Stock in respect thereof, shall be subject to all of the terms, conditions and restrictions which were applicable to the Award, Optioned Stock and Restricted Stock prior to such adjustment. Notwithstanding the foregoing, the Administrator shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporations Code.

(b) Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company, each Award will terminate immediately prior to the consummation of such action, unless otherwise determined by the Administrator.

(c) Corporate Transactions. Except as the Administrator may otherwise specify with respect to particular Awards in the relevant Award agreement, in the case of and subject to the consummation of a Corporate Transaction (as defined below), the parties thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. To the extent the parties to such Corporate Transaction do not provide for the assumption, continuation or substitution of Awards, all Options that are not exercisable immediately prior to the effective time of the Corporate Transaction shall become fully exercisable as of the effective time of the Corporate Transaction, all other Awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Corporate Transaction and all Awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a Corporate Transaction in the Administrator’s discretion or to the extent specified in the relevant Award agreement and upon the effective time of the Corporate Transaction, the Plan and all outstanding Awards granted hereunder shall terminate. In the event of such termination, (i) the Company shall have the option (in its sole discretion) to make or provide for a cash payment to the grantees holding Options,

 

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in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per Share pursuant to the Corporate Transaction (the “Sale Price”) multiplied by the number of Shares subject to outstanding Options (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options; or (ii) each grantee shall be permitted, within a specified period of time prior to the consummation of the Corporate Transaction as determined by the Administrator, to exercise all outstanding Options (to the extent then exercisable) held by such grantee. For purposes hereof, “Corporate Transaction” means (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Common Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

(d) Treatment of Awards Held by Non-Employee Directors Upon a Triggering Event. Notwithstanding anything herein or in any agreement evidencing an Award to the contrary, upon a Triggering Event, all Options held by non-Employee Directors that are not exercisable immediately prior to the effective time of such Triggering Event shall become fully exercisable as of the effective time of the Triggering Event and all other Awards held by non-Employee Directors that are not vested as of immediately prior to the effective time of such Triggering Event shall become fully vested and nonforfeitable as of the effective time of the Triggering Event.

16. Timing of Granting of Awards. The date of grant of an Award shall, for all purposes, be the date on which the Administrator makes the determination granting such Award, or such other date as is determined by the Administrator.

17. Amendment and Termination of the Plan. The Board may at any time amend or terminate the Plan, but no amendment or termination (other than an adjustment pursuant to Section 15 above) shall be made that would materially and adversely affect the rights of any Participant under any outstanding Award, without his or her consent. In addition, to the extent necessary and desirable to comply with the Applicable Laws, the Company shall obtain the approval of holders of capital stock with respect to any Plan amendment in such a manner and to such a degree as required.

18. Conditions Upon Issuance of Shares. Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. As a condition to the exercise of any Option or purchase of any Restricted Stock, the Company may require the person exercising the Option or purchasing the Restricted Stock to represent and warrant at the time of any such exercise or purchase that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is advisable or required by Applicable Laws. Shares issued upon exercise of Options or purchase of Restricted Stock prior to the date, if ever, on which the Common Stock becomes a Listed Security shall be subject to a right of first refusal in favor of the Company pursuant to which the Participant will be required to offer Shares to the Company before selling or transferring them to any third party on such terms and subject to such conditions as is reflected in the applicable Option Agreement or Restricted Stock Purchase Agreement.

 

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19. Beneficiaries. Unless stated otherwise in an Award agreement, a Participant may designate one or more beneficiaries with respect to an Award by timely filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Participant’s death. If no beneficiary was designated or if no designated beneficiary survives the Participant, then after a Participant’s death any vested Award(s) shall be transferred or distributed to the Participant’s estate or to any person who has the right to acquire the Award by bequest or inheritance.

20. Approval of Holders of Capital Stock. If required by the Applicable Laws, continuance of the Plan shall be subject to approval by the holders of capital stock of the Company within twelve (12) months before or after the date the Plan is adopted or, to the extent required by Applicable Laws, any date the Plan is amended. Such approval shall be obtained in the manner and to the degree required under the Applicable Laws.

21. Addenda. The Administrator may approve such addenda to the Plan as it may consider necessary or appropriate for the purpose of granting Awards to Employees or Consultants, which Awards may contain such terms and conditions as the Administrator deems necessary or appropriate to accommodate differences in local law, tax policy or custom, which may deviate from the terms and conditions set forth in this Plan. The terms of any such addenda shall supersede the terms of the Plan to the extent necessary to accommodate such differences but shall not otherwise affect the terms of the Plan as in effect for any other purpose.

 

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ADDENDUM A

2007 Stock Plan

(California Participants)

Prior to the date, if ever, on which the Common Stock becomes a Listed Security and/or the Company is subject to the reporting requirements of the Exchange Act, the terms set forth herein shall apply to Awards issued to California Participants. All capitalized terms used herein but not otherwise defined shall have the respective meanings set forth in the Plan.

1. The following rules shall apply to any Option in the event of termination of the Participant’s Continuous Service Status:

a. If such termination was for reasons other than death, “disability” (as defined below), or Cause, the Participant shall have at least thirty (30) days after the date of such termination to exercise his or her Option to the extent the Participant is entitled to exercise on his or her termination date, provided that in no event shall the Option be exercisable after the expiration of the term set forth in the Option Agreement.

b. If such termination was due to death or disability, the Participant shall have at least six (6) months after the date of such termination to exercise his or her Option to the extent the Participant is entitled to exercise on his or her termination date, provided that in no event shall the Option be exercisable after the expiration of the term set forth in the Option Agreement.

Disability” for purposes of this Addendum shall mean the inability of the Participant, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Participant’s position with the Company or any Parent or Subsidiary because of the sickness or injury of the Participant.

2. Notwithstanding anything stated herein to the contrary, no Option shall be exercisable on or after the tenth anniversary of the date of grant and any Award agreement shall terminate on or before the tenth anniversary of the date of grant.

3. The Company shall furnish summary financial information (audited or unaudited) of the Company’s financial condition and results of operations, consistent with the requirements of Applicable Laws, at least annually to each California Participant during the period such Participant has one or more Awards outstanding, and in the case of an individual who acquired Shares pursuant to the Plan, during the period such Participant owns such Shares. The Company shall not be required to provide such information if (i) the issuance is limited to key employees whose duties in connection with the Company assure their access to equivalent information or (ii) the Plan or any agreement complies with all conditions of Rule 701 of the Securities Act of 1933, as amended; provided that for purposes of determining such compliance, any registered domestic partner shall be considered a “family member” as that term is defined in Rule 701.


OPOWER, INC.

2007 STOCK PLAN

NOTICE OF STOCK OPTION GRANT

Name: _______________

Address: _____________

_____________________

You have been granted an option to purchase Common Stock of OPOWER, Inc., a Delaware corporation (the “Company”), as follows:

 

Date of Grant:

   _____________   

Exercise Price Per Share:

   $____________   

Total Number of Shares:

   _____________   

Total Exercise Price:

   $____________   

Type of Option:

   Shares Incentive Stock Option [-] Shares Nonstatutory Stock Option

Expiration Date:

   _____________   

Vesting Commencement Date:

   _____________   

Vesting/Exercise Schedule:

   [INSERT VESTING SCHEDULE]

Termination Period:

   You may exercise this Option for three (3) months after termination of your Continuous Service Status except as set out in Section 5 of the Stock Option Agreement (but in no event later than the Expiration Date). You are responsible for keeping track of these exercise periods following the termination of your Continuous Service Status for any reason. The Company will not provide further notice of such periods.

Transferability:

   You may not transfer this Option.

By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the OPOWER, Inc. 2007 Stock Plan and the Stock Option Agreement, both of which are attached to and made a part of this document.

In addition, you agree and acknowledge that your rights to any Shares underlying this Option will be earned only as you provide services to the Company over time, that the grant of this Option is not as consideration for services you rendered to the Company prior to your date of hire, and that nothing in this Notice or the attached documents confers upon you any right to


continue your employment or consulting relationship with the Company for any period of time, nor does it interfere in any way with your right or the Company’s right to terminate that relationship at any time, for any reason, with or without cause. Also, to the extent applicable, the Exercise Price Per Share has been set in good faith compliance with the applicable guidance issued by the IRS under Section 409A of the Code. However, there is no guarantee that the IRS will agree with the valuation, and by signing below, you agree and acknowledge that the Company shall not be held liable for any applicable costs, taxes, or penalties associated with this Option if, in fact, the IRS or any other person (including, without limitation, a successor corporation or an acquirer, in a Corporate Transaction) were to determine that this Option constitutes deferred compensation under Section 409A of the Code. You should consult with your own tax advisor concerning the tax consequences of such a determination by the IRS.

 

THE COMPANY:
OPOWER, INC.
By:    
  (Signature)
Name:  
Title:  
OPTIONEE:
 

 

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OPOWER, INC.

2007 STOCK PLAN

STOCK OPTION AGREEMENT

1. Grant of Option. OPOWER, Inc., a Delaware corporation (the “Company”), hereby grants to __________ (“Optionee”), an option (the “Option”) to purchase the total number of shares of Common Stock (the “Shares”) set forth in the Notice of Stock Option Grant (the “Notice”), at the exercise price per Share set forth in the Notice (the “Exercise Price”) subject to the terms, definitions and provisions of the OPOWER, Inc. 2007 Stock Plan (the “Plan”) adopted by the Company, which is incorporated in this Agreement by reference. Unless otherwise defined in this Agreement, the terms used in this Agreement shall have the meanings defined in the Plan.

2. Designation of Option. This Option is intended to be an Incentive Stock Option as defined in Section 422 of the Code only to the extent so designated in the Notice, and to the extent it is not so designated or to the extent this Option does not qualify as an Incentive Stock Option, it is intended to be a Nonstatutory Stock Option.

Notwithstanding the above, if designated as an Incentive Stock Option, in the event that the Shares subject to this Option (and all other Incentive Stock Options granted to Optionee by the Company or any Parent or Subsidiary, including under other plans of the Company) that first become exercisable in any calendar year have an aggregate fair market value (determined for each Share as of the date of grant of the option covering such Share) in excess of $100,000, the Shares in excess of $100,000 shall be treated as subject to a Nonstatutory Stock Option, in accordance with Section 5(c) of the Plan.

3. Exercise of Option. This Option shall be exercisable during its term in accordance with the Vesting/Exercise Schedule set out in the Notice and with the provisions of Section 10 of the Plan as follows:

(a) Right to Exercise.

(i) This Option may not be exercised for a fraction of a share.

(ii) In the event of Optionee’s death, Disability or other termination of Continuous Service Status, the exercisability of this Option is governed by Section 5 below, subject to the limitations contained in this Section 3.

(iii) In no event may this Option be exercised after the Expiration Date set forth in the Notice.

(b) Method of Exercise.

(i) This Option shall be exercisable by execution and delivery of the Exercise Agreement attached hereto as Exhibit A or of any other form of written notice approved

 


for such purpose by the Company which shall state Optionee’s election to exercise this Option, the number of Shares in respect of which this Option is being exercised, and such other representations and agreements as to the holder’s investment intent with respect to such Shares as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by Optionee and shall be delivered to the Company by such means as are determined by the Plan Administrator in its discretion to constitute adequate delivery. The written notice shall be accompanied by payment of the aggregate Exercise Price for the purchased Shares.

(ii) As a condition to the exercise of this Option and as further set forth in Section 12 of the Plan, Optionee agrees to make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the grant, vesting or exercise of this Option, or disposition of Shares, whether by withholding, direct payment to the Company, or otherwise.

(iii) The Company is not obligated, and will have no liability for failure, to issue or deliver any Shares upon exercise of this Option unless such issuance or delivery would comply with the Applicable Laws, with such compliance determined by the Company in consultation with its legal counsel. This Option may not be exercised until such time as the Plan has been approved by the holders of capital stock of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such Shares would constitute a violation of any Applicable Laws, including any applicable U.S. federal or state securities laws or any other law or regulation, including any rule under Part 221 of Title 12 of the Code of Federal Regulations as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by the Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Optionee on the date on which this Option is exercised with respect to such Shares.

(iv) Subject to compliance with Applicable Laws, this Option shall be deemed to be exercised upon receipt by the Company of the appropriate written notice of exercise accompanied by the Exercise Price and the satisfaction of any applicable withholding obligations.

4. Method of Payment. Payment of the Exercise Price shall be by any of the following, or a combination of the following, at the election of Optionee:

(a) cash or check;

(b) cancellation of indebtedness;

(c) at the discretion of the Plan Administrator on a case by case basis, by surrender of other shares of Common Stock of the Company (either directly or by stock attestation) that Optionee previously acquired and that have an aggregate Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which this Option is being exercised; or

(d) at the discretion of the Plan Administrator on a case by case basis, by Cashless Exercise.

 

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5. Termination of Relationship. Following the date of termination of Optionee’s Continuous Service Status for any reason (the “Termination Date”), Optionee may exercise this Option only as set forth in the Notice and this Section 5. If Optionee does not exercise this Option within the Termination Period set forth in the Notice or the termination periods set forth below, this Option shall terminate in its entirety. In no event, may any Option be exercised after the Expiration Date of this Option as set forth in the Notice.

(a) Termination. In the event of termination of Optionee’s Continuous Service Status other than as a result of Optionee’s Disability or death or for Cause, Optionee may, to the extent Optionee is vested in the Option Shares, exercise this Option during the Termination Period set forth in the Notice.

(b) Other Terminations. In connection with any termination other than a termination covered by Section 5(a), Optionee may exercise this Option only as described below:

(i) Termination upon Disability of Optionee. In the event of termination of Optionee’s Continuous Service Status as a result of Optionee’s Disability, Optionee may, but only within six (6) months following the date of such termination (the “Termination Date”), exercise this Option to the extent Optionee is vested in the Option Shares.

(ii) Death of Optionee. In the event of termination of Optionee’s Continuous Service Status as a result of Optionee’s death, or in the event of Optionee’s death within three (3) months following Optionee’s Termination Date, this Option may be exercised at any time within twelve (12) months following the date of death (or, if earlier, the date Optionee’s Continuous Service Status terminated) by Optionee’s estate or by a person who acquired the right to exercise this Option by bequest or inheritance, but only to the extent Optionee is vested in this Option.

(iii) Termination for Cause. In the event of termination of Optionee’s Continuous Service Status for Cause, this Option (including any vested portion thereof) shall immediately terminate in its entirety upon first notification to Optionee of such termination for Cause. If Optionee’s Continuous Service Status is suspended pending an investigation of whether Optionee’s Continuous Service Status will be terminated for Cause, all Optionee’s rights under this Option, including the right to exercise this Option, shall be suspended during the investigation period.

6. Non-Transferability of Option and Shares. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him or her. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee. Certain transfer restrictions will apply to the Shares as set forth in the Exercise Agreement and Section 8.14 of the Company’s Amended and Restated Bylaws. Notwithstanding the foregoing, beginning with (i) the period when the Company begins to rely on the exemption described in Rule 12h-1(f)(1) promulgated under the Exchange Act, as determined by the Board in its sole discretion, and (ii) ending on the earlier of (A) the date when the Company ceases to rely on such exemption, as determined by the Board in its sole discretion, or (B) the date when the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, this

 

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Option, or prior to exercise, the Shares subject to this Option, may not be pledged, hypothecated or otherwise transferred or disposed of, in any manner, including by entering into any short position, any “put equivalent position” or any “call equivalent position” (as defined in Rule 16a-1(h) and Rule 16a-1(b) of the Exchange Act, respectively), other than to (i) persons who are Family Members through gifts or domestic relations orders or (ii) to an executor or guardian of Optionee upon the death or disability of the Optionee. Notwithstanding the foregoing sentence, the Board, in its sole discretion, may permit transfers to the Company or in connection with a Corporate Transaction or other acquisition transactions involving the Company to the extent permitted by Rule 12h-1(f).

7. Lock-Up Agreement. In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, Optionee hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days plus an additional 34 days as may be required to comply with applicable regulation, following the effective date of any underwritten registration statement of the Company filed under the Securities Act) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering.

8. Effect of Agreement. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof (and has had an opportunity to consult counsel regarding the Option terms), and hereby accepts this Option and agrees to be bound by its contractual terms as set forth herein and in the Plan. Optionee hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Plan Administrator regarding any questions relating to this Option. In the event of a conflict between the terms and provisions of the Plan and the terms and provisions of the Notice and this Agreement, the Plan terms and provisions shall prevail.

9. Miscellaneous.

(a) Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

(b) Entire Agreement; Enforcement of Rights. This Agreement, together with the Notice of Stock Option Grant to which this Agreement is attached and the Plan, sets forth the entire agreement and understanding of the parties relating to the subject matter herein and therein and merges all prior discussions between the parties. Except as contemplated under the Plan, no modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

 

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(c) Severability. If one or more provisions of this Agreement are held to be unenforceable under Applicable Laws, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.

(d) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party’s address as set forth below or as subsequently modified by written notice.

(e) Imposition of Other Requirements. The Company reserves the right to impose other requirements on Optionee’s participation in the Plan, on the Option and on any Award or Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with Applicable Law or facilitate the administration of the Plan. Optionee agrees to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. Furthermore, Optionee acknowledges that the laws of the country in which Optionee is working at the time of grant, vesting and exercise of the Option or the sale of Shares received pursuant to this Agreement (including any rules or regulations governing securities, foreign exchange, tax, labor, or other matters) may subject Optionee to additional procedural or regulatory requirements that Optionee is and will be solely responsible for and must fulfill.

(f) Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Optionee’s current or future participation in the Plan by electronic means or to request Optionee’s consent to participate in the Plan by electronic means. Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

(g) Counterparts. This Option may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(h) Successors and Assigns. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of Optionee under this Agreement may not be assigned without the prior written consent of the Company.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have executed or caused this Agreement to be executed by their officers thereunto duly authorized, effective as of the Date of Grant set forth in the accompanying Notice of Stock Option Grant.

 

THE COMPANY:
OPOWER, INC.
By:    
  (Signature)
Name:  
Title:  
OPTIONEE:
 

 

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EXHIBIT A

OPOWER, INC.

2007 STOCK PLAN

EXERCISE AGREEMENT

This Exercise Agreement (this “Agreement”) is made as of             , by and between OPOWER, Inc., a Delaware corporation (the “Company”), and              (“Purchaser”). To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the Company’s 2007 Stock Plan (the “Plan”).

1. Exercise of Option. Subject to the terms and conditions hereof, Purchaser hereby elects to exercise his or her option to purchase              shares of the Common Stock (the “Shares”) of the Company under and pursuant to the Plan and the Stock Option Agreement granted [            , 20    ] (the “Option Agreement”). The purchase price for the Shares shall be $[price] per Share for a total purchase price of $            . The term “Shares” refers to the purchased Shares and all securities received as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other property to which Purchaser is entitled by reason of Purchaser’s ownership of the Shares.

2. Time and Place of Exercise. The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution and delivery of this Agreement, the payment of the aggregate exercise price by any method listed in Section 4 of the Option Agreement, and the satisfaction of any applicable tax withholding obligations, all in accordance with the provisions of Section 3(b) of the Option Agreement. The Company shall issue the Shares to Purchaser by entering such Shares in Purchaser’s name as of such date in the books and records of the Company or, if applicable, a duly authorized transfer agent of the Company, against payment of the exercise price therefor by Purchaser. If applicable, the Company will deliver to Purchaser a certificate representing the Shares as soon as practicable following such date.

3. Limitations on Transfer. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in the Shares except in compliance with the provisions below and applicable securities laws.

(a) Right of First Refusal. Before any Shares held by Purchaser or any transferee of Purchaser (either being sometimes referred to herein as the “Holder”) may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(a) (the “Right of First Refusal”).

(i) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating: (i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or


other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the “Purchase Price”) and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s).

(ii) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the Purchase Price. If the Purchase Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board in good faith.

(iii) Payment. Payment of the Purchase Price shall be made, at the election of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness, or by any combination thereof within sixty (60) days after receipt of the Notice or in the manner and at the times set forth in the Notice.

(iv) Holder’s Right to Transfer. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section 3(a), then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Purchase Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section 3 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, or if the Holder proposes to change the price or other terms to make them more favorable to the Proposed Transferee, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.

(v) Exception for Certain Family Transfers. Anything to the contrary contained in this Section 3(a) notwithstanding, and provided that such transfer complies with applicable securities laws, the transfer of any or all of the Shares during Purchaser’s lifetime or on Purchaser’s death by will or intestacy to Purchaser’s Immediate Family or a trust for the benefit of Purchaser’s Immediate Family shall be exempt from the provisions of this Section 3(a). “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 3, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3.

(b) Company’s Right to Purchase upon Involuntary Transfer. In the event of any transfer by operation of law or other involuntary transfer (including death or divorce, but excluding a transfer to Immediate Family as set forth in Section 3(a)(v) above) of all or a portion of the Shares by the record holder thereof, the Company shall have an option to purchase all of the Shares transferred at the greater of the purchase price paid by Purchaser pursuant to this Agreement or the Fair Market Value of the Shares on the date of transfer (as

 

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determined by the Board). Upon such a transfer, the person acquiring the Shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such Shares shall be provided to the Company for a period of thirty (30) days following receipt by the Company of written notice by the person acquiring the Shares.

(c) Assignment. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any holder or holders of capital stock of the Company or other persons or organizations.

(d) Restrictions Binding on Transferees. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement. Any sale or transfer of the Company’s Shares shall be void unless the provisions of this Agreement are satisfied.

(e) Termination of Rights. The right of first refusal granted the Company by Section 3(a) above and the option to repurchase the Shares in the event of an involuntary transfer granted the Company by Section 3(b) above shall terminate upon the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”). Upon termination of the right of first refusal described in Section 3(a) above the Company will remove any stop-transfer notices referred to in Section 5(b) below and related to the restrictions in this Section 3 and, if certificates are issued, a new certificate or certificates representing the Shares not repurchased shall be issued, on request, without the legend referred to in Section 5(a)(ii) below and delivered to Purchaser.

(f) Transfer Prohibited. Notwithstanding anything else to the contrary set forth herein, the Holder may not transfer the Shares except in compliance with the restrictions on transfer set forth in Section 8.14 of the Company’s Amended and Restated Bylaws.

4. Investment and Taxation Representations. In connection with the purchase of the Shares, Purchaser represents to the Company the following:

(a) Purchaser is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing these securities for investment for his or her own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act or under any applicable provision of state law. Purchaser does not have any present intention to transfer the Shares to any person or entity.

(b) Purchaser understands that the Shares have not been registered under the Securities Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser’s investment intent as expressed herein.

(c) Purchaser further acknowledges and understands that the securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser further acknowledges and understands that the Company is under no obligation to register the securities. Purchaser understands that the

 

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certificate(s) evidencing the securities will be imprinted with a legend which prohibits the transfer of the securities unless they are registered or such registration is not required in the opinion of counsel for the Company.

(d) Purchaser is familiar with the provisions of Rules 144 and 701, each promulgated under the Securities Act, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer of the securities (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions. Purchaser understands that the Company provides no assurances as to whether he or she will be able to resell any or all of the Shares pursuant to Rule 144 or Rule 701, which rules require, among other things, that the Company be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, that resales of securities take place only after the holder of the Shares has held the Shares for certain specified time periods, and under certain circumstances, that resales of securities be limited in volume and take place only pursuant to brokered transactions. Notwithstanding this paragraph (d), Purchaser acknowledges and agrees to the restrictions set forth in paragraph (e) below.

(e) Purchaser further understands that in the event all of the applicable requirements of Rule 144 or 701 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk.

(f) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.

5. Restrictive Legends and Stop-Transfer Orders.

(a) Legends. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws):

 

  (i)

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF

 

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  COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.

 

  (ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE HOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

(c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

6. No Employment Rights. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Purchaser’s employment or consulting relationship, for any reason, with or without cause.

7. Lock-Up Agreement. In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however or whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering.

8. Miscellaneous.

(a) Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

(b) Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in

 

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writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

(c) Severability. If one or more provisions of this Agreement are held to be unenforceable under Applicable Laws, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(d) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party’s address as set forth below or as subsequently modified by written notice.

(e) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(f) Successors and Assigns. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company.

(g) California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

[Signature Page Follows]

 

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The parties have executed this Exercise Agreement as of the date first set forth above.

 

THE COMPANY:
OPOWER, INC.
By:    
  (Signature)
Name:    
Title:    
Address:
 
 
PURCHASER:
 
Address:
 
 

 

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I,                         , spouse of                         , have read and hereby approve the foregoing Agreement. In consideration of the Company’s granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be irrevocably bound by the Agreement and further agree that any community property or other such interest shall hereby by similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement.

 

 

 

Spouse of                          (if applicable)

 

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THE AWARD GRANTED PURSUANT TO THIS RESTRICTED STOCK UNIT AGREEMENT AND THE SHARES ISSUABLE UPON THE SETTLEMENT THEREOF HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

RESTRICTED STOCK UNIT AGREEMENT

UNDER THE OPOWER, INC.

AMENDED AND RESTATED 2007 STOCK PLAN, AS AMENDED

Name of Grantee:                         

No. of Restricted Stock Units Granted:                         

Grant Date:                         

Vesting Commencement Date: [November 18,             , February 18,            , May 18,              or August 18,             ]

Expiration Date:

[No later than 7 years from Grant Date]

Pursuant to the OPower, Inc. Amended and Restated 2007 Stock Plan, as amended (the “Plan”), and the terms and conditions set forth in this Restricted Stock Unit Agreement, OPower, Inc., a Delaware corporation (together with any successor, the “Company”), hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock of the Company.

1. Restrictions on Transfer of Award. The Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and, subject to the restrictions contained in this Restricted Stock Unit Agreement and the Plan, Shares issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Section 2 of this Restricted Stock Unit Agreement and (ii) Shares have been issued to the Grantee in accordance with the terms of the Plan and this Restricted Stock Unit Agreement.

2. Conditions and Vesting of Restricted Stock Units. The Restricted Stock Units are subject to both a time-based condition (the “Time Condition”) and performance-based vesting (the “Performance Vesting”) described in paragraphs (a) and (b) below, both of which must be satisfied prior to the Expiration Date before the Restricted Stock Units will be deemed vested and may be settled in accordance with Section 4 of this Restricted Stock Unit Agreement.

(a) Time Condition. Subject to the Performance Vesting described in paragraph (b) below, 25 percent of the Restricted Stock Units shall satisfy the Time Condition on the first anniversary of the Vesting Commencement Date; provided that the Grantee continues to have Continuous Service Status with the Company at such time. Thereafter, the


remaining 75 percent of the Restricted Stock Units shall satisfy the Time Condition in 12 equal quarterly installments following the first anniversary of the Vesting Commencement Date, provided the Grantee continues to have Continuous Service Status with the Company at such time. Notwithstanding anything in this Restricted Stock Unit Agreement to the contrary in the case of a Sale Event, the Restricted Stock Units shall be treated as provided in Section 14(c) of the Plan.

(i) Acceleration. Unless the Grantee’s Continuous Service Status has earlier terminated, the Time Condition schedule set forth above shall be accelerated such that:

(A) any portion of the RSU that has not satisfied the Time Condition shall immediately satisfy the Time Condition upon the termination of the Grantee’s Continuous Service Status as a result of the Grantee’s death; and

(B) 50% of the portion of the RSU that has not satisfied the Time Condition shall satisfy the Time Condition if (i) a Corporate Transaction has occurred, (ii) the RSU has been continued, assumed or substituted in accordance with Section 14 of the Plan, or any successor provision, and (iii) the Grantee’s Continuous Service Status has been terminated without Cause within one year after the consummation of such Corporate Transaction.

(b) Performance Vesting. Subject to the Time Condition described in paragraph (a) above, the Restricted Stock Units shall only satisfy the Performance Vesting on the first to occur of (i) a Triggering Event or (ii) the Grantee’s Continuous Service Status though the expiration of the Lock-up Period (as defined in Section 9 below) immediately following the Company’s Initial Public Offering, in either case, prior to the Expiration Date.

(c) Vesting Date. Each date as of which both the Time Condition and Performance Vesting described in paragraphs (a) and (b) have been satisfied with respect to any Restricted Stock Units shall be referred to as a “Vesting Date.” No Vesting Date shall occur after the Expiration Date. To the extent the Restricted Stock Units have not satisfied both the Time Condition and the Performance Vesting, such Restricted Stock Units shall expire and be of no further force or effect on the Expiration Date.

3. Termination of Continuous Service Status. If the Grantee’s Continuous Service Status with the Company terminates for any reason (excluding death) prior to the satisfaction of the Time Condition set forth in Section 2(a) above, any Restricted Stock Units that have not satisfied the Time Condition as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such forfeited Restricted Stock Units. Any Restricted Stock Units that have satisfied the Time Condition as of such date shall remain subject to the Performance Vesting set forth in Section 2(b) above, but shall expire and be of no further force or effect if the Performance Vesting is not satisfied prior to the Expiration Date.

 

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4. Receipt of Shares of Stock. As soon as practicable following each Vesting Date, but in no event later than March 15th of the year following the calendar year in which the Vesting Date occurs, the Company shall issue to the Grantee the number of Shares equal to the aggregate number of Restricted Stock Units that have satisfied the Time Condition and Performance Vesting pursuant to Section 2 of this Restricted Stock Unit Agreement on such Vesting Date and the Grantee shall thereafter have all the rights of a holder of capital stock of the Company with respect to such Shares.

5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Restricted Stock Unit Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 4(c) of the Plan. Capitalized terms in this Restricted Stock Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Tax Withholding. The Grantee shall, not later than the date as of which the receipt or settlement of this Award becomes a taxable event for Federal income tax purposes, satisfy any Federal, state, and local taxes required by law to be withheld on account of such taxable event. Such withholding shall be satisfied, in the Company’s sole discretion, (i) by the Company withholding from Shares to be issued to the Grantee a number of Shares with an aggregate Fair Market Value that would satisfy the minimum withholding amount due; (ii) with respect to a Grantee who is not an executive officer or Director nor subject to the reporting requirements of Section 16 of the Exchange Act at the time of such withholding, by the Company causing its transfer agent to sell from the number of Shares to be issued to the Grantee, the number of Shares necessary to satisfy the Federal, state and local taxes required by law to be withheld from the Grantee on account of such transfer; or (iii) by requiring the Grantee to pay to the Company, or make arrangements satisfactory to the Administrator for payment of, the required tax withholding obligation.

7. Miscellaneous Provisions.

(a) Equitable Relief. The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Restricted Stock Unit Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Restricted Stock Unit Agreement.

(b) Adjustments for Changes in Capital Structure. If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Common Stock, the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Restricted Stock Unit Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Grantee in exchange for, or by virtue of his or her ownership of, this Award or Shares acquired pursuant thereto.

(c) Change and Modifications. This Restricted Stock Unit Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms

 

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be effective. This Restricted Stock Unit Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.

(e) Governing Law. The Award and the provisions of this Restricted Stock Unit Agreement are governed by and constructed in accordance with the laws of the State of Delaware.

(f) Headings. The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Restricted Stock Unit Agreement and shall not be considered in the interpretation of this Restricted Stock Unit Agreement.

(g) Saving Clause. If any provision(s) of this Restricted Stock Unit Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(h) Notices. All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(i) Benefit and Binding Effect. This Restricted Stock Unit Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Restricted Stock Unit Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(j) Counterparts. For the convenience of the parties and to facilitate execution, this Restricted Stock Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(k) Integration. This Restricted Stock Unit Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

(l) Successors and Assigns. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company’s successors and assigns. The rights and obligations of Grantee under this Agreement may not be assigned.

8. Dispute Resolution.

 

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(a) Except as provided below, any dispute arising out of or relating to the Plan or the Award, this Restricted Stock Unit Agreement, or the breach, termination or validity of the Plan, the Award or this Restricted Stock Unit Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be Arlington, VA.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Grantee, each party to this Restricted Stock Unit Agreement and any other holder of Shares issued pursuant to this Restricted Stock Unit Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 8 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Restricted Stock Unit Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for

 

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the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

9. Acknowledgements of the Grantee.

(a) Investment Intent at Grant. The Grantee represents and agrees that the Shares to be acquired upon settlement of this Award will be acquired for investment, and not with a view to the sale or distribution thereof.

(b) Investment Intent at Settlement. In the event that the sale of Shares under the Plan is not registered under the U.S. Securities Act of 1933, as amended, but an exemption is available that requires an investment representation or other representation, the Grantee shall represent and agree at the time of settlement of this Award resulting in the transfer of Shares that the Shares being acquired are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

(c) No Obligation to Continue Service Relationship. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Restricted Stock Unit Agreement to continue the Grantee’s Continuous Service Status, and neither the Plan nor this Restricted Stock Unit Agreement shall interfere in any way the right of the Company or any Subsidiary to terminate the Continuous Service Status of the Grantee at any time.

(d) Lock-Up Agreement. In connection with the Company’s Initial Public Offering and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, the Grantee hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days plus an additional 34 days as may be required to comply with applicable regulation, following the effective date of any underwritten registration statement of the Company filed under the Securities Act) from the effective date of such registration as may be requested by the Company or such managing underwriters (such period of time, the “Lock-up Period”) and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering.

(e) Effect of Agreement. Grantee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof (and has had an opportunity to consult counsel regarding the Award terms), and hereby accepts this Award and agrees to be bound by its contractual terms as set forth herein and in the Plan. Grantee hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Plan Administrator regarding any questions relating to this Award. In the event of a conflict between the terms and provisions of the Plan and the terms and provisions of this Agreement, the Plan terms and provisions shall prevail.

 

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(f) Imposition of Other Requirements. The Company reserves the right to impose other requirements on Grantee’s participation in the Plan and on any Award or Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with Applicable Law or facilitate the administration of the Plan. Grantee agrees to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. Furthermore, Grantee acknowledges that the laws of the country in which Grantee is working at the time of grant and settlement of this Award or the sale of Shares received pursuant to this Agreement (including any rules or regulations governing securities, foreign exchange, tax, labor, or other matters) may subject Grantee to additional procedural or regulatory requirements that Grantee is and will be solely responsible for and must fulfill.

(g) Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Grantee’s current or future participation in the Plan by electronic means or to request Grantee’s consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

[SIGNATURE PAGE FOLLOWS]

 

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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

OPOWER, INC.
By:    
Name:
Title:
Address:

By signing below, the Grantee agrees that this Award is granted under, and governed by the terms and conditions of, the Amended and Restated 2007 Stock Plan, as amended, and this Restricted Stock Unit Agreement, specifically including the arbitration provisions set forth in Section 8 of this Restricted Stock Unit Agreement. Section 9 of this Restricted Stock Unit Agreement includes important acknowledgements of the Grantee, each of which are accepted and confirmed by the Grantee’s signature below.

 

GRANTEE:
 
Name:
Address:

EX-10.3

Exhibit 10.3

OPOWER, INC.

2014 STOCK INCENTIVE PLAN

SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS

The name of the plan is the Opower, Inc. 2014 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and other key persons (including Consultants) of Opower, Inc. (the “Company”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

The following terms shall be defined as set forth below:

“Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Administrator” means either the Board or the compensation committee of the Board or a similar committee performing the functions of the compensation committee and which is comprised of not less than two Non-Employee Directors who are independent.

“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, Cash-Based Awards, Performance Share Awards and Dividend Equivalent Rights.

“Award Certificate” means a written or electronic document setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Certificate is subject to the terms and conditions of the Plan.

“Board” means the Board of Directors of the Company.

“Cash-Based Award” means an Award entitling the recipient to receive a cash-denominated payment.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

“Consultant” means any natural person that provides bona fide services to the Company, and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.


“Covered Employee” means an employee who is a “Covered Employee” within the meaning of Section 162(m) of the Code.

“Dividend Equivalent Right” means an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee.

“Effective Date” means the date on which the Plan is approved by stockholders as set forth in Section 21.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Market or another national securities exchange, the determination shall be made by reference to the closing price. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there was a closing price; provided further, however, that if the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.

“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

“Initial Public Offering” means the consummation of the first underwritten, firm commitment public offering pursuant to an effective registration statement under the Act covering the offer and sale by the Company of its equity securities, or such other event as a result of or following which the Stock shall be publicly held.

“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.

“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.

“Performance-Based Award” means any Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award granted to a Covered Employee that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code and the regulations promulgated thereunder.

 

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“Performance Criteria” means the criteria that the Administrator selects for purposes of establishing the Performance Goal or Performance Goals for an individual for a Performance Cycle. The Performance Criteria (which shall be applicable to the organizational level specified by the Administrator, including, but not limited to, the Company or a unit, division, group, or Subsidiary of the Company) that will be used to establish Performance Goals are limited to the following: total shareholder return, earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of the Stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of Stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group.

“Performance Cycle” means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Criteria will be measured for the purpose of determining a grantee’s right to and the payment of a Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award, the vesting and/or payment of which is subject to the attainment of one or more Performance Goals. Each such period shall not be less than 12 months.

“Performance Goals” means, for a Performance Cycle, the specific goals established in writing by the Administrator for a Performance Cycle based upon the Performance Criteria.

“Performance Share Award” means an Award entitling the recipient to acquire shares of Stock upon the attainment of specified Performance Goals.

“Restricted Stock Award” means an Award of shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant.

“Restricted Stock Units” means an Award of phantom stock units to a grantee.

“Sale Event” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

Sale Price” means the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share of Stock pursuant to a Sale Event.

 

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“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.

“Stock” means the Common Stock, par value $0.000005 per share, of the Company, subject to adjustments pursuant to Section 3.

“Stock Appreciation Right” means an Award entitling the recipient to receive shares of Stock having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.

“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly.

“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.

“Unrestricted Stock Award” means an Award of shares of Stock free of any restrictions.

 

SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

(a) Administration of Plan. The Plan shall be administered by the Administrator.

(b) Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

(i) to select the individuals to whom Awards may from time to time be granted;

(ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-Based Awards, Performance Share Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;

(iii) to determine the number of shares of Stock to be covered by any Award;

(iv) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the forms of Award Certificates;

(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award provided that the Administrator generally shall not exercise such discretion to accelerate Awards subject to Sections 7 and 8 except in the event of the grantee’s death, disability or retirement, or a change in control (including a Sale Event);

 

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(vi) subject to the provisions of Section 5(b), to extend at any time the period in which Stock Options may be exercised; and

(vii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.

(c) Delegation of Authority to Grant Options and Restricted Stock Units. Subject to applicable law, the Administrator, in its discretion, may delegate to the Chief Executive Officer or Chief Financial Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Options and Restricted Stock Units to individuals who are (i) not subject to the reporting and other provisions of Section 16 of the Exchange Act and (ii) not Covered Employees. Any such delegation by the Administrator shall include a limitation as to the amount of Options and Restricted Stock Units that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.

(d) Award Certificate. Awards under the Plan shall be evidenced by Award Certificates that set forth the terms, conditions and limitations for each Award which may include, without limitation, the term of an Award and the provisions applicable in the event employment or service terminates.

(e) Indemnification. Neither the Board nor the Administrator, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s articles or bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.

(f) Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have employees or other individuals eligible for Awards, the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv)

 

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establish subplans and modify exercise procedures and other terms and procedures, to the extent the Administrator determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Administrator determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

(a) Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 5,000,000 shares (the “Initial Limit”), subject to adjustment as provided in Section 3(c), plus on January 1, 2015 and each January 1 thereafter, the number of shares of Stock reserved and available for issuance under the Plan shall be cumulatively increased by 5 percent of the number of shares of Stock issued and outstanding on the immediately preceding December 31 or such lesser number of shares of Stock as determined by the Administrator (the “Annual Increase”). Subject to such overall limitation, the maximum aggregate number of shares of Stock that may be issued in the form of Incentive Stock Options shall not exceed the Initial Limit cumulatively increased on January 1, 2015 and on each January 1 thereafter by the lesser of the Annual Increase for such year or 5,000,000 shares of Stock, subject in all cases to adjustment as provided in Section 3(c). The shares of Stock underlying any Awards under the Plan and under the Company’s Amended and Restated 2007 Stock Plan that are forfeited, canceled, held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. In the event the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 5,000,000 shares of Stock may be granted to any one individual grantee during any one calendar year period. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.

(b) [Reserved.]

(c) Changes in Stock. Subject to Section 3(d) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the

 

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Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Incentive Stock Options, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-Based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, and (v) the exercise price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.

(d) Mergers and Other Transactions. Except as the Administrator may otherwise specify with respect to particular Awards in the relevant Award Certificate, in the case of and subject to the consummation of a Sale Event, the parties thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. To the extent the parties to such Sale Event do not provide for the assumption, continuation or substitution of Awards, all Options and Stock Appreciation Rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event, all other Awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Sale Event and all Awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a Sale Event in the Administrator’s discretion or to the extent specified in the relevant Award Certificate and upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate. In the event of such termination, (i) the Company shall have the option (in its sole discretion) to make or provide for a cash payment to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights; or (ii) each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights (to the extent then exercisable) held by such grantee.

(e) Substitute Awards. The Administrator may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of

 

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another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a).

SECTION 4. ELIGIBILITY

Grantees under the Plan will be such full or part-time officers and other employees, Non-Employee Directors and key persons (including Consultants) of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.

SECTION 5. STOCK OPTIONS

Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.

(a) Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5 shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.

(b) Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.

(c) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date. The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.

 

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(d) Method of Exercise. Stock Options may be exercised in whole or in part, by giving written or electronic notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award Certificate:

(i) In cash, by certified or bank check or other instrument acceptable to the Administrator;

(ii) Through the delivery (or attestation to the ownership) of shares of Stock that are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;

(iii) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or

(iv) With respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price.

Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award Certificate or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.

(e) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

 

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SECTION 6. STOCK APPRECIATION RIGHTS

(a) Exercise Price of Stock Appreciation Rights. The exercise price of a Stock Appreciation Right shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant.

(b) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.

(c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator. The term of a Stock Appreciation Right may not exceed ten years.

SECTION 7. RESTRICTED STOCK AWARDS

(a) Nature of Restricted Stock Awards. The Administrator shall determine the restrictions and conditions applicable to each Restricted Stock Award at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such Award Certificate shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.

(b) Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock and receipt of dividends; provided that if the lapse of restrictions with respect to the Restricted Stock Award is tied to the attainment of performance goals, any dividends paid by the Company during the performance period shall accrue and shall not be paid to the grantee until and to the extent the performance goals are met with respect to the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Stock shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Stock are vested as provided in Section 7(d) below, and (ii) certificated Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe.

(c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award Certificate. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, if a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any Restricted Stock that has not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other service relationship), and thereafter shall cease to

 

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represent any ownership of the Company by the grantee or rights of the grantee as a stockholder. Following such deemed reacquisition of unvested Restricted Stock that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.

(d) Vesting of Restricted Stock. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed “vested.” Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the provisions of Section 7(c) above.

SECTION 8. RESTRICTED STOCK UNITS

(a) Nature of Restricted Stock Units. The Administrator shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such Award Certificate shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. At the end of the vesting period period, vested Restricted Stock Units shall be settled in the form of shares of Stock. To the extent that an award of Restricted Stock Units is subject to Section 409A, it may contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order for such Award to comply with the requirements of Section 409A.

