Item 1. Condensed Consolidated Financial Statements

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

(Unaudited)

			As of June 30, 2022						As of December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents			$	932,683					$	754,154
Short-term investments, net			280,459						204,625
Accounts receivable, net of allowance for credit losses of $9,373 and $7,374 as of June 30, 2022 and December 31, 2021, respectively			1,902,504						2,020,720
Prepaid expenses and other current assets			80,531						112,150
TOTAL CURRENT ASSETS			3,196,177						3,091,649
Property and equipment, net			139,214						135,856
Operating lease assets			225,380						234,091
Deferred income taxes			66,689						68,244
Other assets, non-current			45,286						47,500
TOTAL ASSETS			$	3,672,746					$	3,577,340
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Current liabilities:
Accounts payable			$	1,537,448					$	1,655,684
Accrued expenses and other current liabilities			79,339						101,472
Operating lease liabilities			48,287						46,149
TOTAL CURRENT LIABILITIES			1,665,074						1,803,305
Operating lease liabilities, non-current			219,341						238,449
Other liabilities, non-current			8,500						8,280
TOTAL LIABILITIES			1,892,915						2,050,034
Commitments and contingencies (Note 10)
STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.000001; 100,000 shares authorized, zero shares issued and outstanding as of June 30, 2022 and December 31, 2021			—						—
Common stock, par value $0.000001 Class A, 1,000,000 shares authorized; 444,055 and 439,206 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively Class B, 95,000 shares authorized; 44,235 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively			—						—
Additional paid-in capital			1,201,373						915,177
Retained earnings			578,458						612,129
TOTAL STOCKHOLDERS’ EQUITY			1,779,831						1,527,306
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	3,672,746					$	3,577,340

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Revenue			$	376,962					$	279,967					$	692,285					$	499,778
Operating expenses:
Platform operations			67,490						50,809						131,380						101,309
Sales and marketing			89,420						61,755						160,108						117,519
Technology and development			83,483						53,536						155,482						107,454
General and administrative			134,826						51,919						260,625						103,764
Total operating expenses			375,219						218,019						707,595						430,046
Income (loss) from operations			1,743						61,948						(15,310)						69,732
Other expense (income):
Interest expense (income), net			(656)						194						420						239
Foreign currency exchange loss (gain), net			317						204						(478)						(149)
Total other expense (income), net			(339)						398						(58)						90
Income (loss) before income taxes			2,082						61,550						(15,252)						69,642
Provision for (benefit from) income taxes			21,155						13,853						18,419						(697)
Net income (loss)			$	(19,073)					$	47,697					$	(33,671)					$	70,339
Earnings (loss) per share:
Basic			$	(0.04)					$	0.10					$	(0.07)					$	0.15
Diluted			$	(0.04)					$	0.10					$	(0.07)					$	0.14
Weighted-average shares outstanding:
Basic			486,310						475,512						485,256						474,172
Diluted			486,310						496,987						485,256						497,449

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

			Class A and B Common Stock												Additional Paid-In Capital						Retained Earnings						Total Stockholders’ Equity
			Shares						Amount
Balance as of December 31, 2020			473,401						$	—					$	538,778					$	474,367					$	1,013,145
Exercise of common stock options			1,794						—						12,621						—						12,621
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			110						—						(17,080)						—						(17,080)
Stock-based compensation			—						—						52,985						—						52,985
Net income			—						—						—						22,642						22,642
Balance as of March 31, 2021			475,305						—						$	587,304					$	497,009					$	1,084,313
Exercise of common stock options			1,401						—						13,718						—						13,718
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			409						—						(12,155)						—						(12,155)
Issuance of common stock under employee stock purchase plan			1,334						—						22,758						—						22,758
Stock-based compensation			—						—						46,015						—						46,015
Net income			—						—						—						47,697						47,697
Balance as of June 30, 2021			478,449						$	—					$	657,640					$	544,706					$	1,202,346
Balance as of December 31, 2021			483,441						$	—					$	915,177					$	612,129					$	1,527,306
Exercise of common stock options			2,395						—						24,408						—						24,408
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			190						—						(13,428)						—						(13,428)
Stock-based compensation			—						—						125,415						—						125,415
Net loss			—						—						—						(14,598)						(14,598)
Balance as of March 31, 2022			486,026						—						1,051,572						597,531						1,649,103
Exercise of common stock options			657						—						7,387						—						7,387
Issuance of restricted stock, net of forfeitures and shares withheld for taxes			661						—						(9,768)						—						(9,768)
Issuance of common stock under employee stock purchase plan			946						—						25,547						—						25,547
Stock-based compensation			—						—						126,635						—						126,635
Net loss			—						—						—						(19,073)						(19,073)
Balance as of June 30, 2022			488,290						$	—					$	1,201,373					$	578,458					$	1,779,831

