Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation because of the material weaknesses in our internal control over financial reporting described below, our principal executive officer and principal financial officer concluded that, as of December 31, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level.
Material Weaknesses
During the year ended December 31, 2018, we identified three material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses we identified are as follows:
• We did not maintain an effective control environment. Specifically, we did not maintain sufficient accounting resources commensurate with our structure and financial reporting requirements. This material weakness contributed to the additional material weaknesses described below.
• We did not design and maintain effective controls to address the initial application of complex accounting standards and accounting of non-routine, unusual or complex events and transactions.
• We did not design and maintain effective controls over our financial statement close process. Specifically, we did not design and maintain effective controls over certain account analyses and account reconciliations.
These material weaknesses resulted in adjustments to our financial statements primarily related to debt extinguishment costs, goodwill, revenue, accounts receivable, foreign exchange expense and deferred revenue, and could result in a misstatement of any account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Plan
We are designing and implementing a plan to remediate the material weaknesses identified. Our plan includes:
• hiring additional experienced accounting, financial reporting and internal control personnel and changing roles and responsibilities of our personnel;
• implementing controls to enhance our review of significant accounting transactions and other new technical accounting and financial reporting issues and preparing and reviewing accounting memoranda addressing these issues; and
• implementing controls to enable an effective and timely review of account analyses and account reconciliations.
Ongoing remediation efforts
During the year ended December 31, 2021, we have continued to hire additional experienced accounting personnel to supplement the current team, and we plan to provide internal control training programs for all accounting personnel in the forthcoming quarter to strengthen our overall internal controls environment. We have also enhanced our documentation procedures around complex accounting transactions.
During the year ended December 31, 2021, we have also designed and implemented new controls around account reconciliations to specifically address the timely preparation and review, and identification of relevant supporting documentation to be utilized in the performance of any key balance sheet account reconciliation and to develop proper evidence of any such review.
Status of remediation efforts
We believe the remediation steps outlined above will improve the effectiveness of our internal control over financial reporting. However, the material weaknesses will not be considered remediated until a sustained period of
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time has passed to allow management to test the design and operational effectiveness of the corrective actions. The implementation of these remediation measures will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles and as a result, the timing of when we will be able to fully remediate the material weaknesses is uncertain. Accordingly, we did not remediate these material weaknesses during 2021 and may not do so in 2022. If the steps we take do not remediate the material weaknesses in a timely manner, there could continue to be a reasonable possibility that these control deficiencies or others would result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis. This, in turn, could jeopardize our ability to comply with our reporting obligations, limit our ability to access the capital markets or adversely impact our stock price.
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Management’s annual report on internal control over financial reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. Additionally, our independent registered public accounting firm will not be required to opine on 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.
Changes in internal control over financial reporting
During the quarter ended December 31,2021, we continued to hire experienced accounting personnel as well as formalize policies and procedures into our processes. We also designed controls related to material transactions, including those involving our business combination during the fourth quarter. These fourth quarter remediation activities are changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable
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Part III
Item 10. Directors, Executive Officers and Corporate Governance
We maintain a Code of Conduct and Ethics that applies to all employees, including all officers. We also maintain a Board of Directors Code of Ethics that applies to all members of our Board of Directors. Our Code of Conduct and Ethics and Board of Directors Code of Ethics incorporate guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. Our Code of Conduct and Ethics are published on our Investor Relations website at https://investors.legalzoom.com/corporate-governance/documents-charters. We disclose amendments to certain provisions of our Code of Conduct and Ethics and Board of Directors Code of Ethics, or waivers of such provisions granted to executive officers and directors, on this website within four business days.
The other information required by this Item 10 regarding directors is incorporated by reference from the information contained in our Proxy Statement to be filed with the U.S. Securities and Exchange Commission in connection with the solicitation of proxies for our 2022 Annual Meeting of Stockholders, or 2022 Proxy Statement, under the section entitled “Board of Directors and Corporate Governance” Certain information required by this Item 10 regarding executive officers is set forth in Item 1 of Part I of this Report under the heading “Information about our Executive Officers.”
Item 11. Executive Compensation
The information required by this item will be set forth in our Proxy Statement relating to our annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after December 31, 2021 under the sections entitled “Executive Officers” and “Executive Compensation Tables and Narrative” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated by reference from the information contained in our 2022 Proxy Statement under the sections entitled “Beneficial Ownership of Securities” and “Certain Relationships and Related Person Transactions”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated by reference from the information contained in our 2022 Proxy Statement under the sections entitled “Certain Relationships and Related Person Transactions” and “Board of Directors and Corporate Governance – Director Independence.”
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 is incorporated by reference from the information contained in our 2022 Proxy Statement under the section entitled “Independent Registered Public Accounting Firm.”
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Part IV
Item 15. Exhibits and Financial Statements Schedules
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements Index
See Index to Financial Statements at Item 8 herein.
(2) Financial Statement Schedules
All financial statement schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.
(3) Index to Exhibits
See the exhibits listed below under Part (b).
(b) Exhibits
The exhibits listed below are filed as part of this registration statement.
Exhibit
Number Description of Exhibit
3.1 Amended and Restated Certificate of Incorporation of LegalZoom.com, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 2, 2021) .