(b) Election to Receive Restricted Stock Units in Lieu of Compensation. The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of an award of Restricted Stock Units. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed number of Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate. Any Restricted Stock Units that are elected to be received in lieu of cash compensation shall be fully vested, unless otherwise provided in the Award Certificate.

(c) Rights as a Stockholder. A grantee shall have the rights as a stockholder only as to shares of Stock acquired by the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the phantom stock units underlying his Restricted Stock Units, subject to such terms and conditions as the Administrator may determine.

 

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(d) Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

SECTION 9. UNRESTRICTED STOCK AWARDS

Grant or Sale of Unrestricted Stock. The Administrator may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

SECTION 10. CASH-BASED AWARDS

Grant of Cash-Based Awards. The Administrator may, in its sole discretion, grant Cash-Based Awards to any grantee in such number or amount and upon such terms, and subject to such conditions, as the Administrator shall determine at the time of grant. The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and may be made in cash or in shares of Stock, as the Administrator determines.

SECTION 11. PERFORMANCE SHARE AWARDS

(a) Nature of Performance Share Awards. The Administrator may, in its sole discretion, grant Performance Share Awards independent of, or in connection with, the granting of any other Award under the Plan. The Administrator shall determine whether and to whom Performance Share Awards shall be granted, the Performance Goals, the periods during which performance is to be measured, which may not be less than one year except in the case of a Sale Event, and such other limitations and conditions as the Administrator shall determine.

(b) Rights as a Stockholder. A grantee receiving a Performance Share Award shall have the rights of a stockholder only as to shares actually received by the grantee under the Plan and not with respect to shares subject to the Award but not actually received by the grantee. A grantee shall be entitled to receive shares of Stock under a Performance Share Award only upon satisfaction of all conditions specified in the Performance Share Award Certificate (or in a performance plan adopted by the Administrator).

(c) Termination. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in all Performance Share Awards shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

 

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SECTION 12. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES

(a) Performance-Based Awards. Any employee or other key person providing services to the Company and who is selected by the Administrator may be granted one or more Performance-Based Awards in the form of a Restricted Stock Award, Restricted Stock Units, Performance Share Awards or Cash-Based Award payable upon the attainment of Performance Goals that are established by the Administrator and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Administrator. The Administrator shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for any Performance Cycle. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Administrator, in its discretion, may adjust or modify the calculation of Performance Goals for such Performance Cycle in order to prevent the dilution or enlargement of the rights of an individual (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development, (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or (iii) in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions provided however, that the Administrator may not exercise such discretion in a manner that would increase the Performance-Based Award granted to a Covered Employee. Each Performance-Based Award shall comply with the provisions set forth below.

(b) Grant of Performance-Based Awards. With respect to each Performance-Based Award granted to a Covered Employee (or any other eligible individual that the Administrator determines is reasonably likely to become a Covered Employee), the Administrator shall select, within the first 90 days of a Performance Cycle (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the Performance Criteria for such grant, and the Performance Goals with respect to each Performance Criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). Each Performance-Based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The Performance Criteria established by the Administrator may be (but need not be) different for each Performance Cycle and different Performance Goals may be applicable to Performance-Based Awards to different Covered Employees.

(c) Payment of Performance-Based Awards. Following the completion of a Performance Cycle, the Administrator shall meet to review and certify in writing whether, and to what extent, the Performance Goals for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-Based Awards earned for the Performance Cycle. The Administrator shall then determine the actual size of each Covered Employee’s Performance-Based Award, and, in doing so, may reduce or eliminate the amount of the Performance-Based Award for a Covered Employee if, in its sole judgment, such reduction or elimination is appropriate.

 

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(d) Maximum Award Payable. The maximum Performance-Based Award payable to any one Covered Employee under the Plan for a Performance Cycle is 5,000,000 shares of Stock (subject to adjustment as provided in Section 3(c) hereof) or $2,000,000 in the case of a Performance-Based Award that is a Cash-Based Award.

SECTION 13. DIVIDEND EQUIVALENT RIGHTS

(a) Dividend Equivalent Rights. A Dividend Equivalent Right may be granted hereunder to any grantee as a component of an award of Restricted Stock Units, Restricted Stock Award or Performance Share Award or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Certificate. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of an award of Restricted Stock Units or Restricted Stock Award with performance vesting or Performance Share Award shall provide that such Dividend Equivalent Right shall be settled only upon settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award.

(b) Interest Equivalents. Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.

(c) Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in all Dividend Equivalent Rights or interest equivalents granted as a component of an award of Restricted Stock Units, Restricted Stock Award or Performance Share Award that has not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

SECTION 14. TRANSFERABILITY OF AWARDS

(a) Transferability. Except as provided in Section 14(b) below, during a grantee’s lifetime, his or her Awards shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards shall be subject, in whole or in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.

(b) Administrator Action. Notwithstanding Section 14(a), the Administrator, in its discretion, may provide either in the Award Certificate regarding a given Award or by subsequent

 

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written approval that the grantee (who is an employee or director) may transfer his or her Non-Qualified Options to his or her immediate family members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award. In no event may an Award be transferred by a grantee for value.

(c) Family Member. For purposes of Section 14(b), “family member” shall mean a grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which these persons (or the grantee) own more than 50 percent of the voting interests.

(d) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

SECTION 15. TAX WITHHOLDING

(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax withholding obligations being satisfied by the grantee.

(b) Payment in Stock. Subject to approval by the Administrator, the Company’s minimum required tax withholding obligation may be satisfied, in whole or in part, by the Company withholding from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.

SECTION 16. SECTION 409A AWARDS

To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable

 

15


upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. Further, the settlement of any such Award may not be accelerated except to the extent permitted by Section 409A.

SECTION 17. TRANSFER, LEAVE OF ABSENCE, ETC.

For purposes of the Plan, the following events shall not be deemed a termination of employment:

(a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or

(b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.

SECTION 18. AMENDMENTS AND TERMINATION

The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent. Except as provided in Section 3(c) or 3(d), without prior stockholder approval, in no event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect repricing through cancellation and re-grants or cancellation of Stock Options or Stock Appreciation Rights in exchange for cash. To the extent required under the rules of any securities exchange or market system on which the Stock is listed, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 18 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c) or 3(d).

SECTION 19. STATUS OF PLAN

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.

 

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SECTION 20. GENERAL PROVISIONS

(a) No Distribution. The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.

(b) Delivery of Stock Certificates. Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. All Stock certificates delivered pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.

(c) Stockholder Rights. Until Stock is deemed delivered in accordance with Section 20(b), no right to vote or receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.

(d) Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.

(e) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policies and procedures, as in effect from time to time.

 

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(f) Forfeiture of Awards. If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then any grantee who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 shall reimburse the Company for the amount of any Award received by such individual under the Plan during the 12-month period following the first public issuance or filing with the United States Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement. The Administrator shall also have the authority to cause the forfeiture of Awards to the extent required under other applicable Federal law.

SECTION 21. EFFECTIVE DATE OF PLAN

This Plan shall become effective immediately prior to the Company’s Initial Public Offering, following stockholder approval of the Plan in accordance with applicable state law, the Company’s bylaws and articles of incorporation, and applicable stock exchange rules or pursuant to written consent. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the Effective Date and no grants of Incentive Stock Options may be made hereunder after the tenth anniversary of the date the Plan is approved by the Board.

SECTION 22. GOVERNING LAW

This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.

 

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INCENTIVE STOCK OPTION AGREEMENT

UNDER THE OPOWER, INC.

2014 STOCK INCENTIVE PLAN

 

Name of Optionee:  

 

  

No. of Option Shares:

 

 

     

Option Exercise Price per Share:

  $  

 

     
 

[FMV on Grant Date (110% of FMV if a 10% owner)]

  
Grant Date:  

 

     

Expiration Date:

 

 

     
 

[up to 10 years (5 if a 10% owner)]

  

Pursuant to the Opower, Inc. 2014 Stock Incentive Plan as amended through the date hereof (the “Plan”), Opower, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.000005 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.

1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains an employee of the Company or a Subsidiary on such dates:

 

    

Incremental Number of
Option Shares Exercisable*

  

Exercisability Date

      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      

 

* Max. of $100,000 per yr.

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.


2. Manner of Exercise.

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; or (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

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(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Employment. If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Optionee’s Death. If the Optionee’s employment terminates by reason of the Optionee’s death, or the Optionee’s death occurs within three months of such termination, any portion of this Stock Option outstanding on the date of termination, to the extent exercisable on such date, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the earlier of the date of death or the termination of the Optionee’s employment or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

(b) Termination Due to Disability. If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such disability, may thereafter be exercised by the Optionee for a period of six months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

(c) Termination for Cause. If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

(d) Other Termination. If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of 30 days from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

 

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The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Status of the Stock Option. This Stock Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that this Stock Option qualifies as such. The Optionee should consult with his or her own tax advisors regarding the tax effects of this Stock Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. To the extent any portion of this Stock Option does not so qualify as an “incentive stock option,” such portion shall be deemed to be a non-qualified stock option. If the Optionee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any Option Shares within the one-year period beginning on the date after the transfer of such shares to him or her, or within the two-year period beginning on the day after the grant of this Stock Option, he or she will so notify the Company within 30 days after such disposition.

7. Tax Withholding. The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the minimum required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

8. No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

9. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

4


10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

11. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

      OPOWER, INC.
      By:  

 

        Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Optionee’s Signature
      Optionee’s name and address:
     

 

     

 

     

 

 

5


NON-QUALIFIED STOCK OPTION AGREEMENT

FOR COMPANY EMPLOYEES

UNDER THE OPOWER, INC.

2014 STOCK INCENTIVE PLAN

 

Name of Optionee:  

 

  

No. of Option Shares:

 

 

     

Option Exercise Price per Share:

  $  

 

     
 

[FMV on Grant Date]

  
Grant Date:  

 

     

Expiration Date:

 

 

     

Pursuant to the Opower, Inc. 2014 Stock Incentive Plan as amended through the date hereof (the “Plan”), Opower, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.000005 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as Optionee remains an employee of the Company or a Subsidiary on such dates:

 

    

Incremental Number of
Option Shares Exercisable

  

Exercisability Date

      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.


2. Manner of Exercise.

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

2


(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Employment. If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Optionee’s Death. If the Optionee’s employment terminates by reason of the Optionee’s death, or the Optionee’s death occurs within three months of such termination, any portion of this Stock Option outstanding on the date of termination, to the extent exercisable on such date, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the earlier of the date of death or the termination of the Optionee’s employment or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

(b) Termination Due to Disability. If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such disability, may thereafter be exercised by the Optionee for a period of six months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

(c) Termination for Cause. If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

(a) Other Termination. If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of 30 days from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

 

3


The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Tax Withholding. The Optionee shall, not later than the date as of which the exercise of this Stock Option becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the minimum required tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

7. No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

8. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

 

4


10. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

      OPOWER, INC.
      By:  

 

        Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Optionee’s Signature
      Optionee’s name and address:
     

 

     

 

     

 

 

5


NON-QUALIFIED STOCK OPTION AGREEMENT

FOR NON-EMPLOYEE DIRECTORS

UNDER OPOWER, INC.

2014 STOCK PLAN

 

Name of Optionee:  

 

  

No. of Option Shares:

 

 

     

Option Exercise Price per Share:

  $  

 

     
 

[FMV on Grant Date]

  
Grant Date:  

 

     

Expiration Date:

 

 

     
  [No more than 10 years]   

Pursuant to the Opower, Inc. 2014 Stock Incentive Plan as amended through the date hereof (the “Plan”), Opower, Inc. (the “Company”) hereby grants to the Optionee named above, who is a Director of the Company but is not an employee of the Company, an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.000005 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains in service as a member of the Board on such dates:

 

    

Incremental Number of
Option Shares Exercisable

  

Exercisability Date

      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      


Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.

2. Manner of Exercise.

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a

 

2


holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination as Director. If the Optionee ceases to be a Director of the Company, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Optionee’s Death. If the Optionee’s service as a Director terminates by reason of the Optionee’s death, or the Optionee’s death occurs within three months of such termination, any portion of this Stock Option outstanding on the date of termination, to the extent exercisable on such date, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the earlier of the date of death or the termination of the Optionee’s service as a Director or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date the Optionee ceases to be a Director shall terminate immediately and be of no further force or effect.

(a) Termination Due to Disability. If the Optionee’s service as a Director terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such disability, may thereafter be exercised by the Optionee for a period of six months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.

(b) Termination for Cause. If the Optionee’s service as a Director terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in a written agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.

(b) Other Termination. If the Optionee’s service as a Director terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless

 

3


otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of 30 days from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date the Optionee ceases to be a Director shall terminate immediately and be of no further force or effect.

The Administrator’s determination of the reason for termination of the Optionee’s service as a Director shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. No Obligation to Continue as a Director. Neither the Plan nor this Stock Option confers upon the Optionee any rights with respect to continuance as a Director.

7. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

8. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

 

4


9. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

      OPOWER, INC.
      By:  

 

        Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Optionee’s Signature
      Optionee’s name and address:
     

 

     

 

     

 

 

5


RESTRICTED STOCK AWARD AGREEMENT

UNDER THE OPOWER, INC.

2014 STOCK PLAN

 

Name of Grantee:   

 

  
No. of Shares:   

 

     
Grant Date:   

 

     

Pursuant to the Opower, Inc. 2014 Stock Incentive Plan (the “Plan”) as amended through the date hereof, Opower, Inc. (the “Company”) hereby grants a Restricted Stock Award (an “Award”) to the Grantee named above. Upon acceptance of this Award, the Grantee shall receive the number of shares of Common Stock, par value $0.000005 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan. The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator.

1. Award. The shares of Restricted Stock awarded hereunder shall be issued and held by the Company’s transfer agent in book entry form, and the Grantee’s name shall be entered as the stockholder of record on the books of the Company. Thereupon, the Grantee shall have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below. The Grantee shall (i) sign and deliver to the Company a copy of this Award Agreement and (ii) deliver to the Company a stock power endorsed in blank.

2. Restrictions and Conditions.

(a) Any book entries for the shares of Restricted Stock granted herein shall bear an appropriate legend, as determined by the Administrator in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan.

(b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting.

(c) If the Grantee’s employment with the Company and its Subsidiaries is voluntarily or involuntarily terminated for any reason (including death) prior to vesting of shares of Restricted Stock granted herein, all shares of Restricted Stock shall immediately and automatically be forfeited and returned to the Company.

3. Vesting of Restricted Stock. The restrictions and conditions in Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date.


    

Incremental Number of

Shares Vested

  

Vesting Date

      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      

Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Stock. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3.

4. Dividends. Dividends on shares of Restricted Stock shall be paid currently to the Grantee.

5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Tax Withholding. The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. Except in the case where an election is made pursuant to Paragraph 8 below, the Company shall have the authority to cause the required minimum tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued or released by the transfer agent a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due.

8. Election Under Section 83(b). The Grantee and the Company hereby agree that the Grantee may, within 30 days following the Grant Date of this Award, file with the Internal Revenue Service and the Company an election under Section 83(b) of the Internal Revenue Code. In the event the Grantee makes such an election, he or she agrees to provide a copy of the election to the Company. The Grantee acknowledges that he or she is responsible for obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with regard to such election.

9. No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

 

2


10. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

11. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

 

3


12. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

      OPOWER, INC.
      By:  

 

        Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Grantee’s Signature
      Grantee’s name and address:
     

 

     

 

     

 

 

4


RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR COMPANY EMPLOYEES

UNDER THE OPOWER, INC.

2014 STOCK INCENTIVE PLAN

 

Name of Grantee:   

 

  
No. of Restricted Stock Units:   

 

     
Grant Date:   

 

     

Pursuant to the Opower, Inc. 2014 Stock Incentive Plan as amended through the date hereof (the “Plan”), Opower, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.000005 per share (the “Stock”) of the Company.

1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

2. Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

    

Incremental Number of

Restricted Stock Units Vested

  

Vesting Date

      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.

3. Termination of Employment. If the Grantee’s employment with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.


4. Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Tax Withholding. The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the required minimum tax withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to the Grantee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due.

7. Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

8. No Obligation to Continue Employment. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

9. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

 

2


11. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

      OPOWER, INC.
      By:  

 

        Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Grantee’s Signature
      Grantee’s name and address:
     

 

     

 

     

 

 

3


RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR NON-EMPLOYEE DIRECTORS

UNDER THE OPOWER, INC.

2014 STOCK INCENTIVE PLAN

 

Name of Grantee:   

 

  
No. of Restricted Stock Units:   

 

     
Grant Date:   

 

     

Pursuant to the Opower, Inc. 2014 Stock Incentive Plan as amended through the date hereof (the “Plan”), Opower, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.000005 per share (the “Stock”) of the Company.

1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

2. Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains in service as a member of the Board on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

    

Incremental Number of

Restricted Stock Units Vested

  

Vesting Date

      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      
                                         (            %)                                      

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.

3. Termination of Service. If the Grantee’s service with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.


4. Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

7. No Obligation to Continue as a Director. Neither the Plan nor this Award confers upon the Grantee any rights with respect to continuance as a Director.

8. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.

 

2


10. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

      OPOWER, INC.
      By:  

 

        Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Grantee’s Signature
      Grantee’s name and address:
     

 

     

 

     

 

 

3


EX-10.4

Exhibit 10.4

OPOWER, INC.

SENIOR EXECUTIVE CASH INCENTIVE BONUS PLAN

1. Purpose

This Senior Executive Cash Incentive Bonus Plan (the “Incentive Plan”) is intended to provide an incentive for superior work and to motivate eligible executives of Opower, Inc. and its subsidiaries (together, the “Company”) toward even higher achievement and business results, to tie their goals and interests to those of the Company and its stockholders and to enable the Company to attract and retain highly qualified executives. The Incentive Plan is for the benefit of Covered Executives (as defined below).

2. Covered Executives

From time to time, the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) may select certain key executives (the “Covered Executives”) to be eligible to receive bonuses hereunder. Participation in this Plan does not change the “at will” nature of a Covered Executive’s employment with the Company.

3. Administration

The Compensation Committee shall have the sole discretion and authority to administer and interpret the Incentive Plan.

4. Bonus Determinations

(a) Corporate Performance Goals. A Covered Executive may receive a bonus payment under the Incentive Plan based upon the attainment of one or more performance objectives that are established by the Compensation Committee and relate to financial and operational metrics with respect to the Company or any of its subsidiaries (the “Corporate Performance Goals”), including the following: cash flow (including, but not limited to, operating cash flow and free cash flow); revenue; corporate revenue; earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in the market price of the Company’s common stock; economic value-added; acquisitions or strategic transactions; operating income (loss); return on capital, assets, equity, or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of the Company’s common stock; bookings, new bookings or renewals; sales or market shares; number of customers, number of new customers or customer references; operating income and/or net annual recurring revenue, any of which may be (A) measured in absolute terms or compared to any incremental increase, (B) measured in terms of growth, (C) compared to another company or companies or to results of a peer group, (D) measured against the market as a whole and/or as compared to applicable market indices and/or (E) measured on a pre-tax or post-tax basis (if applicable). Further, any Corporate Performance Goals may be used to measure the performance of the Company as a whole or a business unit or other segment of the Company, or one or more product lines or specific markets. The Corporate Performance Goals may differ from Covered Executive to Covered Executive.


(b) Calculation of Corporate Performance Goals. At the beginning of each applicable performance period, the Compensation Committee will determine whether any significant element(s) will be included in or excluded from the calculation of any Corporate Performance Goal with respect to any Covered Executive. In all other respects, Corporate Performance Goals will be calculated in accordance with the Company’s financial statements, generally accepted accounting principles, or under a methodology established by the Compensation Committee at the beginning of the performance period and which is consistently applied with respect to a Corporate Performance Goal in the relevant performance period.

(c) Target; Minimum; Maximum. Each Corporate Performance Goal shall have a “target” (100 percent attainment of the Corporate Performance Goal) and may also have a “minimum” hurdle and/or a “maximum” amount.

(d) Bonus Requirements; Individual Goals. Except as otherwise set forth in this Section 4(d): (i) any bonuses paid to Covered Executives under the Incentive Plan shall be based upon objectively determinable bonus formulas that tie such bonuses to one or more performance targets relating to the Corporate Performance Goals, (ii) bonus formulas for Covered Executives shall be adopted in each performance period by the Compensation Committee and communicated to each Covered Executive at the beginning of each performance period and (iii) no bonuses shall be paid to Covered Executives unless and until the Compensation Committee makes a determination with respect to the attainment of the performance targets relating to the Corporate Performance Goals. Notwithstanding the foregoing, the Compensation Committee may adjust bonuses payable under the Incentive Plan based on achievement of one or more individual performance objectives or pay bonuses (including, without limitation, discretionary bonuses) to Covered Executives under the Incentive Plan based on individual performance goals and/or upon such other terms and conditions as the Compensation Committee may in its discretion determine.

(e) Individual Target Bonuses. The Compensation Committee shall establish a target bonus opportunity for each Covered Executive for each performance period. For each Covered Executive, the Compensation Committee shall have the authority to apportion the target award so that a portion of the target award shall be tied to attainment of Corporate Performance Goals and a portion of the target award shall be tied to attainment of individual performance objectives.

(f) Employment Requirement. Subject to any additional terms contained in a written agreement between the Covered Executive and the Company, the payment of a bonus to a Covered Executive with respect to a performance period shall be conditioned upon the Covered Executive’s employment by the Company on the bonus payment date. If a Covered Executive was not employed for an entire performance period, the Compensation Committee may pro rate the bonus based on the number of days employed during such period.

5. Timing of Payment

(a) With respect to Corporate Performance Goals established and measured on a basis more frequently than annually (e.g., quarterly or semi-annually), the Corporate Performance

 

2


Goals will be measured at the end of each performance period after the Company’s financial reports with respect to such period(s) have been published. If the Corporate Performance Goals and/or individual goals for such period are met, payments will be made as soon as practicable following the end of such period, but not later 74 days after the end of the fiscal year in which such performance period ends.

(b) With respect to Corporate Performance Goals established and measured on an annual or multi-year basis, Corporate Performance Goals will be measured as of the end of each such performance period (e.g., the end of each fiscal year) after the Company’s financial reports with respect to such period(s) have been published. If the Corporate Performance Goals and/ or individual goals for any such period are met, bonus payments will be made as soon as practicable, but not later than 74 days after the end of the relevant fiscal year.

(c) For the avoidance of doubt, bonuses earned at any time in a fiscal year must be paid no later than 74 days after the last day of such fiscal year.

6. Amendment and Termination

The Company reserves the right to amend or terminate the Incentive Plan at any time in its sole discretion.

 

3


EX-10.5

Exhibit 10.5

DEED OF LEASE

By and Between

MEPT COURTHOUSE TOWER, LLC

(“Landlord”)

and

OPOWER, INC.

(“Tenant”)

* * * * * *

Courthouse Tower

1515 N. Courthouse Road

Arlington, Virginia


DEED OF LEASE

THIS DEED OF LEASE (this “Lease”) is made as of Nov 3, 2010 (the “Effective Date”), by and between

 

Landlord    MEPT COURTHOUSE TOWER, LLC, a Delaware limited liability company
   and
Tenant    OPOWER, INC., a Delaware corporation

TABLE OF CONTENTS

 

SECTION 1: DEFINITIONS

     1   

Access Laws

     1   

Additional Rent

     1   

Base Rent

     1   

Brokers

     1   

Building

     2   

Business Day

     2   

Claims

     2   

Commencement Date

     2   

Effective Date

     2   

ERISA

     2   

Estimated Operating Costs Allocable to the Premises

     2   

Events of Default

     2   

Force Majeure Event

     2   

Governmental Agency

     2   

Governmental Requirements

     2   

Green Agency Ratings

     2   

Hazardous Substance(s)

     3   

Land

     3   

Landlord

     3   

Landlord’s Agents

     3   

Lease Memorandum

     3   

Lease Security Deposit

     3   

Lease Term

     3   

Lender

     3   

Manager

     3   

Manager’s Address

     3   

Operating Costs

     3   

Operating Costs Allocable to the Premises

     3   

Parking Ratio

     3   

Permitted Use

     3   

Premises

     3   

Prepaid Rent

     4   

Prime Rate

     4   

 

i


Property Taxes

     4   

Rent Commencement Date

     4   

Restrictions

     4   

Telecommunication Facilities

     4   

Telecommunication Services

     4   

Tenant

     4   

Tenant Alterations

     5   

Tenant Improvement Allowance

     5   

Tenant Improvements

     5   

Tenant’s Agents

     5   

Tenant’s Pro Rata Share (Operating Costs)

     5   

Tender Date

     5   

Year

     5   

SECTION 2: PREMISES AND TERM

     5   

2.1

 

Lease of Premises

     5   

2.2

 

Lease Term

     5   

2.3

 

Improvements

     5   

2.4

 

Tender Date

     6   

2.5

 

Temporary Premises Prior to the Commencement Date

     7   

2.6

 

Lease Memorandum

     8   

2.7

 

Use and Conduct of Business

     9   

2.8

 

Compliance with Governmental Requirements and Rules and Regulations

     9   

2.9

 

Sustainable Building Operations

     10   

SECTION 3: BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE

     10   

3.1

 

Payment of Rental

     10   

3.2

 

Base Rent

     10   

3.3

 

Lease Security Provisions

     10   

3.4

 

Additional Rent

     13   

3.5

 

Utilities

     20   

3.6

 

Holdover

     21   

3.7

 

Late Charge

     22   

3.8

 

Default Rate

     22   

SECTION 4: MANAGEMENT AND LEASING PROVISIONS

     22   

4.1

 

Maintenance and Repair by Landlord

     22   

4.2

 

Maintenance and Repair by Tenant

     23   

4.3

 

Common Areas/Security

     23   

4.4

 

Tenant Alterations

     24   

4.5

 

Tenant’s Work Performance

     26   

4.6

 

Surrender of Possession

     27   

4.7

 

Removal of Property

     27   

4.8

 

Access

     28   

4.9

 

Damage or Destruction

     28   

4.10

 

Condemnation

     30   

4.11

 

Parking

     30   

4.12

 

Indemnification

     31   

 

ii


4.13

 

Tenant Insurance

     32   

4.14

 

Landlord’s Insurance

     33   

4.15

 

Waiver of Subrogation

     33   

4.16

 

Assignment and Subletting by Tenant

     33   

4.17

 

Assignment by Landlord

     37   

4.18

 

Estoppel Certificates and Financial Statements

     37   

4.19

 

Modification for Lender

     38   

4.20

 

Hazardous Substances

     38   

4.21

 

Access Laws

     39   

4.22

 

Quiet Enjoyment

     40   

4.23

 

Signs

     40   

4.24

 

Subordination

     42   

4.25

 

Brokers

     43   

4.26

 

Limitation on Recourse

     43   

4.27

 

Mechanic’s Liens and Tenant’s Personal Property Taxes

     43   

SECTION 5: DEFAULT AND REMEDIES

     44   

5.1

 

Events of Default

     44   

5.2

 

Remedies

     45   

5.3

 

Right to Perform

     47   

5.4

 

Landlord’s Default

     47   

5.5

 

Tenant’s “Self-Help” Rights

     47   

SECTION 6: MISCELLANEOUS PROVISIONS

     49   

6.1

 

Notices

     49   

6.2

 

Attorneys’ Fees and Expenses

     49   

6.3

 

No Accord and Satisfaction

     49   

6.4

 

Successors; Joint and Several Liability

     50   

6.5

 

Choice of Law

     50   

6.6

 

No Waiver of Remedies

     50   

6.7

 

Offer to Lease

     50   

6.8

 

Force Majeure Event

     50   

6.9

 

Severability; Captions

     51   

6.10

 

Interpretation

     51   

6.11

 

Incorporation of Prior Agreement; Amendments

     51   

6.12

 

Authority

     51   

6.13

 

Time of Essence

     51   

6.14

 

Survival of Obligations

     52   

6.15

 

Consent to Service

     52   

6.16

 

Landlord’s Authorized Agents

     52   

6.17

 

Waiver of Jury Trial

     52   

6.18

 

Option to Extend

     52   

6.19

 

Right of First Offer

     54   

6.20

 

Tenant’s Termination Option

     56   

 

iii


LISTING OF EXHIBITS

 

Exhibit A    Legal Description of the Land
Exhibit B    Drawing Showing Location of the Premises
Exhibit B-1    Drawing Showing Location of the Temporary Premises
Exhibit C    Work Agreement
Exhibit D    Form of Lease Memorandum
Exhibit E    Rules and Regulations
Exhibit F    Location and Description of Exterior Building Sign
Exhibit G    Schedule of Cleaning Services
Exhibit H    Form of Letter of Credit

 

iv


SECTION 1: DEFINITIONS

Access Laws: The Americans With Disabilities Act of 1990 (including the Americans with Disabilities Act Accessibility Guidelines for Building and Facilities) and all other Governmental Requirements relating to the foregoing.

Additional Rent: Defined in paragraph captioned “Additional Rent”.

Base Rent: The monthly amount of Base Rent and the portion of the Lease Term during which such monthly amount of Base Rent is payable shall be determined from the following table. For convenience and ease of reference, the annual rental rate for the computation of Base Rent and the annual Base Rent are also set forth in tabular form with the annual Base Rent equaling the monthly Base Rent installment multiplied by twelve. In the case of any conflict or inconsistency between the Monthly Base Rent installment and the other illustrative figures set forth in tabular form or in any computations utilizing such figures, the monthly Base Rent installment so specified shall be controlling and conclusive.

 

Applicable Portion of Lease Term

   Rate Per
Rentable
     Annual Base     Monthly Base
Rent Installment
 

Beginning

  

Ending

   Sq. Ft./Annum      Rent     (annual ÷ 12)  

On the Rent Commencement Date (hereinafter defined)

   On the last day of the twelfth (12th) full calendar month of the Lease Term    $ 41.75       $ 1,758,843.96   $ 146,570.33   

On the first day of the thirteenth (13th) full calendar month of the Lease Term

   On the last day of the twenty-fourth (24th) full calendar month of the Lease Term    $ 43.00       $ 1,811,504.04      $ 150,958.67   

On the first day of the twenty-fifth (25th) full calendar month of the Lease Term

   On the last day of the thirty-sixth (36th) full calendar month of the Lease Term    $ 44.29       $ 1,865,849.16      $ 155,487.43   

On the first day of the thirty-seventh (37th) full calendar month of the Lease Term

   On the last day of the forty-eighth (48th) full calendar month of the Lease Term    $ 45.62       $ 1,921,879.32      $ 160,156.61   

On the first day of the forty-ninth (49th) full calendar month of the Lease Term

   On the last day of the sixtieth (60th) full calendar month of the Lease Term    $ 46.99       $ 1,979,594.76      $ 164,966.23   

On the first day of the sixty-first (61st) full calendar month of the Lease Term

   On the last day of the sixty-third (63rd) full calendar month of the Lease Term    $ 48.40       $ 2,038,995.24   $ 169,916.27   

[* on an annualized basis]

Brokers: Tenant was represented in this transaction by Jones Lang LaSalle Brokerage, Inc., a licensed real estate broker. Landlord was represented in this transaction by LPC Commercial Services, Inc., a licensed real estate broker.


Building: The building located on the Land at 1515 N. Courthouse Road, Arlington, Virginia, commonly known as Courthouse Tower and containing approximately 246,929 rentable square feet, of which (a) approximately 232,795 rentable square feet is office space and (b) approximately 14,134 rentable square feet is retail space.

Business Day: Calendar days, except for Saturdays and Sundays and holidays when banks are closed in Arlington County, Virginia.

Claims: An individual and collective reference to any and all claims, demands, damages, injuries, losses, liens, liabilities, penalties, fines, lawsuits, actions, other proceedings and reasonable, actual and documented expenses (including reasonable attorneys’ fees and expenses incurred in connection with the proceeding whether at trial or on appeal).

Commencement Date: The earlier to occur of: (a) the date on which Tenant takes beneficial occupancy of the Premises or (b) the date which is sixty (60) days following the Tender Date (hereinafter defined).

Effective Date: The date on which this Lease has been executed and delivered by each party hereto, which date shall be set forth in the preamble hereof.

ERISA: The Employee Retirement Income Security Act of 1974, as now or hereafter amended, and the regulations promulgated under it.

Estimated Operating Costs Allocable to the Premises: Defined in paragraph 3.4.6 of this Lease (captioned “Additional Definitions”).

Events of Default: One or more of those events or states of facts defined in paragraph 5.1 of this Lease (captioned “Events of Default”).

Force Majeure Event: Defined in paragraph 6.8.

Governmental Agency: The United States of America, the state in which the Land is located, any county, city, district, municipality or other governmental subdivision, court or agency or quasi-governmental agency having jurisdiction over the Land and any board, agency or authority associated with any such governmental entity, including the fire department having jurisdiction over the Land.

Governmental Requirements: Any and all statutes, ordinances, codes, laws, rules, regulations (including zoning regulations), orders and directives of any Governmental Agency as now or later amended.

Green Agency Ratings: Any one or more of the following ratings (as same may be in effect or amended or supplemented from time to time): the U.S. EPA’s Energy Star® rating and/or Design to Earn Energy Star, the Green Building Initiative’s Green Globes TM for Continual Improvement of Existing Buildings (“Green GlobesTM-CIEB”), the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) rating system, LEED EBOM (existing buildings operations and maintenance) and any applicable substitute third party or government mandated or approved rating systems.

 

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Hazardous Substance(s): Asbestos, PCBs, petroleum or petroleum-based chemicals or substances, urea formaldehyde or any chemical, material, element, compound, solution, mixture, sub-stance or other matter of any kind whatsoever which is now or later defined, classified, listed, designated or regulated as hazardous, toxic or radioactive by any Governmental Agency.

Land: The land upon which the Building is located in Arlington County, Virginia, as legally described in Exhibit A attached to this Lease.

Landlord: The trust named on the first page of this Lease, or its successors and assigns as provided in paragraph 4.17 of this Lease (captioned “Assignment by Landlord”).

Landlord’s Agents: The trustee of and consultants and advisors to the Landlord and employees of the foregoing.

Lease Memorandum: Defined in paragraph 2.6 of this Lease (captioned “Lease Memorandum”).

Lease Security Deposit: The letter of credit delivered by Tenant to Landlord as described in paragraph 3.3 of this Lease (captioned, “Lease Security Provisions”).

Lease Term: Commencing on the Commencement Date and ending on the last day of the sixty-third (63rd) full calendar month of the Lease Term.

Lender: Defined in paragraph 5.4 of this Lease (captioned “Landlord’s Default”).

Manager: LPC Commercial Services, Inc., or its replacement as specified by written notice from Landlord to Tenant.

Manager’s Address: 1515 N. Courthouse Road, Suite 100, Arlington, Virginia 22201, which address may be changed by written notice from Landlord to Tenant.

Operating Costs: Defined in subparagraph 3.4.6 of this Lease (captioned “Additional Definitions”).

Operating Costs Allocable to the Premises: Defined in paragraph captioned “Additional Rent”.

Parking Ratio: 1.9 non-reserved parking spaces per 1,000 rentable square feet of the Premises (for a total of 80 non-reserved parking spaces).

Permitted Use: All lawful general business office uses, so long as such use is (i) permitted by all Governmental Requirements applicable to the Building, and (ii) consistent with the uses which are typically undertaken in office buildings of a quality, size and condition comparable to the Building located in Arlington, Virginia market.

Premises: The portion of the Building located on the seventh (7th) and eighth (8th) floors of the Building which is depicted on the plan attached as Exhibit B. Landlord and Tenant agree

 

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that the Premises contains approximately 42,128 rentable square feet of space, measured in accordance with the standard BOMA Method of Measurement (ANSI-1996). The foregoing number of rental square feet shall be final, conclusive and controlling.

Prepaid Rent: $146,570.33, to be applied toward Base Rent for the first month in which full Base Rent is due.

Prime Rate: Defined in paragraph 3.8 of this Lease (captioned “Default Rate”).

Property Taxes: (a) Any form of ad valorem real or personal property tax or assessment imposed by any Governmental Agency on the Land, Building or related improvements; (b) any other form of tax or assessment, license fee, license tax, tax or excise on rent or any other levy, charge, expense or imposition made or required by any Governmental Agency on any interest of Landlord in such Land, Building, or related improvements; (c) any fee for services charged by any Governmental Agency for any services such as fire protection, street, sidewalk and road maintenance, refuse collection, school systems or other services provided or formerly provided to property owners and residents within the immediate area of the Land; (d) any governmental impositions allocable to or measured by the area of any or all of such Land, Building or related improvements or the amount of any base rent, additional rent or other sums payable under any lease for any or all of such Land, Building or related improvements; (e) any gross receipts or other excise tax allocable to, measured by or a function of any one or more of the matters referred to in clause (d); (f) any impositions by any Governmental Agency on any transaction evidenced by a lease of any or all of such Land, Building or related improvements or charge with respect to any document to which Landlord is a party creating or transferring an interest or an estate in any or all of such Land, Building or related improvements; and (g) any increase in any of the foregoing based upon construction of improvements or change of ownership of any or all of such Land, Building or related improvements. Property Taxes shall not include taxes on Landlord’s net income, gift, excise, succession inheritance taxes, estate taxes or franchise taxes. There shall be excluded from the definition of Property Taxes any taxes based on increases in assessed value of the Land or Building which is based exclusively on an increase in the physical size of the Building or the Land.

Rent Commencement Date: The date which is one hundred twenty (120) days following the Commencement Date.

Restrictions: Any covenants, conditions and restrictions applicable to the Land.

Telecommunication Facilities: Equipment, facilities, apparatus and other materials utilized for the purpose of electronic telecommunication, including cable, switches, wires, conduit and sleeves.

Telecommunication Services: Services associated with electronic telecommunications, whether in a wired or wireless mode. Basic voice telephone services are included within this definition.

Tenant: The person or entity(ies) named on the first page of this Lease.

 

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Tenant Alterations: Defined in paragraph 4.4 of this Lease (captioned “Tenant Alterations”).

Tenant Improvement Allowance: Landlord’s contribution to the cost of Tenant Improvements (including architectural, engineering, permitting and space planning fees), which maximum shall not exceed One Million One Hundred Fifty-Eight Thousand Five Hundred Twenty Dollars ($1,158,520.00).

Tenant Improvements: Defined in the Work Agreement attached hereto as Exhibit C (the “Work Agreement”).

Tenant’s Agents: Tenant’s employees, officers, directors, members, agents and contractors.

Tenant’s Pro Rata Share (Operating Costs): Eighteen and 10/100 percent (18.10%), which shall be final, conclusive and controlling during the Lease Term for all purposes.

Tenant’s Pro Rata Share (Property Taxes): Seventeen and 06/100 percent (17.06%), which shall be final, conclusive and controlling during the Lease Term for all purposes.

Tender Date: The date on which Landlord tenders possession of the Premises to Tenant, which is anticipated to occur on July 1, 2011.

Year: A calendar year commencing January 1 and ending December 31 or that portion of the calendar year which occurs within the Lease Term.

SECTION 2: PREMISES AND TERM

2.1 Lease of Premises. Landlord leases the Premises to Tenant, and Tenant leases the Premises from Landlord, upon the terms and conditions set forth in this Lease.

2.2 Lease Term. The Lease Term shall be for the period stated in the definition of that term, unless earlier terminated as provided in this Lease.

2.3 Improvements.

2.3.1 Landlord shall deliver the Premises to Tenant on the Tender Date in a vacant, clean condition with all physical injury or damage to the Premises (exclusive of normal wear and tear or damage to carpeting or cosmetic elements of the Premises) repaired and all property from previous occupants removed (unless otherwise approved in advance by Tenant), without (a) any obligation on Landlord’s part to undertake any improvements or alterations therein; or (b) any representations or warranties regarding the condition thereof. Notwithstanding the foregoing, Tenant shall, at Tenant’s sole cost and expense, subject to application of the Tenant Improvement Allowance, construct in the Premises the Tenant Improvements described in the Work Agreement in accordance with the terms of the Work Agreement. In the event that Landlord and Tenant have not finally agreed upon the scope and details of the Tenant Improvements as of the date of execution of this Lease, Tenant’s submissions to Landlord of plans and specifications detailing such work shall be subject to Landlord’s written approval in accordance with the Work Agreement. The Tenant Improvements shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld, conditioned or

 

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delayed, except to the extent that any component of the Tenant Improvements is structural in nature or affects, or involves a change that materially affects the base Building or any of the base Building systems (including without limitation the plumbing, electric, HVAC, mechanical or life safety systems) therein, which Tenant Improvements shall be approved or rejected by Landlord in its sole discretion. The Tenant Improvements shall comply with all applicable building codes, laws and regulations (including, without limitation, Access Laws), shall not require any changes to or modifications of any of the mechanical, electrical, plumbing or other systems of the Building, and shall otherwise be constructed in strict accordance with the terms of the Work Agreement.

2.3.2 The cost of all design, architectural and engineering work, construction costs, construction supervision, contractor’s overhead and profit, licenses and permits, and all other costs and expenses incurred in connection with the Tenant Improvements shall be at Tenant’s sole cost and expense, subject to the application of the Tenant Improvement Allowance as more fully set forth in the Work Agreement. Landlord shall pay the Tenant Improvement Allowance as provided in the Work Agreement. All costs incurred in respect of the Tenant Improvements in excess of the Tenant Improvement Allowance shall be paid by Tenant as more fully set forth in the Work Agreement.

2.3.3 Tenant shall use commercially reasonable efforts to ensure that the Tenant Improvements are designed in a manner consistent with Landlord’s commercially reasonable sustainability practices and certain Green Agency Ratings (as determined by Landlord in its sole discretion exercised in good faith), including without limitation the SMACNA “IAQ Guidelines for Occupied Buildings under Construction” 1995, Chapter 3. Tenant shall use commercially reasonable efforts to obtain and maintain LEED for Commercial Interiors certification with respect to the Tenant Improvements, and Tenant shall register the Premises with the U.S. Green Building Council prior to completion of the Contract Documents (as defined in the Work Agreement).