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

			Six Months Ended June 30,
			2022						2021
OPERATING ACTIVITIES:
Net income (loss)			$	(33,671)					$	70,339
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			24,624						21,017
Stock-based compensation			250,108						97,551
Allowance for credit losses on accounts receivable			2,078						239
Noncash lease expense			21,343						19,553
Deferred income taxes			1,555						5,044
Other			6,630						9,065
Changes in operating assets and liabilities:
Accounts receivable			112,345						49,802
Prepaid expenses and other current and non-current assets			29,018						(6,812)
Accounts payable			(129,853)						(133,510)
Accrued expenses and other current and non-current liabilities			(22,190)						(22,852)
Operating lease liabilities			(24,029)						(23,995)
Net cash provided by operating activities			237,958						85,441
INVESTING ACTIVITIES:
Purchases of investments			(233,877)						(164,031)
Sales of investments			1,977						4,539
Maturities of investments			154,092						116,769
Purchases of property and equipment			(12,541)						(18,499)
Capitalized software development costs			(3,226)						(2,675)
Net cash used in investing activities			(93,575)						(63,897)
FINANCING ACTIVITIES:
Payment of debt financing costs			—						(1,852)
Proceeds from exercise of stock options			31,795						26,339
Proceeds from employee stock purchase plan			25,547						22,758
Taxes paid related to net settlement of restricted stock awards			(23,196)						(29,235)
Net cash provided by financing activities			34,146						18,010
Increase in cash and cash equivalents			178,529						39,554
Cash and cash equivalents—Beginning of period			754,154						437,353
Cash and cash equivalents—End of period			$	932,683					$	476,907
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for operating lease liabilities			$	28,230					$	27,175
Operating lease assets obtained in exchange for operating lease liabilities			$	11,989					$	16,108
Capitalized assets financed by accounts payable			$	17,852					$	16,611
Tenant improvements paid by lessor			$	425					$	—
Asset retirement obligation			$	173					$	592
Stock-based compensation included in capitalized software development costs			$	1,942					$	1,449

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

THE TRADE DESK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Nature of Operations

The Trade Desk, Inc. (the “Company”) is a global technology company that empowers buyers of advertising. Through the Company's self-service, cloud-based platform, ad buyers can create, manage and optimize more expressive data-driven digital advertising campaigns across ad formats and channels, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices and connected TV (“CTV”). The Company’s platform integrations with major inventory, publisher and data partners provides ad buyers reach and decisioning capabilities, and the Company’s enterprise application programming interfaces (“APIs”) enable its clients to develop on top of the platform.

The Company is a Delaware corporation formed in November 2009 and headquartered in Ventura, California with offices in various cities in North America, Europe, Asia and Australia.

Note 2—Basis of Presentation and Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are unaudited. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021.

There have been no material changes to the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, and these unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the Company’s audited annual consolidated financial statements for the year ended December 31, 2021, and include, in the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results expected for the full year ending December 31, 2022.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates.

Management regularly evaluates its estimates, primarily those related to: (1) revenue recognition criteria, including the determination of revenue reporting as net versus gross in the Company’s revenue arrangements, (2) allowances for credit losses accounts, (3) operating lease assets and liabilities, including our incremental borrowing rate and terms and provisions of each lease (4) the useful lives of property and equipment and capitalized software development costs, (5) income taxes, (6) assumptions used in the option pricing models to determine the fair value of stock-based compensation and (7) the recognition and disclosure of contingent liabilities. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances; the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

As of June 30, 2022, the impacts of the coronavirus (“COVID-19”) pandemic, as well as global economic and geopolitical developments, on the Company’s business continue to evolve. As a result, many of the Company’s estimates and assumptions, including the allowance for credit losses, consider macro-economic factors in the market, which require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.