3.2 Amended and Restated Bylaws of LegalZoom.com, Inc. (incorporated by reference to Exhibit 3. 4 to A mendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021 ) .
4.1 Form of LegalZoom.com, Inc.’s Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 1 to the Company ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) .
4.2 Fourth Amended and Restated Investors’ Rights Agreement, by and among LegalZoom.com, Inc. and certain of its stockholders, dated June 18, 2021 (incorporated by reference to Exhibit 4. 2 of Amendment No. 1 to the Company ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) .
4.3 Registration Rights Side Letter, by and between LegalZoom.com, Inc. and Bryant Stibel Group, LLC, dated October 2, 2017 (incorporated by reference to Exhibit 4.3 of the Company ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 4, 2021) .
4.4*
Description of our Common Stock
10.1+ 2016 Stock Incentive Plan and forms of award agreements (incorporated by reference to Exhibit 10.1 of the Company ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 4, 2021) .
10.2+ 2021 Equity Incentive Plan and forms of award agreements (incorporated by reference to Exhibit 10.2 of A mendment No. 1 to the Company ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) .
10.3+ 2021 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 of Amendment No. 1 to the C ompany ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) .
10.4+ Form of Indemnification Agreement, by and between LegalZoom.com, Inc. and each of its directors and executive officers (incorporated by reference to Exhibit 10.4 of t he C ompany ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 4, 2021) .
10.5+ Amended and Restated Employment Agreement, by and between LegalZoom.com, Inc. and Dan Wernikoff, dated June 16, 2021 (incorporated by reference to Exhibit 10.5 of Amendment No. 1 to the C ompany ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) .
10.6+ Amended and Restated Employment Agreement, by and between LegalZoom.com, Inc. and Shrisha Radhakrishna, dated June 16, 2021 (incorporated by reference to Exhibit 10.6 of Amendment No. 1 to the C ompany’s Registration Statement on Form S-1 filed with the Secu rities and Exchange Commission on June 21, 2021) .
10.7+ Amended and Restated Employment Agreement, by and between LegalZoom.com, Inc. and Noel B. Watson, dated June 16, 2021 (incorporated by reference to Exhibit 10.7 of Amendment No. 1 to the Company ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) .
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10.8+ Amendment to Employment Agreement, by and between LegalZoom.com, Inc. and Shrisha Radhakrishna, dated October 26, 2021 (incorporated by reference to Exhibit 10.3 of the Company ’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 10, 2021 ) .
10. 9 *+
Amendment to Employment Agreement, by and between LegalZoom.com, Inc. and Noel Watson dated March 1 2 , 2022 .
10. 10 *+
Second Amendment to Employment Agreement, by and between LegalZoom.com, Inc. and Shrisha Radhakrishna, dated March 11, 2022.
10.13+ Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.13 of Amendment No. 1 to the Company ’ s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) .
10.15 Office Lease by and between LegalZoom.com, Inc. and Legacy Partners II Glendale N Brand, LLC, effective August 26, 2010, as amended (incorporated by reference to Exhibit 10. 15 of the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 4, 2021) .
10.16 Director Nomination Agreement, by and between LegalZoom.com, Inc. and certain of its stockholders dated June 18, 2021 (incorporated by reference to Exhibit 10.1 6 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) .
10.17 Common Stock Purchase Agreement, by and between LegalZoom.com, Inc. and entities affiliated with TCV, dated June 18, 2021 (incorporated by reference to Exhibit 10. 17 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 21, 2021) ..
10.18 Amended and Restated Credit and Guaranty Agreement, by and between LegalZoom.com, Inc., the other parties thereto and JPMorgan Chase Bank N.A., as administrative agent, dated July 2, 2021 (incorporated by reference to Exhibit 10. 1 of the C ompany ’ s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 10, 2021).
21.1
Subsidiaries of LegalZoom.com, Inc.
23.1
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
24.1
Power of Attorney (included on the signature page to this registration statement).
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 were formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statement of Stockholders’ Equity (Deficit), (v) Condensed Consolidated Statements of Cash Flows.
104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
______________
* Filed herewith.
+ Indicates a management contract or compensatory plan.
(b) Financial Statement Schedules
All financial statement schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.
Item 16. Form 10-K Summary
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LegalZoom.Com, Inc.
By:
/s/ Dan Wernikoff
Dan Wernikoff
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Dan Wernikoff, Noel Watson and Nicole Miller, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to execute any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ Dan Wernikoff
Chief Executive Officer and Director
March 24, 2022
Dan Wernikoff (Principal Executive Officer)
/s/ Noel Watson
Chief Financial Officer
March 24, 2022
Noel Watson (Principal Financial and Accounting Officer)
/s/ Dipanjan Deb
Director March 24, 2022
Dipanjan Deb
/s/ Khai Ha
Director March 24, 2022
Khai Ha
/s/ John Murphy
Director March 24, 2022
John Murphy
/s/ Dipan Patel
Director March 24, 2022
Dipan Patel
/s/ Brian Ruder
Director March 24, 2022
Brian Ruder
/s/ Jeffrey Stibel
Director March 24, 2022
Jeffrey Stibel
/s/ Christine Wang
Director March 24, 2022
Christine Wang
/s/ Elizabeth Hamren
Director March 24, 2022
Elizabeth Hamren
/s/ Sivan Whiteley
Director March 24, 2022
Sivan Whiteley
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