2.4 Tender Date. Provided Tenant has delivered to Landlord evidence satisfactory to Landlord that all insurance required to be carried by Tenant and its contractor hereunder is effective, Tenant shall have access to the Premises immediately upon the occurrence of the Tender Date; provided, however, Tenant shall not be entitled to make any alterations or improvements to the Premises until the Tenant’s Plans (as defined in the Work Agreement) have been finally approved by Landlord in accordance with the terms of the Work Agreement. Except for purposes of constructing the Tenant Improvements in accordance with terms of the Work Agreement, Tenant shall not be permitted to occupy the Premises for purposes of conducting its business therein or for any other purpose, unless and until Tenant delivers to Landlord a certificate of occupancy which shall be obtained by Tenant at Tenant’s sole cost and expense. If Landlord notifies Tenant that the Premises are otherwise available for Tenant to take possession thereof, but Tenant is not permitted to take possession of the Premises because Tenant has failed to deliver to Landlord evidence reasonably satisfactory to Landlord that all insurance required hereunder to be carried by Tenant and its contractor is effective, then (a) Landlord shall be deemed to have tendered possession of the Premises to Tenant, (b) neither the Commencement Date nor the Rent Commencement Date shall be delayed as a result thereof, and (c) Tenant shall be entitled to access the Premises when such evidence of insurance has been delivered to Landlord. Between the Tender Date and the day immediately preceding the Rent

 

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Commencement Date, all terms and provisions of this Lease shall be in full force and effect, except that Tenant shall not be obligated to pay any (i) Base Rent, or (ii) Additional Rent pursuant to paragraph 3.4, below. Notwithstanding any contrary provision contained in this Lease, in the event the Tender Date has not occurred on or before January 1, 2012 (the “Delay Termination Date”). Tenant shall have the right to terminate this Lease by delivering to Landlord, at any time between the Delay Termination Date and January 31, 2012, at least thirty (30) days prior written notice of such termination; provided, however, in the event the Tender Date occurs on or before the expiration of such thirty (30)-day period, such termination notice shall be deemed to be void and this Lease shall remain in full force and effect as though no termination notice had been delivered by Tenant. In the event the Tender Date does not occur on or before the expiration of such thirty (30)-day period, this Lease shall immediately terminate, and Landlord shall return the Prepaid Rent and the Security Deposit to Tenant. The Delay Termination Date shall be extended by one (1) day for each day that the Tender Date is delayed as a result of Force Majeure events described in paragraph 6.8 of this Lease.

2.5 Temporary Premises Prior to the Commencement Date.

2.5.1 Notwithstanding anything to the contrary contained in this Lease, Landlord shall lease to Tenant, and Tenant shall lease from Landlord approximately 21,064 rentable square feet of space located on the sixth (6th) floor of the Building, as outlined on the attached hereto Exhibit B-1 (the “Temporary Premises”), for a term (the “Temporary Premises Term”) commencing on July 1, 2011 (the “Temporary Premises Commencement Date”) and expiring on the date which immediately precedes the Commencement Date (the “Temporary Premises Expiration Date”). Landlord shall deliver the Temporary Premises to Tenant on the Temporary Premises Commencement Date in its “as-is” condition without (a) any obligation on Landlord’s part to undertake or pay for any improvements or alterations therein; or (b) any representations or warranties regarding the condition thereof; provided, however, all Building systems servicing the Temporary Premises shall be in good working order on the Temporary Premises Commencement Date. In the event Landlord is unable to deliver possession of any portion of the Temporary Premises to Tenant on the Temporary Premises Commencement Date for any reason whatsoever, including without limitation the failure of an existing tenant to vacate such space, Landlord shall not be liable or responsible for any claims, damages or liabilities in connection therewith or by reason thereof. In such event, Landlord shall use reasonable efforts to make the Temporary Premises available to Tenant as soon as reasonably practicable after the Temporary Premises Commencement Date.

2.5.2 During the Temporary Premises Term, Tenant shall not pay any Base Rent or Additional Rent pursuant to paragraphs 3.4.1, 3.4.2 and 3.4.7, below; provided, however Tenant acknowledges and agrees that Tenant shall be responsible for all other Additional Rent payable under the Lease with respect to the Temporary Premises, including without limitation, paragraph 3.4.8, below.

2.5.3 Except as otherwise set forth in this paragraph 2.5, the lease of the Temporary Premises shall be upon all the terms, conditions, covenants and agreements provided in this Lease. Without limiting the foregoing but in furtherance thereof, the parties acknowledge that, during the Temporary Premises Term, the term “Premises” as used in this Lease shall include the Temporary Premises. Notwithstanding the foregoing, Tenant shall not (a) assign its interest in the Temporary Premises or sublet all or any portion of the Temporary Premises, or (b) make any Tenant Alterations to the Temporary Premises or any part thereof.

 

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2.5.4 Tenant shall vacate and surrender the Temporary Premises on or before the Temporary Premises Expiration Date, and from and after such date, Tenant shall have no further rights in or to the Temporary Premises. In the event that Tenant shall not immediately surrender the Temporary Premises on or before the Temporary Premises Expiration Date: (a) Tenant shall become a tenant at sufferance and such tenancy shall be subject to all the terms and conditions of paragraph 3.6 of this Lease; and (b) Tenant shall pay to Landlord, for each month (or portion thereof that Tenant remains in the Temporary Premises: (i) monthly Base Rent in the amount of One Hundred Nine Thousand Nine Hundred Twenty-Seven and 76/100 Dollars ($109,927.76); and (ii) all Additional Rent otherwise payable under paragraph 3.4, below, provided that (A) Tenant’s Pro Rata Share (Operating Costs) with respect to the Temporary Premises shall be 9.06%; and (B) Tenant’s Pro Rata Share (Property Taxes) with respect to the Temporary Premises shall be 8.53%. Tenant shall be solely responsible for any costs and expenses associated with moving from the Temporary Premises to the Premises.

2.5.5 Tenant hereby expressly acknowledges and agrees that (a) Tenant currently sub-subleases a portion of the Temporary Premises, containing approximately 3,500 rentable square feet on the sixth (6th) floor of the Building, pursuant to that certain Sub-Sublease Agreement dated as of January 26, 2010 (the “Performance Institute Sub-sublease”), by and between The Performance Institute, Inc, as sub-sublessor (the “Performance Institute”), and Tenant, as sub-sublessee; and (b) Performance Institute subleases a portion of the Temporary Premises, containing approximately 10,800 rentable square feet on the sixth (6th) floor of the Building, pursuant to that certain Sublease Agreement dated as of June 18, 2002, as amended, by and between Sapient Corporation, as sublessor (“Sapient”), and Performance Institute, as sublessee. Tenant further acknowledges that the term of the Performance Institute Sub-sublease expires on June 29, 2011. Tenant represents and warrants to Landlord that Tenant has sought and received Performance Institute’s and Sapient’s consent to Tenant’s occupancy of the Temporary Premises through and including June 30, 2011. Tenant shall indemnify and hold harmless Landlord from and against any cost, damage, claim, liability or expense (including reasonable attorneys’ fees) incurred by or claimed against Landlord, directly or indirectly, as a result of or in any way arising from any breach of the foregoing representation and warranty.

2.6 Lease Memorandum. Contemporaneously with the Commencement Date, Landlord shall prepare and submit to the Tenant a Lease Memorandum in the form of Exhibit D, completed in good faith by Landlord, and executed by Landlord. The information inserted on the Lease Memorandum shall be controlling and conclusive and shall prevail over any inconsistent provision in this Lease on (a) the mutual execution of the Lease Memorandum by Landlord and Tenant or (b) the lapse of fifteen (15) days following delivery of the Lease Memorandum to Tenant without Tenant delivering to Landlord a written objection to all or part of the information in the Lease Memorandum. If Tenant does object in good faith to any information set forth in the Lease Memorandum, it shall execute the Lease Memorandum subject to its specifically-stated, written objections. Tenant must explain the reasons for its objections in reasonable detail. That portion of the Lease Memorandum to which no objection was made shall be conclusive and controlling. Pending resolution of any dispute by agreement or a final determination by a court of competent jurisdiction in accordance with this Lease, Landlord’s

 

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information as inserted in the Lease Memorandum shall be utilized subject to any later adjustment agreed or found to be appropriate. Tenant’s refusal or failure to execute a Lease Memorandum shall neither prevent nor delay the occurrence of the Commencement Date or the Rent Commencement Date. In no event shall the Lease Memorandum be recorded.

2.7 Use and Conduct of Business.

2.7.1 The Premises are to be used only for the Permitted Uses, and for no other business or purpose without the prior consent of Landlord. Landlord makes no representation or warranty as to the suitability of the Premises for Tenant’s intended use, provided that, to the best of Landlord’s actual knowledge, without independent inquiry or investigation, the Permitted Use is currently permitted in the Premises under Governmental Requirements applicable to the Building. Tenant shall, at its own cost and expense, obtain and maintain any and all licenses, permits, and approvals necessary or appropriate for its use, occupation and operation of the Premises for the Permitted Uses. Tenant’s inability to obtain or maintain any such license, permit or approval necessary or appropriate for its use, occupation or operation of the Premises shall not relieve it of its obligations under this Lease, including the obligation to pay Base Rent and Additional Rent.

2.7.2 No act shall be done in or about the Premises that is unlawful or that will increase the existing rate of insurance on any or all of the Land or Building. Tenant shall not commit or allow to be committed or exist: (a) any waste upon the Premises, (b) any public or private nuisance, or (c) any act or condition which disturbs the quiet enjoyment of any other tenant in the Building, violates any of Landlord’s contracts affecting any or all of the Land or Building, creates or contributes to any work stoppage, strike, picketing, labor disruption or dispute, interferes in any way with the business of Landlord or any other tenant in the Building or with the rights or privileges of any contractors, subcontractors, licensees, agents, concessionaires, subtenants, servants, employees, customers, guests, invitees or visitors or any other persons lawfully in and upon the Land or Building, or causes any impairment or reduction of the good will or reputation of the Land or Building.

2.7.3 Tenant shall not, without the prior consent of Landlord, use any apparatus, machinery, device or equipment in or about the Premises which will cause any substantial noise or vibration or any increase in the normal consumption level of electric power. If any of Tenant’s apparatus, machinery, devices or equipment should disturb the quiet enjoyment of any other tenant in the Building, then Tenant shall provide, at its sole cost and expense, adequate insulation or take other such action, including removing such apparatus, machinery, devices or equipment, as may be reasonably necessary to eliminate the disturbance.

2.8 Compliance with Governmental Requirements and Rules and Regulations. Tenant shall comply with all Governmental Requirements and Restrictions relating to its use, occupancy and operation of the Premises and shall observe such reasonable rules and regulations as may be adopted and published by Landlord from time to time for the safety, care and cleanliness of the Premises and the Building, and for the preservation of good order in the Building and for the administration and management of the Building. The current Rules and Regulations are attached to this Lease as Exhibit E.

 

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2.9 Sustainable Building Operations.

2.9.1 The Building is or may become in the future certified under certain Green Agency Ratings or operated pursuant to Landlord’s sustainable building practices (as same may be in effect or reasonably modified by Landlord from time to time). Landlord’s sustainability practices address (without limitation) the following: whole-building operations and maintenance issues including chemical use; indoor air quality; energy efficiency; water efficiency; recycling programs; exterior maintenance programs; and systems upgrades to meet green building energy, water, Indoor Air Quality, and lighting performance standards. Tenant shall use commercially reasonable efforts to ensure that Tenant’s construction and maintenance methods and procedures, material purchases, and disposal of waste are in compliance with minimum standards and specifications as outlined by any applicable Green Agency Ratings, in addition to all Governmental Requirements.

2.9.2 Tenant shall use commercially reasonable efforts to comply with Landlord’s reasonable energy standards and requirements for the Building, including without limitation those relating to the implementation or use of energy and carbon reduction measures approved by Landlord, energy efficient bulbs in task lighting; use of lighting controls; daylighting measures to avoid overlighting interior spaces; closing shades on the exterior windows of the Premises to avoid over heating the space; turning off lights and equipment at the end of the work day; and purchasing ENERGY STAR® qualified equipment, including but not limited to lighting, office equipment, commercial and residential quality kitchen equipment, vending and ice machines; and purchasing products certified by the U.S. EPA’s Water Sense® program.

SECTION 3: BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE

3.1 Payment of Rental. Except as otherwise expressly set forth in paragraphs 3.5, 4.9 or 4.10, below, Tenant agrees to pay Base Rent, Additional Rent and any other sum due under this Lease to Landlord without demand, deduction, credit, adjustment or offset of any kind or nature, in lawful money of the United States when due under this Lease, at the offices of Manager at Manager’s Address, or to such other party or at such other place as Landlord may from time to time designate in writing.

3.2 Base Rent. On execution of this Lease, Tenant shall pay to Landlord the amount specified in the definition of Prepaid Rent for the month specified in the definition of that term. Commencing on the Rent Commencement Date and thereafter during the Lease Term, Tenant agrees to pay the monthly installments of Base Rent to Landlord, without demand and in advance, on or before the first day of each calendar month of the Lease Term. The monthly Base Rent installment for any partial month at the beginning or end of the Lease Term shall be prorated. Base Rent for any partial month at the beginning of the Lease Term shall be paid by Tenant on the Rent Commencement Date.

3.3 Lease Security Provisions.

3.3.1 As security for the full and faithful payment of all sums due under this Lease and the full and faithful performance of every covenant and condition of this Lease to be performed

 

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by Tenant, within fifteen (15) Business Days after Tenant’s execution and delivery to Landlord of this Lease, Tenant shall deliver to Landlord a letter of credit in the amount of One Million Three Hundred Nineteen Thousand One Hundred Thirty-Three and 00/100 ($1,319,133.00) in favor of Landlord as a lease security deposit (“Lease Security Deposit”). The letter of credit initially delivered pursuant to this paragraph and all substitutions, replacements and renewals of it, must be a form substantially similar to the form set forth on Exhibit H and incorporated by reference herein. Tenant’s failure to deliver the Letter of Credit to Landlord within ten (10) days after Tenant’s execution and delivery to Landlord of this Lease shall constitute an Event of Default (hereinafter defined) under this Lease. As used herein, the term “Letter of Credit” shall mean and refer to a letter of credit which conforms to, and satisfied the requirements of, this subparagraph issued by a federally-insured banking institution reasonably acceptable to Landlord, having total assets of at least Ten Billion Dollars ($10,000,000,000.00) and/or a Standard & Poor’s commercial paper rating of at least A-1. Landlord hereby approves Silicon Valley Bank as the issuer of the Letter of Credit.

3.3.2 Landlord may draw on the Letter of Credit, in whole or in part at Landlord’s election, without advance notice to Tenant at any time or from time to time on or after (a) the occurrence of any Event of Default, (b) if Tenant, or anyone in possession of the Premises through Tenant, holds over, without Landlord’s written consent, after the expiration or earlier termination of this Lease, (c) Landlord is given notice by the issuer of the Letter of Credit that it is terminating the Letter of Credit, and Tenant fails to deliver to Landlord a replacement Letter of Credit at least thirty (30) days prior to such termination date, (d) the Letter of Credit expires on a specified date by its terms and is not renewed or replaced at least thirty (30) days in advance of its expiration date, (e) the then issuer of the Letter of Credit no longer has total assets of at least Ten Billion Dollars ($10,000,000,000) and a Standard & Poor’s commercial paper rating of at least A-1 (“Minimum Bank Threshold”), and Tenant does not replace the Letter of Credit with a Letter of Credit from a bank which complies with the Minimum Bank Threshold within fifteen (15) days of receipt of written notice from Landlord, or (f) to the extent permitted by law, in the event any bankruptcy, insolvency, reorganization or any other debtor creditor proceeding is instituted by or against Tenant.

3.3.3 Upon the occurrence of an Event of Default, Landlord may apply any applicable sum drawn on the Letter of Credit to amounts owing to Landlord under this Lease in such order and priority as Landlord elects in its absolute discretion. If any of the proceeds drawn under the Letter of Credit are not applied immediately to sums owing to Landlord under this Lease, Landlord may retain any such excess proceeds as a cash Lease Security Deposit for application, at Landlord’s election, to future sums owing to Landlord under this Lease, in such order and priority as Landlord elects in its absolute discretion. If Landlord applies any of the proceeds drawn on the Letter of Credit, Tenant shall, within fifteen (15) days after Landlord’s demand, restore the amount of the Letter of Credit drawn so that the Letter of Credit is restored to the original amount of the Letter of Credit, in which event Landlord shall return to Tenant any excess proceeds from the Letter of Credit, within thirty (30) days of such restoration. If Tenant does not restore the Letter of Credit to its original amount within the required time period, such non-restoration shall be considered an Event of Default.

3.3.4 Landlord’s draw and application of all or any portion of the proceeds of the Letter of Credit shall not impair any other rights or remedies provided under this Lease or under

 

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applicable law and shall not be construed as a payment of liquidated damages. If Tenant shall have fully complied with all of the covenants and conditions of this Lease, the Letter of Credit shall be returned to Tenant or, if Landlord has drawn on the Letter of Credit, the remaining proceeds of the Letter of Credit which are in excess of sums due Landlord shall be repaid to Tenant, without interest, within thirty (30) Business Days after the expiration or termination of the Lease Term and delivery of possession of the Premises to Landlord in accordance with this Lease.

3.3.5 Upon any request by Landlord made during the Lease Term, Tenant shall at no expense to Tenant, cooperate in accomplishing any reasonable modification of the Letter of Credit requested by Landlord. If the Letter of Credit should be lost, mutilated, stolen or destroyed, Tenant shall cooperate in obtaining the issuance of a replacement at no expense to Tenant.

3.3.6 Tenant shall not assign or grant any security interest in the Letter of Credit and any attempt to do so shall be void and of no effect.

3.3.7 In the event of a sale or transfer of Landlord’s estate or interest in the Land and Building, Tenant shall have the right to transfer the Letter of Credit to the vendee or the transferee. Tenant shall pay any transfer fees charged by the issuing bank and Landlord shall thereafter be considered released by Tenant from all liability for the return of the Letter of Credit. Tenant shall look solely to the transferee for the return of the Letter of Credit and it is agreed that all of the foregoing shall apply to every transfer or assignment made of the Letter of Credit to a new transferee. Tenant shall cooperate in effecting such transfer.

3.3.8 Intentionally Deleted.

3.3.9 In the event of any rightful and permitted assignment of Tenant’s interest in this Lease, the Letter of Credit (or any other Lease Security Deposit) shall be deemed to be held by Landlord as a deposit made by the assignee, and Landlord shall have no further liability to the assignor with respect to the return of the same.

3.3.10 Notwithstanding anything to the contrary set forth in this paragraph 3.3, provided that the Reduction Requirements (hereinafter defined) have been satisfied by Tenant, then on each of the following dates (each, a “Reduction Date”). Tenant may notify Landlord in writing (the “Reduction Request”) and request that the Lease Security Deposit be reduced by the amount set forth below with respect to the applicable Reduction Date:

 

Reduction Date

   Reduction Amount      Minimum L/C Amount  

Last day of the twenty-fifth (25th) full calendar month following the Rent Commencement Date

   $ 293,140.66       $ 1,025,992.34   

Last day of the thirty-seventh (37th) full calendar month following the Rent Commencement Date

   $ 439,710.99       $ 586,281.35   

Last day of the forty-ninth (49th) full calendar month following the Rent Commencement Date

   $ 293,140.66       $ 293,140.69   

 

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Provided that the Reduction Requirements have been satisfied at the time Landlord receives a Reduction Request, Landlord shall instruct the bank in writing, within thirty (30) days after Landlord’s receipt of the Reduction Request, that the Letter of Credit may be reduced by the Reduction Amount, which reduction shall be effected by Tenant replacing the Letter of Credit then being held by Landlord with a new Letter of Credit (complying with the terms of this Lease) in the amount then required to be maintained with Landlord pursuant to the foregoing provisions (or amending the then existing Letter of Credit to the amount then required to be maintained with Landlord pursuant to the foregoing provisions). Notwithstanding anything to the contrary contained in this paragraph 3.3, the Letter of Credit shall never be reduced under this paragraph 3.3.10 to an amount less than the Minimum L/C Amount set forth in the chart above with respect to the applicable Reduction Date. As used in this paragraph 3.3.10, the term “Reduction Requirements” shall mean the following requirements: (i) Tenant has not assigned its interest in this Lease or sublet more than twenty-five percent (25%) of the Premises, except to a Qualified Tenant Affiliate (hereinafter), (ii) no Event of Default then exists, (iii) there is not then occurring any event or occurrence which if not cured within the applicable time period set forth in this Lease would constitute an Event of Default, (iv) Tenant has not delivered a Termination Notice (hereinafter defined) pursuant to paragraph 6.20, and (v) Tenant has delivered to Landlord current financial statements (including a statement of operations and balance sheet and statement of cash flows) certified as accurate by a certified public accountant and prepared in conformance with generally accepted accounting principles, which financial statements demonstrate that Tenant maintains Ten Million Dollars ($10,000,000.00) in cash and cash equivalents.

3.4 Additional Rent. Definitions of certain terms used in this paragraph are set forth in the last subparagraph of this paragraph entitled “Additional Rent”. Tenant agrees to pay to Landlord additional rent as computed in this paragraph (individually and collectively the “Additional Rent”):

3.4.1 Estimated Operating Costs. Commencing on the first anniversary of the Commencement Date, Tenant shall pay to Landlord as Additional Rent one-twelfth (1/12) of the amount, if any, by which the Estimated Operating Costs Allocable to the Premises exceeds the Base Amount Allocable to the Premises. This sum shall be paid in advance on or before the first day of each calendar month of the Lease Term. Landlord shall furnish Tenant a written statement of Estimated Operating Costs Allocable to the Premises (in a form similar to that delivered by Landlord to Tenant prior to the Effective Date) in advance of the commencement of each Year. If such written statement is furnished after the commencement of the Year (or as to the first Year during the Lease Term, after the Commencement Date), within thirty (30) days of Tenant’s receipt of same, Tenant shall also make a retroactive lump-sum payment to Landlord equal to the monthly payment amount multiplied by the number of months during the Year (or as to the first Year during the Lease Term, after the Commencement Date) for which no payment was paid. Notwithstanding the foregoing, Landlord reserves the right, from time to time during each Year, to revise the Estimated Operating Costs Allocable to the Premises and upon notice to

 

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Tenant of such revision, Tenant shall adjust its payment to Landlord under this subparagraph 3.4.1 accordingly. Notwithstanding the foregoing, in no event shall Tenant be obligated to pay for Controllable Expenses (as defined below) for any calendar year during the Lease Term to the extent that they have increased by more than six percent (6%) per annum, compounded annually on a cumulative basis during the Lease Term beginning with calendar year 2012. As used herein, “Controllable Expenses” means all categories of Operating Costs other than the following categories: (i) the costs of water, sewer, electricity, gas and other utilities serving the Building or the Land, (ii) Property Taxes (it being acknowledged by the parties that, within this Lease, “Property Taxes” are expressly excluded from the term “Operating Costs”), (iii) snow and ice removal, (iv) union labor costs, (v) cost of insurance, (vi) the removal or remediation of hazardous substances, (vii) cleaning costs, (viii) repairs and maintenance which is not undertaken pursuant to an annual service contract, (ix) Permitted Capital Expenditures, and (x) the cost of obtaining permits and other governmental approvals.

3.4.2 Actual Costs. Promptly after the close of each Year (provided that Landlord agrees to use commercially reasonable efforts to deliver same prior to April 1st of each Year), Landlord shall deliver to Tenant a written statement setting forth the Operating Costs Allocable to the Premises during the preceding Year. Landlord agrees that the written statements for the Base Year and each future Year shall contain the same general expense categories. If such Operating Costs Allocable to the Premises for any Year exceed the Estimated Operating Costs Allocable to the Premises paid by Tenant to Landlord pursuant to subparagraph 3.4.1 for such Year, Tenant shall pay the amount of such excess to Landlord within thirty (30) Business Days after receipt of such statement by Tenant. If such statement shows the Operating Costs Allocable to the Premises to be less than the Estimated Operating Costs Allocable to the Premises paid by Tenant to Landlord pursuant to subparagraph 3.4.1, then the amount of such overpayment shall be paid by Landlord to Tenant within thirty (30) days following the date of such statement or, at Tenant’s option, shall be credited towards the installment(s) of Base Rent next coming due from Tenant.

3.4.3 Determination. The determination of Operating Costs Allocable to the Premises shall be made by Landlord using generally accepted accounting principles.

3.4.4 Operating Cost Audit. Landlord shall maintain records concerning estimated and actual Operating Costs Allocable to the Premises for no less than two (2) years following the period covered by the statement or statements furnished Tenant, after which time Landlord may dispose of such records. Provided that there exists no uncured Event of Default under this Lease, Tenant may, at Tenant’s sole cost and expense, cause a Qualified Person (defined below) to inspect Landlord’s records. Such inspection, if any, shall be conducted no more than once each Year, during Normal Business Hours (hereinafter defined) within one hundred twenty (120) calendar days after receipt of Landlord’s written statement of Operating Costs Allocable to the Premises solely for the previous Year, upon first furnishing Landlord at least ten (10) Business Days prior written notice. As a condition precedent to undertaking such inspection: (a) Tenant and the Qualified Person shall execute a Confidentiality Agreement prepared by Landlord and reasonably acceptable to Tenant; and (b) Tenant shall pay all Operating Costs which Landlord claims are owing for the Year in question. Any errors disclosed by the review shall be promptly corrected by Landlord; provided, however, that if Landlord disagrees with any such claimed errors, Landlord shall have the right to cause another review to be made by an auditor of

 

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Landlord’s choice. In the event the results of the review of records (taking into account, if applicable, the results of any additional review caused by Landlord) reveal that Tenant has overpaid obligations for a preceding period, the amount of such overpayment shall be credited against Tenant’s subsequent installment of Base Rent, Additional Rent or other payments due to Landlord under the Lease. In the event that such results show that Tenant has underpaid its obligations for a preceding period, the amount of such underpayment shall be paid by Tenant to Landlord within thirty (30) days of receipt of an invoice from Landlord. If the actual Operating Costs Allocable to the Premises for any given Year were improperly computed and if the actual Operating Costs Allocable to the Premises are overstated by more than 5% in the aggregate, Landlord shall reimburse Tenant for the reasonable cost of its audit within thirty (30) days of receipt of an invoice (and supporting documentation) from Tenant.

3.4.5 End of Lease Term. If the Lease Term shall terminate on a day other than the last day of a Year: (a) Landlord shall estimate the Operating Costs and Property Taxes Allocable to the Premises for such Year predicated on the most recent reliable information available to Landlord; (b) the amount determined under clause (a) of this sentence shall be prorated by multiplying such amount by a fraction, the numerator of which is the number of days within the Lease Term in such Year and the denominator of which is 365; (c) the Operating Costs Base Amount Allocable to the Premises shall be prorated in the manner described in clause (b); (d) the clause (c) amount (i.e., the prorated Base Amount Allocable to the Premises) shall be deducted from the clause (b) amount (i.e., the prorated Operating Costs Allocable to the Premises); (e) if the clause (d) amount exceeds the Estimated Operating Costs Allocable to the Premises paid by Tenant for the last Year in the Lease Term, then Tenant shall pay the excess to Landlord within ten (10) Business Days after Landlord’s delivery to Tenant of a statement for such excess; and (f) if the Estimated Operating Costs Allocable to the Premises paid by Tenant for the last Year in the Lease Term exceeds the clause (d) amount, then provided that Tenant is not then in default of any of its obligations under this Lease, Landlord shall refund to Tenant the excess within the ten (10) Business Day period described in clause (e) (provided, however, that Landlord shall have the right to retain only so much of such excess as is necessary to cure any such default). Landlord’s and Tenant’s obligations under this paragraph shall survive the expiration or other termination of this Lease.

3.4.6 Definitions. Each underlined term in this subparagraph shall have the meaning set forth next to that underlined term:

Operating Costs Base Amount Allocable to the Premises: Operating Costs Allocable to the Premises for the year beginning January 1, 2011 and ending December 31, 2011 (the “Base Year”).

Estimated Operating Costs Allocable to the Premises: Landlord’s written estimate of Operating Costs Allocable to the Premises for a Year to be given by Landlord to Tenant pursuant to subparagraph 3.4.1.

Operating Costs: All expenses paid or incurred by Landlord for maintaining, operating, owning and repairing any or all of the Land, Building, Premises and related improvements, except for Property Taxes, including without limitation all expenses paid or incurred by Landlord for: (a) utilities, including electricity, water, gas, sewers, fire

 

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sprinkler charges, refuse collection, Telecommunication Services (for life safety or in or serving the common areas), heat, cooling or any other similar service and which are not payable directly by tenants in the Building; (b) supplies (in reasonable quantities); (c) cleaning, painting (common areas) and janitorial services (including window washing), landscaping and landscaping maintenance (including irrigating, trimming, mowing, fertilizing, seeding and replacing plants), snow removal and other services; (d) security services, if any; (e) insurance premiums and applicable insurance deductible payments by Landlord; (f) management fees, not to exceed three percent (3%) of annual gross rents payable by tenants of the Building; (g) compensation (including employment taxes and fringe benefits) of all persons and business organizations who perform duties in connection with any service, repair, maintenance or other work included in this subparagraph; (h) license, permit and inspection fees (relating to the common areas); (i) assessments and special assessments due to deed restrictions, declarations or owners associations or other means of allocating costs of a larger tract of which the Land is a part; (j) rental of any machinery or equipment (except as set forth in subsection (v) in the section styled “Exclusions from Operating Costs”); (k) audit fees and accounting services related to the Building, and charges for the computation of the rents and charges payable by tenants in the Building (but only to the extent the cost of such fees and services are in addition to the cost of the management fee); (I) the cost of repairs; (m) charges under maintenance and service contracts; (n) legal fees and other expenses of legal or other dispute resolution proceedings, except as prohibited in the subparagraph styled “Exclusions from Operating Costs”; (o) maintenance and repair of the roof and roof membranes, (p) costs incurred by Landlord for compliance with any and all Governmental Requirements, including Access Laws (unless the violation with respect to which Landlord effects compliance existed on the Effective Date), or to increase the efficiency of any electrical, mechanical or other system servicing the Building or the Land (the “Permitted Capital Expenditures”); (q) elevator service and repair, if any; (r) business taxes and license fees; (s) any other expense or charge relating to the operation, repair or maintenance of the Building which in accordance with generally accepted accounting principles would be considered an expense of maintaining, operating, repairing the Building; (t) the reasonable cost of insurance policies or endorsements purchased to enable Landlord to repair, replace and re-commission the Building in a manner sufficient to obtain re-certification pursuant to any Green Agency Rating or support achieving energy and carbon reduction targets; (u) all costs of maintaining, managing, reporting, commissioning, and recommissioning the Building (or any part thereof that was designed and/or built to be sustainable) to conform to the requirements necessary to obtain any Green Agency Rating; and (v) the amortization of costs of capital improvements in accordance with the immediately-succeeding sentence. Costs associated with capital improvements described in subsection (u), above, or which constitute Permitted Capital Expenditures and which were installed or constructed by Landlord other than in the initial construction of the Building, whether such were constructed or installed before or after the Commencement Date, shall be amortized with interest return at the Prime Rate over the estimated useful life of the capital improvement, determined in accordance with generally accepted accounting principles, provided that only annual amortization of principal and interest attributable to the Lease Term shall be an Operating Cost. The capital improvements referred to in the previous sentence shall

 

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include: replacement of roof structure and roof membranes; exterior painting; parking area resurfacing, resealing and restriping parking areas and driveways and upgrading Building common systems and facilities (including HVAC systems, and if owned by Landlord, Telecommunication Facilities). Operating costs shall be computed on an accrual basis and determined in accordance with GAAP consistently applied throughout the Term of the Lease. Provided however, that to the extent any of the costs enumerated in items (t) or (u), above, create a new line item in, or category of, Operating Costs during any Year after the Base Year (“New Green Costs”), Tenant’s monetary liability with respect to Tenant’s Pro Rata Share of such New Green Costs shall not exceed Seven Thousand Five Hundred and 00/100 Dollars ($7,500.00) with respect to any Year (the “Green Costs Cap”).

Exclusions from Operating Costs: Operating Costs shall not include any of the following: (a) depreciation of the Building (except as otherwise provided herein); (b) payments of principal and interest or other debt costs on any mortgages, deeds of trust, ground leases, or other encumbrances upon the Building; (c) the cost of preparing, improving or altering space for Tenant or any other tenant or occupant; (d) the cost of any repair, restoration, replacement or other item, to the extent Landlord is actually reimbursed therefor by insurance proceeds, another tenant, warranties or condemnation proceeds; (e) leasing commissions, attorneys’ fees, space planners’ fees and advertising costs incurred by Landlord to lease space in the Building to tenants or prospective tenants of the Building or legal fees incurred in lease disputes with tenants; (f) those operating expenses which relate exclusively to the retail space in the Building; (g) costs incurred in connection with the original construction of the Building; (h) any bad debt loss, rent loss, or reserves for bad debts or rent loss; (i) the expense of any extraordinary service provided to other tenants in the Building (but not to Tenant) for which such tenants are separately charged by Landlord”, (j) costs associated with the operation of the entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Building, including limited liability company or partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except to the extent that the actions of Tenant may be an issue in such lawsuit), or costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interests in the Building; (k) the portion of the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Building which relate to the time spent by such employee on matters unrelated to operating, managing or repairing the Building; (I) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants in the Building or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Building (however, this exclusion shall not encompass any such costs relating to any common areas of the Building or the Garage); (m) the portion, if any, of the cost of any services in the Building which are provided by Landlord or its subsidiaries or affiliates to the extent the cost of such services exceeds the cost of such services as rendered by qualified, first class, unaffiliated third parties on a competitive basis; (n) the cost of all goods and services for which Tenant or any other tenant in the Building reimburses Landlord (except through the payment of operating cost pass-throughs) or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement, but does not offer to Tenant; (o) electric power costs for

 

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which any tenant directly contracts with the local public service company; (p) costs arising from the Landlord’s political or charitable contributions; (q) any ground rents or similar payments to a ground lessor; (r) reserves for repairs, maintenance and replacements; (s) costs and expenses incurred in connection with any transfer of an interest in the Building or the Land; (t) costs or expenses necessitated by or resulting from the gross negligence of Landlord, its agents or employees, but only if such costs would not have been incurred but for such gross negligence of Landlord, its agents or employees; (u) interest or penalties arising by reason of Landlord’s failure to timely pay any Property Taxes or Operating Costs; (v) costs incurred to remove any hazardous or toxic wastes, materials or substances from either the Building or the Land which were present in the Building or the Land on the Delivery Date; (w) costs (including attorneys’ fees) incurred by the Landlord due to the knowing violation by Landlord of the terms and conditions of any lease of space in the Building, but only if such cost would not have been incurred but for such knowing violation by Landlord; (x) costs of all sculptures, paintings, and other works of art costing more than $5,000.00 each; and (y) the cost of renting machinery or equipment which, if purchased, would constitute a capital expenditure that is not a permitted Operating Cost, except for (A) items that, if purchased, would constitute Permitted Capital Expenditures, (B) equipment not fixed to the Building which is used in providing janitorial, security or other similar services, and (C) rentals needed in connection with emergencies or normal repairs and maintenance of permanent systems.

Operating Costs Allocable to the Premises: The product of Tenant’s Pro Rata Share (Operating Costs) multiplied times Operating Costs.

Qualified Person: This means a certified public accountant who is experienced in accounting for income and expenses of office projects, who is engaged solely by Tenant on an hourly rate basis, and whose compensation is not based or measured in any way upon any savings in Additional Rent or reduction in Operating Costs Allocable to the Premises achieved through the inspection process described in this subparagraph.

Property Tax Base Amount: Property Taxes Allocable to the Premises payable for the calendar year 2011.

Property Taxes Allocable to the Premises: The product of Tenant’s Pro Rata Share (Property Taxes) multiplied times Property Taxes.

3.4.7 Property Tax Escalation. In addition to the payments required by the previous subparagraphs of this paragraph, commencing on the first anniversary of the Commencement Date, Tenant shall pay as Additional Rent to Landlord one-twelfth (1/12) of the amount, if any, by which (a) estimate of the Property Taxes Allocable to the Premises for the current Year exceeds the Property Tax Base Amount. This sum shall be paid in advance on or before the first day of each calendar month of the Lease Term. Promptly after the close of each Year during the Lease Term (provided that Landlord shall use reasonable efforts to effect delivery by April 1sl of each Year), Landlord shall deliver to Tenant a written statement setting forth (1) actual Property Taxes Allocable to the Premises for the preceding Year, (2) the difference between the amount referred to in clause (1) and the Property Tax Base Amount and (3) differential between the

 

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amount referred to in clause (2) and the sum of the tentative monthly payments toward such amount made by Tenant. If the differential referred to in clause (3) of the previous sentence represents an underpayment by Tenant, such differential shall be paid to Landlord within thirty (30) days after delivery of Landlord’s written statement to Tenant; if such differential represents an overpayment by Tenant, Landlord shall, at its option, either credit such overpayment to the installment(s) of Additional Rent next coming due from Tenant or refund such overpayment to Tenant within thirty (30) days after Tenant’s concurrence in the amount due as a refund. If the Lease Term begins or ends on a day other than the beginning or end of a Year, the amount due as described in clause (2) of this subparagraph shall be prorated on a per diem basis with reference to the Year. The provisions of this subparagraph shall survive the expiration or other termination of this Lease.

3.4.8 Tenant’s Costs. Tenant agrees to reimburse or pay Landlord within thirty (30) days after invoice from Landlord for (a) any cleaning expenses incurred by Landlord (to the extent requested by Tenant or as required by Landlord if Landlord reasonably determines that Tenant has failed to maintain the Premises in the condition required by the terms of this Lease, and following not less than five (5) Business Days written notice to Tenant, and Tenant’s failure to correct such failure to Landlord’s reasonable satisfaction with such time period), including carpet cleaning, garbage and trash removal expenses, over and above the normal cleaning provided by Landlord, if any, or due to the presence of a lunchroom or kitchen or food or beverage dispensing machines within the Premises, (b) any expense incurred by Landlord for usage in the Premises of heating, ventilating and air conditioning services, elevator services, electricity, water, janitorial services, or any other services or utilities over and above the normal usage (on a per rentable square foot basis) for the Building, (c) any expense incurred by Landlord relating to or arising out of the usage by Tenant or Tenant’s Agents of the public or common areas of the Building or Land, or any of the equipment contained therein, which usage is over and above the normal usage for such public or common areas or equipment, and (d) any other direct expense incurred by Landlord on Tenant’s behalf. The normal cleaning to be provided by Landlord to the Premises is described in Exhibit G. Landlord reserves the right to install and activate separate metering of electricity, water or other utilities to the Premises, and Tenant agrees to reimburse or pay Landlord within twenty (20) Business Days after invoice from Landlord for the reasonable, actual and documented costs of such separate metering, in which case the Base Amount Allocable to the Premises and Operating Costs shall be adjusted accordingly. If Tenant desires any of the services specified in this paragraph 3.4.8, at a time other than Normal Business Hours (hereinafter defined), then such services shall be supplied to Tenant upon the written request of Tenant delivered to Landlord before 3:00 p.m. on the Business Day preceding such extra usage, and Tenant shall pay to Landlord the actual cost of such services within thirty (30) days after Landlord has delivered to Tenant an invoice therefor. The costs incurred by Landlord in providing HVAC service to Tenant at a time other than Normal Business Hours, shall include costs for electricity, water, sewage, water treatment, labor, metering, filtering, and maintenance reasonably allocated by Landlord to providing such service. Notwithstanding the foregoing, in the event that Tenant desires HVAC service on a Requested Saturday Morning between the hours of 9:00 a.m. to 1:00 p.m., and provided that Tenant delivers a written request to Landlord prior to 3:00 p.m. on the Business Day preceding the Requested Saturday Morning on which such HVAC service is requested in which Tenant specifies the hours during which such HVAC service is requested, Landlord shall provide HVAC service to the Premises at no additional charge to Tenant during the requested period between 9:00 a.m. to 1:00 p.m. on such Saturday morning (the “Requested Saturday Morning”). As used in this Lease, the term “Normal Business Hours” means 8:00 a.m. to 6:00 p.m. on Business Days

 

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3.4.9 Gross-Up Provision: If less than ninety-five percent (95%) of the net rentable area of the Building is occupied by tenants at all times during any Year, then Operating Costs for such Year shall include ail additional costs and expenses that Landlord reasonably determines would have been incurred had ninety-five percent (95%) of the Building been occupied at all times during such Year by tenants. If at any time during any Year, any part of the Building is leased to a tenant (hereinafter referred to as a “Special Tenant”) which provides its own utilities, cleaning or janitorial services or other services or is not otherwise required to pay a share of Operating Costs in accordance with the methodology set forth in this paragraph 3.4, and Landlord does not incur the cost of such services, Operating Costs for such Year shall be increased by the additional costs for utilities, cleaning and janitorial services and such other applicable expenses as reasonably estimated by Landlord that would have been incurred by Landlord if Landlord had furnished and paid for utilities, cleaning and janitorial services and such other services for the space occupied by the Special Tenant.

3.4.10 Payments Deemed Additional Rent. Any sums payable under this Lease pursuant to this paragraph or otherwise shall be Additional Rent and, subject to applicable notice and cure periods, in the event of nonpayment of such sums, Landlord shall have the same rights and remedies with respect to such nonpayment as it has with respect to nonpayment of the Base Rent due under this Lease.

3.5 Utilities.

3.5.1 Landlord shall have the right from time to time to select the company or companies providing electricity, gas, fuel, one or more categories of Telecommunication Services and any other utility services to the Building (provided that Tenant may select an additional provider of Telecommunications Services in the Building, subject to Landlord’s reasonable approval of same). Tenant shall contract directly and pay for all water, gas, heat, light, power, Telecommunication Services, sewer, sprinkler charges and other utilities used on or from the Premises together with any taxes, penalties, surcharges or similar charges relating to such utilities. If any such service is not separately metered to the Premises or is not otherwise separately accounted for and billed to Tenant, the cost therefor shall be an Operating Cost under this Lease.

3.5.2 Tenant acknowledges that space on the Building rooftop and in the Building risers, equipment rooms and equipment closets is limited. Unless otherwise required by law, neither Tenant, nor a provider of Telecommunication Services to Tenant, in the future shall be entitled to locate or install Telecommunication Facilities in, on or about the Building without (a) first obtaining Landlord’s advance, written consent, which consent shall not be unreasonably withheld, delayed or conditioned, and (b) the advance execution by Landlord and Tenant of a satisfactory agreement granting a license to Tenant for such purposes and setting forth the scope, the additional rent, if any, royalties and the other terms and conditions of that license, and (c) Tenant negotiating and obtaining the right, if any is required, to bring such Telecommunication Facilities across public or private property to an approved entry point to the Building. The agreement referred to in clause (b) of the previous sentence shall be incorporated in and become

 

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part of this Lease. Any future application by Tenant for permission to locate or install Telecommunication Facilities shall (1) be in such form and shall be accompanied by such supporting information as the Landlord may require, (2) be subject to such procedures, regulations and controls as the Landlord may specify and (3) be accompanied by such payment as the Landlord may reasonably request to reimburse Landlord for its costs of evaluating and processing the application and in negotiating and preparing the agreement described earlier in this subparagraph.