Note 3—Earnings Per Share

The Company has two classes of common stock, Class A and Class B. Basic and diluted earnings (loss) per share attributable to common stockholders for Class A and Class B common stock were the same because they were entitled to the same liquidation and dividend rights.

The computation of basic and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Numerator:
Net income (loss)			$	(19,073)					$	47,697					$	(33,671)					$	70,339
Denominator:
Weighted-average shares outstanding—basic			486,310						475,512						485,256						474,172
Effect of dilutive securities			—						21,475						—						23,277
Weighted-average shares outstanding—diluted			486,310						496,987						485,256						497,449
Basic earnings (loss) per share			$	(0.04)					$	0.10					$	(0.07)					$	0.15
Diluted earnings (loss) per share			$	(0.04)					$	0.10					$	(0.07)					$	0.14
Anti-dilutive equity awards under stock-based award plans excluded from the determination of diluted earnings (loss) per share			28,138						2,958						28,138						2,958

Note 4—Cash, Cash Equivalents and Short-Term Investments, Net

Cash, cash equivalents and short-term investments in marketable securities were as follows (in thousands):

			As of June 30, 2022
			Cash and Cash Equivalents						Short-Term Investments						Total
Cash			$	200,688					$	—					$	200,688
Level 1:
Money market funds			670,597						—						670,597
Level 2:
Commercial paper			51,698						112,629						164,327
Corporate debt securities			3,003						101,564						104,567
U.S. government and agency securities			6,697						66,266						72,963
Total			$	932,683					$	280,459					$	1,213,142

			As of December 31, 2021
			Cash and Cash Equivalents						Short-Term Investments						Total
Cash			$	272,058					$	—					$	272,058
Level 1:
Money market funds			431,299						—						431,299
Level 2:
Commercial paper			47,544						70,804						118,348
Corporate debt securities			3,253						85,425						88,678
U.S. government and agency securities			—						48,396						48,396
Total			$	754,154					$	204,625					$	958,779

The Company’s gross unrealized gains or losses from its short-term investments, recorded at fair value, for the three and six months ended June 30, 2022 and 2021, were immaterial.

The contractual maturities of the Company’s short-term investments are as follows (in thousands):

			June 30, 2022
Due in one year			$	254,207
Due in one to two years			26,252
Total			$	280,459

Note 5—Leases

The components of lease expense recorded in the condensed consolidated statements of operations were as follows (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Operating lease cost			$	12,792					$	12,791					$	25,276					$	25,886
Short-term lease cost			479						192						951						363
Variable lease cost			2,471						1,034						4,414						2,957
Sublease income			(621)						(713)						(1,247)						(1,363)
Total lease cost			$	15,121					$	13,304					$	29,394					$	27,843

Note 6—Debt

Credit Facility

On June 15, 2021, the Company and a syndicate of banks, led by JPMorgan Chase Bank, N.A., as agent, entered into a Loan and Security Agreement (the “Credit Facility”). The Credit Facility replaced the Company’s prior credit facility, which was scheduled to terminate in May 2022. The Credit Facility consists of a $450 million revolving loan facility, with a $20 million sublimit for swingline borrowings and a $15 million sublimit for the issuance of letters of credit. Under certain circumstances, the Company has the right to increase the Credit Facility by an amount not to exceed $300 million. The Credit Facility is collateralized by substantially all of the Company’s assets, including a pledge of certain of its accounts receivable, deposit accounts, intellectual property, investment property and equipment.

Loans under the Credit Facility bear interest through maturity at a variable rate based upon, at the Company’s option, an annual rate of either a Base Rate or an adjusted LIBOR rate, plus an applicable margin (“Base Rate Borrowings” and “LIBOR Rate Borrowings”). The Base Rate is defined as a rate per annum for any day equal to the greatest of (1) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (2) the NYFRB Rate in effect on such day plus half of 1%, and (3) the adjusted LIBOR rate for a one-month interest period on such day plus 1%. The applicable margin is between 0.25% to 1.25% for Base Rate Borrowings and between 1.25% and 2.25% for LIBOR Rate Borrowings based on the Company maintaining certain leverage ratios. The fee for undrawn amounts under the Credit Facility ranges, based on the applicable leverage, from 0.200% to 0.350%. The Company is also required to pay customary letter of credit fees, as necessary.