3.5.3 Landlord shall in no case be liable or in any way be responsible for damages or loss to Tenant arising from the failure of, diminution of or interruption in electrical power, natural gas, fuel, Telecommunication Services, sewer, water, or garbage collection services, other utility service or building service of any kind to the Premises, unless such interruption in, deprivation of or reduction of any such service was caused by the gross negligence or willful misconduct of Landlord, its agents or contractors or by a failure in facilities, equipment or systems in the Landlord’s ownership. To the extent that Landlord bears any responsibility for any such interruption, deprivation or reduction in utility or building services to the Premises (due to Landlord’s having caused same by its negligence or willful misconduct), Landlord’s sole responsibility and Tenant’s sole remedy shall be limited to an equitable adjustment of Base Rent in proportion to the ratio that the rentable square footage of the Material Portion (hereinafter defined) of the Premises which Tenant does not occupy bears to the entire rentable square footage of the Premises for the period of interruption, depreciation or reduction, retroactive to the day on which Tenant delivers written notice to Landlord (a) describing such interruption, deprivation or reduction, and (b) stating that Tenant is being deprived of the reasonable use of, and has ceased to use or occupy, a Material Portion of the Premises (which portion of the Premises shall be specified by Tenant in such notice), and ending on the date such interruption, deprivation or reduction which is Landlord’s responsibility is no longer causing Tenant to be deprived of the use of a Material Portion of the Premises. As used herein, the term “Material Portion” means twenty percent (20%) or more of the rentable area of the Premises. Except in the case of an emergency or with respect to an interruption which is not within Landlord’s control or about which Landlord had no prior knowledge, Landlord will give Tenant at least five (5) Business Days’ prior notice if Landlord intends to cause the interruption of any services required to be furnished by the Landlord.

3.6 Holdover. If Tenant shall not immediately surrender the Premises at the expiration of the Lease Term or earlier termination of the Lease, then Tenant shall, by virtue of the provisions of this paragraph 3.6, become a tenant by the month. In such event Tenant shall be required to pay one hundred fifty percent (150%) of the amount of the monthly installment of Base Rent then in effect and as subsequently escalated in accordance with the provisions hereof, together with all Additional Rent in effect during the last month of the Term commencing said monthly tenancy with the first day next after the end of the Lease Term; and said Tenant, as a month-to-month tenant, shall be subject to all of the conditions and covenants of this Lease as though the same had originally been a monthly tenancy, except as otherwise provided above with respect to the payment of Rent. Each party hereto shall give to the other at least thirty (30) days written notice to quit the Premises, except in the event of non-payment of Rent provided for herein when due, or of the breach of any other covenant by the said Tenant, in which event, Tenant shall not be entitled to any notice to quit, the usual thirty (30) days notice to quit being expressly waived; provided, however, that in the event that Tenant shall hold over after expiration of the Term, and

 

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if Landlord shall desire to regain possession of said Premises promptly at the expiration of the Term, then at any time prior to the acceptance of the Rent by Landlord from Tenant, as a monthly tenant hereunder, Landlord, at its election or option, may reenter and take possession of the Premises forthwith, without process, or by any legal action or process in the Commonwealth of Virginia. Landlord shall have all the rights and remedies provided for by law and this Lease, including the right to recover damages (including consequential damages) suffered by Landlord in the event of Tenant’s holdover in the Premises; provided, however, Tenant shall not be liable for any consequential damages in the event Tenant vacates the Premises in accordance with the terms of this Lease within sixty (60) days following the termination of this Lease

3.7 Late Charge: If Tenant fails to make any payment of Base Rent, Additional Rent or other amount when due under this Lease, and such failure continues for five (5) days following written notice thereof (provided that no notice shall be required with respect to the second (2nd) and each subsequent late payment of Base Rent or Additional Rent during any twelve (12) month period during the Lease Term), a late charge is immediately due and payable by Tenant equal to five percent (5%) of the amount of any such payment; provided that with respect to the first failure by Tenant during any twelve (12) month period within the Lease Term to pay Base Rent, Additional Rent or other charges when due, no late charge shall be assessed unless Landlord has notified Tenant in writing of such failure and Tenant fails to tender such payment to Landlord within five (5) Business Days after Landlord’s delivery of written notice to Tenant. Landlord and Tenant agree that this charge compensates Landlord for the administrative costs caused by the delinquency. The parties agree that Landlord’s damage would be difficult to compute and the amount stated in this paragraph 3.7 represents a reasonable estimate of such damage. Assessment or payment of the late charge contemplated in this paragraph 3.7 shall not excuse or cure any Event of Default or breach by Tenant under this Lease or impair any other right or remedy provided under this Lease or under law.

3.8 Default Rate. Any Base Rent, Additional Rent or other sum payable under this Lease which is not paid when due shall bear interest at a rate equal to the lesser of: (a) the published prime or reference rate of PNC Bank N.A., or such other national banking institution designated by Landlord if such bank ceases to publish such rate (the “Prime Rate”), then in effect, plus two (2) percentage points, or (b) the maximum rate of interest per annum permitted by applicable law (the “Default Rate”), but the payment of such interest shall not excuse or cure any Event of Default or breach by Tenant under this Lease or impair any other right or remedy provided under this Lease or under law.

SECTION 4: MANAGEMENT AND LEASING PROVISIONS

4.1 Maintenance and Repair by Landlord. Subject to the terms of paragraph 4.9(captioned “Damage or Destruction”) and paragraph 4.10 (captioned “Condemnation”) of this Lease, Landlord shall maintain the public, structural and common areas of the Building, including but not limited to the external and structural components of the Building, the exterior glass, the Garage and the base Building HVAC system, mechanical system, electrical system, and plumbing system in reasonably good order and condition subject to reasonable wear and tear throughout the Lease Term in a manner consistent with the standard of maintenance employed by the owners of office buildings in Arlington, Virginia of an age, size and condition comparable to the Building. Landlord shall make such repairs thereto as become necessary after obtaining

 

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actual knowledge of the need for such repairs. Landlord shall replace Building standard light bulbs and ballasts (and the replacement cost of same shall be an Operating Cost), and Tenant shall replace any specialty light bulbs and ballasts at its sole cost and expense. All maintenance and repair costs shall be included in Operating Costs, except for damage occasioned by the act or omission of Tenant or Tenant’s Agents which shall be paid for entirely by Tenant upon demand by Landlord (subject to Landlord’s receipt of insurance proceeds, if any). In the event any or all of the Building becomes in need of maintenance or repair which Landlord is required to make under this Lease, Tenant shall promptly give written notice to Landlord, and Landlord shall be obligated to commence such maintenance or repairs within a reasonable time after Landlord’s receipt of such notice.

4.2 Maintenance and Repair by Tenant. Except as is expressly set forth as Landlord’s responsibility pursuant to paragraph 4.1 of this Lease (captioned “Maintenance and Repair by Landlord”), and except for the janitorial services to be provided by Landlord in accordance with Exhibit G. Tenant shall at Tenant’s sole cost and expense keep, clean and maintain the Premises in good condition and repair, ordinary wear and tear excepted, including interior painting, cleaning of the interior side of all exterior glass, plumbing and utility, and installations, carpets and floor coverings, all interior wall surfaces and coverings (including tile and paneling), interior window replacement, exterior and interior doors, roof penetrations and membranes in connection with any Tenant requested installations on the roof, non-Building standard light bulb and ballast replacement (which lighting purchase must comply with Landlord’s sustainability practices and shall be reported to Landlord in a format suitable to Landlord) and interior preventative maintenance. Tenant shall use commercially reasonable efforts to ensure that all maintenance and repairs made by Tenant comply with Landlord’s sustainability practices and any applicable Green Agency Rating (as the same may change from time to time). If Tenant fails to maintain or repair the Premises in accordance with this paragraph 4.2, then Landlord may, but shall not be required to, enter the Premises upon two (2) Business Days’ prior written notice to Tenant (or immediately without any notice in the case of an emergency) to perform such reasonable maintenance or repair at Tenant’s sole cost and expense. Tenant shall pay to Landlord the cost of such maintenance or repair plus a fifteen percent (15%) administration fee within ten (10) Business Days of written demand from Landlord.

4.3 Common Areas/Security.

4.3.1 The common areas of the Building shall be subject to Landlord’s sole management and control; provided that, Landlord shall not unreasonably interfere with Tenant’s access to the Premises (except to the extent necessary in an emergency situation). Without limiting the generality of the immediately preceding sentence, Landlord reserves the exclusive right as it deems necessary or desirable to install, construct, remove, maintain and operate lighting systems, facilities, improvements, equipment, Telecommunication Facilities and signs on, in or to all parts of the common areas; change the number, size, height, layout, or locations of walks, driveways and truckways or parking areas now or later forming a part of the Land or Building; make alterations or additions to the Building or common area; close temporarily all or any portion of the common areas to make repairs, changes or to avoid public dedication, provided that if such closure prevents Tenant from gaining access to the Premises, Landlord shall provide alternative access to the Premises for Tenant that is reasonable in location and distance from the current access; grant easements to which the Land will be subject; replat, subdivide, or

 

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make other changes to the Land; place or relocate or cause to be placed or located utility lines and Telecommunication Facilities through, over or under the Land and Building; and use or permit the use of all or any portion of the roof of the Building; provided, however, in no event shall Landlord’s exercise of the foregoing rights (i) unreasonably interfere for a period longer than two (2) Business Days with Tenant’s use of the Premises, or (ii) preclude Tenant from gaining reasonable access to the Premises. Landlord reserves the right to relocate parking areas and driveways and to build additional improvements in the Garage and other common areas of the Land so long as Tenant’s Parking Ratio is maintained and provided that: (A) the relocated areas in which Tenant is permitted to park are a reasonable distance from Tenant’s then-current parking areas; and (B) the relocated driveways are a reasonable distance from the then-current driveways.

4.3.2 Landlord has no duty or obligation to provide any security services in, on or around the Premises, Land or Building; provided however that Landlord agrees to maintain (the cost of which maintenance shall constitute an Operating Cost of the Building), the existing “Datawatch” perimeter vendor card access system at the exterior entry doors to the Building, all exterior ingress and egress points (including the loading dock and Garage) to the Building, and in all Building elevators, for access during non-Building Standard Hours. Landlord shall provide to Tenant at no charge up to 25 key cards or other system access fobs. Any replacement cards shall be at Tenant’s sole cost and expense based on Landlord’s actual cost. Landlord reserves the right, in its sole discretion, to reasonably modify or supplement the access control system, or to substitute another vendor’s access control system (which vendor is selected by Landlord in its sole discretion) for use at the Building. The costs of any such additional, substitute or modified access control system shall be includable in Operating Costs. Tenant recognizes that access control services, if any, provided by Landlord (or to be installed and maintained by Landlord pursuant to this paragraph 4.3.2) will be for the sole benefit of Landlord and the protection of Landlord’s property and under no circumstances shall Landlord be responsible for the provision of security or other protection for Tenant or Tenant’s Agents or property in, on or about the Premises, Land or Building. Landlord shall not be liable for any injury or death to persons arising out of the provision, or failure to provide, access control services or security services at the Building, unless such injury or death was caused solely by Landlord’s gross negligence. Subject to Landlord’s prior written approval of the plans and specifications therefor, which shall not be unreasonably withheld, conditioned or delayed, Tenant may, at its sole cost and expense, install, establish and maintain an access control system or services within the Premises; provided that, Tenant’s access control system or services (including any apparatus, facilities, equipment or people utilized in connection with the provision of such access control services) comply with the Governmental Requirements and shall not cause the Building to be out of compliance with the Governmental Requirements. Notwithstanding the foregoing, any such security services installed, established or maintained by Tenant must not affect or impact any portion of the Building or the Land other than the Premises and shall not in any way limit or interfere with Landlord’s ability to exercise its rights as provided in paragraph 4.8 of this Lease (captioned “Access”). Tenant’s rights under this subparagraph 4.3.2 are subject to all the obligations, limitations and requirements as set forth in paragraph 4.4 of this Lease (captioned “Tenant Alterations”) and paragraph 4.5 of this Lease (captioned “Tenant’s Work Performance”).

4.4 Tenant Alterations. Tenant shall not make any alterations, additions or improvements in or to the Premises, or make changes to locks on doors, or add, disturb or in any way change

 

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any floor covering, wall covering, fixtures, plumbing, wiring or Telecommunication Facilities (individually and collectively, “Tenant Alterations”) without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed, except to the extent that any proposed Tenant Alteration is structural in nature or affects, or involves a material change to the base Building or any of the base Building systems (including without limitation the plumbing, electric, HVAC, mechanical or life safety system) therein, which Tenant Alterations shall be approved or rejected by Landlord in its sole discretion. Tenant shall deliver to Landlord full and complete plans and specifications for any proposed Tenant Alterations, except for Cosmetic Alterations (hereinafter defined). All such plans and specifications shall be subject to Landlord’s consent, not to be unreasonably withheld, conditioned or delayed, except to the extent any proposed Tenant Alteration described therein is structural in nature or affects, or involves a material change to the base Building or any of the base Building systems (including without limitation the plumbing, electric, HVAC, mechanical or life safety system) therein, which Tenant Alterations shall be approved or rejected by Landlord in its sole discretion. All Tenant Alterations shall be performed at Tenant’s sole expense. Tenant shall use commercially reasonable efforts to ensure that any and all Tenant Alterations that affect at least fifty percent (50%) of the Premises will be performed in accordance with Landlord’s sustainability practices (as same may be amended or supplemented from time to time) and any Green Agency Ratings (as the same may change from time to time). Tenant further agrees to have all plans, material procurement, demolition, construction and waste management procedures reviewed by a qualified professional to ensure they are in full conformance to Landlord’s sustainability practices, as aforesaid, and Tenant agrees to use commercially reasonable efforts to seek and maintain LEED for Commercial Interiors certification for all Tenant Alterations that involve at least fifty percent (50%) of the Premises. Tenant shall pay to Landlord all reasonable, actual and documented costs incurred by Landlord for any out-of-pocket architectural, engineering and supervisory services in connection with any Tenant Alterations, including, without limitation, Landlord’s review of the plans and specifications therefor, in an amount not to exceed $10,000.00; provided, however, Tenant shall not be responsible for any architectural engineering or supervisory services or costs incurred by Landlord to ensure that the Tenant Alterations meet Landlord’s sustainability practices. The cost of Landlord’s internal review of the plans for the Tenant Alterations shall be borne by the Landlord. Landlord may require Tenant (if Landlord has elected to require Tenant to perform the Tenant Alterations), at Tenant’s sole cost and expense, to obtain and provide Landlord with proof of insurance coverage. Notwithstanding anything to the contrary in this paragraph 4.4, Tenant shall have the right, after giving fifteen (15) days’ prior written notice to Landlord (which notice shall include in reasonable detail a description of the Cosmetic Alterations which Tenant proposes to undertake) , but without the necessity of obtaining Landlord’s consent, to undertake Cosmetic Alterations. As used herein, the term “Cosmetic Alterations” means those Tenant Alterations which are cosmetic in nature, do not require a building permit to undertake, are not visible from outside the Premises and which cost in the aggregate less than One Hundred Thousand Dollars ($100,000.00) to undertake. All paint and carpet colors utilized by Tenant in undertaking Cosmetic Alterations shall be Building standard colors, unless otherwise approved in advance by Landlord. Should Tenant make any alterations without Landlord’s prior written consent, or without satisfaction of any conditions established by Landlord, Landlord shall have the right, in addition to and without limitation of any right or remedy Landlord may have under this Lease, at law or in equity, to require Tenant to remove some or all of Tenant Alterations, or at Landlord’s election, Landlord

 

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may remove such Tenant Alterations and restore the Premises at Tenant’s expense. Nothing contained in this paragraph or the paragraph captioned “Tenant’s Work Performance” shall be deemed a waiver of the provisions of the paragraph captioned “Mechanic’s Liens”.

4.5 Tenant’s Work Performance.

4.5.1 If Tenant performs Tenant Alterations which cost more than $100,000.00 in the aggregate and which require a building permit to undertake, Landlord may, in its absolute discretion, require that Tenant provide a payment and performance bond to cover the entire work to be performed, which bond must be in form, amount and by a company reasonably acceptable to Landlord. Any Tenant Improvements or Tenant Alterations (including any Telecommunications Facilities and/or any telecommunications cabling or wiring, and any furniture installation), and any other work to be performed by Tenant shall be performed by contractors employed by Tenant under one or more construction contracts, in form and content approved in advance in writing by Landlord, such approval not to be unreasonably withheld, conditioned or delayed. With respect to any construction contracts for work to be performed on behalf of Tenant, such contracts shall include a requirement that the prime contractor and the respective subcontractors of any tier performing the Tenant Alterations: (a) be parties to, and bound by, a collective bargaining agreement with a labor organization affiliated with the Building and Construction Trades Council of the AFL-CIO or with an independent, nationally recognized labor organization or one of its affiliated local organizations applicable to the geographic area in which the Building is located and to the trade or trades in which the work under the contract is to be performed and (b) employ only members of such labor organizations to perform work within their respective jurisdictions (the “Contractor Requirements”). Tenant’s contractors, workers and suppliers shall work in harmony with and not interfere with workers or contractors of Landlord or other tenants of Landlord. If Tenant’s contractors, workers or suppliers do, in the opinion of Landlord, cause such disharmony or interference, Landlord’s consent to the continuation of such work may be withdrawn upon written notice to Tenant. All Tenant Alterations shall be (1) completed in accordance with the plans and specifications approved by Landlord; (2) completed in accordance with all Governmental Requirements (including without limitation all Access Laws); (3) carried out promptly in a good and workmanlike manner; (4) free of defect in materials and workmanship. Tenant shall pay for all damage to the Premises, Building and Land caused by Tenant or Tenant’s Agents; and (5) performed in strict conformity with valid building permits and other authorizations from appropriate governmental agencies, when required, which shall be obtained by Tenant, at Tenant’s expense.

4.5.2 In addition to the requirements set forth in subparagraph 4.5.1 above, Tenant shall use commercially reasonable efforts to contract for services to be performed in or about the Premises with Responsible Contractors (hereinafter defined). As used in this Lease, the term “Responsible Contractor” shall mean a contractor or subcontractor who pays workers a fair wage and Fair Benefits (hereinafter defined) as evidenced by payroll and employee records and who complies with the service-disabled veteran business (“SDV/BE”) policy. As used in this Lease, the term “Fair Benefits” shall mean employer-paid family health care coverage, pension benefits, and apprenticeship programs.

 

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4.6 Surrender of Possession. Subject to the last subparagraph of the paragraph captioned “Insurance”, Tenant shall, at the expiration or earlier termination of this Lease, surrender and deliver the Premises to Landlord in as good condition as when received by Tenant from Landlord or as later improved, excepting reasonable use and wear, casualty, the responsibility for the repair of which is Landlord’s under this Lease, and condemnation damage, and free from all tenancies or occupancies by any person.

4.7 Removal of Property. Upon expiration or earlier termination of this Lease, Tenant may remove its personal property, office supplies and office furniture and equipment if (a) such items are readily moveable and are not attached to the Premises; (b) such removal is completed prior to the expiration or earlier termination of this Lease; (c) no Event of Default exists at the time of such removal; and (d) Tenant immediately repairs all damage caused by or resulting from such removal. All other property in the Premises and any Tenant Alterations (including, wall-to-wall carpeting, paneling, wall covering, lighting fixtures and apparatus or wiring for Telecommunication Facilities or any other article affixed to the floor, walls, ceiling or any other part of the Premises or Building) shall become the property of Landlord and shall remain upon and be surrendered with the Premises; provided, however, at Landlord’s sole election, upon written notice by Landlord to Tenant at the time Tenant submits the plans and specifications for the Tenant Alterations to Landlord for its approval, Tenant shall be obligated, at its sole cost and expense, to remove at the end of the Lease Term or earlier termination of this Lease all (or such portion as Landlord shall designate) of the Removal Alterations (hereinafter defined) (including Telecommunication Facilities), repair any damages resulting from such removal and return the Premises to the same condition as existed prior to the installation of such Removal Alterations, reasonable wear and tear excepted. As used herein, the term “Removal Alterations” means any Tenant Alterations (including all Telecommunications Facilities and/or cabling in the Premises or running between the Premises and any other portion of the Building) (i) which Landlord, in response to a Removal Inquiry (hereinafter defined) by Tenant, indicated to Tenant must be removed by Tenant at the end of the Term; or (ii) with respect to which Tenant did not deliver a Removal Inquiry to Landlord at the time Tenant sough Landlord’s approval of such Tenant Alteration (in accordance with the provisions of this paragraph 4.7). As used herein, the term “Removal Inquiry” means an inquiry by Tenant, made to Landlord contemporaneously with Tenant’s request for approval of any Tenant Alternation, as to whether or not such Alteration must be removed by Tenant at the end of the Lease Term. Tenant waives all rights to any payment or compensation for such Tenant Alterations (including Telecommunication Facilities). If Tenant shall fail to remove any of its property from the Premises, Building or Land at the expiration or earlier termination of this Lease, Landlord may, at its option, remove and store such property at Tenant’s expense without liability for loss of or damage to such property, such storage to be for the account and at the expense of Tenant. Tenant shall pay all reasonable, actual and documented costs incurred by Landlord within fifteen (15) Business Days after demand for such payment. If Tenant fails to pay the cost of storing any such property, Landlord may, at its option, after it has been stored for a period of thirty (30) days or more, sell or permit to be sold, any or all such property at public or private sale (and Landlord may become a purchaser at such sale), in such manner and at such times and places as Landlord in its sole discretion may deem proper, and Landlord shall apply the proceeds of such sale: first, to the cost and expense of such sale, including reasonable attorneys’ fees actually incurred; second, to the payment of the costs or charges for storing any such property; third, to the payment of any other sums of money which may then be or later become due Landlord from Tenant under this Lease; and, fourth, the balance, if any, to Tenant.

 

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4.8 Access. Tenant shall have access to the Building and the Garage seven (7) days per week, twenty-four (24) hours per day, subject to Landlord’s rights set forth in paragraph 4.3.1, above. Tenant shall permit Landlord and Landlord’s Agents to enter into the Premises at any time on at least one (1) Business Day’s notice {except in case of emergency involving the possibility of injury or death to persons or damage to property within the Building, in which case no notice shall be required), subject to Tenant’s reasonable security requirements which had been delivered in writing to Landlord prior to the date of entry by Landlord, which may include the need to sign in, provide identification and, except in emergencies, be escorted by an employee of Tenant (provided that Tenant makes one of its employees available for such purpose during normal business hours on the date and time requested by Landlord) for the purpose of inspecting the same or for the purpose of repairing, altering or improving the Premises or the Building. Nothing contained in this paragraph 4.8 shall be deemed to impose any obligation upon Landlord not expressly stated elsewhere in this Lease. When reasonably necessary, and so long as same does not deprive Tenant of all reasonable access to the Premises, Landlord may temporarily close Building or Land entrances, Building doors or other facilities, without liability to Tenant by reason of such closure and without such action by Landlord being construed as an eviction of Tenant or as relieving Tenant from the duty of observing or performing any of the provisions of this Lease. Landlord shall have the right, upon one (1) Business Day’s prior notice to Tenant, to enter the Premises at any time during the last twelve (12) months of the Lease Term or at any time without notice during the occurrence of an Event of Default for the purpose of showing the Premises to prospective tenants and to erect on the Premises a suitable sign indicating the Premises are available. Tenant shall give written notice to Landlord at least ten (10) Business Days prior to vacating the Premises and shall arrange to meet with Landlord for a joint inspection of the Premises prior to vacating. In the event that Tenant fails to timely deliver such notice to Landlord and a joint inspection of the Premises does not occur prior to Tenant’s vacating the Premises or the last day of the Lease Term, whichever comes first (the “Outside Inspection Date”), Landlord’s inspection of the Premises upon one (1) Business Day’s notice to Tenant of such inspection after the Outside Inspection Date shall be conclusively deemed correct for purposes of determining Tenant’s responsibility for repairs and restoration, unless Tenant participates in such inspection. Landlord shall not be liable for the consequences of admitting by passkey, or refusing to admit to the Premises, Tenant or any of Tenant’s Agents, or other persons claiming the right of admittance.

4.9 Damage or Destruction.

4.9.1 If the Premises are damaged by fire, earthquake or other casualty (the “Casualty”). Tenant shall give Landlord prompt written notice thereof. If Landlord estimates (such estimate to be performed within forty-five (45) calendar days of Landlord’s actual knowledge of such damage) that the damage can be repaired in a manner necessary to cause it to be in the same condition as it was on the Tender Date within one hundred-eighty (180) days after Landlord becomes aware of such damage and provided that there are sufficient insurance proceeds available to repair such damage, then Landlord shall proceed with reasonable diligence to restore the Premises to substantially the condition which existed prior to the damage and this Lease shall not terminate. If, in Landlord’s estimation, the damage cannot be repaired within

 

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such 180 day period, the destruction was cased by an uninsurable event or if there are insufficient insurance proceeds available to repair such damage (provided Landlord maintains the insurance coverage required by subparagraph 4.14.2, below), Landlord may elect in its sole discretion exercised in good faith to either: (a) terminate this Lease or (b) restore the Premises to substantially the same condition which existed on the Tender Date and this Lease will continue.

4.9.2 If Landlord elects to restore the Premises under subparagraph 4.9.1 above, then Landlord shall, at its sole cost and expense, restore the Premises with reasonable diligence to substantially the same condition existing on the Tender Date; provided that Landlord shall not be obligated to restore Tenant Improvements and Tenant Alterations installed by Tenant or Tenant’s furniture, fixtures or equipment. Landlord shall promptly provide Tenant with written notice of its election to restore the Premises, which notice shall also specify the expected duration of such restoration. Failure to so elect shall be deemed Landlord’s decision not to restore. Base Rent and Additional Rent shall be reduced during the period of Landlord’s restoration of the Premises in proportion to the portion of the Premises which is not usable (or accessible) by Tenant as a result of such casualty and is not being used by Tenant (except that in the event that the portion of the Premises which is rendered untenantable precludes Tenant from operating Tenant’s business in the balance of the Premises in the manner it had been conducted prior to the Casualty Date, then all Rent shall be fully abated) until the date on which Landlord substantially completes its restoration of the Premises to the condition as existing on the Tender Date. When performing such restoration, Landlord will not be obligated to spend more than the net insurance proceeds received by Landlord as a result of such Casualty plus an amount equal to the applicable deductible under Landlord’s insurance policy. Tenant agrees to look to the provider of Tenant’s insurance for coverage for the reconstruction of the Tenant Improvements and the Tenant Alterations, if any, and for the loss of Tenant’s use of the Premises and any other related losses or damages incurred by Tenant during any reconstruction period.

4.9.3 If the Building is damaged by fire, earthquake or other casualty and more than fifty percent (50%) of the Building is rendered untenantable, without regard to whether the Premises are affected by such damage, Landlord may in its absolute discretion, elect to terminate this Lease by notice in writing to Tenant within twenty (20) Business Days after the occurrence of such damage if Landlord is also terminating the leases of other tenants in the Building who are similarly situated to Tenant. Such notice shall be effective twenty (20) Business Days after receipt by Tenant unless a later date is set forth in Landlord’s notice.

4.9.4 Notwithstanding anything contained in this Lease to the contrary, if there is damage to the Premises or Building and the holder of any indebtedness secured by a mortgage or deed of trust covering any such property requires that the insurance proceeds be applied to such indebtedness or if the insurance proceeds are otherwise inadequate to complete the repair of the damages to the Premises, the Building or both, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) Business Days after Landlord is notified of such requirement.

4.9.5 Notwithstanding the foregoing, if the Premises or the Building are wholly or partially damaged or destroyed by casualty within the final twelve (12) months of the Lease Term, either Landlord or Tenant may, at its option, elect to terminate this Lease upon written notice to the other party within thirty (30) days following such damage or destruction.

 

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4.9.6 Notwithstanding anything in this Lease to the contrary, Tenant may terminate this Lease within thirty (30) days of delivery to Tenant of Landlord’s determination of the estimated time for the Premises or the Building to be restored if such estimated time exceeds one hundred eighty (180) days from the date of Landlord’s actual knowledge of the Casualty. In addition, if the actual time to restore in fact exceeds two hundred ten (210) days from the date Landlord becomes aware of the Casualty (subject to extension for Force Majeure Events), Tenant shall have the right to terminate this Lease, provided that Tenant delivers to Landlord, within ten (10) days of the expiration of such two hundred ten (210) day period, written notice of Tenant’s intention to terminate the Lease unless Landlord completes such restoration within thirty (30) days after Landlord’s receipt of such notice; provided if Landlord completes the restoration within such thirty (30) day period, the Lease shall not terminate and shall continue in full force and effect; provided further that if Landlord does not complete the restoration within such thirty (30) day period. Tenant may terminate this Lease by written notice to Landlord within ten (10) days after the end of such thirty (30) day period.

4.10 Condemnation. If more than fifty percent (50%) of the Premises, or such portions of the Building as may be required for the Tenant’s reasonable use of the Premises, are taken by eminent domain or by conveyance in lieu thereof, this Lease shall automatically terminate as of the date the physical taking occurs, and all Base Rent, Additional Rent and other sums payable under this Lease shall be paid to that date. In case of taking of a part of the Building that is not required for the Tenant’s reasonable use of the Premises, then this Lease shall continue in full force and effect and the Base Rent shall be equitably reduced based on the proportion by which the floor area of the Premises is reduced, such reduction in Base Rent to be effective as of the date the physical taking occurs. Additional Rent and all other sums payable under this Lease shall not be abated but Tenant’s Pro Rata Share (Operating Costs) and Tenant’s Pro Rata Share (Property Taxes) shall be redetermined as equitable under the circumstances. Landlord reserves all rights to damages or awards for any taking by eminent domain relating to the Premises, Building, Land and the unexpired term of this Lease. Tenant assigns to Landlord any right Tenant may have to such damages or award and Tenant shall make no claim against Landlord for damages for termination of its leasehold interest or interference with Tenant’s business, Tenant shall have the right, however, to claim and recover from the condemning authority compensation for any loss to which Tenant may be entitled for Tenant’s moving expenses the value of furnishings, equipment and trade fixtures installed in the Premises at Tenant’s sole cost, or other relocation costs; provided that, such expenses or costs may be claimed only if they are awarded separately in the eminent domain proceedings and not as a part of the damages recoverable by Landlord.

4.11 Parking. The Building’s parking garage is to be operated by Landlord or an independent contractor pursuant to a contract with Landlord. Such contract (if any) will allow Landlord to designate a certain number of permits for use by particular tenants during the entire Lease Term. Landlord agrees to instruct the parking garage operator to provide throughout the entire Lease Term, and Tenant may lease (either from Landlord or from such operator) up to the number of spaces allocated to Tenant in the definition of the Parking Ratio for use by Tenant’s employees. Tenant shall pay Landlord or such contractor the prevailing market rate (which rate will be comparable to rates then being charged at comparable office buildings in the Arlington, Virginia area, as reasonably determined by Landlord) for such unreserved parking, which shall be the same rate generally charged by Landlord or such contractor to its other customers paying for

 

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unreserved parking in the Building. The current monthly charge for unreserved parking is $120.00 per month, which charge is subject to market-based increases (as reasonably determined by Landlord) from time-to-time by Landlord. Tenant’s parking privileges shall be subject to the reasonable rules and regulations relating to parking adopted by Landlord and/or the parking garage operator from time to time. Landlord shall have the right to grant designated, reserved parking spaces to other tenants in the Building. Landlord shall have no obligation whatsoever to monitor, secure or police the use of the parking or other common areas.

4.12 Indemnification.

4.12.1 Except to the extent arising from the negligence of Landlord or Landlord’s Agents, Tenant shall indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all third party Claims, arising in whole or in part out of (a) the possession, use or occupancy of the Premises or the business conducted in the Premises, (b) the negligence or willful misconduct of Tenant or Tenant’s Agents, or (c) any breach or default under this Lease by Tenant.

4.12.2 Except to the extent arising from the negligence of Tenant or Tenant’s Agents, Landlord shall indemnify, defend and hold harmless Tenant and Tenant’s Agents from and against any and all third party Claims, arising in whole or in part out of (a) the negligence or willful misconduct of Landlord or Landlord’s Agents, (b) the negligence or willful misconduct of Landlord’s contractors in connection with the performance of any construction work in the Building; or (c) any breach or default under this Lease by Landlord.

4.12.3 Except as otherwise specified in this Lease, neither Landlord nor Landlord’s Agents shall, to the extent permitted by law, have any liability to Tenant, or to Tenant’s Agents, for (a) any Claims arising out of any cause whatsoever, including repair to any portion of the Premises; (b) interruption in or interference with the use of the Premises or any equipment therein; (c) any accident or damage resulting from any use or operation by Landlord, Tenant or any person or entity of heating, cooling, electrical, sewerage or plumbing equipment or apparatus or Telecommunication Facilities; (d) termination of this Lease by reason of damage to the Premises or Building; (e) fire, robbery, theft, vandalism, mysterious disappearance or a casualty of any kind or nature; (f) actions of any other tenant of the Building or of any other person or entity; (g) inability to furnish any service required of Landlord as specified in this Lease; or (h) leakage in any part of the Premises or the Building from rain, ice or snow, or from drains, pipes or plumbing fixtures in the Premises or the Building. Landlord shall only be responsible for Claims arising from the items listed in the previous sentence if such items were within Landlord’s reasonable control and Landlord was negligent or acted with or willful misconduct in failing to repair or maintain the Building as required by this Lease; but in no event shall Landlord’s responsibility extend to any interruption to Tenant’s business or any indirect or consequential losses suffered by Tenant or Tenant’s Agents or extend beyond Landlord’s responsibility as set forth in paragraph 3.5 of this Lease (captioned “Utilities”) when that paragraph is applicable. The obligations of this paragraph 4.12 shall be subject to paragraph 4.15 of this Lease (captioned “Waiver of Subrogation”).

 

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4.13 Tenant Insurance.

4.13.1 Tenant shall, throughout the Lease Term, at its own expense, keep and maintain in full force and effect the following policies, each of which shall be endorsed as needed to provide that the insurance afforded by these policies is primary and that all insurance carried by Landlord is strictly excess and secondary and shall not contribute with Tenant’s liability insurance:

(a) A policy of commercial general liability insurance, including a contractual liability endorsement covering Tenant’s obligations under paragraph 4.12 of this Lease (captioned “Indemnification”), insuring against claims of bodily injury and death or property damage or loss with a combined single limit at the Tender Date of this Lease of not less than Three Million Dollars ($3,000,000.00), which limit shall be reasonably increased during the Lease Term at Landlord’s request to reflect both increases in liability exposure arising from inflation as well as from changing use of the Premises or changing legal liability standards, which policy shall be payable on an “occurrence” rather than a “claims made” basis, and which policy names Landlord and Manager and, at Landlord’s written request Landlord’s mortgage lender(s) or investment advisors, as additional insureds;

(b) A policy of extended property insurance (which is commonly called “all risk”) covering Tenant Improvements, Tenant Alterations (including Telecommunication Facilities), and any and all furniture, fixtures, equipment, inventory, improvements and other property in or about the Premises which is not owned by Landlord, for one hundred percent (100%) of the then current replacement cost of such property;

(c) A policy or worker’s compensation insurance as required by applicable law and employer’s liability insurance with limits of no less than Five Hundred Thousand and No/100 Dollars ($500,000.00); and

(d) A policy of automobile liability insurance, including loading and unloading, and covering owned, non-owned and hired vehicles, with limits of no less than One Million Dollars ($1,000,000.00) per occurrence, if applicable.

4.13.2 All insurance policies required under this paragraph shall be with companies reasonably approved by Landlord which are authorized to conduct business in the Commonwealth of Virginia and possess a BEST rating of A-VII or better, and each policy shall state that the insurer will provide at least thirty (30) days’ written notice to Tenant prior to cancellation, lapse or reduction in coverage (except for cancellation for non-payment of premium, with respect to which the insurer will provide at least ten (10) days’ written notice to Tenant). Tenant shall notify Landlord in writing within three (3) Business Days after Tenant receives a notice from Tenant’s insurance company canceling or reducing coverage or threatening to cancel or reduce coverage under any of Tenant’s insurance policies. Tenant shall deliver to Landlord and, at Landlord’s request Landlord’s mortgage lender(s), prior to the Tender Date and from time to time thereafter, certificates evidencing the existence and amounts of all such policies.

4.13.3 If Tenant fails to acquire or maintain any insurance or provide any certificate required by this paragraph 4.13, Landlord may, but shall not be required to, obtain such insurance or certificates and the costs associated with obtaining such insurance or certificates shall be payable by Tenant to Landlord on demand.

 

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4.14 Landlord’s Insurance. Landlord shall, throughout the Lease Term, keep and maintain in full force and effect:

4.14.1 A policy of commercial general liability insurance, insuring against claims of bodily injury and death or property damage or loss with a combined single limit at the Tender Date of not less than Five Million Dollars ($5,000,000.00), which policy shall be payable on an “occurrence” rather than a “claims made” basis;

4.14.2 A policy of extended property insurance (what is commonly called “all risk”) covering the Building and Landlord’s personal property, if any, located on the Land in the amount of one hundred percent (100%) of the then current replacement value of such property; and

4.14.3 Landlord may, but shall not be required to, maintain such other types of insurance as are customarily carried by the owners of comparable office buildings in the Arlington, Virginia market, including but not limited to, property insurance coverage for earthquakes and floods in such amounts as Landlord deems appropriate. Such policies may be “blanket” policies which cover other properties owned by Landlord.

4.15 Waiver of Subrogation. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby each waive and release the other from any and all Claims or any loss or damage that may occur to the Land, Building, Premises, Tenant Improvements, Tenant Alterations or personal property located in the Premises, by reason of fire or other casualty regardless of cause or origin, including without limitation the negligence or misconduct of Landlord, Tenant, Landlord’s Agents or Tenant’s Agents, but only to the extent of the insurance proceeds paid to such releasor under its policies of insurance or, if it fails to maintain the required policies, the insurance proceeds that would have been paid to such releasor if it had maintained such policies. Each party to this Lease shall promptly give to its insurance company written notice of the mutual waivers contained in this paragraph 4.15, and shall cause its insurance policies to be properly endorsed, if necessary, to prevent the invalidation of any insurance coverages by reason of the mutual waivers contained in this paragraph 4.15.

4.16 Assignment and Subletting by Tenant.

4.16.1 Except with respect to transfers pursuant to 4.16.7, below, Tenant shall not have the right to assign, transfer, mortgage or encumber this Lease in whole or in part, nor sublet the whole or any part of the Premises, nor allow the occupancy of all or any part of the Premises by another, without first obtaining Landlord’s consent, which consent may be granted or denied in accordance with this paragraph. Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of all sums payable under this Lease and for compliance with all of its other obligations as tenant under this Lease. Landlord’s acceptance of Base Rent, Additional Rent or any other sum from any assignee, sublessee, transferee, mortgagee or encumbrance holder shall not be deemed to be Landlord’s approval of any such conveyance. Upon the occurrence of an Event of Default and

 

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written notice to Tenant (unless Tenant is a debtor in a bankruptcy proceeding, in which event no notice shall be required), if the Premises or any part of the Premises are then subject to an assignment or subletting, Landlord may, at its option, collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rents against any sums due to Landlord from Tenant under this Lease. No such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant’s obligations under this Lease. Landlord’s right of direct collection shall be in addition to and not in limitation of any other rights and remedies provided for in this Lease or at law. Tenant makes an absolute assignment to Landlord of such assignments and subleases and any rent, Lease Security Deposits and other sums payable under such assignments and subleases as collateral to secure the performance of the obligations of Tenant under this Lease.

4.16.2 In the event Tenant desires to assign this Lease or to sublet all or any portion of the Premises, Tenant shall give written notice of such desire to Landlord setting forth the name of the proposed subtenant or assignee, the proposed term, the nature of the proposed subtenant’s or assignee’s business to be conducted on the Premises, the rental rate, and any other particulars of the proposed subletting or assignment that Landlord may reasonably request. Without limiting the preceding sentence, Tenant shall also provide Landlord with: (a) such financial information as Landlord may reasonably request concerning the proposed subtenant or assignee, including recent financial statements certified as accurate and complete by the president, managing partner or other appropriate officer of the proposed subtenant or assignee; (b) proof reasonably satisfactory to Landlord that the proposed subtenant or assignee will immediately occupy and thereafter use the entire Premises (or any sublet portion of the Premises) for the remainder of the Lease Term (or for the entire term of the sublease, if shorter) in compliance with the terms of this Lease; and (c) a copy of the proposed sublease or assignment or letter of intent. Tenant shall pay to Landlord, upon Landlord’s demand therefor, Landlord’s reasonable attorneys’ fees incurred in the review of such documentation and in documenting Landlord’s consent (not to exceed $1,500.00 in the aggregate). Receipt of such fee shall not obligate Landlord to approve the proposed assignment or sublease.

4.16.3 Without limiting what may be construed as a factor considered by Landlord, Tenant agrees that any one or more of the following will be proper grounds for Landlord’s disapproval of a proposed assignment or sublease:

(a) The proposed assignee or subtenant does not, in Landlord’s good faith judgment, have financial worth or creditworthiness or sufficient financial worth to insure full and timely performance under this Lease; or Landlord has received insufficient evidence of the financial worth or creditworthiness of the proposed assignee or subtenant to make the determination set forth in this clause;

(b) Landlord has had prior negative leasing experience with the proposed assignee or subtenant or believes, in Landlord’s reasonable judgment, the proposed assignee or subtenant is engaged in a business, or the Premises or any part of the Premises will be used in a manner, that is not in keeping with the then standards of the Building, or that is inappropriate for the Building, or that will violate any negative covenant as to use contained in any other lease of space in the Building;

 

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(c) The use of the Premises by the proposed assignee or subtenant will not be permitted under the Permitted Use; or

(d) An Event of Default has occurred and remains uncured under this Lease.

4.16.4 Within fifteen (15) Business Days after Landlord’s receipt of all required information to be supplied by Tenant pursuant to this paragraph 4.16, Landlord shall notify Tenant of Landlord’s approval, disapproval or conditional approval of any proposed assignment or subletting or, subject to the terms and conditions set forth in subparagraph 4.16.7, below, of Landlord’s election to recapture as described below. Any instance of disapproval or conditional approval by Landlord shall be delivered to Tenant with reasons therefor in reasonable detail. Landlord shall have no obligation to respond unless and until all required information has been submitted. In the event Landlord approves of any proposed assignment or subletting, Tenant and the proposed assignee or sublessee shall execute and deliver to Landlord an assignment (or subletting) and assumption agreement in form and content reasonably satisfactory to Landlord.

4.16.5 Any transfer, assignment or hypothecation of any of the stock or interest in Tenant, or the assets of Tenant, or any other transaction, merger, reorganization or event, however constituted which (a) results in fifty percent (50%), or more of such stock, interest or assets going into different ownership; provided, however, that: (i) Tenant may assign its entire interest under this Lease or sublet the Premises to any successor to Tenant by purchase, merger, consolidation or reorganization, provided that (A) after such transaction is completed the net worth and creditworthiness of the successor entity is equal to or greater than those of Tenant prior to such purchase, merger, consolidation or reorganization; and (B) such transaction includes a transfer of a majority or controlling interest in Tenant made in connection with an initial public offering of the stock of Tenant, and (ii) after Tenant has become a publicly-traded corporation, any subsequent transfer of a majority or controlling interest of Tenant on a nationally recognized public stock exchange shall not constitute an assignment of this Lease which requires Landlord’s approval (hereinafter, collectively, referred to as “Permitted Transfer”), or (b) is a subterfuge denying Landlord the benefits of this paragraph, shall be deemed to be an assignment within the meaning and provisions of this paragraph and shall be subject to the provisions of this paragraph 4.16.

4.16.6 If Landlord consents to any assignment or sublease and Tenant receives rent or any other consideration, either initially or over the term of the assignment or sublease, in excess of the Base Rent and Additional Rent (or, in the case of a sublease of a portion of the Premises, in excess of the Base Rent paid by Tenant on a square footage basis under this Lease), Tenant shall pay to Landlord fifty percent (50%) of such excess, after deducting any reasonable out-of-pocket advertising, leasing commissions, or other marketing costs and improvements or other out-of-pocket concessions incurred in connection with such assignment or sublease.

4.16.7 In the event that Tenant provides Landlord with written notice of Tenant’s desire to assign this Lease or sublet all or any portion of the Premises pursuant to Section 4.16.2, above, unless such assignment or sublease is undertaken in connection with a Permitted Transfer, Landlord shall have the right to recapture the Premises or the applicable portion thereof (a “Recapture”) by giving written notice of such Recapture to Tenant within fifteen (15) Business Days after receipt of Tenant’s written request for Landlord’s consent to such proposed

 

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assignment or subletting. Tenant shall have no right to retract its request for Landlord’s consent to assign or sublease once such request has been made. Such Recapture shall terminate this Lease as to the applicable space effective on the prospective effective date of assignment or subletting, which shall be the last day of a calendar month and shall not be earlier than forty-five (45) Business Days after receipt of Tenant’s request hereunder. If less than the entire Premises are recaptured, this Lease shall remain in full force and effect with respect to that remaining area not recaptured by Landlord. Tenant shall surrender that portion of the Premises recaptured by Landlord in accordance with the terms and conditions of this Lease. Notwithstanding the first sentence of this subparagraph 4.16.7, Landlord shall have no right to Recapture the Premises or applicable portion thereof if: (a) Tenant’s proposed assignment or sublet is to a Qualified Tenant Affiliate, or (b) Tenant’s proposed sublet (i) is for a term that is less than 90% of the remaining Lease Term; and (ii) together with any previous sublets encompass, in the aggregate, net rentable area less than seventy-five percent (75%) of the total net rentable area of Premises.

4.16.8 Notwithstanding the above restrictions on subletting and assignments, Landlord’s prior consent shall not be required for any assignment or subletting to an Affiliate of Tenant (as defined below) or a Parent of Tenant (as defined below), provided (a) that such assignee has a creditworthiness (e.g. assets and capitalization) and net worth (which shall be determined on a pro forma basis using generally accepted accounting principles consistently applied and using the most recent financial statements) not less than that of Tenant as of the Effective Date, (b) that such assignee or subtenant agrees in writing to be bound by the terms and conditions of this Lease and to assume all of the obligations and liabilities of Tenant under this Lease, (c) that Tenant provides Landlord with prior written notice of its intent to assign or sublease all or a portion of the Premises not more than sixty (60) nor less than thirty (30) days prior to the effective date of such assignment or sublease, and (d) that the proposed assignment or sublease with such person or entity is not a so-called “sham” transaction intended by Tenant to circumvent the provisions of this paragraph 4.16. In the event of any assignment or subletting pursuant to this paragraph 4.16.8, Tenant shall remain fully liable as a primary obligor and principal for Tenant’s obligations and responsibilities under this Lease, including, but not limited to, the payment of all rent and charges required hereunder and the performance of all conditions and obligations to be performed under this Lease. For purposes of this paragraph 4.16.8., an “Affiliate of Tenant” shall mean any corporation, limited liability company, association, trust, or partnership (i) that Controls (as herein defined) Tenant, (ii) that is under the Control of Tenant, through stock ownership or otherwise, (iii) that is under common Control with Tenant, or (D) which results from the merger or consolidation with Tenant, or acquires all or substantially all of the assets of and interest in Tenant. For the purposes hereof, a “Parent of Tenant” shall mean any corporation, limited liability company, association, trust, or partnership (A) that Controls Tenant, or (B) that owns more than fifty percent (50%) of the issued and outstanding voting securities of Tenant. The terms “Control” or “Controls” as used in this paragraph 4.16.8 shall mean the power to directly or indirectly influence the direction, management, or policies of Tenant or such other entity. As used in this Lease, the term “Qualified Tenant Affiliate” means an Affiliate of Tenant or Parent of Tenant who has taken an assignment of this Lease or has subleased the Premises in accordance with the terms of this paragraph 4.16.8.

4.16.9 Notwithstanding anything to the contrary set forth herein and provided that no Event of Default shall have occurred and remains uncured, Tenant shall be entitled, without Landlord’s consent but on at least ten (10) business days’ notice to Landlord, to enter into license

 

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agreements acceptable to Landlord with one or more of Tenant’s clients or subcontractors (the “Approved Users”) pursuant to which such Approved Users may use in the ordinary course of, and incidental to. Tenant’s business, portions of the Premises (which agreements shall not involve, in the aggregate, more than ten percent (10%) of the rentable square footage of the Premises at any one time), for general office use, provided Tenant evidences to Landlord’s reasonable satisfaction that: (i) such use is related to Tenant’s business in the Premises, (ii) such Approved User complies with the terms of this Lease, including without limitation all the rules and regulations set forth herein, (iii) such Approved User’s use of the Premises by the Approved User shall be in compliance with all Governmental Requirements and in accordance with paragraph 2.7 of this Lease, (iv) the portion of the Premises used pursuant to this paragraph 4.16.9 does not have a separate entrance and is not separated from the other portions of the Premises by demising walls or similar partitions, unless Landlord requires or approves same, (v) such Approved User does not impose any additional burden upon Landlord in the operation of the Building, (vi) such Approved User’s use of the Premises does not have any adverse impact on the operations of the Building and/or the Building systems, and (vii) such Approved User agrees to indemnify Landlord for and against all damage, claims and liability arising out of such Approved User’s use of a portion of the Premises. Any default of any provision hereunder caused by any such Approved User shall be deemed a default of such provision by Tenant, and any act or omission by such Approved User shall be deemed the act or omission of Tenant. Nothing contained in this Lease (including the provisions of this paragraph 4.16.9) or otherwise (including the provision of any services to the Premises) shall be deemed to (A) create any landlord-tenant or other relationship between Landlord and any Approved User, or (B) create any contractual liability or duty on the part of Landlord to any Approved User. Tenant hereby agrees to indemnify and hold Landlord and its agents, officers, directors and employees harmless from and against any cost, damage, claim, liability or expense (including reasonable attorneys’ fees) incurred by or claimed against Landlord and/or its agents, officers, directors and employees, directly or indirectly, as a result of or in any way arising from any Approved User’s use and occupancy of any portion of the Premises.

4.17 Assignment by Landlord. Landlord shall have the right to transfer and assign, in whole or in part, its rights and obligations under this Lease and in any and all of the Land or Building. If Landlord sells or transfers any or all of the Building, including the Premises, Landlord and Landlord’s Agents shall, upon consummation of such sale or transfer, be released automatically from any liability relating to obligations or covenants under this Lease to be performed or observed after the date of such transfer, and in such event, Tenant agrees to look solely to Landlord’s successor-in-interest with respect to such liability; provided that, as to the Lease Security Deposit and Prepaid Rent, Landlord shall not be released from liability therefor unless Landlord has delivered (by direct transfer or credit against the purchase price) the Lease Security Deposit or Prepaid Rent to its successor-in-interest.

4.18 Estoppel Certificates and Financial Statements. Tenant shall, from time to time, upon the written request of Landlord, execute, acknowledge and deliver to Landlord or its designee a written statement stating (to the extent factually accurate): (a) the date this Lease was executed and the date it expires; (b) the date Tenant entered into occupancy of the Premises; (c) the amount of monthly Base Rent and Additional Rent and the date to which such Base Rent and Additional Rent have been paid; and (d) certifying that (1) this Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way (or specifying the

 

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date of the agreement so affecting this Lease); (2) Landlord is not in breach of this Lease (or, if so, a description of each such breach) and that no event, omission or condition has occurred which would result, with the giving of notice or the passage of time, in a breach of this Lease by Landlord; (3) this Lease represents the entire agreement between the parties with respect to the Premises; (4) all required contributions by Landlord to Tenant on account of Tenant Improvements have been received; (5) on the date of execution, there exist no defenses or offsets which the Tenant has against the enforcement of this Lease by the Landlord; (6) no Base Rent, Additional Rent or other sums payable under this Lease have been paid in advance except for Base Rent and Additional Rent for the then current month; (7) no security has been deposited with Landlord (or, if so, the amount of such security); (8) it is intended that any Tenant’s statement may be relied upon by a prospective purchaser or mortgagee of Landlord’s interest or an assignee of any such mortgagee; and (9) such other information as may be reasonably requested by Landlord. If Tenant fails to respond within ten (10) Business Days of its receipt of a written request by Landlord as provided in this paragraph 4.18, such shall be a breach of this Lease and Tenant shall be deemed to have admitted the accuracy of any information supplied by Landlord to a prospective purchaser, mortgagee or assignee. In addition, Tenant shall, from time to time, but not more than once in any twelve (12) month period (except if the Landlord is then attempting to sell or refinance the Building or if an Event of Default then exists) upon the written request of Landlord, deliver to or cause to be delivered to Landlord or its designee then current financial statements (including a statement of operations and balance sheet and statement of cash flows) certified as accurate and prepared in conformance with generally accepted accounting principles for (i) Tenant, (ii) any entity which owns a controlling interest in Tenant, (iii) any successor entity to Tenant by merger or operation of law, and (iv) any guarantor of this Lease.

4.19 Modification for Lender. If, in connection with obtaining construction, interim or permanent financing for the Building or Land, Landlord’s lender, if any, shall request reasonable modifications to this Lease as a condition to such financing, Tenant will not unreasonably withhold or delay its consent to such modifications; provided that, such modifications do not increase the obligations of Tenant, or decrease the obligations of Landlord under this Lease or materially adversely affect Tenant’s rights under this Lease.

4.20 Hazardous Substances.

4.20.1 Neither Tenant, any of Tenant’s Agents nor any other person shall store, place, generate, manufacture, refine, handle, or locate on, in, under or around the Land or Building any Hazardous Substance, except for storage, handling and use of reasonable quantities and types of cleaning fluids and office supplies in the Premises in the ordinary course and the prudent conduct of Tenant’s business in the Premises. Tenant agrees that (a) the storage, handling and use of such permitted Hazardous Substances must at all times conform to all Governmental Requirements and to applicable fire, safety and insurance requirements; (b) the types and quantities of permitted Hazardous Substances which are stored in the Premises must be reasonable and appropriate to the nature and size of Tenant’s operation in the Premises and reasonable and appropriate for a first-class building of the same or similar use and in the same market area as the Building; and (c) no Hazardous Substance shall be spilled or disposed of on, in, under or around the Land or Building or otherwise discharged from the Premises or any area adjacent to the Land or Building. In no event will Tenant be permitted to store, handle or use on, in, under or around the Premises any Hazardous Substance which will increase the rate of fire or

 

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extended coverage insurance on the Land or Building, unless: (1) such Hazardous Substance and the expected rate increase have been specifically disclosed in writing to Landlord; (2) Tenant has agreed in writing to pay any rate increase related to each such Hazardous Substance; and (3) Landlord has approved in writing each such Hazardous Substance, which approval shall be subject to Landlord’s discretion.

4.20.2 Tenant shall indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all Claims arising out of any breach of any provision of this paragraph 4.20, which expenses shall also include laboratory testing fees, personal injury claims, clean-up costs and environmental consultants’ fees. Tenant agrees that Landlord may be irreparably harmed by Tenant’s breach of this paragraph 4.20 and that a specific performance action may appropriately be brought by Landlord; provided that, Landlord’s election to bring or not bring any such specific performance action shall in no way limit, waive, impair or hinder Landlord’s other remedies against Tenant.

4.20.3 As of the execution date of this Lease, Tenant represents and warrants to Landlord that, except as otherwise disclosed by Tenant to Landlord, Tenant has no intent to bring any Hazardous Substances on, in or under the Premises except for the type and quantities authorized in the subparagraph 4.20.1, above.

4.20.4 Landlord represents and warrants that, to the best of its actual knowledge, without any independent inquiry or investigation, as of the Effective Date, there are no Hazardous Substances in the Premises, nor in the portions of the common areas of the Building that would impact Tenant’s use and occupancy of the Premises, which are in violation of applicable Governmental Requirements. Landlord covenants not to bring onto the Land or Building during the Lease Term any Hazardous Substances in violation of any Governmental Requirements.

4.21 Access Laws.

4.21.1 Tenant agrees to notify Landlord as soon as reasonably possible if Tenant receives notification or otherwise becomes aware of: (a) any condition or situation on, in, under or around the Land or Building which may constitute a violation of any Access Laws or (b) any threatened or actual lien, action or notice that the Land or Building is not in compliance with any Access Laws. If Tenant is responsible for such condition, situation, lien, action or notice under this paragraph 4.21, Tenant’s notice to Landlord shall include a statement as to the actions Tenant proposes to take in response to such condition, situation, lien, action or notice.

4.21.2 Tenant shall not alter or permit any assignee or subtenant or any other person to alter the Premises in any manner which would violate any Access Laws or increase Landlord’s responsibilities for compliance with Access Laws, without the prior approval of the Landlord. In connection with any such approval, Landlord may require a certificate of compliance with Access Laws from an architect, engineer or other person acceptable to Landlord. Tenant agrees to pay the reasonable, actual and documented fees incurred by such architect, engineer or other third party in connection with the issuance of such certificate of compliance. Landlord’s consent to any proposed Tenant Alteration shall (a) not relieve Tenant of its obligations or indemnities contained in this paragraph or this Lease or (b) be construed as a warranty that such proposed alteration complies with any Access Law.

 

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4.21.3 Tenant shall be solely responsible for all costs and expenses relating to or incurred in connection with: (a) failure of the Premises to comply with the Access Laws; and (b) bringing the Building and the common areas of the Building into compliance with Access Laws, if and to the extent such noncompliance arises out of or relates to: (1) Tenant’s specific use of the Premises, including the hiring of employees; (2) any Tenant Alterations to the Premises; or (3) any Tenant Improvements constructed in the Premises by or at the request of Tenant.

4.21.4 Landlord shall be responsible for all costs and expenses relating to or incurred in connection with bringing the common areas of the Building into compliance with Access Laws, unless such costs and expenses are Tenant’s responsibility as provided in the preceding subparagraph 4.21.3. Any cost or expense paid or incurred by Landlord to bring the Premises or common areas of the Building into compliance with Access Laws which is not Tenant’s responsibility under the preceding subparagraphs shall be amortized over the useful economic life of the improvements with interest at the Prime Rate plus four (4) percentage points compounded daily, and, except as otherwise expressly provided herein, shall be an Operating Cost for purposes of this Lease.

4.21.5 Tenant agrees to indemnify, defend and hold harmless Landlord and Landlord’s Agents from and against any and all Claims arising out of or relating to any failure of Tenant or Tenant’s Agents to comply with Tenant’s obligations under this paragraph 4.21. Landlord represents and warrants that, to the best of its actual knowledge, without any independent inquiry or investigation, as of the Effective Date: (a) the portions of the common areas of the Building that affect Tenant’s use and occupancy of the Premises (the “Applicable Portion of the Common Areas”) are in substantial compliance with applicable Governmental Requirements (including the Access Laws), the violation of which would affect Tenant’s use and enjoyment of the Premises, and (b) the Applicable Portion of the Common Areas is in substantial compliance with the Access Laws in effect on the Effective Date.

4.21.6 The provisions of this paragraph 4.21 shall supersede any other provisions in this Lease regarding Access Laws, to the extent inconsistent with the provisions of any other paragraphs of this Lease.

4.22 Quiet Enjoyment. Landlord covenants that, provided that no Event of Default exists hereunder: (a) Tenant, upon paying Base Rent, Additional Rent and all other sums payable under this Lease and performing all covenants and conditions required of Tenant under this Lease; (b) Tenant shall and may peacefully have, hold and enjoy the Premises without hindrance or molestation by Landlord subject to the provisions of this Lease.

4.23 Signs.

4.23.1 Exterior. So long as (a) Governmental Requirements permit Landlord to install on the top of the Building, after the installation of, and in addition to, the Exterior Building Sign (hereinafter defined), an exterior sign of a size substantially similar to the Exterior Building Sign, (b) Tenant leases at least 42,128 rentable square feet of office space in the Building, (c) Tenant remains one of the two largest tenants in the Building based on the rentable area leased in the Building, and (d) no Event of Default shall have occurred and remains uncured, Tenant, at Tenant’s sole cost and expense, shall have the non¬exclusive right to install one (1) exterior

 

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building sign (the “Exterior Building Sign”) containing Tenant’s name and/or Tenant’s corporate logo in the location on the exterior of the Building which is shown on the attached Exhibit F. Tenant’s right to install such Exterior Building Sign shall commence six (6) months prior to the Tender Date, provided that, prior to installing the Exterior Building Sign, Tenant shall have: (i) delivered the Letter of Credit to Landlord; and (ii) waived in writing its right to terminate this Lease pursuant to Section 2.4, above. At Tenant’s option, the Exterior Building Sign may be back-lit (subject to Landlord’s approval of Tenant’s lighting plan). Tenant may install the Exterior Building Sign in the location shown on the attached Exhibit F, provided that (A) Tenant provides to Landlord evidence reasonably satisfactory to Landlord that the Exterior Building Sign is permitted under, and conforms to, all applicable Governmental Requirements, (B) Tenant has obtained all permits, licenses and approvals (with Landlord’s reasonable cooperation but at no cost or liability to Landlord) that may be required in order to install the Exterior Building Sign, and (C) Tenant provides to Landlord evidence reasonably satisfactory to Landlord that Governmental Requirements would not prohibit an additional sign of similar size being placed on the top of the Building after the Exterior Building Sign has been installed. The exact size, dimensions, style, design, lighting, wiring, dimensions and all other components of the Exterior Building Sign shall be subject to Landlord’s approval, in its sole discretion exercised in good faith, provided in no event shall the dimensions of, or lettering on, the Exterior Building Sign be larger than those shown on the attached Exhibit F. Landlord reserves the right to approve in its sole discretion the manner in which the Exterior Building Sign is affixed to the Building. In order to obtain Landlord’s approval of the installation of the Exterior Building Sign, Tenant must submit to Landlord for its approval samples of materials to be used for the Exterior Building Sign (showing, among other things, the thickness thereof), samples of any colors to be used for the Exterior Building Sign, complete shop drawings of the Exterior Building Sign and plans and specifications for the actual construction and method of attachment to the Building of the Exterior Building Sign. The Exterior Building Sign shall be installed by a contractor reasonably approved by Landlord, which satisfies the Contractor Requirements. Throughout the Lease Term, Tenant shall be solely responsible for maintaining the Exterior Building Sign in first-class condition and repair, using a contractor reasonably approved by Landlord. If Tenant fails to properly maintain or repair the Exterior Building Sign, Landlord may, at its sole option: (A) require that Tenant remove the Exterior Building Sign and restore the portions of the Building affected by such removal to their condition immediately prior to the installation of the Exterior Building Sign; or (B) following ten (10) days’ written notice, and Tenant’s failure to effect such maintenance or repair of the Exterior Building Sign within such period, undertake such maintenance or repair at Tenant’s sole cost and expense; or (C) following fifteen (15) days’ written notice to Tenant and Tenant’s failure to effect such removal and restoration of the Exterior Building Sign within such period, remove the Exterior Building Sign and restore the portions of the Building affected by such removal, all at Tenant’s sole cost and expense. On or before the end of the Lease Term, or in the event that (1) Governmental Requirements prevent Landlord from installing on the top of the Building, in addition to the Exterior Building Sign, an exterior sign of a size substantially similar to the Exterior Building Sign, (2) Tenant assigns this Lease to an entity other than a Qualified Tenant Affiliate, (3) Tenant leases less than 42,128 rentable square feet of office space in the Building, or (4) Tenant is not one of the two largest tenants in the Building based on the rentable area leased in the Building, Tenant shall, at its sole cost and expense, have a contractor reasonably approved by Landlord remove the Exterior Building Sign and restore the portions of the Building affected by such removal to the condition

 

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which existed immediately prior to the installation of the Exterior Building Sign, excepting ordinary wear and tear and damages from casualty the responsibility for the repair of which is Landlord’s under this Lease. If Tenant fails to timely remove the Exterior Building Sign or fails to restore the Building in accordance with the terms of the immediately preceding sentence, Landlord shall have the right, but not the obligation, to undertake such removal and/or restoration and Tenant shall reimburse Landlord for all reasonable, actual and documented costs incurred by Landlord in connection therewith, immediately upon demand therefor. Tenant shall obtain property insurance coverage for the Exterior Building Sign and such Exterior Building Sign shall be included in Tenant’s comprehensive liability insurance required pursuant to the Lease. Tenant’s rights under this paragraph 4.23 are personal to OPower, Inc., and no assignee (other than a Qualified Tenant Affiliate) or sublessee of all or any portion of the Premises shall have any exterior signage rights hereunder. Tenant hereby agrees to indemnify and hold Landlord and its agents, officers, directors and employees harmless from and against any cost, damage, claim, liability or expense (including reasonable attorneys’ fees) incurred by or claimed against Landlord and its agents, officers, directors and employees, directly or indirectly, as a result of or in any way arising from the installation, maintenance, repair, operation, removal or existence of the Exterior Building Sign.

4.23.2 Interior. Landlord shall provide to Tenant, on a one-time basis, promptly after the Commencement Date, a Building standard suite entry sign approved by Landlord at Landlord’s reasonable cost and expense. Tenant shall not be responsible for the cost of removal (i) at the expiration of the Lease Term or earlier termination of the Lease of any Building standard suite entry signage approved by Landlord; however, all repair, modification or maintenance costs of same during the Lease Term shall be at Tenant’s sole cost and expense. Landlord, at its sole cost and expense, shall provide Tenant with Tenant’s pro-rata share of lobby directory strips in the lobby directory. Tenant shall not inscribe an inscription, or post, place, or in any manner display any sign, notice, picture, placard or poster, or any advertising matter whatsoever, anywhere in or about the Land or Building at places visible (either directly or indirectly as an outline or shadow on a glass pane) from anywhere outside the Premises without first obtaining Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed.

4.24 Subordination. Landlord represents that no deed of trust or mortgage encumbers the Land or Building on the Effective Date. Tenant subordinates this Lease and all rights of Tenant under this Lease to any mortgage, deed of trust, ground lease or vendor’s lien, or similar instrument which may from time to time be placed upon the Premises (and all renewals, modifications, replacements and extensions of such encumbrances), and each such mortgage, deed of trust, ground lease or lien or other instrument shall be superior to and prior to this Lease; provided however, Landlord shall use commercially reasonable efforts to obtain from any future mortgage lender (the “Mortgagee”) a subordination, non-disturbance and attornment agreement (“SNDA”) providing that Tenant’s rights to possession shall not be disturbed so long as no Event of Default then exists hereunder on such Mortgagee’s standard form of SNDA (an “Acceptable SNDA”). Notwithstanding the foregoing, any such Mortgagee or the holder of, or lessor or beneficiary under, any ground lease, vendor’s lien or similar instrument shall have the right to subordinate or cause to be subordinated any such mortgage, deed of trust, ground lease, vendor’s lien or similar instrument to this Lease. Subject to Tenant receiving an Acceptable SNDA, Tenant shall within ten (10) Business Days of any request, execute, acknowledge and deliver

 

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promptly in recordable form any factually accurate and reasonable instrument or subordination agreement that Landlord or such holder may request. Subject to Tenant receiving an Acceptable SNDA, Tenant further covenants and agrees that if the lender or ground lessor acquires the Premises as a purchaser at any foreclosure sale or otherwise, Tenant shall recognize and attorn to such party as landlord under this Lease, and shall make all payments required hereunder to such new landlord without deduction or set-off and, upon the request of such purchaser or other successor, execute, deliver and acknowledge documents confirming such attornment. Tenant waives the provisions of any law or regulation, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease or the obligations of Tenant hereunder in the event that any such foreclosure or termination or other proceeding is prosecuted or completed.

4.25 Brokers. Each party to this Lease shall indemnify, defend and hold harmless the other party from and against any and all Claims asserted against such other party by any real estate broker, finder or intermediary relating to any act of the indemnifying party in connection with this Lease.

4.26 Limitation on Recourse. Liability with respect to the entry and performance of this Lease by or on behalf of Landlord, however it may arise, shall be asserted and enforced only against Landlord’s estate and equity interest in the Building. Neither Landlord nor any of Landlord’s Agents shall have any personal liability in the event of any claim against Landlord arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant’s use of the Premises. Further, in no event whatsoever shall any Landlord’s Agent have any liability or responsibility whatsoever arising out of or in connection with this Lease, the relationship of Landlord and Tenant or Tenant’s use of the Premises. Any and all personal liability, if any, beyond that which may be asserted under this paragraph 4.26, is expressly waived and released by Tenant and by all persons claiming by, through or under Tenant.

4.27 Mechanic’s Liens and Tenant’s Personal Property Taxes.

4.27.1 Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord or Tenant in the Premises or to charge the rentals payable under this Lease for any Claims in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant shall within thirty (30) days after invoice, pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises and Tenant shall indemnify, defend and hold harmless Landlord from any and all Claims arising out of any such asserted Claims. Tenant agrees to give Landlord immediate written notice of any such asserted Claim.

4.27.2 Tenant shall be liable for all taxes levied or assessed against personal property, furniture or fixtures placed by Tenant in the Premises. If any such taxes for which Tenant is liable are levied or assessed against Landlord or Landlord’s property and Landlord elects to pay them or if the assessed value of Landlord’s property is increased by inclusion of such personal property, furniture or fixtures and Landlord elects to pay the taxes based on such increase, Tenant shall reimburse Landlord for the sums so paid by Landlord, upon demand by Landlord.

 

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SECTION 5: DEFAULT AND REMEDIES

5.1 Events of Default.

5.1.1 The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Tenant (“Event of Default”):

(a) failure by Tenant to make any payment of Base Rent, Additional Rent or any other sum payable by Tenant under this Lease within five (5) Business Days after written notice from Landlord; provided that an Event of Default shall exist on the sixth (6,h) Business Day after the date on which such Rent payment was due (and no written notice to Tenant shall be required for an Event of Default to exist), if, as of the date on which such payment of Rent was due, Tenant is a debtor in a voluntary or involuntary bankruptcy proceeding;

(b) failure by Tenant to observe or perform any covenant or condition of this Lease, other than the making of payments, where such failure shall continue for a period of twenty (20) Business Days after written notice from Landlord or such additional time as is reasonably needed to cure the default provided that Tenant shall diligently pursue the cure and complete the cure within sixty (60) Business Days;

(c) the failure of Tenant to surrender possession of the Premises at the expiration or earlier termination of this Lease in the condition required by this Lease;

(d) (1) the making by Tenant of any general assignment or general arrangement for the benefit of creditors; (2) the filing by or against Tenant of a petition in bankruptcy, including reorganization or arrangement, unless, in the case of a petition filed against Tenant, unless the same is dismissed within thirty (30) Business Days; (3) the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located in the Premises or of Tenant’s interest in this Lease; (4) any execution, levy, attachment or other process of law against Tenant’s interest in this Lease, unless the same is dismissed within thirty (30) Business Days; (5) adjudication that Tenant is bankrupt; or (6) the making by Tenant of a transfer in fraud of creditors;

(e) any information furnished by or on behalf of Tenant to Landlord in connection with the entry of this Lease is determined to have been materially false, misleading or incomplete when made and Tenant knew or should have known that such information was false, misleading or incomplete;

(f) a failure of Tenant to deliver the Letter of Credit within the time period specified in the paragraph 3.3, above; or

(g) a failure of Tenant to renew or extend the Letter of Credit at least thirty (30) days prior to its expiration date.

 

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5.1.2 Tenant shall notify Landlord promptly of any Event of Default or any facts, conditions or events which, with the giving of notice or passage of time or both, would constitute an Event of Default.

5.1.3 If a petition in bankruptcy is filed by or against Tenant, and if this Lease is treated as an “unexpired lease” under applicable bankruptcy law in such proceeding, then Tenant agrees that Tenant shall not attempt nor cause any trustee to attempt to extend the applicable time period within which this Lease must be assumed or rejected.

5.2 Remedies. If any Event of Default occurs, Landlord may at any time after such occurrence, with or without notice or demand except as stated in this paragraph 5.2, and without limiting Landlord in the exercise of any right or remedy at law which Landlord may have by reason of such Event of Default, exercise the rights and remedies, either singularly or in combination, as are specified or described in the subparagraphs of this paragraph 5.2.

5.2.1 Landlord may terminate this Lease and all rights of Tenant under this Lease either immediately or at some later date by giving Tenant written notice that this Lease is terminated. If Landlord so terminates this Lease, then Landlord may recover from Tenant the sum of:

(a) the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which have been earned at the time of termination;

(b) interest at the Default Rate on the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which have been earned at the time of termination; plus

(c) the amount by which the unpaid Base Rent, Additional Rent and all other sums payable under this Lease which would have been earned after termination until the time of award exceeds the amount of such rental loss, if any, as Tenant affirmatively proves could have been reasonably avoided and interest on such excess at the Default Rate; plus

(d) any other reasonable amount necessary to compensate Landlord for the detriment proximately caused by Tenant’s failure to perform Tenant’s obligations under this Lease, including, leasing commissions, tenant improvement costs, renovation costs and advertising costs.

5.2.2 Landlord shall also have the right, with or without terminating this Lease, to re-enter the Premises pursuant to applicable law and take possession of the Premises and evict Tenant therefrom and remove all persons and property from the Premises. Landlord may cause property so removed from the Premises to be stored in a public warehouse or elsewhere at the expense and for the account of Tenant.

5.2.3 Landlord shall also have the right, without terminating this Lease, to accelerate and recover from Tenant the sum of all unpaid Base Rent, Additional Rent and all other sums payable under the then remaining Lease Term, discounting such amount to present value at the Prime Rate.

5.2.4 If Tenant vacates, abandons or surrenders the Premises without continuing to pay Base Rent and/or Additional Rent, or if Landlord re-enters the Premises as provided in

 

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subparagraph 5.2.2 or takes possession of the Premises pursuant to legal proceedings or through any notice procedure provided by law, then, if Landlord does not elect to terminate this Lease, Landlord may, from time to time, without terminating this Lease, either (a) recover all Base Rent, Additional Rent and all other sums payable under this Lease as they become due or (b) relet the Premises or any part of the Premises on behalf of Tenant for such term or terms, at such rent or rents and pursuant to such other provisions as Landlord, in its sole discretion, may deem advisable, all with the right, at Tenant’s cost, to make repairs to the Premises and recover any deficiency from Tenant as set forth in subparagraph 5.2.6.

5.2.5 None of the following remedial actions, singly or in combination, shall be construed as an election by Landlord to terminate this Lease unless Landlord has in fact given Tenant written notice that this Lease is terminated: (a) an act by Landlord to maintain or preserve the Premises; (b) any efforts by Landlord to relet the Premises; (c) any repairs or alterations made by Landlord to the Premises; (d) re¬entry, repossession or reletting of the Premises by Landlord pursuant to this paragraph 5.2; or (e) the appointment of a receiver, upon the initiative of Landlord, to protect Landlord’s interest under this Lease. If Landlord takes any of the foregoing remedial action without terminating this Lease, Landlord may nevertheless at any time after taking any such remedial action terminate this Lease by written notice to Tenant.

5.2.6 Upon the occurrence of an Event of Default and the receipt by Landlord of written notice from Tenant acknowledging the existence of such Event of Default and asking Landlord to attempt to re-let the Premises, Landlord agrees to use reasonable efforts to relet the Premises. Landlord may condition its willingness to attempt to relet the Premises upon Tenant’s delivery to Landlord in advance of Landlord’s attempting to relet the Premises a cash sum equal to Landlord’s reasonable estimate of the Reletting Costs (hereinafter defined) which it will incur in reletting the Premises. Landlord shall not be obligated to attempt to relet the Premises if Landlord then has available for Lease in the Building space of a size which is comparable to the Premises (or the portion thereof that any prospective tenant wishes to lease). Any alterations, decorations, rental concessions, or commissions incurred or provided by Landlord in connection with its reletting of the Premises (the “Reletting Costs”) shall be reasonable and customary in the Arlington, Virginia market for the leasing of comparable space in comparable office buildings, as reasonably determined by Landlord. If Landlord relets the Premises, Landlord shall apply the revenue from such reletting as follows: first, to the payment of any indebtedness of Tenant to Landlord under this Lease other than Base Rent, Additional Rent or any other sums payable by Tenant under this Lease; second, to the payment of any cost of reletting (including finders’ fees and leasing commissions), third, to the payment of the cost of any alterations, improvements, maintenance and repairs to the Premises; and fourth, to the payment of Base Rent, Additional Rent and other sums due and payable and unpaid under this Lease. Landlord shall hold and apply the residue, if any, to payment of future Base Rent, Additional Rent and other sums payable under this Lease as the same become due, and shall deliver the eventual balance, if any, to Tenant. Should revenue from letting during any month, after application pursuant to the foregoing provisions, be less than the sum of the Base Rent, Additional Rent and other sums payable under this Lease and Landlord’s expenditures for the Premises during such month, Tenant shall be obligated to pay such deficiency to Landlord as and when such deficiency arises.

5.2.7 Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies provided in this Lease or by law (all such remedies being cumulative), nor shall

 

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pursuit of any remedy provided in this Lease constitute a forfeiture or waiver of any Base Rent, Additional Rent or other sum payable under this Lease or of any damages accruing to Landlord by reason of the violation of any of the covenants or conditions contained in this Lease.

5.3 Right to Perform. If Tenant shall fail to pay any sum of money, other than Base Rent or Additional Rent, required to be paid by it under this Lease or shall fail to perform any other act on its part to be performed under this Lease, and such failure shall continue beyond any applicable notice and cure period after notice of such failure by Landlord, or such shorter time if reasonable under the circumstances, Landlord may, but shall not be obligated to, and without waiving or releasing Tenant from any obligations of Tenant, make such payment or perform such other act on Tenant’s part to be made or performed as provided in this Lease. Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment of sums due under this paragraph 5.3 as in the case of default by Tenant in the payment of Base Rent.

5.4 Landlord’s Default. Landlord shall not be in default under this Lease unless Landlord fails to perform material obligations required of Landlord within ten (10) Business Days after written notice is delivered by Tenant to Landlord and to the holder of any mortgages or deeds of trust (collectively, “Lender”) covering the Premises whose name and address shall have theretofore been furnished to Tenant in writing, specifying the obligation which Landlord has failed to perform; provided, however, that if the nature of Landlord’s obligation is such that more than ten (10) Business Days are required for performance, then Landlord shall not be in default if Landlord or Lender commences performance within such ten (10) Business Day period and thereafter diligently prosecutes the same to completion within a reasonable time thereafter. All obligations of Landlord hereunder shall be construed as covenants, not conditions. Except as otherwise expressly set forth in paragraph 5.5, below, Tenant’s exclusive remedy for a default by Landlord shall be either an action for specific performance or an action for actual damages.

5.5 Tenant’s “Self-Help” Rights.

5.5.1 In the event that for reasons not caused by Tenant (or any of its employees or agents) or by a Force Majeure Event, Landlord fails to provide any services or utilities or to perform any repairs or maintenance for the Premises required of Landlord under this Lease, and such failure (i) continues after Landlord has been notified in writing thereof and fails to provide such services or utilities within the prescribed time period (or if no cure period is prescribed, a reasonable period of time after Landlord’s receipt of written notice from Tenant), and (ii) materially impairs Tenant’s use and occupancy of the Premises (collectively, the “Cure Conditions”), then Tenant may deliver written notice (“Cure Notice”) to Landlord (and, if Tenant elects to deliver such notice to Landlord, Tenant must deliver an identical notice to any Mortgagee) stating that Tenant intends to perform such repair or maintenance. Prior to Tenant undertaking any action to cure or remedy such condition, Tenant shall first allow Landlord and any Mortgagee ten (10) Business Days following receipt by Landlord and the Mortgagee of such Cure Notice to attempt to cure or remedy the event or condition specified in Tenant’s notice; provided, however, if such default cannot be cured within said ten (10) Business Day period, this period shall be extended for such longer period as may be reasonably required, but in no event more than an additional sixty (60) Business Days, to permit Landlord or the Mortgagee to effect such cure, provided that Landlord or the Mortgagee commences to cure such default within the

 

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said ten (10) Business Day period and proceeds diligently thereafter to effect such cure (the “Final Cure Period”). If Landlord or the Mortgagee fails to cure or remedy such condition within such Final Cure Period, then Tenant shall give Landlord and the Mortgagee written notice that Tenant will immediately commence to cure or remedy such condition (i.e., perform such repair or maintenance) and three (3) Business Days after delivering such notice Tenant may, subject to the terms and conditions set forth below, take such action that is reasonably necessary to cure or remedy such condition, unless Landlord or the Mortgagee shall have denied, prior to the expiration of such three (3) Business Day-period, that the Cure Conditions have occurred.

5.5.2 In the event that Landlord fails to deny that the Cure Conditions have occurred, Landlord and Tenant shall, within three (3) Business Days after written notice, appoint a mutually agreeable engineer or architect (the “Arbitrator”) to arbitrate and decide the issue, on an expedited basis, of whether the Cure Conditions have occurred. If Landlord and Tenant are unable to agree on an Arbitrator, Landlord and Tenant shall ask the American Arbitration Association to choose an Arbitrator from among the National Panel of Real Estate Industry Arbitrators. If such Arbitrator determines that the Cure Conditions have occurred, then Tenant may take such action that is reasonably necessary to cure or remedy such condition subject to and in accordance with the terms and conditions set forth below; otherwise, Tenant shall not be entitled to undertake any such cure. If the Cure Conditions have occurred and Tenant is entitled hereunder to and does undertake the cure pursuant to the Cure Notice, then upon the completion of such work and the receipt by Tenant of final lien waivers from all contractors, subcontractors and materialmen who performed work or supplied goods in affecting such cure, Tenant shall be permitted to deliver to Landlord an invoice (which shall include all lien waivers) for the reasonable (and competitive) and actual out-of-pocket costs and expenses incurred by Tenant in effecting such cure; and Landlord shall pay to Tenant the amount of such invoice within thirty (30) days after delivery of such invoice (and lien waivers) by Tenant. Notwithstanding the foregoing, it is understood that the Arbitrator’s determination that the Cure Conditions have occurred shall permit Tenant to undertake the cure pursuant to the Cure Notice as provided herein, but shall not be determinative that a default by Landlord has occurred hereunder or for any other purpose. In fulfilling its obligations to notify the Mortgagee before proceeding with any action to cure or remedy any Cure Condition, Tenant may rely upon information most recently provided by Landlord (including that contained in any SNDA) as to the identity and address of any Mortgagee. In no event shall Tenant be entitled to exercise the cure rights set forth in this paragraph 5.5 with respect any of the common areas of the Building or any base Building system or structural components, except with respect to the portion of any base Building systems within the Premises (but only if the work performed by Tenant does not affect any other part of the Building or any services provided to any other part of the Building or occupant of the Building). In addition, Tenant shall not be entitled to exercise the cure rights set forth in this paragraph 5.5 while Tenant is in default under this Lease.

5.5.3 In the event that Tenant seeks to cure or remedy any event or condition which gives rise to Tenant’s cure right set forth in this paragraph 5.5, Tenant shall (a) proceed in accordance with the applicable provisions of this Lease (including without limitation the provisions of paragraphs 4.4 and 4.5 hereof) and all Governmental Laws; (b) use only contractors (i) approved by Landlord, (ii) which satisfy the Contractor Requirements, and (iii) which are duly licensed in the Commonwealth of Virginia and insured; (c) upon commencing such repairs, complete the same within a reasonable period of time, (d) effect such repairs in a

 

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good and workmanlike quality; (e) use new materials; (f) minimize any interference or impact on any other tenants and occupants of the Building; and (g) indemnify and hold Landlord and the Mortgagee harmless from any and all liability, damage and expense arising from injury to persons or personal property arising out of or resulting from Tenant’s exercise of such rights. The provisions of paragraph 4.9, above, shall not apply in the event the Premises or Building is damaged by fire or casualty while Tenant is attempting to cure or remedy any Cure Conditions.

5.5.4 Notwithstanding anything to the contrary set forth in the Lease, Landlord and Tenant expressly acknowledge and agree that: (a) the provisions of this paragraph 5.5 shall not apply in the event that (i) Tenant is not then leasing or occupying at least 42,128 rentable square feet of space in the Building, or (ii) an uncured Event of Default then exists under the Lease; and (b) the rights granted in this paragraph 5.5 are personal to the named Tenant hereunder and may not be exercised by any subtenant or assignee, except for an assignee that is a Qualified Tenant Affiliate.

SECTION 6: MISCELLANEOUS PROVISIONS

6.1 Notices. All notices, demands, consents, approvals, statements and communications required or permitted under this Lease shall be in writing and, if intended for Landlord, shall be addressed to Landlord at the addresses set forth opposite Landlord’s signature; and if intended for Tenant, shall be addressed to Tenant at the address set forth opposite Tenant’s signature, or to such other address as either party may by written notice, given in accordance with this paragraph 6.1, advise the other party. All such communications shall be transmitted by personal delivery, reputable express or courier service, or United States Postal Service, postage prepaid. All such communications shall be deemed delivered and effective on the earlier of (a) the date received or refused for delivery, or (b) five (5) calendar days after having been deposited in the United States Postal Service, postage prepaid. Notwithstanding the means of transmission authorized earlier in this paragraph 6.1, those communications which contain a notice of breach or default, a notice of an event or occurrence that with the passage of time or the giving of notice, or both, would cause a breach or default to arise, or a demand for performance shall be transmitted by one or more of the following methods: (i) United States Postal Service, certified mail, return receipt requested; or (ii) personal delivery, accompanied by a receipt and signed by a representative of the addressee acknowledging delivery on a specified date, with delivery not effective unless the receipt is given, or (iii) reputable express or courier service.

6.2 Attorneys’ Fees and Expenses. In the event that either Landlord or Tenant shall institute any legal action or proceeding against the other relating to the provisions of this Lease or any default hereunder, the unsuccessful party in such action or proceeding agrees to pay to the prevailing party the reasonable attorneys’ fees, expenses and court costs (including those relating to any appeal) actually incurred by the prevailing party.