On December 17, 2021, the Company amended the Credit Facility to expand the process for issuing letters of credit and the related invoicing, particularly with respect to letters of credit not denominated in U.S. Dollars.

As of June 30, 2022, the Company did not have an outstanding debt balance under the Credit Facility. Availability under the Credit Facility was $444 million as of June 30, 2022, which is net of outstanding letters of credit of $6 million. The Credit Facility matures, and all outstanding amounts become due and payable, on June 15, 2026.

The Credit Facility contains customary conditions to borrowings, events of default, and covenants, including covenants that restrict the Company’s ability to sell assets, make changes to the nature of the Company’s business, engage in mergers or acquisitions, incur, assume or permit to exist additional indebtedness and guarantees, create or permit to exist

liens, pay dividends, issue equity instruments, make distributions or redeem or repurchase capital stock or make other investments, engage in transactions with affiliates, and make payments in respect of subordinated debt. The Credit Facility also requires the Company to maintain compliance with a maximum ratio of consolidated funded debt to consolidated EBITDA of 3.50 to 1.00. As of June 30, 2022, the Company was in compliance with all covenants.

Note 7—Stock-Based Compensation

Stock-Based Compensation Expense

Stock-based compensation expense recorded in the condensed consolidated statements of operations was as follows (in thousands):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Platform operations			$	4,787					$	4,091					$	10,737					$	9,106
Sales and marketing			17,332						14,579						33,857						28,263
Technology and development			22,224						13,974						44,617						30,068
General and administrative			80,870						12,553						160,897						30,114
Total			$	125,213					$	45,197					$	250,108					$	97,551

Stock Options

The following summarizes stock option activity:

			Shares Under Option (in thousands)						Weighted- Average Exercise Price
Outstanding as of December 31, 2021			18,984						$	15.14
Granted			1,458						61.20
Exercised			(3,052)						10.42
Expired/Forfeited			(354)						40.75
Outstanding as of June 30, 2022			17,036						$	19.39
Exercisable as of June 30, 2022			12,292						$	10.22

At June 30, 2022, the Company had unrecognized stock-based compensation relating to stock options of approximately $117 million, which is expected to be recognized over a weighted-average period of 2.3 years.

CEO Performance Option

In October 2021, the Company granted a market-based performance award to the Company’s Chief Executive Officer (the “CEO Performance Option”) under the Company’s 2016 Incentive Award Plan. The CEO Performance Option has an exercise price of $68.29 per share. At June 30, 2022, the CEO Performance Option had 2.4 million exercisable options and 19.2 million options outstanding. No options were granted, exercised, forfeited or expired during the three and six months ended June 30, 2022. No acceleration of unachieved award tranches occurred during the three and six months ended June 30, 2022. Stock-based compensation of $66 million and $131 million for the CEO Performance Option was recorded as a component of general and administrative expense during the three and six months ended June 30, 2022, respectively. At June 30, 2022, the Company had unrecognized stock-based compensation relating to the CEO Performance Option of $530 million that, assuming no acceleration of vesting, is expected to be recognized over a weighted-average period of 2.6 years.

Restricted Stock

The following summarizes restricted stock activity:

			RSU (in thousands)						Weighted- Average Grant Date Fair Value
Unvested as of December 31, 2021			5,597						$	51.54
Granted			4,478						61.43
Vested			(1,125)						39.74
Forfeited			(482)						56.91
Unvested as of June 30, 2022			8,468						$	58.04

At June 30, 2022, the Company had unrecognized stock-based compensation relating to restricted stock of approximately $459 million, which is expected to be recognized over a weighted-average period of 3.1 years.

Employee Stock Purchase Plan (“ESPP”)

Stock-based compensation expense related to the ESPP totaled $16 million for the three months ended June 30, 2022 and 2021. Stock-based compensation expense related to the ESPP totaled $42 million for the six months ended June 30, 2022 and 2021. At June 30, 2022, the Company had unrecognized stock-based compensation relating to ESPP awards of approximately $12 million, which is expected to be recognized over a weighted-average period of 1.0 year.