6.3 No Accord and Satisfaction. No payment by a party or receipt by a party of an amount less than the sum then due and payable under this Lease shall be deemed to be other than a payment on account of such sum which is owing, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, nor preclude the accepting party’s right to recover the balance of any amount payable or its right to pursue any other remedy provided in this Lease or at law.

 

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6.4 Successors; Joint and Several Liability. Except as provided in the paragraph captioned “Limitation on Recourse” and subject to paragraph 4.16 of this Lease (captioned “Assignment and Subletting by Landlord”), ail of the covenants and conditions contained in this Lease shall apply to and be binding upon Landlord and Tenant and their respective heirs, executors, administrators, successors and assigns. In the event that more than one person, partnership, company, corporation or other entity is included in the term “Tenant”, then each such person, partnership, company, corporation or other entity shall be jointly and severally liable for all obligations of Tenant under this Lease.

6.5 Choice of Law. This Lease shall be construed and governed by the laws of the Commonwealth of Virginia. Tenant and Landlord each consent to the state courts in Arlington, Virginia as the choice of venue for any legal proceeding brought by Landlord or Tenant to enforce the terms of this Lease.

6.6 No Waiver of Remedies. The waiver by a party of any covenant or condition contained in this Lease shall not be deemed to be a waiver of any subsequent breach of such covenant or condition nor shall any custom or practice which may develop between the parties in the administration of this Lease be construed to waive or lessen the rights of the waiving party to insist on the strict performance by the other of all of the covenants and conditions of this Lease. No act or thing done by Landlord or Landlord’s Agents during the Lease Term shall be deemed an acceptance or a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless made in writing and signed by Landlord. The mention in this Lease of any particular remedy shall not preclude a party from any other remedy it might have, either under this Lease or at law, nor shall the waiver of or redress for any violation of any covenant or condition in this Lease or in any of the rules or regulations attached to this Lease or later adopted by Landlord, prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by a party of any other sum payable under this Lease with knowledge of a breach of any covenant or condition in this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the rules and regulations attached to this Lease or later adopted, against Tenant or any other tenant in the Building, shall not be deemed a waiver. Any waiver by a party must be in writing and signed by waiving party to be effective.

6.7 Offer to Lease. The submission of this Lease in a draft form to Tenant or its broker or other agent does not constitute an offer to Tenant to lease the Premises. This Lease shall have no force or effect until it is executed and delivered by both Tenant and Landlord.

6.8 Force Majeure Event. In the event that either party shall be delayed, hindered in or prevented from the performance of any act or obligation required under this Lease by reason of acts of God, strikes, lockouts, labor troubles or disputes, inability to procure or shortage of materials or labor, failure of power or utilities, governmental action or inaction, delay in transportation, fire, vandalism, accident, flood, severe weather, other casualty. Governmental Requirements (including mandated changes in the Plans and Specifications or in the Tenant Improvements resulting from changes in pertinent Governmental Requirements or interpretations thereof), riot, insurrection, civil commotion, sabotage, explosion, war, natural or local emergency, acts or omissions of others, including the other party, or other reasons of a similar or dissimilar nature not solely the fault of, or under the exclusive control of, Landlord or Tenant, as

 

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applicable (the “Force Majeure Events”), then performance of such act or obligation (other than Tenant’s rental obligations under this Lease) shall be excused for the period of the delay and the period for the performance of any such act or obligation shall be extended for the period equivalent to the period of such delay.

6.9 Severability; Captions. If any clause or provision of this Lease is determined to be illegal, invalid, or unenforceable under present or future laws, the remainder of this Lease shall not be affected by such determination, and in lieu of each clause or provision that is determined to be illegal, invalid or unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. Headings or captions in this Lease are added as a matter of convenience only and in no way define, limit or otherwise affect the construction or interpretation of this Lease.

6.10 Interpretation. Whenever a provision of this Lease uses the term (a) “include” or “including”, that term shall not be limiting but shall be construed as illustrative, (b) “covenant”, that term shall include any covenant, agreement, term or provision, (c) “at law”, that term shall mean as specified in any applicable statute, ordinance or regulation having the force of law or as determined at law or in equity, or both, and (d) “day”, that uncapitalized word shall mean a calendar day. This Lease shall be given a fair and reasonable interpretation of the words contained in it without any weight being given to whether a provision was drafted by one party or its counsel.

6.11 Incorporation of Prior Agreement; Amendments. This Lease contains all of the agreements of the parties to this Lease with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties to this Lease or their respective successors in interest.

6.12 Authority. If Tenant is a partnership, company, corporation or other entity, each individual executing this Lease on behalf of Tenant represents and warrants to Landlord that he or she is duly authorized to so execute and deliver this Lease and that all partnership, company, corporation or other entity actions and consents required for execution of this Lease have been given, granted or obtained. If Tenant is a partnership, company, corporation or other business organization, it shall, within ten (10) Business Days after demand by Landlord, deliver to Landlord satisfactory evidence of the due authorization of this Lease and the authority of the person executing this Lease on its behalf. If Landlord is a partnership, company, corporation or other entity, each individual executing this Lease on behalf of Landlord represents and warrants to Tenant that he or she is duly authorized to so execute and deliver this Lease and that all partnership, company, corporation or other entity actions and consents required for execution of this Lease have been given, granted or obtained. If Landlord is a partnership, company, corporation or other business organization, it shall, within ten (10) Business Days after demand by Tenant, deliver to Tenant satisfactory evidence of the due authorization of this Lease and the authority of the person executing this Lease on its behalf.

6.13 Time of Essence. Time is of the essence with respect to the performance of every covenant and condition of this Lease.

 

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6.14 Survival of Obligations. Notwithstanding anything contained in this Lease to the contrary or the expiration or earlier termination of this Lease, any and all obligations of either party accruing prior to the expiration or termination of this Lease shall survive the expiration or earlier termination of this Lease, and either party shall promptly perform all such obligations whether or not this Lease has expired or terminated. Such obligations shall include any and all indemnity obligations set forth in this Lease.

6.15 Consent to Service. Tenant irrevocably consents to the service of process of any action or proceeding at the address of the Premises. Nothing in this paragraph 6.15 shall affect the right to serve process in any other manner permitted by law.

6.16 Landlord’s Authorized Agents. Notwithstanding anything contained in the Lease to the contrary, including without limitation the definition of Landlord’s Agents, PNC Bank N.A. (the Trustee of Landlord) and Kennedy Associates Real Estate Counsel, Inc. (the Authorized Signatory of Landlord) are the only entities authorized to amend, renew or terminate this Lease or to compromise any of Landlord’s claims under this Lease or to bind Landlord in any manner with respect to this Lease. Without limiting the effect of the previous sentence, no property manager or broker shall be considered an authorized agent of Landlord to amend, renew or terminate this Lease, to compromise any of Landlord’s claims under this Lease or to bind Landlord in any manner.

6.17 Waiver of Jury Trial. Landlord and Tenant irrevocably waive the respective rights to trial by jury in any action, proceeding or counterclaim brought by either against the other (whether in contract or tort) on any matter arising out of or relating in any way to this Lease, the relationship of Landlord and Tenant or Tenant’s use or occupancy of the Premises.

6.18 Option to Extend.

6.18.1 Tenant shall have and is hereby granted the option to extend the Lease Term hereof for one (1) additional period of five (5) years (the “Extension Period”), provided that (i) Tenant gives written notice to Landlord of Tenant’s irrevocable exercise of such extension option (the “Renewal Notice”) no later than twelve (12), months prior to the expiration of the Lease Term; (ii) no Event of Default remains uncured at the time of the exercise by Tenant of its extension option; (iii) no Event of Default exists at the commencement of the Extension Period; and (iv) Tenant has not assigned its interest in this Lease or sublet more than twenty percent (20%) of the Premises, except as part of a Permitted Transfer or to a Qualified Tenant Affiliate.

6.18.2 All terms and conditions of this Lease, including without limitation all provisions governing the payment of Additional Rent and annual increases in Base Rent, shall remain in full force and effect during the Extension Period, provided that (i) Base Rent payable during the Extension Period shall equal one hundred percent (100%) of the then-current Fair Market Rental Rate (hereinafter defined) at the time of the commencement of the Extension Period; (ii) Landlord shall not be obligated to make any improvements or alterations in or to the Premises; and (iii) Landlord shall provide standard “market” tenant concessions (including improvement allowance, rental abatement and brokerage commissions) then being provided to tenants renewing leases of similar space (including size, build-out and condition), in similar buildings for similar length terms. As used in this Lease, the term “Fair Market Rental Rate” shall mean

 

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the fair market rental rate that would be agreed upon between a landlord and a tenant entering into a lease renewal for comparable space as to location of floor(s) (i.e. upper floors or lower level floors), size and use, in a comparable building as to quality, condition and age which is located in the Arlington, Virginia area, with a comparable build-out and a comparable length lease term assuming the following: (A) the landlord and tenant are informed and well-advised and each is acting in what it considers its own best interests; (B) the landlord shall provide the tenant with standard “market” tenant concessions for renewal transactions (including a tenant improvement allowance); and (C) the tenant will continue to pay Tenant’s Pro Rata Share (Operating Costs) of increases in Operating Costs and Tenant’s Pro Rata Share (Property Taxes) of increases in Property Taxes in accordance with the terms of this Lease, using the New Base Year (hereinafter defined) as the “Base Year” (as such term is defined in subsection 3.4.6, above) under Section 3.4 of this Lease. As used herein, the term “New Base Year” shall mean the calendar year in which the first day of the Extension Period occurs; provided, however, if the Extension Period commences during the months of October, November or December of any calendar year, the New Base Year shall be the calendar year immediately following the calendar year in which the Extension Period commences.

6.18.3 Landlord and Tenant shall negotiate in good faith to determine the Base Rent for the Extension Period, for a period (the “Negotiation Period”) commencing on the later of: (a) forty-five (45) days after Landlord’s receipt of the Renewal Notice; or (b) the date which is fifteen (15) months prior to the first day of the Extension Period. In the event Landlord and Tenant are unable to agree upon the Base Rent and other economic terms for the Extension Period within the Negotiation Period, the Fair Market Rental Rate shall be determined by a board of three (3) licensed real estate brokers, one of whom shall be named by Landlord, one of whom shall be named by Tenant, and the two so appointed shall select a third. Each real estate broker so selected shall be licensed in the Commonwealth of Virginia specializing in the field of commercial office leasing, having no less than ten (10) years’ of continuous experience in such field, and recognized as experienced in the Arlington, Virginia market, ethical and reputable within the field. Landlord and Tenant agree to make their appointments promptly within ten (10) Business Days after the expiration of the Negotiation Period, or sooner if mutually agreed upon. The two (2) brokers selected by Landlord and Tenant shall promptly select a third broker within ten (10) days after they both have been appointed, and each broker, within fifteen (15) days after the third broker is selected, shall submit his or her determination of the Fair Market Rental Rate. The Fair Market Rental Rate shall be the mean of the two closest rental rate determinations. Landlord and Tenant shall each pay the fee of the broker selected by it, and they shall equally share the payment of the fee of the third broker. In the event that either party fails timely to select its broker, or if the broker selected by Landlord or Tenant fails timely to deliver his or her determination of Fair Market Rental Rate, the Fair Market Rental Rate shall be determined by the broker of the party which has complied with the terms of this subparagraph 6.18.3.

6.18.4 Should the Lease Term be extended hereunder, Tenant shall execute an amendment modifying this Lease within fifteen (15) Business Days after Landlord presents to Tenant the amendment document as reasonably agreed to by Landlord and Tenant, which agreement shall set forth, inter alia, the monthly installments of Base Rent and other economic terms for the Extension Period. Should Tenant fail to execute a commercially reasonable amendment (which accurately sets forth such information and which contains no material provisions inconsistent with the terms hereof) within ten (10) Business Days after presentation of

 

53


same by Landlord, time being of the essence, Landlord may notify Tenant in writing of such failure (the “Amendment Notice”). In the event that Tenant fails to execute and deliver to Landlord the amendment within five (5) Business Days after Landlord’s delivery to Tenant of the Amendment Notice, Tenant’s right extend the Lease Term shall, at Landlord’s sole option, terminate, and Landlord shall be permitted to lease such space to any other person or entity upon whatever terms and conditions are acceptable to Landlord in its sole discretion.

6.18.5 In the event the final determination of the Fair Market Rental Rate shall not be made on or before the first day of the Extension Period in accordance with the provisions of this paragraph 6.18, then pending such final determination. Tenant shall continue to pay Base Rent and Additional Rent at the same Base Rent and Additional Rent amounts then payable by Tenant during the last month of the original Lease Term. If, based upon the final determination of the brokers or the agreement of the parties, such payments made by Tenant on account of Base Rent and Additional Rent for such portion of the Extension Period differ from the Base Rent and Additional Rent which should have been paid by Tenant during that portion of the Extension Period, the parties shall adjust such amount by a cash payment within ten (10) Business Days of such determination.

6.19 Right of First Offer.

6.19.1 Subject to (i) any expansion rights, renewal rights, rights of first offer or refusal or other rights possessed by any tenant in the Building with respect to the ROFO Space (hereinafter defined) or any portion thereof existing as of the date of this Lease, (ii) any renewal rights granted by Landlord after the date of this Lease to any tenant of all or any portion of the ROFO Space, and (iii) the right of any tenant of the ROFO Space (or any portion thereof) to negotiate an extension of the term of its lease of such space or a new lease demising such space, Tenant is hereby granted the following expansion rights during the initial Lease Term with respect to the ROFO Space. As used herein, the term “ROFO Space” shall mean any space located on the fifth (5th) and sixth (6th) floors of the Building, but only after the expiration of the term of a New Lease (hereinafter defined) demising all or any portion of such space. As used herein, the term “New Lease” means a lease of any portion of the ROFO Space between Landlord and any third party, which lease is entered into after the Effective Date. Notwithstanding any provision of this Lease to the contrary, Tenant shall have no rights with respect to the ROFO Space or any other rights of first offer or refusal, or first right to negotiate, or any other expansion rights whatsoever, except as expressly provided in this paragraph 6.19.

6.19.2 In the event that any ROFO Space becomes or is reasonably anticipated by Landlord to become vacant following Landlord’s initial lease-up of such ROFO Space, then, except as provided below, Landlord shall notify Tenant in writing (the “Availability Notice”) of the availability of the ROFO Space in question (the “Available ROFO Space”), and set forth in such Availability Notice: (i) the Base Rent to be paid by Tenant with respect to the Available ROFO Space, which Base Rent shall be comparable to the base rental rates then being offered to tenants entering into leases of comparable space as to location, configuration, build-out and size, in a comparable building as to quality, age and condition which is located in the Arlington, Virginia area, having a comparable term (the “Fair Market ROFO Rental Rate”); (ii) the other terms and conditions pursuant to which Landlord would lease the available ROFO Space to Tenant, including a “market” tenant improvement allowance and period of rent abatement; and

 

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(iii) the date on which Landlord anticipates that the Available ROFO Space will be available for delivery to Tenant (the “Availability Date”). Provided that (A) no uncured Event of Default then exists under this Lease; (B) Tenant has not assigned its interest in this Lease or sublet more than twenty percent (20%) of the Premises, except to a Qualified Tenant Affiliate; (C) not less than thirty-six (36) months will remain in the Lease Term as of the Availability Date; and (D) Tenant notifies Landlord, in writing, within ten (10) business days after Tenant’s receipt of the Availability Notice, time being of the essence, of Tenant’s election to lease all (but not less than all) of the Available ROFO Space (the “Tenant Election Notice”). Tenant shall have the right to lease the Available ROFO Space on the terms and conditions hereinafter set forth. The term of demise of the Available ROFO Space shall commence on the date on which Landlord delivers the Available ROFO Space to Tenant, and shall end on the last day of the Lease Term (the “ROFO Term”).

6.19.3 In the event that Tenant timely delivers a Tenant Election Notice to Landlord, but fails to specify in such notice that Tenant disagrees with the Fair Market ROFO Rental Rate set forth in the Availability Notice: (i) the Fair Market ROFO Rental Rate set forth in the Availability Notice delivered by Landlord shall be deemed to be the Fair Market ROFO Rental Rate for purposes of this paragraph 6.19; and (ii) the terms of the ROFO Amendment (hereinafter defined) shall be based on the terms set forth in (he Availability Notice. In the event that Tenant states in the Tenant Election Notice that Tenant disagrees with Landlord’s determination of the Fair Market ROFO Rental Rate set forth in the Availability Notice, and Tenant specifies in such Tenant Election Notice: (A) Tenant’s calculation of the Fair Market ROFO Rental Rate, and (B) comparable lease data confirming Tenant’s calculation of the Fair Market ROFO Rental Rate, Landlord and Tenant shall negotiate in good faith to determine the Fair Market ROFO Rental Rate for a period of thirty (30) days after the date on which Landlord receives the Tenant Election Notice (the “ROFO Negotiation Period”) to attempt to arrive at a mutually agreeable Fair Market ROFO Rental Rate. In the event that Landlord and Tenant are unable to agree upon the Fair Market ROFO Rental Rate within the ROFO Negotiation Period, then the Fair Market ROFO Rental Rate shall be determined in accordance with three-broker method procedure set forth in paragraph 6.18, above, with respect to the Fair Market Rental Rate, provided that the Base Rent payable during the ROFO Term shall be based on the Fair Market ROFO Rental Rate.

6.19.4 In the event that Tenant timely delivers a Tenant Election Notice, Landlord and Tenant shall execute and deliver an amendment to this Lease (the “ROFO Amendment”) incorporating the Available ROFO Space, which ROFO Amendment shall set forth, among other things: (A) the amount of Base Rent and the Additional Rent attributable to the Available ROFO Space; and (B) the adjustment to Tenant’s Pro Rata Share (Operating Costs) and Tenant’s Pro Rata Share (Property Taxes) resulting from the demise of the Available ROFO Space hereunder. In the event that Tenant does not execute the ROFO Amendment (which amendment accurately sets forth the terms and conditions relating to the demise of the ROFO Space to Tenant, as set forth in this paragraph 6.19) within ten (10) Business Days after receipt thereof from Landlord, time being of the essence, then Tenant’s right of first offer to lease the Available ROFO Space shall be null and void and of no further force or effect and Landlord may lease the Available ROFO Space to any person or entity of its choice on whatever terms and conditions Landlord elects in its sole discretion.

 

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6.19.5 In the event Landlord and Tenant execute the ROFO Amendment, and Landlord is unable to deliver possession of the Available ROFO Space to Tenant on the Availability Date for any reason whatsoever, including without limitation the failure of an existing tenant to vacate such space, Landlord shall not be liable or responsible for any claims, damages or liabilities in connection therewith or by reason thereof. In such event, Landlord shall use reasonable efforts to make the Available ROFO Space available to Tenant as soon as reasonably practicable after the Availability Date.

6.20 Tenant’s Termination Option.

6.20.1 Provided that (a) no Event of Default exists at the time Tenant delivers a Termination Notice (hereinafter defined) to Landlord, and (b) no uncured Event of Default exists on the Termination Date (hereinafter defined), Tenant shall have the one time option to terminate this Lease (the “Termination Option”) effective as of the last day of the thirty-sixth (36th) full calendar month following the Rent Commencement Date (the “Termination Date”), subject to the terms and conditions set forth in this paragraph 6.20. Tenant may exercise its Termination Option solely by delivering to Landlord, on or before the date which is at least twelve (12) months prior to the Termination Date, irrevocable written notice of termination {the “Termination Notice”) on or before the date. In order to exercise the Termination Option, Tenant must pay to Landlord, at the time Tenant delivers the Termination Notice to Landlord, a termination payment {the “Termination Payment”) equal to sum of (i) two (2) monthly installments of Base Rent payable by Tenant as of the date on which Tenant delivers the Termination Notice to Landlord, plus (ii) the unamortized balance, as of the Termination Date, of all Lease Costs (hereinafter defined). As used in this Lease, the term “Lease Costs” means the sum of: (1) all brokerage commissions incurred by Landlord in connection with this Lease; (2) the Tenant Improvement Allowance; (3) the amount of the Rent Abatement Amount (hereinafter defined); and (4) Landlord’s documented and reasonable attorneys’ fees in connection with the negotiation and drafting of this Lease (not to exceed $15,000.00). As used herein, the term “Rent Abatement Amount” means the sum of the aggregate value of all unpaid Base Rent which was abated by Landlord during the period between the Commencement Date and the Rent Commencement Date based on the amount of Base Rent payable by Tenant as of the Rent Commencement Date. The amortization of the Lease Costs shall be effected as though the total of such costs was the principal amount of a promissory note, bearing interest at the rate of eight percent (8%) per annum, where the principal (and all interest thereon) shall be repaid (commencing on the Commencement Date) in equal monthly installments of principal and interest in such amount as to cause the principal balance to be reduced to zero as of the last day of the sixty-third (63rd) full calendar month of the Lease Term. Tenant shall pay to Landlord the Termination Payment simultaneously with Tenant’s delivery of the Termination Notice. The Termination Payment shall be in addition to, and not in lieu of, the payments of Base Rent, Additional Rent and other charges accruing hereunder through the Termination Date. The Termination Option may not be exercised by any sublessee of all or any portion of the Premises. Time shall be of the essence with respect to Tenant’s delivery to Landlord of the Termination Notice and the Termination Payment. In the event Tenant fails to deliver the Termination Notice or fails to pay the Termination Payment within the time period set forth above, then, at Landlord’s sole option, the Termination Notice may be deemed void and of no further force or effect, and the Lease shall continue in full force and effect.

 

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6.20.2 Should Tenant deliver a Termination Notice and fail to surrender the Premises to Landlord on or before the Termination Date, time being of the essence, then, at Landlord’s sole option: (i) Landlord shall be entitled to exercise all of the rights and remedies available to Landlord under the Lease upon an Event of Default by Tenant pursuant to paragraph 5.2 of this Lease (and such other rights and remedies as may be available to Landlord under the Lease, at law or equity); (ii) Tenant shall be liable to Landlord as a hold-over tenant under the Lease and shall be subject to the terms and conditions of paragraph 3.6 of this Lease; and (iii) Landlord may, by written notice to Tenant (the “Termination Holdover Notice”), inform Tenant that it has remained in the Premises after the Termination Date and that if Tenant fails to vacate the Premises within thirty (30) days after Landlord’s delivery of the Termination Holdover Notice, Landlord may declare the Termination Notice to be null and void. In the event that Tenant fails to vacate the Premises within thirty (30) days after Landlord’s delivery to Tenant of the Termination Holdover Notice, Landlord may, but shall not be obligated to, declare the Termination Notice to be null and void and of no further force or effect and this Lease shall continue in full force and effect, in which event Landlord shall return the Termination Payment to Tenant and all rights of Tenant under this paragraph 6.20 shall immediately lapse and be of no further force or effect. Except in the event Landlord declares the Termination Notice to be null and void, Tenant shall indemnify and hold harmless Landlord from and against any and all reasonable, actual and documented costs, expenses, liabilities and damages (including reasonable attorneys’ fees) resulting from Tenant’s holding over in the Premises for a period in excess of thirty (30) days after the Termination Date, including but not limited to any costs, expenses, liabilities or damages resulting from (A) Landlord’s failure to deliver the Premises to a prospective tenant; and (B) Landlord’s removal from the Premises of any of Tenant’s equipment, furniture or personal property in order to deliver possession of the Premises to a prospective tenant.

[signatures page follows]

 

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IN WITNESS WHEREOF, this Lease has been executed the day and year first above set forth.

 

Designated Address for Landlord:
c/o Kennedy Associates Real Estate Counsel, LP
Attn: Executive Vice President – Asset Management

1215 Fourth Avenue, Suite 2400

Seattle, Washington 98161

Facsimile: 206-682-4769

With a copy to:

Kennedy Associates Real Estate Counsel, LP

Attn: Senior Vice President - Asset Management

7315 Wisconsin Avenue, Suite 350 West
Bethesda, Maryland 20814
Facsimile: 301-656-9339
with a copy to Manager at:

LPC Commercial Services, Inc.

101 Constitution Avenue, NW, Suite 600 East

Washington, D.C. 20001

Facsimile: 202-898-2001

Designated Address for Tenant:

OPower, Inc.

1515 N. Courthouse Road, Suite 610

Arlington, VA 22201
Facsimile: 703-778-4547
LANDLORD:
MEPT Courthouse Tower, LLC, a Delaware limited liability company
By: MEPT Edgemoor REIT LLC, a Delaware limited liability company, its Member
By: Kennedy Associates Real Estate Counsel, LP, Authorized Signatory
By: Kennedy Associates Real Estate Counsel GP, LLC, its general partner
By:  

/s/ Jeanette R. Flory

Name:  

Jeanette R. Flory

Title:  

Senior Vice President

 

 

 

 

 

 

TENANT:

OPower, Inc., a Delaware corporation
By:  

/s/ Daniel Yates

Name:  

Daniel Yates

Title:  

CEO

 

 

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EXHIBIT A to Deed of Lease

LEGAL DESCRIPTION OF LAND

PARCEL 1:

Lot ELEVEN (11), Block ONE (1), of the Subdivision of “FORT MYER HEIGHTS”, as the same appears duly dedicated and recorded in Deed Book N, No. 4, at Pages 50 and 51, of the land records of Arlington County, Virginia.

LESS AND EXCEPT, HOWEVER, that part of Lot 11, Block 1, Fort Myer Heights, conveyed to the County Board of Arlington County, Virginia, by deed recorded in Deed Book 747 at Page 468, of the said land records.

AND FURTHER LESS AND EXCEPT, that part of Lot H, Block I, Fort Myer Heights, acquired by Washington Metropolitan Area Transit Authority by Declaration of Taking recorded in Deed Book Iy42 at Page 463, among the said land records.

PARCEL 2:

All of Lots 9 and 10, Block 1, FORT MYER, HEIGHTS, as the same is duly dedicated, platted and recorded among the land records of Arlington County, Virginia in Deed Book N-4 at Pages 50 and 51.

LESS AND EXCEPT, that part of Lots 9 and 10, Block 1, Fort Myer Heights, acquired by Washington Metropolitan Area Transit Authority by Declaration of Taking recorded in Deed Book 1942 at Page 463, among the said land records.

PARCEL 3:

All of Lot 32, Block I, FORT MYER HEIGHTS, as the same is duly dedicated, platted and recorded among the land records of Arlington County, Virginia in Deed Book N-4 at Page 50 (erroneously referred to in the chain of title to this lot as Deed Book M-4 at Page 322).

PARCEL 4:

All of Lot numbered Thirty-Three (33), in Block t of the subdivision known as FORT MYER HEIGHTS, as the same appears duly dedicated and recorded in Liber N, No. 4 at pages 50 and 51 of the land records of Arlington County, Virginia, and being more particularly described by mates and bounds as:

BEGINNING at a point marked, by an Iron pipe in the North line of 15th Street North, formerly Buena Vista Avenue, said point being located N. 82 degrees 45’ E. 300.0 feet from the intersection of the North tine of 15th Street North and North Court House Road; thence along the line dividing Lots 32 and 33 of the aforesaid subdivision N. 7 degrees 15’ W. 100.0 feet; thence N. 82 degrees 45’ E. 50.0 feet; thence S.7 degrees 15’ E. 100.00 feet to a point in the North line of 15th Street North; thence along said street line S. 82 degrees 45’ W. 50.0 feet to the beginning, containing 5000.0 square feet, more or less.


PARCEL 5:

Lots Numbered THIRTY (30) and THIRTY-ONE (31), in Block Numbered ONE (1), of the Subdivision of “PORT MYER HEIGHTS” 63 the same Is platted, dedicated and recorded in Deed Book N-4 at Page 50 and 51, of the land records of Arlington County, Virginia.

PARCEL 6:

All of Lots Numbered 6, 7, 8, 27, 2S and 29, in Block Numbered One (1), of the Subdivision of FORT MYER HEIGHTS, as the same is duly platted, dedicated and recorded In Deed Book N, No. 4 at Page 50, et seq., of the land records of Arlington County, Virginia.

LESS AND EXCEPT, that part of Lots 6, 7 and 8, Block 1, Fort Myer Heights, acquired by Washington Metropolitan Area Transit Authority by Declaration of Taking recorded in Deed Book 1942 at page 463, among the said land records.

All of Lot Numbered Twelve (12) in Block One (1), of the Subdivision of FORT MYER HEIGHTS, as the same is duly dedicated, plaited and recorded in Liber M-4, at Page 332, et seq. and in Liber N-4, at page 50 and 51, et seq., among the land records of Arlington County, Virginia.

LESS AND EXCEPT that portion conveyed to the County Board of Arlington County, Virginia by deed dated September 30, 1946, and recorded to Deed Book 747, at Page 468 (described as Parcel 4, containing approximately 400 square feet), among the land records of said County.

AND

Lot Thirteen (13), Block One (1), FORT MYER HEIGHTS, as the same is duly dedicated, platted and recorded in Deed Book N-4, Page 50, of the land records of Arlington County, Virginia.

LESS AND EXCEPT that small part thereof conveyed to the County Board of Arlington County, Virginia, in Deed Book 747, at Page 468.

TOGETHER WITH an easement through, over and across Lot 14, Block One (1), Fort Myer Heights, being at least fifteen (15) feet in width for free and convenient ingress and egress to the rear of Lot Thirteen (13), Block One (1), Fort Myer Heights for parking purposes.

 

Exhibit A, Page 2


EXHIBIT B to Deed of Lease

DRAWING SHOWING LOCATION OF THE PREMISES

 

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Exhibit B, Page 2


EXHIBIT B-1 to Deed of Lease

DRAWING SHOWING LOCATION OF THE TEMPORARY PREMISES

 

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EXHIBIT C to Deed of Lease

WORK AGREEMENT

This Work Agreement (the “Work Agreement”) is attached to and made a part of that certain Deed of Lease (the “Lease”) dated October      2010, by and between MEPT COURTHOUSE TOWER, LLC, a Delaware limited liability company (“Landlord”), and OPOWER, INC., a Delaware corporation (“Tenant”) for the premises (the “Premises”) described therein in the building located at 1515 N. Courthouse Tower, Arlington, Virginia (the “Building”). Capitalized terms not otherwise defined in this Work Agreement shall have the meanings set forth in the Lease. In the event of any conflict between the terms hereof and the terms of the Lease, the terms hereof shall prevail for the purposes of design and construction of the Tenant Improvements.

A. TENANT IMPROVEMENTS.

1. As-Is Condition. Landlord shall have no obligation to perform or cause the performance or construction of any improvements in or to the Premises and Landlord shall deliver the Premises to Tenant in its “as is” condition, which means in a vacant, clean condition with all physical injury or damage to the Premises (exclusive of wear and tear or damage to carpeting or cosmetic elements of the Premises) repaired and all property from previous occupants removed (unless otherwise approved in advance by Tenant), without (a) any obligation on Landlord’s part to undertake any improvements or alterations therein; or (b) any representations or warranties regarding the condition thereof. Tenant hereby acknowledges that Landlord has made no representations or warranties to Tenant with respect to the condition of the Premises or the working order of any systems or improvements therein existing as of the date of delivery.

2. Tenant Improvements. Tenant, at its sole cost and expense, shall furnish and install in the Premises in accordance with the terms of this Work Agreement, the improvements set forth in the Tenant’s Plans (hereinafter defined) which are subject to Landlord’s approval in accordance with Paragraph B.3, below (the “Tenant Improvements”). All costs of all design, space planning, and architectural and engineering work for or in connection with the Tenant Improvements, including without limitation all drawings, plans, specifications, licenses, permits or other approvals relating thereto, and all insurance, bonds and other requirements and conditions hereunder, and all costs of construction, including supervision thereof, shall be at Tenant’s sole cost and expense, subject to the application of the Tenant Improvement Allowance in accordance with the terms of this Work Agreement. Except as otherwise expressly provided in Paragraph C.3, below, Tenant may not undertake any Tenant Improvements in the Premises prior to the Tender Date.

B. PLANS AND SPECIFICATIONS.

1. Tenant’s Architect. Tenant shall retain the services of Fox Architects (the “Tenant’s Architect”), who will design the Tenant improvements in the Premises and prepare the Final Space Plan (hereinafter defined) and the Contract Documents (hereinafter defined). The Tenant’s Architect shall meet with the Construction Supervisor (hereinafter


defined) from time to time to obtain information about the Building and to insure that the improvements envisioned in the Contract Documents do not interfere with and/or adversely affect the Building or any systems therein. The Tenant’s Architect and the Engineers (hereinafter defined), shall prepare all space plans, working drawings, and plans and specifications described in Paragraph B.3, below, in conformity with the base Building plans and systems, and the Tenant’s Architect shall coordinate its plans and specifications with the Engineers and the Construction Supervisor. All fees of the Tenant’s Architect and the Engineers shall be borne solely by Tenant, subject to application of the Tenant Improvement Allowance as hereinafter provided.

2. Engineers. Tenant shall retain the services of Meta Engineers, P.C., the mechanical, electrical, plumbing and structural engineers designated by Landlord (the “Engineers”), to: (a) design the type, number and location of all mechanical systems in the Premises, including without limitation the heating, ventilating and air conditioning system therein, and to prepare all of the mechanical plans; (b) assist Tenant and the Tenant’s Architect in connection with the electrical design of the Premises, including the location and capacity of light fixtures, electrical receptacles and other electrical elements, and to prepare all of the electrical plans; (c) assist Tenant and the Tenant’s Architect in connection with plumbing-related issues involved in designing the Premises and to prepare all of the plumbing plans; and (d) assist Tenant and the Tenant’s Architect in connection with the structural elements of the Tenant’s Architect’s design of the Premises and to prepare all the structural plans. All fees of the Engineers shall be borne solely by Tenant, subject to application of the Tenant Improvement Allowance as hereinafter provided.

3. Time Schedule.

a. Within sixty (60) days after the Effective Date, Tenant shall furnish to Landlord for its review and approval a proposed detailed space plan for the Tenant Improvements (the “Final Space Plan”) prepared by the Tenant’s Architect, in consultation with Landlord, the Construction Supervisor and the Engineers. The Final Space Plan shall contain the information and otherwise comply with the requirements therefor described in Schedule C-1 attached hereto. Landlord shall advise Tenant of Landlord’s approval or disapproval of the Final Space Plan within five (5) Business Days after Tenant submits the Final Space Plan to Landlord. Tenant shall promptly revise the proposed Final Space Plan to meet Landlord’s reasonable objections, if any, and resubmit the Final Space Plan to Landlord for its review and approval within five (5) Business Days of Tenant’s receipt of Landlord’s objections, if any. Landlord shall advise Tenant of Landlord’s approval or disapproval of the revised Final Space Plan within five (5) Business Days after Tenant’s delivery of same to Landlord.

b. Within thirty (30) Business Days after Landlord approves the Final Space Plan, Tenant shall furnish to Landlord for its review and approval, all architectural plans, working drawings and specifications (the “Contract Documents”) necessary and sufficient (i) for the construction of the Tenant Improvements in accordance with the Final Space Plan; and (ii) to enable the Tenant to obtain a building permit for the construction of the Tenant Improvements by the Contractor (hereinafter defined). The Contract Documents shall (A) contain the information and otherwise comply with the requirements therefore described in Schedule C-2 attached hereto, and (B) incorporate into the Tenant Improvements the materials set forth on Schedule C-3

 

Exhibit C, Page 2


attached hereto. Landlord shall advise Tenant of Landlord’s approval or disapproval of the Contract Documents, or any of them, within five (5) days after Tenant submits the Contract Documents to Landlord. Tenant shall revise the Contract Documents to meet Landlord’s objections, if any, and resubmit the Contract Documents to Landlord for its review and approval within seven (7) Business Days after Landlord notifies Tenant of Landlord’s objections, if any. Landlord’s approval or rejection of the Contract Documents shall be provided within three (3) Business Days from the time Tenant submits to Landlord the revised Contract Documents. Landlord’s approval of the Final Space Plan and the Contract Documents shall not be unreasonably withheld, except to the extent any proposed improvement or alteration described therein is structural in nature or materially affects, or involves a change to the base Building or any of the base Building systems (including without limitation the plumbing, electric, HVAC, mechanical or life safety system) therein, which alterations or improvements shall be approved or rejected by Landlord in its sole discretion exercised in good faith. Notwithstanding anything herein to the contrary, approval by Landlord of the Contract Documents shall not constitute an assurance by Landlord that the Contract Documents: (A) satisfy applicable code requirements, (B) are sufficient to enable Tenant to obtain a building permit for the undertaking of the Tenant Improvements in the Premises, or (C) will not interfere with, and/or otherwise adversely affect, base Building systems.

c. The Final Space Plan and the Contract Documents are referred to collectively herein as the “Tenant’s Plans”.

d. The Tenant Improvements shall be of first-class quality, commensurate with the level of improvements for a first-class tenant in a first-class office building in Arlington, Virginia. The Tenant’s Plans shall be prepared in accordance with a CAD data or convertible DXF format for working drawings in conformity with the base Building plans and systems and with information furnished by and in coordination with the Construction Supervisor and Engineers. Tenant’s Plans shall comply with all applicable building codes, laws and regulations (including without limitation Access Laws), shall not contain any improvements which interfere with or require any changes to or modifications of the base Building’s HVAC, mechanical, electrical, plumbing, life safety or other systems or to other Building operations or functions, and shall not increase maintenance or utility charges for operating the Building in excess of the standard requirements for comparable first-class office buildings in Arlington, Virginia.

e. Notwithstanding anything to the contrary contained herein, Tenant shall reimburse Landlord, within thirty (30) days after written demand therefore, for all reasonable third-party costs and expenses incurred by Landlord in connection with Landlord’s, or its agents, review of Tenant’s Plans; provided, however, Tenant shall not be responsible for any additional costs incurred by Landlord in connection with any review of the Tenant’s Plans by a professional to ensure that they are in conformance with Landlord’s sustainability practices.

4. Base Building Changes. If Tenant requests work to be done in the Premises or for the benefit of the Premises that necessitates revisions or changes in the design or construction of the base Building or Building systems, any such changes shall be subject to prior written approval of Landlord, in its sole but reasonable discretion, and Tenant shall be responsible for all reasonable, actual and documented costs and delays resulting from such

 

Exhibit C, Page 3


design revisions or construction changes, including architectural and engineering charges, and any special permits or fees attributed thereto. Before any such design and/or construction changes are made, Tenant shall pay to Landlord the full costs incurred by Landlord in connection with such changes including without limitation the Construction Supervision Fee (hereinafter defined) attributable thereto.

5. Changes.

a. In the event that Tenant requests any changes to the Contract Documents or the Final Space Plan after Landlord has approved same, or if it is determined that the Contract Documents prepared in accordance with the Final Space Plan deviate from the requirements of applicable law or contain improvements which will or may interfere with, and/or otherwise adversely affect, base Building systems, or in the event of any change orders, Tenant shall be responsible for all reasonable, actual and documented costs and expenses and for all delay resulting therefrom, including without limitation costs or expenses relating to (i) any additional architectural or engineering services and related design expenses, (ii) any changes to materials in process of fabrication, (iii) cancellation or modification of supply or fabricating contracts, or (iv) removal or alteration of work or plans completed or in process, or (v) delay claims made by any subcontractor.

b. No material changes shall be made to the Contract Documents without the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed; provided, however, that Landlord shall have the right to disapprove, in its sole discretion, any such change that Landlord reasonably believes will affect the exterior or structure of the Building or will affect the mechanical, electrical, plumbing, life safety, HVAC or other base Building systems. Landlord shall not be responsible for delay in occupancy by Tenant, nor shall the Rent Commencement Date be delayed, because of any changes to the Final Space Plan or the Contract Documents after approval by Landlord, or because of delay caused by or attributable to any deviation from applicable code requirements contained in the Contract Documents. Tenant shall be required to pay the reasonable costs incurred in connection with any changes to the Contract Documents or Final Space Plan to Landlord, in full, within ten (10) days after invoice.

C. COST OF TENANT IMPROVEMENTS

1. Construction Costs. All costs of design and construction of the Tenant Improvements, including without limitation the costs of all space planning, architectural and engineering work related thereto, all governmental and quasi-governmental approvals and permits required therefor, all demolition costs, all direct and indirect construction costs, insurance, bonds, any costs incurred by Landlord because of changes to the base Building or the base Building systems, the Construction Supervision Fee (hereinafter defined), and all other costs and expenses incurred in connection with the Tenant Improvements (collectively, “Construction Costs”), shall be paid by Tenant, subject, however, to the application of the Tenant Improvement Allowance described in Paragraph C.2 below, not previously disbursed pursuant to this Work Agreement (the “Available Allowance”).

 

Exhibit C, Page 4


2. Tenant Improvement Allowance. Provided that Tenant has delivered the Letter of Credit to Landlord and Tenant is not then in default under this Work Agreement or the Lease beyond the expiration of any applicable notice and grace periods, from and after the Tender Date, except as otherwise set forth in Paragraph C.3, below, Landlord agrees to provide to Tenant the Tenant Improvement Allowance, to be applied solely to the Construction Costs. Provided that Tenant has fully performed all of its obligations under the Lease and this Work Agreement, Construction Costs shall be disbursed by Landlord from the Available Allowance, as and when such costs are actually incurred by Tenant. Tenant shall submit to Landlord, from time to time, but not more often then once per calendar month, requests for direct payments to third parties, of or for reimbursement to Tenant for Construction Costs incurred by Tenant out of the Available Allowance, which requests shall be accompanied by (a) paid receipts or invoices substantiating the costs for which payment is requested; (b) a signed statement from Tenant certifying that the costs were actually incurred for the stated amount; (c) partial lien waivers from the party supplying the services or materials for which payment is sought; and (d) such other information as Landlord reasonably requires. Provided Tenant delivers to Landlord an approved draw request, prepared as set forth above, Landlord shall pay the costs covered by such payment request within thirty (30) days following receipt thereof (but Landlord shall not be obligated to make more than one (1) such payment in any calendar month). Notwithstanding the foregoing, in no event shall Landlord be obligated to pay, in the aggregate, an amount in excess of ninety percent (90%) of the Tenant Improvement Allowance until satisfaction of the following conditions: (A) Tenant’s occupancy of the Premises for general business use; (B) Tenant’s execution and delivery to Landlord of the Lease Memorandum attached to the Lease as Exhibit D; (C) receipt by Landlord of appropriate paid receipts or invoices and a final lien waiver from the Contractor and each subcontractor and supplier covering all work performed by the subcontractors and all materials used in connection with the construction of the Tenant Improvements; and (D) Tenant’s delivery to Landlord of (1) all receipts, invoices or other documentation reasonably necessary to substantiate ail costs payable by Landlord hereunder; (2) an electronic copy (CD-ROM) of CAD background files of the Tenant’s Plans; (3) an electronic version of the “As-Built” drawings of the Tenant Improvements prepared by the Tenant’s Architect; and (4) hard copy scaled drawings of the “As-Built” drawings of the Tenant Improvements prepared by the Tenant’s Architect. If Tenant does not expend all of the Tenant Improvement Allowance for Construction Costs as permitted hereunder on or before the last day of the thirty-ninth (39lh) full calendar month following the Commencement Date, any unused portion of the Tenant Improvement Allowance not so used shall be retained by Landlord. Notwithstanding the foregoing, upon thirty (30) days prior written notice to Landlord, up to Six Hundred Thirty-One Thousand Nine Hundred Twenty and 00/100 Dollars ($631,920.00) of the Tenant Improvement Allowance may be used by Tenant (1) as a credit towards the next monthly installment(s) of Base Rent becoming due and payable by Tenant under the Lease, or (2) towards the reimbursement of FF&E Costs (hereinafter defined), provided that Tenant delivers written notice to Landlord of its election to apply such portion of the Tenant Improvement Allowance as a rent credit or towards FF&E Costs on or before the last day of the thirty-ninth (39lh) full calendar months following the Commencement Date. In the event Tenant fails to deliver such written notice to Landlord on or before the last day of the thirty-nine (39th) full calendar months following the Commencement Date, Tenant shall waive any and all of its rights to receive such rent credit or reimbursement of FF&E Costs. As used herein, the term “FF&E Costs” shall mean the acquisition and/or installation within the Premises of Tenant’s telecommunications

 

Exhibit C, Page 5


equipment (including wiring and cabling), and furniture, fixtures, equipment, project management services, interior and/or exterior building signage, and stationery to be used or installed in the Premises.

3. Disbursement of Tenant Improvement Allowance Prior to the Tender Date. Tenant hereby acknowledges that Tenant is considering entering into a sub-sublease (the “Promontory 8th Floor Sub-sublease”) with Promontory Capital Group, LLC (“Promontory”), whereby Tenant would sub-sublease from Promontory the entire eighth (8th) floor of the Building for a term expiring on June 30, 2011. Notwithstanding anything to the contrary contained in Paragraph C.2 above, in the event that Tenant enters into the Promontory 8th Floor Sub-sublease, Landlord shall permit Tenant to draw upon the Tenant Improvement Allowance in connection with any Tenant Improvements undertaken prior to Tender Date in any space on the eighth (8th) floor of the Building which is demised under the Promontory 8th Floor Sub-sublease; provided that (i) any such disbursement shall be subject to the remaining provisions of this Work Agreement; (ii) in no event shall this Paragraph C.3. be construed as Landlord’s consent to the undertaking of any Tenant Improvements in the Premises prior to the Tender Date, and (iii) Tenant hereby expressly acknowledges and agrees that any Tenant Improvements undertaken prior to the Tender Date on the eighth (8h) floor of the Building shall require the prior written consent of Landlord, Sapient and Promontory.

4. Costs Exceeding Available Allowance. All Construction Costs in excess of the Available Allowance shall be paid solely by Tenant on or before the date such costs are due and payable (or if previously paid by Landlord, shall be reimbursed to Landlord by Tenant) within fifteen (15) days of receipt by Tenant of invoices therefor from Landlord, and Tenant agrees to indemnify Landlord from and against any such costs. All amounts payable by Tenant pursuant to this Work Agreement shall be deemed to be Additional Rent for purposes of the Lease. If required by Landlord, Tenant shall provide evidence satisfactory to Landlord that Tenant has sufficient funds available to pay all Construction Costs in excess of the Tenant Improvement Allowance.

D. CONSTRUCTION

1. General Contractor. Tenant shall retain a general contractor licensed in the Commonwealth of Virginia and reasonably approved by Landlord to undertake construction of the Tenant Improvements (the “Contractor”). The Contractor and its respective subcontractors shall be subject to the union labor requirement as set forth in paragraph 4.5 of the Lease (captioned “Tenant’s Work Performance”). The Contractor shall be responsible for obtaining, at Tenant’s cost, all permits and approvals required for the construction of the Tenant Improvements.

2. Construction By the Contractor. In undertaking the Tenant Improvements, Tenant and the Contractor shall strictly comply with the following conditions:

a. No work involving or affecting the base Building’s structure or the plumbing, mechanical, electrical, life/safety or any other base Building systems shall be undertaken without (i) the prior written approval of Landlord in its sole discretion, whether pursuant to its approval of Tenant’s Plans or otherwise, (ii) the supervision of Landlord’s

 

Exhibit C, Page 6


building engineer, the actual cost of which shall be borne by Tenant if more than one (1) hour of such engineer’s time is spent in connection with the Tenant Improvements during any single day; (iii) compliance by Tenant with the insurance requirements set forth in Paragraph D.2(c), below; and (iv) compliance by Tenant with all of the terms and provisions of this Work Agreement;

b. All Tenant Improvement work shall be performed in strict conformity with (i) the final approved Tenant’s Plans; (ii) all applicable codes and regulations of governmental authorities having jurisdiction over the Building and the Premises; (iii) valid building permits and other authorizations from appropriate governmental agencies, when required, which shall be obtained by Tenant, at Tenant’s expense; and (iv) Landlord’s construction policies, rules and regulations attached hereto as Schedule C-4, as the same may be reasonably modified by Landlord from time to time (“Construction Rules and Regulations”). Any work not acceptable to the appropriate governmental agencies or not reasonably satisfactory to Landlord shall be promptly replaced at Tenant’s sole expense. Notwithstanding any failure by Landlord to object to any such work, Landlord shall have no responsibility therefor; and

c. Before any work is commenced or any of Tenant’s, Contractor’s or any subcontractor’s equipment is moved onto any part of the Building, Tenant shall deliver to Landlord policies or certificates evidencing the following types of insurance coverage in the following minimum amounts, which policies shall be issued by companies approved by Landlord, shall be maintained by Tenant at all times during the performance of the Tenant Improvements, and which shall name Landlord as additional insured:

(1) Worker’s compensation coverage in the maximum amount required by law and employer’s liability insurance in an amount not less than $500,000.00 and $500,000.00 per disease;

(2) Comprehensive general liability policy to include products/completed operations, premises/operations, blanket contractual broad form property damage and contractual liability with limits in an amount per occurrence of not less than $1,000,000.00 Combined Single Limit for bodily injury and property damage and $1,000,000.00 for personal injury; and

(3) Automobile liability coverage, with bodily injury limits of at least $1,000,000.00 per accident.

3. Construction Supervision. All Tenant Improvements shall be performed by the Contractor. Landlord shall retain LPC Commercial Services, Inc. (“Construction Supervisor”) as Landlord’s construction supervisor in connection with the construction of the Tenant Improvements, and Tenant shall pay the Construction Supervisor a construction supervision fee (“Construction Supervision Fee”) equal to one percent (1%) of the hard Construction Costs relating to the Tenant Improvements, to cover the costs of coordination and supervision of the Tenant Improvements work. The Construction Supervision Fee shall be deducted from the Tenant Improvement Allowance. Notwithstanding anything to the contrary contained in this Work Agreement, Tenant shall have the right to cause the Construction Supervisor to manage the construction of the Tenant Improvements, in which event the Construction Supervision Fee shall equal three percent (3%) of the hard Construction Costs relating to the Tenant Improvements.

 

Exhibit C, Page 7


E. PERMITS AND LICENSES. Tenant shall be solely responsible for procuring, at its sole cost and expense, ail permits and licenses necessary to undertake the Tenant Improvements and, upon completion of the Tenant Improvements, to occupy the Premises for general business use. Tenant’s inability to obtain, or delay in obtaining, any such license or permit shall not delay or otherwise affect the Commencement Date, the Rent Commencement Date or any of Tenant’s obligations under the Lease.

F. INSPECTION. Landlord is authorized, at its sole cost and expense, to make such inspections of the Premises during construction as it deems reasonably necessary or advisable.

G. TENANT’S AGENT FOR PURPOSES OF THE TENANT IMPROVEMENTS. Tenant hereby designates Wellford Dillard whose address is 1515 N. Courthouse Road, Arlington, Virginia 22201 and whose telephone number is (703) 778-4544, to act as Tenant’s agent for purposes of authorizing and executing any and all documents, workletters or other writings and changes thereto needed to effect this Work Agreement, and any and all changes, additions or deletions to the work contemplated herein, and Landlord shall have the right to rely on any documents executed by such authorized party.

H. UNION LABOR REQUIREMENT. The work to be performed under this Work Agreement is subject to the union labor requirements set forth in paragraph 4.5 of the Lease (captioned “Tenant’s Work Performance”).

 

Schedule C-1    Requirements for Final Space Plan
Schedule C-2    Requirements for Contract Documents
Schedule C-3    Building Materials
Schedule C-4    Construction Rules and Regulations

 

Exhibit C, Page 8


SCHEDULE C-1

REQUIREMENTS FOR FINAL SPACE PLAN

Floor plans, together with related information for mechanical, electrical and plumbing design work, showing partition arrangement and reflected ceiling plans (three (3) sets), including without limitation the following information:

 

  a. identify the location of conference rooms and density of occupancy;

 

  b. indicate the density of occupancy for all rooms;

 

  c. identify the location of any food service areas or vending equipment rooms;

 

  d. identify areas, if any, requiring twenty-four (24) hour air conditioning;

 

  e. indicate those partitions that are to extend from floor to underside of structural slab above or require special acoustical treatment;

 

  f. identify the location of rooms for, and layout of, telephone equipment other than building core telephone closet;

 

  g. identify the locations and types of plumbing required for toilets (other than core facilities), sinks, drinking fountains, etc.;

 

  h. indicate the layouts for specially installed equipment, including computer and duplicating equipment, the size and capacity of mechanical and electrical services required and heat rejection of the equipment;

 

  i. indicate the dimensioned location of: (A) electrical receptacles (one hundred twenty (120) volts), including receptacles for wall clocks, and telephone outlets and their respective locations (wall or floor), (B) electrical receptacles for use in the operation of Tenant’s business equipment which requires two hundred eight (208) volts or separate electrical circuits, (C) electronic calculating and CRT systems, etc., and (D) special audio-visual requirements;

 

  j. indicate the swing of each door;

 

  k. indicate a schedule for doors and frames, complete with hardware, if applicable; and

 

  l. indicate any special file systems to be installed.


SCHEDULE C-2

REQUIREMENTS FOR CONTRACT DOCUMENTS

Final architectural detail and working drawings, finish schedules and related plans (three (3) reproducible sets) including without limitation the following information and/or meeting the following conditions:

 

  a. materials, colors and designs of wallcoverings, floor coverings and window coverings and finishes;

 

  b. indicate light switches in offices, conference rooms and all other rooms in the Premises;

 

  c. paintings and decorative treatment required to complete all construction;

 

  d. indicate proposed layout of sprinkler and other life safety and fire protection equipment, including any special equipment and raised flooring;

 

  e. complete, finished, detailed mechanical, electrical, plumbing and structural plans and specifications for the Tenant Improvements, including but not limited to the fire and life safety systems and all work necessary to connect any special or non-standard facilities to the Building’s base mechanical systems;

 

  f. all final drawings and blueprints must be drawn to a scale of one-eighth (1/8) inch to one (I) foot. Any architect or designer acting for or on behalf of Tenant shall be deemed to be Tenant’s agent and authorized to bind Tenant in all respects with respect to the design and construction of the Premises; and

 

  g. notwithstanding anything to the contrary set forth herein, in the Work Agreement or in the Lease, Tenant shall not request any work which would: (1) require changes to structural components of the Building or the exterior design of the Building; (2) require any material modification to the Building’s mechanical installations or installations outside the Premises; (3) not comply with all applicable laws, rules, regulations and requirements of any governmental department having jurisdiction over the construction of the Building and/or the Premises, including specifically, but without limitation, Access Laws; (4) be incompatible with the building plans filed with the appropriate governmental agency from which a building permit is obtained for the construction of the Tenant Improvements or with the occupancy of the Building as a first-class office building; or (5) materially delay the completion of the Premises or any part thereof. Tenant shall not oppose or delay changes required by any governmental agency affecting the construction of the Building and/or the Tenant Improvements in the Premises.


SCHEDULE C-3

BUILDING MATERIALS

Tenant’s architect and general contractor shall endeavor to specify materials that will be procured from manufacturers within a 500-mile radius of the project site.

Fifty percent (50%) by cost, of wood-based materials, excluding movable furniture, shall be specified as wood certified as harvested from sustainable sources.

Construction adhesives shall meet or exceed the VOC limits of South Coast Air Quality Management District Rule #1168 by, AND all sealants used as filler shall meet or exceed Bay Area Air Resources Board Reg. 8, Rule 51.

Paints and coatings shall meet or exceed the VOC and chemical component limits of Green Seal requirements.

Carpet systems shall meet or exceed the Carpet and Rug Institute Green Label Indoor Air Quality Test Program.

Composite wood or agri-fiber products shall contain no added urea-formaldehyde resins.

Dedicated copy rooms shall have separate outside exhausting (in a manner reasonably required by Landlord), with no air re-circulation assured through negative pressure within the copy room and deck-to-deck partitions. Deck-to-deck partitions with separate outside exhausting, no air re-circulation and negative pressure shall also be provided where chemical use occurs (including housekeeping areas and copying/print rooms), and plumbed drains shall be provided for the appropriate collection and disposal of liquid wastes in spaces where water chemical concentrate mixing occurs.

Tenant-installed HVAC and refrigeration equipment and fire suppression systems shall not contain HCFCs or Halons

Lighting loads shall not exceed 2W / square foot.

At perimeter offices lighting shall be controlled by motion sensor switches (Watt Stopper WI-200.)

Carbon dioxide (C02) and monitoring devices as required per base building monitoring system shall be incorporated into the building systems. Tenant designs must have the required monitoring devices located within their space and linked into the overall building system.


SCHEDULE C-4

CONSTRUCTION RULES AND REGULATIONS

 

1. Tenant and/or the general contractor will supply Landlord with a copy of all permits prior to the start of any work.

 

2. Tenant and/or the general contractor will post the building permit on a wall of the construction site while work is being performed.

 

3. Public area corridor, and carpet, is to be protected by plastic runners or a series of walk-off mats from the elevator to the suite under reconstruction.

 

4. Walk-off mats are to be provided at entrance doors.

 

5. Contractors will remove their trash and debris daily, or as often as necessary to maintain cleanliness in the building. Building trash containers are not to be used for construction debris. Landlord reserves the right to bill Tenant for any cost incurred to clean up debris left by the general contractor or any subcontractor. Further, the building staff is instructed to hold the driver’s license of any employee of the contractor while using the freight elevator to ensure that all debris is removed from the elevator.

 

6. No utilities (electricity, water, gas, plumbing) or services to the tenants are to be cut off or interrupted without first having requested, in writing, and secured, in writing, the permission of Landlord.

 

7. No electrical services are to be put on the emergency circuit, without specific written approval from Landlord.

 

8. When utility meters are installed, the general contractor must provide the property manager with a copy of the operating instructions for that particular meter.

 

9. All water lines installed by or on behalf of Tenant will require the prior written notice of Landlord and shall be copper, not plastic.

 

10. Landlord will be notified of all work schedules of all workmen on the job and will be notified, in writing, of names of those who may be working in the building after Normal Business Hours.

 

11. Passenger elevators shall not be used for moving building materials and shall not be used for construction personnel except in the event of an emergency. The designated freight elevator is the only elevator to be used for moving materials and construction personnel. This elevator may be used only when it is completely protected as determined by Landlord’s building engineer.

 

12. Contractors or personnel will use loading dock area for all deliveries and will not use loading dock for vehicle parking.


13. Contractors will be responsible for daily removal of waste foods, milk and soft drink containers, etc. to trash room and will not use any building trash receptacles but trash receptacles supplied by them.

 

14. No building materials are to enter the building by way of main lobby, and no materials are to be stored in any lobbies at any time.

 

15. Construction personnel are not to eat in the lobby or in front of building nor are they to congregate in the lobby or in front of building.

 

16. Landlord is to be contacted by Tenant when work is completed for inspection. All damage to building will be determined at that time, subject to pre-inspection walk-through with the Contractor.

 

17. All key access, fire alarm work, or interruption of security hours must be arranged with Landlord’s building engineer.

 

18. There will be no radios allowed on job site.

 

19. All workers are required to wear a shirt, shoes, and full length trousers.

 

20. Protection of hallway carpets, wall coverings, and elevators from damage with masonite board, carpet, cardboard, or pads is required.

 

21. Public spaces - corridors, elevators, bathrooms, lobby, etc. - must be cleaned immediately after use. Construction debris or materials found in public areas will be removed at Tenant’s cost.

 

22. There will be no smoking, eating, or open food containers in the elevators, carpeted areas or public lobbies.

 

23. There will be no yelling or boisterous activities.

 

24. All construction materials or debris must be stored within the project confines or in an approved lock-up.

 

25. There will be no alcohol or controlled substances allowed or tolerated.

 

26. The general contractor and Tenant shall be responsible for all loss of their materials and tools and shall hold Landlord harmless for such loss and from any damages or claims resulting from the work.

 

27. The general contractor shall implement a Waste Management Plan to recycle and salvage waste during both demolition phase and construction phases. At the end of the project, as part of the project close out documents, the general contractor shall provide a copy of all tickets from the waste contractor and a summary of the amount of debris that was recycled.

 

Schedule C-4, Page 2


28. The general contractor’s specifications shall include requirement to meet or exceed the minimum requirements of the Sheet Metal and Air Conditioning National Contractor Association (SMACNA) IAQ Guideline for Buildings under Construction, 19g5, and protect on site material from moisture damage. All filter media will be replaced prior to occupancy.

 

29. The general contractor shall conduct a minimum two-week building flush out with new filtration media at 100% outside air after construction ends and prior to occupancy OR conduct a baseline indoor air quality testing procedure consistent with current EPA protocol for Environmental Requirements, Baseline IAQ and Materials, for the Research Triangle Park Campus, Section 01445.

 

Schedule C-4, Page 3


EXHIBIT D to Deed of Lease

FORM OF LEASE MEMORANDUM

MEPT Courthouse Tower, LLC, a Delaware limited liability company, as Landlord, and OPower, Inc., a Delaware corporation, as Tenant, executed that Lease dated as of             , 2010 (the “Lease”).

The Lease contemplates that this document shall be delivered and executed as set forth in the paragraph entitled “Lease Memorandum”. This Lease Memorandum shall become part of the Lease.

Landlord and Tenant agree as follows:

1. The Tender Date of the Lease is             , 201    ; the Commencement Date of the Lease is             , 201    ; and the Rent Commencement Date of the Lease is             , 201    .

2. The end of the Lease Term and the date on which this Lease will expire is                     .

3. The Lease is in full force and effect as of the date of this Lease Memorandum. By execution of this Lease Memorandum, Tenant confirms that as of the date of the Lease Memorandum (a) Tenant has no claims against Landlord and (b) Landlord has fulfilled all of its obligations under the Lease required to be fulfilled by Landlord.

4. The Premises contains approximately 42,128 rentable square feet of space.

5. Base Rent:

The amount of Base Rent and the portion of the Lease Term during which such Base Rent is payable shall be determined from the following table:

 

Applicable Portion of Lease Term

   Rate Per Rentable
Sq. Ft./Annum
     Annual Base Rent     Monthly Base
Rent Installment
(Annual ÷ 12)
 

Beginning

  

Ending

       

On the Rent Commencement Date (hereinafter defined)

  

On the last day of the twelfth (12th) full calendar month of the Lease Term

   $ 41.75       $ 1,758,843.96   $ 146,570.33   

On the first day of the thirteenth (13th) full calendar month of the Lease Term

  

On the last day of the twenty-fourth (24th) full calendar month of the Lease Term

   $ 43.00       $ 1,811,504.04      $ 150,958.67   

On the first day of the twenty-fifth (25th) full calendar month of the Lease Term

  

On the last day of the thirty-sixth (36th) full calendar month of the Lease Term

   $ 44.29       $ 1,865,849.16      $ 155,487.43   

On the first day of the thirty-seventh (37th) full calendar month of the Lease Term

  

On the last day of the forty-eighth (48th) full calendar month of the Lease Term

   $ 45.62       $ 1,921,879.32      $ 160,156.61   

On the first day of the forty-ninth (49th) full calendar month of the Lease Term

  

On the last day of the sixtieth (60th) full calendar month of the Lease Term

   $ 46.99       $ 1,979,594.76      $ 164,966.23   

On the first day of the sixty-first (61st) full calendar month of the lease term

  

On the last day of the sixty-third (63rd) full calendar month of the Lease Term

   $ 48.40       $ 2,038,995.24   $ 169,916.27   

[* on an annualized basis]


6. Tenant’s Pro Rata Share (Operating Costs) is Eighteen and 11/100 percent (18.11%).

7. Tenant’s Pro Rata Share (Property Taxes) is Seventeen and 05/100 percent (17.05%).

 

Dated:            , 201    
LANDLORD:
MEPT Courthouse Tower, LLC, a Delaware limited liability company
By:  

MEPT Edgemoor REIT LLC, a Delaware

limited liability company, its Member

  By:  

Kennedy Associates Real Estate

Counsel, LP, Authorized Signatory

    By:  

Kennedy Associates Real Estate

Counsel GP, LLC, its general partner

 

By:  

 

  Name:  

 

  Title:  

 

Dated:            , 201    
TENANT:
OPower, Inc., a Delaware corporation
By:   

 

   Name:  

 

   Title:  

 

 

 

Exhibit D, Page 2


EXHIBIT E to Deed of Lease

RULES AND REGULATIONS

1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building or Land without the prior written consent of the Landlord. Landlord shall have the right to remove, at Tenant’s expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person chosen by Landlord.

2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, Tenant shall immediately discontinue such use. No awning shall be permitted on any part of the Premises. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises.

3. Tenant shall not obstruct any sidewalk, halls, passages, exits, entrances, elevators, escalators, or stairways of the Building. The halls, passages, exits, entrances, elevators, escalators and stairways are not open to the general public. Landlord shall in all cases retain the right to control and prevent access to such areas of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Land, Building and the Building’s tenants; provided that, nothing in this Lease contained shall be construed to prevent such access to persons with whom any Tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. Tenant shall not go upon the roof of the Building.

4. The directory of the Building will be provided exclusively for the display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom.

5. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively by contractors approved by Landlord and shall be an Operating Expense unless otherwise agreed by Landlord and Tenant. Except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. Cleaning and janitorial services shall be provided five (5) days per week. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. Landlord shall not in any way be responsible to any Tenant for any loss of property on the Premises, however occurring, or for any damage to any Tenant’s property by the janitor, any of Landlord’s Agents or any other person.

6. Landlord will furnish Tenant, free of charge, two (2) keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor.


7. HVAC service shall be provided to the Premises during Normal Business Hours and on Requested Saturday Mornings.

8. If Tenant requires Telecommunication Services, computer circuits, burglar alarm or similar services or other utility services, it shall first obtain Landlord’s approval of the construction or installation of such services. Application for such services shall be made in accordance with the procedure prescribed by Landlord in subsection 3.5.2 of the Lease.

9. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by Governmental Requirements. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Building or to any space in the Building or to any other tenant in the Building, shall be placed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant.

10. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities permitted by the Lease. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations nor shall Tenant bring into or keep in or about the Premises any birds or animals.

11. Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord.

12. Tenant shall not waste any utility provided by Landlord and agrees to cooperate fully with Landlord to assure the most effective operation of the Building’s heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice.

13. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Building.

14. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant

 

Exhibit E, Page 2


shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action.

15. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before Tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.

16. Tenant shall not obtain for use on the Premises ice, drinking water, food, beverage, towel or other similar services, except at such hours and under such regulations as may be fixed by Landlord.

17. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be deposited in them. The expenses of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant if it or its employees or invitees shall have caused it.

18. Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Building. Tenant shall not use the Premises for any business or activity other than that specifically provided for in the Lease.

19. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. Other than the usual and customary cellular telephones, Tenant shall not install or utilize any wireless Telecommunication Facilities, including antenna and satellite receiver dishes within the Premises or on, in, or about the Building without first obtaining Landlord’s prior written consent and Landlord at its option may require the entry of a supplemental agreement with respect to such construction or installation. Tenant shall comply with all instructions for installation and shall pay or shall cause to be paid the entire cost of such installations. Application for such facilities shall be made in the same manner and shall be subject to the same requirements as specified for Telecommunication Services and Telecommunication Facilities in the paragraph of the Lease entitled “Utilities”. Supplemental rules and regulations may be promulgated by Landlord specifying the form of and information to be included with the application and establishing procedures, regulations and controls with respect to the installation and use of such wireless Telecommunication Facilities.

20. Tenant shall not mark, drive nails, screws or drill into the partitions, woodwork or plaster or in any way deface the Premises. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule.

 

Exhibit E, Page 3


21. Tenant shall not install, maintain or operate upon the Premises any vending machine without the written consent of Landlord.

22. Canvassing, soliciting and distribution of handbills or any other written material, and peddling in the Building or Land are prohibited, and Tenant shall cooperate to prevent the same.

23. Landlord reserves the right to exclude or expel from the Building and Land any person who, in Landlord’s judgment, is intoxicated, under the influence of liquor or drugs or in violation of any of these Rules and Regulations.

24. Tenant shall store all of its trash and garbage within the Premises. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord.

25. The Premises shall not be used for lodging or any improper or immoral or objectionable purpose. No cooking shall be done or permitted by Tenant, except that use by Tenant of Underwriters’ Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted; provided that, such equipment and its use is in accordance with all Governmental Requirements.

26. Tenant shall not use in the Premises or in the public halls of the Building any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building.

27. Without the prior written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant’s address.

28. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

29. Tenant assumes any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed.

30. The requirements of Tenant will be attended to only upon appropriate application to the Manager of the Building by an authorized individual. Employees of Landlord are not required to perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord is required to admit Tenant to any space other than the Premises without specific instructions from Landlord.

 

Exhibit E, Page 4


31. Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building or Land. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the Building parking areas other than automobiles, motorcycles, motor driven or nonmotor driven bicycles or four-wheeled trucks.

32. Landlord shall use reasonable efforts to enforce the rules and regulations as against Tenant in a manner that is not intentionally discretionary to it. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other person, nor prevent Landlord from thereafter revoking such waiver and enforcing any such Rules and Regulations against any or all of the tenants of the Building.

33. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the covenants and conditions of any lease of premises in the Building. If any provision of these Rules and Regulations conflicts with any provision of the Lease, the terms of the Lease shall prevail.

34. Upon not less than ten (10) days’ prior written notice to Tenant, Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, the care and cleanliness of the Building and Land, the preservation of good order in the Building and the maintenance or enhancement of the value of the Building as a rental property. Tenant agrees to abide by all the Rules and Regulations stated in this exhibit and any additional rules and regulations which are so made by Landlord.

35. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant and Tenant’s Agents.

 

Exhibit E, Page 5


EXHIBIT F to Deed of Lease

LOCATION AND DESCRIPTION OF EXTERIOR BUILDING SIGN

 

LOGO


EXHIBIT G to Deed of Lease

SCHEDULE OF CLEANING SERVICES

Introductory Note: All services set forth in this Exhibit shall only be performed if and to the extent the applicable surface to be vacuumed, buffed, polished, swept, moped, dusted, wiped, washed or otherwise cleaned is exposed and readily accessible.

Daily Cleaning Services

 

1. Empty waste baskets and remove refuse to designated area. Reline and wipe clean receptacles as needed.

 

2. Break down all boxes or any items marked trash and remove to designated areas.

 

3. Thorough vacuuming of all carpeted area, including corner and crevice vacuuming in all tenant spaces and common areas.

 

4. Vacuum upholstered chairs and sofas where necessary.

 

5. Sweep all hard floors (tile, wood, etc.).

 

6. Sweep and damp mop all vinyl, marble and quarry tile floors. Spot buff as needed.

 

7. Spot clean all tenant and common area carpets as needed. Shampoo all common area high traffic lanes as needed.

 

8. Dust and/or wipe clean the following surfaces:

 

    desks

 

    chairs

 

    file cabinets

 

    tables

 

    telephones

 

    pictures and frames

 

    doors

 

    lamps

 

    ledges and shelves desk/furniture partitions

 

    any other horizontal surface of a fixture or furniture subject to collecting dust

 

9. Wipe clean the following surfaces:

 

    window sills and ledges

 

    counter tops and kitchen cabinets

 

    switch plates

 

    private entrance doors


    glass, mirrored and wood doors, panels, windows and walls

 

    walls in kitchen and disposal area

 

    conference tables

 

10. Wash, clean and disinfect water fountains and/or coolers. Give special attention to adjacent floor areas.

 

11. Establish regular cleaning maintenance program for floor in public lobby area in conjunction with Property Manager; standard necessary to maintain is high quality shine with no water marks, stains, scuffing or other signs of wear.

 

12. Wipe and polish all glass, chrome and metal surfaces such as windows (interior and up to standard ceiling height), partitions, banisters, door knobs, light switch plates, kick plates, directional signs and door saddles.

 

13. Dust and wipe clean sand urns.

 

14. Polish directory.

 

15. Vacuum and spot shampoo all carpet entrance mats.

 

16. Spot clean all wall surfaces.

 

17. Clean all entrance doors.

Daily Elevators

 

1. Wash and polish wood and stainless walls, doors and hall plate. Keep tracks clean of dust, dirt and debris. Vacuum carpet. Spot clean carpet as needed.

Daily Vending Areas

 

1. Thoroughly vacuum carpeting and damp mop tile flooring daily.

 

2. Thoroughly wipe all tops and sides of vending machines and express mail box cabinets with damp cloth. Spot clean all wall surfaces. Thoroughly clean microwave inside and outside.

 

3. Empty trash and reline can daily.

 

4. Wash trash container as needed.

Daily Lavatories

 

1. Sweep and wet mop all tile floors using disinfectant.

 

2. Thoroughly clean all mirrors, top to bottom.

 

Exhibit G, Page 2


3. Scour, wash and disinfect all sink basins, counter tops, bowls, urinals, including undersides.

 

4. Wash toilet seats, both sides.

 

5. Wipe clean all partitions.

 

6. Wipe clean all wall tile as needed.

 

7. Remove all trash and sanitary waste, wash receptacles as necessary. Remove rubbish to designated area.

 

8. Restock hand soap and paper products.

 

9. Polish all stainless dispensers.

Weekly Cleaning Services

 

1. Wash and sanitize metal partitions. Dust horizontal surfaces exceeding 70” height. Damp clean ceiling and exhaust fans.

 

2. Wash all interior glass, including hallways, widows (excluding second story atrium windows), lobby doors, partitions and glass door panels.

 

3. Dust all blinds in common areas.

 

4. Sweep fire tower stairwells. Wet mop as needed. Wipe hand rails and dust metalwork.

 

5. Wipe clean all desk tops and credenzas.

 

6. Remove all finger prints and dirt from door frames, kick and push plates, handles and railings.

 

7. Wet wipe all horizontal surfaces to 70” including moldings, shelves, etc.

 

8. Polish all fine wood furniture including desks, chairs and cabinets.

 

9. Spray buff all vinyl tiles floors as necessary.

 

10. Machine buff other hard surfaces, floors to include ceramic, quarry and marble title as necessary.

 

11. Wipe clean all plant containers in common areas.

Monthly / Quarterly Cleaning Services

 

1. Thoroughly wipe clean all ceiling vents and exhaust fans and area immediately adjacent: monthly to quarterly, as needed.

 

Exhibit G, Page 3


2. Strip and refinish all tile floors including restroom floors on a quarterly basis.

 

3. Wipe clean and remove all fingerprints from full height doors.

 

4. Vacuum all upholstered chairs.

 

5. Thoroughly clean all Venetian blinds, pipes, ventilating and air conditioning louvers, ducts and high molding: monthly to quarterly, as needed.

 

6. Wipe clean as needed all vinyl base. Vacuum as needed all carpet cove base: monthly to quarterly, as needed.

 

7. Thoroughly wash all trash receptacles, inside and outside.

 

8. Spot clean all vertical surfaces.

 

9. Spray buff all vinyl floors (both tenant and common areas) quarterly.

Semi-Annual Cleaning Services

 

1. Wash all common area walls including wallcovering, paint, marble and vinyl base.

 

Exhibit G, Page 4


EXHIBIT H to Deed of Lease

FORM OF LETTER OF CREDIT

IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVBSF                     

DATE:

BENEFICIARY:

 

 

 

 

APPLICANT:

OPOWER INC.

1515 N. COURTHOUSE ROAD SUITE 610

ARLINGTON, VA 22201

AMOUNT: US$        (                     AND 00/100 U.S. DOLLARS)

EXPIRATION DATE:             , 2011 [ONE YEAR FROM LC ISSUE DATE]

LOCATION: SANTA CLARA, CALIFORNIA

DEAR SIR/MADAM:

WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVBSF                     IN YOUR FAVOR AVAILABLE BY YOUR DRAFTS DRAWN ON US AT SIGHT IN THE FORM OF EXHIBIT “A” ATTACHED AND ACCOMPANIED BY THE FOLLOWING DOCUMENTS:

 

1. THE ORIGINAL OF THIS LETTER OF CREDIT AND ALL AMENDMENT(S), IF ANY.

 

2. A DATED CERTIFICATION FROM THE BENEFICIARY SIGNED BY AN AUTHORIZED OFFICER, FOLLOWED BY HIS/HER DESIGNATED TITLE, STATING EITHER OF THE FOLLOWING:

(A) “THE UNDERSIGNED BENEFICIARY IS ENTITLED TO DRAW UPON THIS LETTER OF CREDIT PURSUANT TO THE TERMS OF THAT DEED OF LEASE DATED            , 2010, FOR PREMISES AT 1515 N. COURTHOUSE ROAD, ARLINGTON, VIRGINIA, BETWEEN                     , AS TENANT, AND                     , AS LANDLORD, AS SUCH DEED OF LEASE MAY HAVE BEEN MODIFIED OR AMENDED TO DATE. THE UNDERSIGNED BENEFICIARY HEREBY MAKES DEMAND FOR THE PAYMENT OF                     [INSERT DRAW AMOUNT] OF THE LETTER OF CREDIT.”

-OR-

(B) “BENEFICIARY HAS RECEIVED A NOTICE FROM SILICON VALLEY BANK THAT LETTER OF CREDIT NUMBER SVBSF                     WILL NOT BE EXTENDED AND APPLICANT HAS FAILED TO PROVIDE A NEW LETTER OF CREDIT SATISFACTORY TO BENEFICIARY WITHIN 60 DAYS PRIOR TO THE CURRENT EXPIRY DATE.”

SUCH STATEMENT SHALL BE CONCLUSIVE AS TO SUCH MATTERS AND WE ACCEPT SUCH STATEMENT AD BINDING AND CORRECT WITHOUT HAVING TO INVESTIGATE OR HAVING TO BE RESPONSIBLE FOR THE ACCURACY, TRUTHFULNESS OR VALIDITY THEREOF OR ANY PART THEREOF AND NOTWITHSTANDING THE CLAIM OF ANY PERSON TO THE CONTRARY.

 

PAGE 1 OF 3

 

L/C DRAFT LANGUAGE APPROVED FOR ISSUANCE BY:  

 

   
        (Authorized Signature)    
DATE:  

 

           

Exhibit H, Page 1


IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVBSF                    

DATE:

THE LEASE AGREEMENT MENTIONED ABOVE IS FOR IDENTIFICATION PURPOSES ONLY AND IT IS NOT INTENDED THAT SAID LEASE AGREEMENT BE INCORPORATED HEREIN OR FORM PART OF THIS LETTER OF CREDIT.

PARTIAL DRAWS ARE ALLOWED. THIS LETTER OF CREDIT MUST ACCOMPANY ANY DRAWINGS HEREUNDER FOR ENDORSEMENT OF THE DRAWING AMOUNT AND WILL BE RETURNED TO THE BENEFICIARY WITHIN TEN (10) DAYS AFTER DELIVERY BY BENEFICIARY UNLESS IT IS FULLY UTILIZED.

DRAFT(S) AND DOCUMENTS MUST INDICATE THE NUMBER AND DATE OF THIS LETTER OF CREDIT.

THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED FOR AN ADDITIONAL PERIOD OF ONE YEAR, WITHOUT AMENDMENT, FROM THE PRESENT OR EACH FUTURE EXPIRATION DATE UNLESS AT LEAST SIXTY (60) DAYS PRIOR TO THE THEN CURRENT EXPIRATION DATE WE SEND YOU A NOTICE BY REGISTERED MAIL OR OVERNIGHT COURIER SERVICE AT THE ABOVE ADDRESS THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED BEYOND THE THEN CURRENT EXPIRATION DATE. IN NO EVENT SHALL THIS LETTER OF CREDIT BE AUTOMATICALLY EXTENDED BEYOND            , 201     [INSERT A FINAL EXPIRY DATE - WHICH DATE SHALL BE 90 DAYS AFTER END OF THE LEASE TERM] WHICH SHALL BE THE FINAL EXPIRATION DATE OF THIS LETTER OF CREDIT.

THIS LETTER OF CREDIT IS TRANSFERABLE BY THE ISSUING BANK ONE OR MORE TIMES BUT IN EACH INSTANCE TO A SINGLE BENEFICIARY AND ONLY IN ITS ENTIRETY UP TO THE THEN AVAILABLE AMOUNT IN FAVOR OF ANY NOMINATED TRANSFEREE ASSUMING SUCH TRANSFER TO SUCH TRANSFEREE WOULD BE IN COMPLIANCE WITH THEN APPLICABLE LAW AND REGULATIONS, INCLUDING BUT NOT LIMITED TO THE REGULATIONS OF THE U.S. DEPARTMENT OF TREASURY AND U.S. DEPARTMENT OF COMMERCE. AT THE TIME OF TRANSFER, THE ORIGINAL LETTER OF CREDIT AND ORIGINAL AMENDMENT(S), IF ANY, MUST BE SURRENDERED TO US TOGETHER WITH OUR LETTER OF TRANSFER DOCUMENTATION (IN THE FORM OF EXHIBIT “B” ATTACHED HERETO). OUR TRANSFER FEE OF  14 OF l% OF THE TRANSFER AMOUNT (MINIMUM $250.00) WILL BE PAID BY THE APPLICANT. ANY TRANSFER OF THIS LETTER OF CREDIT MAY NOT CHANGE THE PLACE OF EXPIRATION OF THE LETTER OP CREDIT FROM OUR ABOVE-SPECIFIED OFFICE. EACH TRANSFER SHALL BE EVIDENCED BY OUR ENDORSEMENT ON THE REVERSE OF THE ORIGINAL LETTER OE CREDIT AND WE SHALL FORWARD THE ORIGINAL LETTER OF CREDIT TO THE TRANSFEREE WITHIN TEN (10) DAYS AFTER THE COMPLETED TRANSFER REQUEST HAS BEEN SUBMITTED TO US.

ALL DEMANDS FOR PAYMENT SHALL BE MADE BY PRESENTATION OF THE ORIGINAL APPROPRIATE DOCUMENTS ON A BUSINESS DAY AT OUR OFFICE (THE “BANK’S OFFICE”) AT: SILICON VALLEY BANK, 3003 TASMAN DRIVE, SANTA CLARA, CA 95054, ATTENTION: STANDBY LETTER OF CREDIT NEGOTIATION SECTION OR BY FACSIMILE TRANSMISSION AT: (408) 654-6211; AND SIMULTANEOUSLY UNDER TELEPHONE ADVICE TO: (408) 654-6274 OR (408) 654-7716, ATTENTION: STANDBY LETTER OF CREDIT NEGOTIATION SECTION WITH ORIGINALS TO FOLLOW BY OVERNIGHT COURIER SERVICE; PROVIDED, HOWEVER, THE BANK WILL DETERMINE HONOR OR DISHONOR ON THE BASIS OF PRESENTATION BY FACSIMILE ALONE, AND WILL NOT EXAMINE THE ORIGINALS.

IF A DEMAND FOR PAYMENT MADE HEREUNDER DOES NOT, IN ANY INSTANCE, CONFORM TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, WE SHALL GIVE YOU PROMPT NOTICE THAT THE PURPORTED NEGOTIATION OF THIS LETTER OF CREDIT WAS NOT EFFECTED IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, STATING THE REASONS THEREFOR AND THAT WE ARE HOLDING ANY DOCUMENTS AT YOUR DISPOSAL OR ARE RETURNING THEM TO YOU, AS YOU MAY ELECT. UPON BEING NOTIFIED THAT THE PURPORTED NEGOTIATION OF THIS LETTER OF CREDIT WAS NOT EFFECTED IN CONFORMITY WITH THIS LETTER OF CREDIT, YOU MAY ATTEMPT TO CORRECT ANY SUCH NONCONFORMING DEMAND FOR PAYMENT.

 

PAGE 2 OF 3

 

L/C DRAFT LANGUAGE APPROVED FOR ISSUANCE BY:  

 

   
        (Authorized Signature)    
DATE:  

 

           

Exhibit H, Page 2


IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVBSF                     DATE:

THIS LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR UNDERTAKING AND SUCH UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED, AMENDED, OR AMPLIFIED BY REFERENCE TO ANY DOCUMENTS), INSTRUMENT(S), CONTRACT(S), OR AGREEMENT(S) REFERRED TO HEREIN OR IN WHICH THIS LETTER OF CREDIT RELATES, AND ANY SUCH REFERENCE SHALL NOT BE DEEMED TO INCORPORATE HEREIN BY REFERENCE ANY DOCUMENT(S), INSTRUMENT(S), CONTRACT(S), OR AGREEMENT(S).

WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONAFIDE HOLDERS THAT THE DRAFTS DRAWN UNDER AND IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT SHALL BE DULY HONORED WITHIN THREE (3) BUSINESS DAYS AFTER PRESENTATION TO THE DRAWEE, IF NEGOTIATED ON OR BEFORE THE EXPIRATION DATE OF THIS CREDIT.

IF ANY INSTRUCTIONS ACCOMPANYING A DRAWING UNDER THIS LETTER OF CREDIT REQUEST THAT PAYMENT IS TO BE MADE BY TRANSFER TO YOUR ACCOUNT WITH ANOTHER BANK, WE WILL ONLY EFFECT SUCH PAYMENT BY FED WIRE TO A U.S. REGULATED BANK, AND WE AND/OR SUCH OTHER BANK MAY RELY ON AN ACCOUNT NUMBER SPECIFIED IN SUCH INSTRUCTIONS EVEN IF THE NUMBER IDENTIFIES A PERSON OR ENTITY DIFFERENT FROM THE INTENDED PAYEE.

THIS LETTER OF CREDIT IS SUBJECT TO THE INTERNATIONAL STANDBY PRACTICES ISP98, INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 590 (“ISP98”).