Note 8—Income Taxes

In determining the interim provision for income taxes, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification (“ASC”) 740-270-30-18, “Income Taxes – Interim Reporting.” The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. Due to our forecasted level of profitability and significant permanent differences primarily related to the CEO Performance Option, the Company is unable to utilize the annual effective tax rate method.

For the three months ended June 30, 2022 and 2021, the provision for income taxes included benefits associated with stock-based awards of $5 million and $10 million, respectively. For the six months ended June 30, 2022 and 2021, the provision for (benefit from) income taxes included benefits associated with stock-based awards of $31 million and $36 million, respectively.

For the six months ended June 30, 2022 and 2021, the Company’s effective tax rate differed from the United States federal statutory tax rate of 21% primarily due to nondeductible stock-based compensation, the impact of tax benefits associated with stock-based awards, state and foreign taxes and research and development tax credits.

There were no material changes to the Company’s unrecognized tax benefits during the six months ended June 30, 2022, and the Company does not expect to have any significant changes to unrecognized tax benefits through the end of the fiscal year.

Note 9—Segment and Geographic Information

The Company has one primary business activity and operates in one reportable and operating segment.

The Company reports revenue net of amounts it pays suppliers for the cost of advertising inventory, third-party data and other add-on features (collectively, “Supplier Features”). The Company generally bills clients based on Gross Billings, which is the gross amount of Supplier Features they purchase through its platform and the platform fees, net of allowances. The Company’s accounts receivable are recorded at the amount of Gross Billings for the amounts it is responsible to collect, and accounts payable are recorded at the net amount payable to suppliers. Accordingly, both accounts receivable and accounts payable appear large in relation to revenue reported on a net basis.

Gross Billings, based on the address of the clients or client affiliates, set forth as a percentage of total Gross Billings, were as follows:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
U.S.			89		%				86		%				88		%				86		%
International			11		%				14		%				12		%				14		%
Total			100		%				100		%				100		%				100		%

Note 10— Commitments and Contingencies

Guarantees and Indemnification

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to clients, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company's balance sheet, statement of operations or statement of cash flows. Accordingly, no amounts for any obligation have been recorded at June 30, 2022.

Litigation

From time to time, the Company is subject to various legal proceedings, litigation and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings, litigation and claims cannot be predicted with certainty, management does not believe that any of these proceedings or other claims will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

On June 28, 2021, a class action lawsuit captioned City Pension Fund for Firefighters and Police Officers in the City of Miami Beach v. The Trade Desk, Inc., et al., No. 2021-0560 was filed against the Company, the members of the Company’s board of directors and one of the Company’s executive officers (collectively, the “Defendants”) in the Court of Chancery of the State of Delaware. The complaint alleged generally that the Defendants breached their fiduciary duties to the Company’s stockholders in connection with the negotiation and approval of the amendments to the Company’s certificate of incorporation and related matters voted on at the Special Meeting of Stockholders held on December 22, 2020 (the “Amendments”). On February 1, 2022, the Defendants moved to dismiss the complaint, and on July 29, 2022, the court dismissed the complaint in its entirety with prejudice. The plaintiff has the right to appeal the decision.

On May 27, 2022, a stockholder of the Company filed a derivative lawsuit captioned Huizenga v. Green, et al., No. 2022-0461, asserting claims on behalf of the Company against certain members of the Company’s board of directors in the Court of Chancery of the State of Delaware. On June 27, 2022, a second derivative lawsuit captioned Pfeiffer v. Green, et al., No. 2022-0560 was filed in the Court of Chancery of the State of Delaware alleging substantially similar claims. The Company expects these lawsuits eventually will be consolidated. The two complaints allege generally that the Defendants breached their fiduciary duties to the Company and its stockholders in connection with the negotiation and approval of the CEO Performance Option. The plaintiffs seek a court order rescinding the CEO Performance Option and monetary damages. The Defendants intend to move to dismiss each of these complaints.

Litigation is inherently uncertain and there can be no assurance regarding the likelihood that the motions to dismiss or defense of the various actions will be successful.

Employment Contracts

The Company has entered into agreements with severance terms with certain employees and officers, all of whom are employed on an at-will basis, subject to certain severance obligations in the event of certain involuntary terminations. The Company may be required to accelerate the vesting of certain stock options in the event of changes in control, as defined, and involuntary terminations.