 

[BANK USE]

   

 

AUTHORIZED SIGNATURE     AUTHORIZED SIGNATURE

 

PAGE 3 OF 3

 

L/C DRAFT LANGUAGE APPROVED FOR ISSUANCE BY:  

 

   
        (Authorized Signature)    
DATE:  

 

           

Exhibit H, Page 3


EXHIBIT “A

 

DATE:                                                  REF. NO.                                        

AT SIGHT OF THIS DRAFT

PAY TO THE ORDER OF                                          US$                                    

 

USDOLLARS  

 

  

 

  

DRAWN UNDER SILICON VALLEY BANK, SANTA CLARA, CALIFORNIA, STANDBY LETTER OF CREDIT NUMBER NO.                     DATED                     

 

TO:    SILICON VALLEY BANK      
   3003 TASMAN DRIVE   

 

  
   SANTA CLARA, CA 95054    (BENEFICIARY’S NAME)   
     

 

  
      Authorized Signature   

GUIDELINES TO PREPARE THE DRAFT

 

1. DATE: ISSUANCE DATE OF DRAFT.

 

2. REF. NO.: BENEFICIARY’S REFERENCE NUMBER, IF ANY.

 

3. PAY TO THE ORDER OF: NAME OF BENEFICIARY AS INDICATED IN THE L/C (MAKE SURE BENEFICIARY ENDORSES IT ON THE REVERSE SIDE).

 

4. USS: AMOUNT OF DRAWING IN FIGURES.

 

5. USDOLLARS: AMOUNT OF DRAWING IN WORDS.

 

6. LETTER OF CREDIT NUMBER: SILICON VALLEY BANK’S STANDBY L/C NUMBER THAT PERTAINS TO THE DRAWING.

 

7. DATED: ISSUANCE DATE OF THE STANDBY L/C.

 

8. BENEFICIARY’S NAME: NAME OF BENEFICIARY AS INDICATED IN THE L/C.

 

9. AUTHORIZED SIGNATURE: SIGNED BY AN AUTHORIZED SIGNER OF BENEFICIARY.

IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS DRAFT, PLEASE CALL OUR L/C PAYMENT SECTION AT 408¬654-6274 OR 408-654-7716 OR 408-654-7128 OR 408-654-7127 OR 408-654-3035.

 

L/C DRAFT LANGUAGE APPROVED FOR ISSUANCE BY:  

 

   
        (Authorized Signature)    
DATE:  

 

           

Exhibit H, Page 4


EXHIBIT “B’

DATE:

 

TO:    SILICON VALLEY BANK        
  

3003 TASMAN DRIVE

SANTA CLARA, CA 95054

     RE:    IRREVOCABLE STANDBY LETTER OF CREDIT NO.     ISSUED BY SILICON VALLEY BANK, SANTA CLARA L/C AMOUNT:
   ATTN:    INTERNATIONAL DIVISION STANDBY LETTERS OF CREDIT        

GENTLEMEN:

FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:

(NAME OF TRANSFEREE)

(ADDRESS)

ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS TRANSFER.

BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF CREDIT ARE TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS, WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECT TO THE TRANSFEREE WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.

THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER.

 

SINCERELY,

 

(BENEFICIARY’S NAME)

 

(SIGNATURE OF BENEFICIARY)

 

(NAME AND TITLE)
SIGNATURE AUTHENTICATED

The name(s), title(s), and signature(s) conform to that/those on file with us for the company and the signatures) is/are authorized to execute this instrument. We further confirm that the company has been identified applying the appropriate due diligence and enhanced due diligence as required by BSA and all its subsequent amendments.

 

 

(Name of Bank)

 

(Address of Bank)

 

(City, State, ZIP Code)

 

(Authorized Name and Title)

 

(Authorized Signature)

 

(Telephone Number)
 

 

 

L/C DRAFT LANGUAGE APPROVED FOR ISSUANCE BY:  

 

   
        (Authorized Signature)    
DATE:  

 

           

Exhibit H, Page 5


EX-10.6

Exhibit 10.6

[Opower letterhead]

Alexander Laskey

[address]

September 21, 2011

Dear Alexander:

As you may be aware, OPOWER, Inc., a Delaware corporation (the “Company”), had previously contracted with TriNet Employer Group, a professional employer organization (“TriNet”) for purposes of providing certain Company benefits, as well as payroll and other human resource management services. The Company’s contract with TriNet will end on October 1, 2011. The purpose of this letter is to confirm your continued employment solely through the Company on the following terms and conditions:

 

    Position. Your current position is President, Co-Founder, located in Arlington, VA and you currently report to Daniel Yates.

 

    Compensation. You currently earn a salary at the rate of $6,041.67 per pay period, which is equivalent to $145,000.00 per year, less all applicable withholdings required by law, payable on the Company’s regular payroll dates, but not less frequently than monthly.

 

    Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause. Any contrary representations which may have been made to you are superseded by this offer. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Chief Executive Officer.

 

    Withholding Taxes. All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

 

   

Entire Agreement. Where there is conflict with any prior understandings or agreements, whether oral, written or implied, between you and the Company or between you and TriNet regarding the matters described in this letter, this letter supersedes and replaces such prior understandings or agreements. Where there are additional terms or conditions of employment within those prior understandings or agreements, whether oral, written or implied, between you and the Company or between you and TriNet regarding the matters described in this letter, such additional


 

terms or conditions will remain in full force and effect and will be honored by the Company. In addition, your agreement to the terms and conditions set forth in this letter has no effect on the additional obligations contained in the Confidential Information and Invention Assignment Agreement (“CIIAA”), which is incorporated by reference in this letter, and remains in full force and effect.

 

Sincerely,     ACCEPTED AND AGREED:
       
      By:   Alexander Laskey

/s/ Leah J. Coyne

     
Leah J. Coyne      
Director of Human Resources    

/s/ Alexander Laskey

     

 

      Date  

 

2


EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of November 14, 2011 with an effective date of November 14, 2011 (the “Effective Date”), by and between Thomas Kramer (the “Employee” or “you”) and OPOWER, Inc. (the “Company”).

The Company desires to employ the Employee and, in connection therewith, to compensate the Employee for Employee’s personal services to the Company; and

The Employee wishes to be employed by the Company and provide personal services to the Company in return for certain compensation.

Accordingly, in consideration of the mutual promises and covenants contained herein, the parties agree to the following:

1. Position. You will start in a full-time position as CFO, reporting to the CEO. By signing this Agreement, you confirm with the Company that you are under no contractual or other legal obligations that would prohibit you from performing your duties with the Company. Employment is contingent upon successful completion of the background check process.

2. Compensation and Employee Benefits. You will be paid a starting salary at the rate of $280,000 per year, payable on the Company’s regular payroll dates. As a regular employee of the Company you will be eligible to participate in a number of Company sponsored benefits, including medical, dental, and other insurances.

3. Stock Options. Subject to the approval of the Company’s Board of Directors, you will be granted an option to purchase 635,000 shares of the Company’s common stock. The option will be subject to the terms and conditions applicable to options granted under the Company’s Amended and Restated 2007 Stock Plan (the “Plan”), as described in that Plan and the applicable stock option agreement. At your request, the option will be early exercisable, such that you may exercise the unvested shares subject to the option in whole or in part.

(a) Repurchase of Stock Options. The exercised unvested shares will be subject to the Company’s repurchase option at the original exercise price (the “Repurchase Option”) that you paid prior to vesting in such shares. Unless the Company notifies you within three months of your termination from the Company (which shall include, among other reasons, any Involuntary Resignation (as defined below)) that it does not intend to exercise its Repurchase Option with respect to some or all of the Shares, the Repurchase Option shall be deemed automatically exercised at the end of the three month period following your termination. The Repurchase Option will lapse as you become vested in your shares.

(b) Vesting Schedule. Your shares will vest according to the following schedule, provided that you continue in service through each of the vesting dates: you will vest in 25% of the option shares on the first anniversary of your start date, and the balance will vest in monthly installments over the next 36 months of continuous service, as described in the applicable stock option agreement.


(c) Exercise Price. The exercise price per share will be equal to the fair market value per share on the date the option is granted, as determined by the Company’s Board of Directors in good faith. There is no guarantee that the Internal Revenue Service will agree with this value. You should consult with your own tax advisor concerning the tax risks associated with accepting an option to purchase the Company’s common stock.

(d) Acceleration. Notwithstanding the above, if the Company experiences a Corporate Transaction that constitutes a Triggering Event (as those terms are defined in the Plan) (provided, that a ‘Triggering Event” will also include any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred) during your Continuous Service Status (as defined in the Plan) and (a) your Continuous Service Status (as defined in the Plan) is terminated by the Company for any reason other than (i) Cause (as defined in the Plan), (ii) death or (iii) Disability (as defined in the Plan) at any time following the consummation of such Triggering Event or (b) the Successor Corporation (as defined in the Plan) in connection with such Corporate Transaction does not assume the option or substitute for the option with another option or other equity right or otherwise continue the option or the option is not terminated in exchange for a payment of cash, securities and/or other property or (c) you are subject to an Involuntary Resignation, as defined below, then you will vest in the lesser of a) 317,500 unvested shares, or b) the Total Number of Shares that remain unvested subject to the option as of the date of your termination.

(e) Involuntary Resignation. “Involuntary Resignation” shall mean your employment with the Company or its successor corporation is terminated due to your resignation after any of the following occurring without your express written consent: (i) a material reduction in your authority, duties, or responsibilities; provided however, that a reduction in your authority, duties, or responsibilities, solely by virtue of the Company being acquired and made a part of a larger entity and the Employee continues to have responsibility for the financial performance of the Opower division and reports to the head of such division, shall not by itself constitute ground for “Involuntary Resignation” so long as you retain similar functional responsibility as in effect immediately prior to the Triggering Event; (ii) a reduction by the Company of your base salary as in effect immediately prior to such reduction by more than 10% (unless such reduction applies generally and proportionally to all other members of the Company’s senior management); (iii) a change in the principal location at which Employee provides services to the Company to a place that is thirty-five (35) miles or more away from Employee’s then-current principal place of employment immediately prior to such relocation, provided such location is actually less convenient to Employee; or (iv) any material breach by the Company of its obligations to you under the terms of this Agreement. The conditions set forth in this paragraph will be considered an “Involuntary Resignation” only if (i) you give the Company written notice of one of the conditions described in this paragraph within thirty (30) days after the condition comes into existence; (ii) the Company fails to remedy the condition within thirty (30) days after receiving your written notice; and (iii) after the Company’s failure to remedy the condition within the previously described 30-day period, you resign from the Company within ninety (90) days after one of the following conditions has come into existence without your consent.

 

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4. Confidential Information and Invention Assignment Agreement. Like all Company employees, you will be required, as a condition of your employment with the Company, to sign the Company’s enclosed standard Confidential Information and Invention Assignment Agreement.

5. Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without Cause (as defined in the Plan) or notice, Any contrary representations which may have been made to you are superseded by this offer. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, except for the below, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Chief Executive Officer.

6. Termination of Employment and Severance. Provided that you satisfy the Conditions (as defined below), if you experience an involuntary separation from service, as defined in Treasury Regulation 1.409A-1(n) and including Involuntary Resignation, by the Company for any reason other than (i) Cause (as defined in the Plan), (ii) death or (iii) Disability (as defined below) (each, a “Separation”), then:

(a) Cash Severance. The Company will pay you cash severance pay at a rate equal to your base salary in effect at the time of your Separation for a period of six (6) months; and

(b) COBRA Severance. If Employee timely elects continued coverage under COBRA for himself and his covered dependents under the Company’s group health plans following such termination or resignation of employment, then the Company shall pay the COBRA premiums necessary to continue Employee’s health insurance coverage in effect for himself and his eligible dependents on the termination date until the earliest of (A) the close of the twelve-month period following the termination of Employee’s employment, (B) the expiration of Employee’s eligibility for the continuation coverage under COBRA, or (C) the date when Employee becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment (such period from the termination date through the earliest of (A) through (C), the “COBRA Payment Period”). Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the payment of the COBRA premiums would result in a violation of the nondiscrimination rules of Section 105(h)(2) of the Code or any statute or regulation of similar effect (including but not limited to the 2010 Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of providing the COBRA premiums, the Company, in its sole discretion, may elect to instead pay Employee on the first day of each month of the COBRA Payment Period, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “Special Severance Payment”), for the remainder of the COBRA Payment Period. Employee may, but is not obligated to, use such Special Severance Payment toward the cost of COBRA premiums. On the sixtieth (60th) day following Employee’s Separation from Service, the Company will make the first payment under this clause (and, in the case of the Special Severance Payment, such payment will be made to

 

3


Employee, in a lump sum) equal to the aggregate amount of payments that the Company would have paid through such date had such payments commenced on the Separation from Service through such sixtieth (60th) day, with the balance of the payments paid thereafter on the schedule described above. If Employee becomes eligible for coverage under another employer’s group health plan or otherwise cease to be eligible for COBRA during the period provided in this clause. Employee must immediately notify the Company of such event; and

(c) Option Extension and Option Acceleration Severance. Subject to Section 3, the Option described in Section 3 shall be exercisable until the earlier of (i) one year following the date of Employee’s Separation, and (ii) the option’s expiration date. In addition, if such Separation occurs prior to your completion of the first twelve (12) months of your employment with the Company, then you will become vested in 1/48th of the option shares described in Section 3 for each month of continuous employment to the Company.

(d) Payment of Severance. Subject to satisfaction of the Conditions (as defined below), such cash severance pay will be paid in accordance with the Company’s standard payroll procedures on the Company’s payroll dates at the payroll rates in effect as of the Separation date, commencing with the first regular payroll date following the date that the Release (as defined below) has been executed by you and can no longer be revoked, and will be subject to all applicable withholdings. Notwithstanding anything stated herein to the contrary, the severance provided in connection with your Separation under this section is intended to be exempt from Internal Revenue Code (“Code”) Section 409A pursuant to Treasury Regulation Section 1.409A-l(b)(9)(iii) and to the extent it is exempt pursuant to such section it will in any event be paid no later than the last day of your second taxable year following the taxable year in which your Separation has occurred.

(e) Release and Return of Property Required to Receive Severance.

(i) To receive the severance benefits set forth in Sections 6(a)-(c) above, you must execute (and do not revoke) a full and complete general release of all claims in a form provided by the Company (and attached as Attachment B) (the “Release”) by the forty-fifth (45th) day after your Separation.

(ii) If Employee has not returned all Company property following his Separation, provided that the Company sends written notice describing such unreturned property in reasonable detail and Employee fails to return such property within ten (10) days of receipt of such notice. Employee shall not be entitled to the severance benefits set forth in the Sections 6(a)-(b) above until such until such time that the Employee has returned such Company property. Provisions (i) and (ii) of this Section 6(e) shall be collectively referred to as the “Conditions”).

(f) Section 409A. Notwithstanding the above, if any of the cash severance payments provided in connection with your Separation does not qualify for any reason to be exempt from Code Section 409A and you are deemed by the Company at the time of your Separation to be a “specified employee,”‘ as defined in Code Section 409A (i.e. a key employee of a publicly traded company), each such cash severance payment will not be made or commence until the date which is the first (1st) business day of the seventh (7th) month after your

 

4


Separation and the installments that otherwise would have been paid during the first six (6) months after your Separation will be paid in a lump sum on the first (1st) business day of the seventh (7th) month after your Separation, with any remaining payments payable according to the schedule set forth above. Such deferral will only be effected to the extent required to avoid adverse tax treatment to you, including (without limitation) the additional twenty percent (20%) federal tax for which you would otherwise be liable under Section 409A(a)(l)(B) of the Code in the absence of such deferral.

(g) Resignation. Employee may resign from Employee’s employment with the Company at any time. In the event Employee resigns from Employee’s employment with the Company (other than an Involuntary Resignation as set forth in Section 6), Employee will not receive severance payments, or any other severance compensation or benefit, except that, pursuant to the Company’s standard payroll policies, the Company shall pay to Employee the accrued but unpaid salary of Employee through the date of resignation, together with all compensation and benefits payable to Employee through the date of resignation under any compensation or benefit plan, program or arrangement during such period and Employee shall be eligible for any benefit continuation or conversion rights provided by the provisions of a benefit plan or by law.

(h) Termination in Case of Death or Disability. In the event of Employee’s death while employed pursuant to this Agreement, all obligations of the parties hereunder shall terminate immediately, and the Company shall, pursuant to the Company’s standard payroll policies, pay to the Employee’s legal representatives Employee’s accrued but unpaid salary through the date of death together with all compensation and benefits payable to Employee based on his participation in any compensation or benefit plan, program or arrangement through the date of termination. Subject to applicable state and federal law, the Company shall at all times have the right, upon written notice to the Employee, to terminate this Agreement based on the Employee’s Disability (as defined below). Termination by the Company of the Employee’s employment based on “Disability” shall mean termination because the Employee is unable due to a physical or mental condition to perform the essential functions of his position with or without reasonable accommodation and such failure of performance, or the likely continuation of such condition, continues for six (6) months in the aggregate during any twelve (12) month period. This definition shall be interpreted and applied consistent with the Americans with Disabilities Act, the Family and Medical Leave Act, and other applicable law. In the event Employee’s employment is terminated based on the Employee’s Disability, Employee will not receive severance payments, or any other severance compensation or benefit, except that, pursuant to the Company’s standard payroll policies, the Company shall pay to Employee the accrued but unpaid salary of Employee through the date of termination, together with all compensation and benefits payable to Employee based on his participation in any compensation or benefit plan, program or arrangement through the date of termination.

(i) Termination for Cause. “Cause” for termination will exist for any of the following reasons: (i) You willfully fail to perform your duties and responsibilities to the Company; (ii) You willfully and materially violate any written material Company policy that has caused or is reasonably expected to result in injury to the Company; (iii) You commit an act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is reasonably expected to result in material injury to the Company; (iv) You make unauthorized use or

 

5


disclosure of the Company’s proprietary information or trade secrets, or you make unauthorized use or disclosure of the proprietary information or trade secrets of any other party to whom you owe an obligation of nondisclosure as a result of your relationship with the Company; or (v) Your material breach of any of your obligations under this Agreement or your Confidential Information and Invention Assignment Agreement. The foregoing definition does not in any way limit the Company’s ability to terminate your employment or consulting relationship at any time, and the term “Company” will be interpreted to include any Subsidiary, Parent, Affiliate, or successor thereto, if appropriate.

7. Outside Activities. While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company. In addition, while you render services to the company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

8. Withholding Taxes. All forms of compensation referred to in this Agreement are subject to applicable withholding and payroll taxes.

9. Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the Commonwealth of Virginia. Time is of the essence hereunder.

10. Arbitration. To ensure the rapid and economical resolution of disputes that may arise in connection with the Employee’s employment with the Company, the Employee and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, the Employee’s employment, or the termination of the Employee’s employment, shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in the Commonwealth of Virginia, conducted by the of the American Arbitration Association (“AAA”) or its successor, under its Employment Arbitration Rules and Mediation Procedures (or its successor rules); provided however, that this dispute resolution provision shall not apply to any separate agreements between the parties that do not themselves specify arbitration as an exclusive remedy. The Employee and the Company acknowledge that by agreeing to this arbitration procedure, each party waives the right to resolve any dispute through a trial by jury or judge or administrative proceeding. The Arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that the Employee or the Company would be entitled to seek in a court of law. Nothing in this Agreement is intended to prevent either the Employee or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. The parties shall split the costs of the arbitration.

11. Attorneys’ Fees. In the event that any arbitration, suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all reasonable fees, costs and expenses of appeals.

 

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12. Miscellaneous. The Company will reimburse you for your monthly cell phone and/or tablet network subscription costs. Per your choice, the Company will pay for monthly parking or standard commuting allowance as defined in the Company handbook, however you will not get both. The Company will pay for family Health and Dental insurance with the insurers that the Company uses for group coverage at the time, and you recognize that these providers can and will change over time.

13. Entire Agreement. This Agreement supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this Agreement.

14. Indemnification. The Company and Employee have a good faith basis for believing that Employee’s employment with the Company does not violate any obligations Employee owes to his former employer, Cvent, Inc. The Company shall indemnify Employee, to the extent permitted by applicable law, from any and all of Employee’s Defense Costs (as defined below) in connection with any claims (including threats of claims) alleging a breach of any obligations owed by Employee to Cvent, Inc., including, without limitation, any fiduciary duty, duty of loyalty or confidentiality obligations to, or any restrictive covenants with, Cvent, Inc. relating to or arising out of Employee’s communications or relationship with the Company, Employee’s good faith performance of his duties to the Company, or Employee’s prior duties to Cvent, Inc. (collectively, the “Claims”). Notwithstanding the foregoing, the Company’s liability to Employee pursuant to this Section 14 shall be limited to the lesser of (a) seventy-five percent (75%) of all of Employee’s Defense Costs, and (b) $350,000. “Defense Costs” means Employee’s legal, accounting and expert witness fees, costs and expenses incurred in defending and investigating the Claims, which shall include, without limitation, all reasonable fees, costs and expenses of appeals.

Signature Page Follows

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement on the day and year first written above.

 

OPOWER, INC.
By:  

/s/ Michael Sachse

Name:   Michael Sachse
Title:   VP Regulatory Affairs & General Counsel
EMPLOYEE
Thomas Kramer

/s/ Thomas Kramer

(Signature)

 

Date
Anticipated Start Date: November 14, 2011
Attachment A: Confidential Information and Invention Assignment Agreement

 

8


EX-10.8

Exhibit 10.8

[Opower letterhead]

May 2, 2012

Dear Alex,

Opower, Inc., a Delaware corporation (the “Company”), is pleased to offer you employment with the Company on the terms described below.

Position. You will start in a part time position on May 1st, 2012 working 15 hours per week for two months, before your job becomes a full-time position as Senior Vice President & General Manager, Devices and Real Time Services on July 1, 2012. You will report to Dan Yates, CEO. By signing this letter, you represent and warrant to the Company that you are under no contractual or other legal obligations that would prohibit you from performing your duties with the Company. Employment is contingent upon successful completion of the background check process.

Compensation and Employee Benefits. You will be paid a starting salary of $3,281.25 per pay period during your first two months of employment to reflect your part-time, 15-hour per week schedule. Upon converting to full time employment on July 1, 2012, your salary will increase to the rate of $8,203.13 per pay period, which is equivalent to $196,875 per year. Effective July 1, 2013, your salary will increase to the rate of $8,750 per pay period, which is equivalent to $210,000 per year. In all instances, all applicable withholdings required by law will be withheld, and your wages are payable on the Company’s regular payroll dates, As a regular employee of the Company you will be eligible to participate in a number of Company sponsored benefits, including medical, dental, and other insurances.

Stock Options. Subject to the approval of the Company’s Board of Directors, you may be granted an option to purchase 460,000 shares of the Company’s common stock (“the Initial Grant”). The option will be subject to the terms and conditions applicable to options granted under the Company’s 2007 Stock Plan (the “Stock Plan”), as described in that Stock Plan and the applicable stock option agreement. Shares covered by the Initial Grant will vest in monthly installments over the next 50 months of continuous service, as described in the applicable stock option agreement, with zero shares vesting in month 1 and 2 since hire and 9,583.33 shares vesting each month after that.

Subject to the approval of the Company’s Board of Directors, you may also be granted an option to purchase 92,000 shares of the Company’s common stock (“Performance Grant A”). The option will be subject to the terms and conditions applicable to options granted under the Company’s Stock Plan, as described in that Stock Plan and the applicable stock option agreement. Shares covered by Performance Grant A will vest in monthly installments, starting when Devices and Real Time Services’ Last Twelve Months Bookings (“LTM Bookings”) exceed $10M (Performance Goal A). If Performance Goal A is reached:

 

    within the first 26 months of hire, vesting will occur pro-rata from vesting start until month 50 from date of hire


    after the 26th month since hire, but before the 32nd month is over, vesting will occur pro-rata over the following 24 months

 

    after the 32nd month since hire, but before the 44th month is over, vesting will occur pro-rata until month 56 since date of hire

 

    after the 44th month since hire, vesting will occur pro-rata over the following 12 months

Last twelve-month bookings (“LTM Bookings”) is defined as the Net Sales total of the Current Year Value (“CYV”) of all In-Home Product contracts that generated revenue for Opower within the last twelve months. CYV is understood to be the recognized bookings during the current calendar year.

 

  a) For a multi-year contract sold within the last twelve months: the value of the committed revenue during the first year of the contract;

 

  b) For a multi-year contract sold more than twelve months ago: the value of the committed revenue pertaining to the then current year portion of the contract;

 

  c) For a contract of duration 12 months or less sold within the last twelve months: the entire value of the contract.

Further, Net Sales indicate that in cases where the proceeds from a contract are split between Honeywell (or another partner), only the portion due to Opower qualifies. The Company will determine the LTM Bookings, Net Sales, CYV and recognized bookings in accordance with the terms described herein, and its determination will be final and binding.

Subject to the approval of the Company’s Board of Directors, you may also be granted an option to purchase 92,000 shares of the Company’s common stock (“Performance Grant B”). The option will be subject to the terms and conditions applicable to options granted under the Company’s Stock Plan, as described in that Plan and the applicable stock option agreement. Shares covered by Performance Grant B will vest in monthly installments starting when Devices and Real Time Services’ Last Twelve Months Bookings (“LTM Bookings”) exceed $25M (Performance Goal B). If Performance Goal B is reached:

 

    within the first 26 months of hire, vesting will occur pro-rata from vesting start until month 50 since date of hire.

 

    after the 26th month since hire, but before the 32nd month is over, vesting will occur pro-rata rata over the following 24 months

 

    after the 32nd month since hire, but before the 44th month is over, vesting will occur pro-rata until month 56 since date of hire.

 

    after the 44th month since hire, vesting will occur pro-rata over the following 12 months

 

2


Upon a Triggering Event, the performance requirement for Performance Grant A and Performance Grant B shall be considered as being met For the avoidance of doubt, the performance requirements shall be considered as being met in advance of the acceleration of stock options as a result of the Triggering Event.

The exercise price per share will be equal to the fair market value per share on the date each option is granted, as determined by the Company’s Board of Directors in good faith compliance with applicable guidance in order to avoid having the option be treated as deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended. There is no guarantee that the Internal Revenue Service will agree with this value. You should consult with your own tax advisor concerning the tax risks associated with accepting an option to purchase the Company’s common stock.

The Company makes no representations or warranties of any type with respect to the tax consequences relating to your participation in the Company’s Stock Plan or any other plans offered to you.

Acceleration of stock options. If the Company:

(a) experiences a Triggering Event while you have Continuous Service Status and your employment is terminated for any reason other than Cause, death, or Disability at any time following the consummation of the Triggering Event, or

(b) experiences a Corporate Transaction while you have Continuous Service Status and the Successor Corporation does not assume your Opower stock options, substitute your Opower stock options, or otherwise continue your Opower options, or your Opower options are not terminated in exchange for a payment of cash, securities and/or other property, then 50% of your remaining unvested option shares shall vest effective on and contingent upon your termination or such Corporate Transaction, as applicable.

(All capitalized terms in this section have the meaning given in the Company Stock Plan or the applicable stock option agreement, or as otherwise defined herein.)

Confidential Information and Invention Assignment Agreement. Like all Company employees, you will be required, as a condition of your employment with the Company, to sign the Company’s enclosed standard Confidential Information and Invention Assignment Agreement (“CIIAA”) (attached hereto as Exhibit A), which contains, among other things, and depending on your location, various restrictive covenants, including non-solicitation and non-compete covenants. Your non-compete obligation to the company will remain effective for 12 months after your last date of hire with the company.

Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause. Any contrary representations that may have been made to you are superseded by this offer. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Chief Executive Officer.

 

3


Non-competition. Because of the Company’s legitimate business interest and the valuable consideration offered to you, for 12 months beginning on the last day of your employment with the Company, you agree and covenant not to engage in Prohibited Activity. For purposes of this non-compete clause, “Prohibited Activity” is activity in which you contribute your knowledge, directly or indirectly, in whole or in part, in any capacity to an entity engaged in a business that is the same as or similar to the Company’s. Similar businesses include businesses that provide or work with wifi-enabled thermostats. Prohibited Activity also includes activity that may require disclosure of trade secrets, proprietary information or other information protected under your Confidential Information and Invention Assignment Agreement. The Company’s competitors include Nest C3, Tendril, Energy Hub, Energy Savvy, EcoFactor, and Radio Thermostat of America.

Nothing in this letter prohibits you from leaving Opower and taking a 20% or greater interest in a company engaged in a Prohibited Activity within six months of the commencement of your employment with the Company. This Section does not, in any way, prevent you from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. You shall promptly provide written notice of any such order to the Company’s General Counsel.

Severance. Provided that you satisfy the Conditions (as defined below) within the Deadline (as defined below), if you experience an involuntary separation from service, as defined in Treasury Regulation 1.409A-l(n), by the Company for any reason other than (i) Cause (as defined in the Stock Plan), (ii) death or (iii) Disability (as defined in the Stock Plan) (each, a “Separation”):

(A) at any time, then the Company will pay you cash severance pay at a rate equal to your base salary in effect at the time of your Separation for a period of six (6) months; and

(B) at any time prior to your completion of the first eighteen (18) months of your employment with the Company, then you will become vested in your options as if you provided an additional three (3) months of service following your Separation date.

Such cash severance pay will be paid in accordance with the Company’s standard payroll procedures on the Company’s payroll dates at the payroll rates in effect as of the Separation date, commencing with the first regular payroll date following the last day of the Deadline, and will be subject to all applicable withholdings. Notwithstanding anything stated herein to the contrary, the severance provided in connection with your Separation under this section is intended to be exempt from Internal Revenue Code (“Code”) Section 409A pursuant to Treasury Regulation Section 1.409A-1 (b)(9)(iii) and to the extent it is exempt pursuant to such section it will in any event be paid no later than the last day of your second taxable year following the taxable year in which your Separation has occurred.

 

4


To receive the cash severance pay and vesting acceleration described above, (i) you must execute (and do not revoke) a full and complete general release of all claims in a form provided by the Company (the “Release”) and (ii) you must have returned all Company property (collectively, (i) and (ii) are the “Conditions”), in each case by the forty-fifth (45th) day (the “Deadline”) after your Separation.

Notwithstanding the above, if any of the cash severance payments provided in connection with your Separation does not qualify for any reason to be exempt from Code Section 409A and you are deemed by the Company at the time of your Separation to be a “specified employee,” as defined in Code Section 409A (i.e. a key employee of a publicly traded company), each such cash severance payment will not be made or commence until the date which is the first (1st) business day of the seventh (7th) month after your Separation and the installments that otherwise would have been paid during the first six (6) months after your Separation will be paid in a lump sum on the first (1st) business day of the seventh (7th) month after your Separation, with any remaining payments payable according to the schedule set forth above. Such deferral will only be effected to the extent required to avoid adverse tax treatment to you, including (without limitation) the additional twenty percent (20%) federal tax for which you would otherwise be liable under Section 409A(a)(l)(B) of the Code in the absence of such deferral.

Termination. Your right to exercise vested shares under any of your options will extend for 12 months after your last date of employment with the Company in return for satisfying the Conditions within the Deadline.

Withholding Taxes. All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

Entire Agreement. This letter supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter. However, your agreement to the terms and conditions set forth in this letter has no effect on the additional obligations contained in the CIIAA, which is incorporated by reference in this letter.

Signature Page Follows

 

5


If you wish to accept this offer, please sign and date both the original of this letter and the enclosed Confidential Information and Invention Assignment Agreement and return ail pages to me. As required, by law, your employment with the Company is also contingent upon your providing legal proof of your identity and authorization to work in the United States. Please see the attached document for examples of acceptable forms of identification. On your first day, please report to our office by 9:30 AM and ask to see Leah Coyne, Director-Human Resources for your new employee orientation. This offer, if not accepted, will expire at the close of business on April 27, 2012.

We look forward to having you join us no later than Wednesday May 2, 2012,

 

Very truly yours,
OPOWER, INC.
By:  

/s/ Leah J. Coyne

(Signature)
Name:  

Leah J. Coyne

Title:  

Director of Human Resources

 

ACCEPTED AND AGREED:
Alex Kinnier

/s/ Alex Kinnier

(Signature)

 

Date

Anticipated Start Date: May 2, 2012

Attachment A: Confidential Information and Invention Assignment Agreement


EX-10.9

Exhibit 10.9

[Opower letterhead]

Jeremy Kirsch

[address]

September 21, 2011

Dear Jeremy:

As you may be aware, OPOWER, Inc., a Delaware corporation (the “Company”), had previously contracted with TriNet Employer Group, a professional employer organization (“TriNet”) for purposes of providing certain Company benefits, as well as payroll and other human resource management services. The Company’s contract with TriNet will end on October 1, 2011. The purpose of this letter is to confirm your continued employment solely through the Company on the following terms and conditions:

 

    Position. Your current position is Senior Vice President, Client Solutions, located in Arlington, VA and you currently report to Daniel Yates.

 

    Compensation. You currently earn a salary at the rate of $8,333.33 per pay period, which is equivalent to $200,000.00 per year, less all applicable withholdings required by law, payable on the Company’s regular payroll dates, but not less frequently than monthly.

 

    Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause. Any contrary representations which may have been made to you are superseded by this offer. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Chief Executive Officer.

 

    Withholding Taxes. All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

 

   

Entire Agreement. Where there is conflict with any prior understandings or agreements, whether oral, written or implied, between you and the Company or between you and TriNet regarding the matters described in this letter, this letter supersedes and replaces such prior understandings or agreements. Where there are additional terms or conditions of employment within those prior understandings or agreements, whether oral, written or implied, between you and the Company or between you and TriNet regarding the matters described in this letter, such additional terms or conditions will remain in full force and effect and will be honored by the Company. For the avoidance of doubt, this letter shall not alter your compensation with respect

 

1


 

to stock options, commissions, bonuses, or severance pay. All prior commitments regarding stock options, commissions, bonuses, and severance pay remain in full effect, save for the fact that Opower is now your sole employer. In addition, your agreement to the terms and conditions set forth in this letter has no effect on the additional obligations contained in the Confidential Information and Invention Assignment Agreement (“CIIAA”), which is incorporated by reference in this letter, and remains in full force and effect.

 

Sincerely,     ACCEPTED AND AGREED:
    By: Jeremy Kirsch
   

/s/ Jeremy Kirsch

/s/ Leah J. Coyne     Signature
Leah J. Coyne    
Director of Human Resources    

 

    Date

 

2


EX-10.10

Exhibit 10.10

[Opower letterhead]

February 4, 2012

Dear Rick,

Opower, Inc., a Delaware corporation (the “Company”), is pleased to offer you employment with the Company on the terms described below.

Position. You will start in a full-time position as Senior Vice President, Engineering, and you will report to Dan Yates, CEO. By signing this letter, you represent and warrant to the Company that you are under no contractual or other legal obligations that would prohibit you from performing your duties with the Company. Employment is contingent upon successful completion of the background check process.

Compensation and Employee Benefits. You will be paid a starting salary at the rate of $10,416.67 per pay period, which is equivalent to $250,000 per year, less all applicable withholdings required by law, payable on the Company’s regular payroll dates. As a regular employee of the Company you will be eligible to participate in a number of Company sponsored benefits, including medical, dental, and other insurances

Stock Options. Subject to the approval of the Company’s Board of Directors, you may be granted an option to purchase 500,000 shares of the Company’s common stock. The option will be subject to the terms and conditions applicable to options granted under the Company’s Stock Plan, as described in that Plan and the applicable stock option agreement. If you are granted an option to purchase shares of the Company’s common stock, you will vest in 25% of the option shares after 12 months of continuous service, and the balance will vest in monthly installments over the next 36 months of continuous service, as described in the applicable stock option agreement. The exercise price per share will be equal to the fair market value per share on the date the option is granted, as determined by the Company’s Board of Directors in good faith compliance with applicable guidance in order to avoid having the option be treated as deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended. There is no guarantee that the Internal Revenue Service will agree with this value. You should consult with your own tax advisor concerning the tax risks associated with accepting an option to purchase the Company’s common stock.

The Company makes no representations or warranties of any type with respect to the tax consequences relating to your participation in the Company’s Stock Plan or any other plans offered to you.


Acceleration of stock options. If the Company:

(a) experiences a Triggering Event while you have Continuous Service Status and your employment is terminated for any reason other than Cause, death, or Disability at any time following the consummation of a Corporate Transaction, or

(b) experiences a Triggering Event while you have Continuous Service Status and the Successor Corporation does not assume your Opower stock options, substitute your Opower stock options, or otherwise continue your Opower options, then 50% of your remaining unvested shares shall vest effective on and contingent upon your termination. (All capitalized terms in this section have the meaning given in the Company Stock Plan.)

Confidential Information and Invention Assignment Agreement. Like all Company employees, you will be required, as a condition of your employment with the Company, to sign the Company’s enclosed standard Confidential Information and Invention Assignment Agreement (“CIIAA”) (attached hereto as Exhibit A), which contains, among other things, and depending on your location, various restrictive covenants, including non-solicitation and non-compete covenants.

Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause. Any contrary representations which may have been made to you are superseded by this offer, This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Chief Executive Officer.

Outside Activities. While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company. In addition, while you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

Withholding Taxes. All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

Relocation. You commit to moving your primary place of residence to the Washington, DC Metro region (“DC”), within 12 months of starting your job with Opower.

In order to assist you to move yourself and your household from the Bay Area to DC, the Company will provide you with a $10,000 lump sum amount, the “Relocation Payment.” Upon receiving your signed offer letter, Opower will direct our third-party partner to contact you. Our third-party partner will serve as a resource for you in the relocation process and will provide you with a Relocation Agreement for your signature. The relocation payment will be provided to you in the form of a pre-paid credit card by a third-party partner. This partner will coordinate any potential gross-ups for tax purposes with OPOWER and will assist you in managing your

 

2


expenses. Should your employment relationship with the Company end prior to completing one year of service with the Company after the relocation , the Relocation Payment must be repaid in full. We anticipate your full relocation to be finalized no later than January 31st, 2013.

Entire Agreement. This letter supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter. However, your agreement to the terms and conditions set forth in this letter has no effect on the additional obligations contained in the CIIAA, which is incorporated by reference in this letter.

Signature Page Follows

 

3


[Opower letterhead]

If you wish to accept this offer, please sign and date both the original of this letter and the enclosed Confidential Information and Invention Assignment Agreement and return all pages to me. As required, by law, your employment with the Company is also contingent upon your providing legal proof of your identity and authorization to work in the United States. Please see the attached document for examples of acceptable forms of identification. On your first day, please report to our office by 9:30 AM and ask to see Leah Coyne, Director-Human Resources for your new employee orientation. This offer, if not accepted, will expire at the close of business on February 7, 2012.

We look forward to having you join us no later than Monday March 5, 2012.

 

Very truly yours,
OPOWER, INC.
By:  

/s/ Leah J. Coyne

 

     (Signature)

Name:   Leah J. Coyne
Title:   Director of Human Resources

/s/ Dan Yates

CEO

 

ACCEPTED AND AGREED:
Rick McPhee

/s/ Rick McPhee

(Signature)

2/7/12

Date

Anticipated Start Date: March 5, 2012

Attachment A: Confidential Information and Invention Assignment Agreement


EX-10.11

Exhibit 10.11

[Opower letterhead]

August 29, 2012

Mr. Roderick Morris

[address]

Dear Rod,

Congratulations on your promotion! This letter contains important information regarding your new position.

Effective September 1, 2012, the following changes will be made to your employment terms:

Job: Your position title will change from SVP, Consumer Marketing and Operations to SVP, Marketing and Operations.

Salary: Your annualized salary will be increased from the current level of $220,000 to $250,000.

Stock Options. Subject to the approval of the Company’s Board of Directors, you may be granted an option to purchase 150,000 shares of the Company’s common stock. The option will be subject to the terms and conditions applicable to options granted under the Company’s Stock Plan, as described in that Plan and the applicable stock option agreement. If you are granted an option to purchase shares of the Company’s common stock, you will vest in 25% of the option shares after 12 months of continuous service, and the balance will vest in monthly installments over the next 36 months of continuous service, as described in the applicable stock option agreement. The exercise price per share will be equal to the fair market value per share on the date the option is granted, as determined by the Company’s Board of Directors in good faith compliance with applicable guidance in order to avoid having the option be treated as deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended. There is no guarantee that the Internal Revenue Service will agree with this value. You should consult with your own tax advisor concerning the tax risks associated with accepting an option to purchase the Company’s common stock.

Should you have any questions regarding your new status, please do not hesitate to contact anyone on the HR team. This letter supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter.

To confirm your acceptance of this promotion, please sign and date this letter and return it to me.


Sincerely,

/s/ Leah J. Coyne

Leah J. Coyne

Director, Human Resources

ACCEPTED AND AGREED:
Roderick Morris

/s/ Roderick Morris

(Signature)

8/29/12

Date

 

2


[Opower letterhead]

Roderick Morris

[address]

September 21, 2011

Dear Roderick:

As you may be aware, OPOWER, Inc., a Delaware corporation (the “Company”), had previously contracted with TriNet Employer Group, a professional employer organization (“TriNet”) for purposes of providing certain Company benefits, as well as payroll and other human resource management services. The Company’s contract with TriNet will end on October 1, 2011. The purpose of this letter is to confirm your continued employment solely through the Company on the following terms and conditions:

•     Position. Your current position is Senior Vice President of Consumer Marketing & Operations, located in Arlington, VA and you currently report to Daniel Yates.

•     Compensation. You currently earn a salary at the rate of $9,166.67 per pay period, which is equivalent to $220,000.00 per year, less all applicable withholdings required by law, payable on the Company’s regular payroll dates, but not less frequently than monthly.

•     Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause. Any contrary representations which may have been made to you are superseded by this offer. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Chief Executive Officer.

•     Withholding Taxes. All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

•     Entire Agreement. Where there is conflict with any prior understandings or agreements, whether oral, written or implied, between you and the Company or between you and TriNet regarding the matters described in this letter, this letter supersedes and replaces such prior understandings or agreements. Where there are additional terms or conditions of employment within those prior understandings or agreements, whether oral, written or implied, between you and the Company or between you and TriNet regarding the matters described in this letter, such additional terms or conditions will remain in full force and effect and will be honored by the Company. In addition, your agreement to the terms and conditions set forth in this letter has no effect on the additional obligations contained in the Confidential Information and Invention Assignment Agreement (“CIIAA”), which is incorporated by reference in this letter, and remains in full force and effect.


Sincerely,     ACCEPTED AND AGREED:

/s/ Leah J. Coyne

    By:   Roderick Morris

Leah J. Coyne

Director of Human Resources

   

 

/s/ Roderick Morris

   
   

9/28/11

    Date

 

2


EX-21.1

Exhibit 21.1

Subsidiaries of Opower, Inc.

Opower Devices, Inc. (Delaware, United States)

OPOWER-SG PTE. LTD. (Singapore)

OPOWER-UK Limited (United Kingdom)

Opower Japan Kabushiki Kaisha (Japan)


EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1 of Opower, Inc. of our report dated March 3, 2014 relating to the financial statements of Opower, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

March 3, 2014