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Item 9A. Controls and Procedures

2024-02-29 compared with 2023-03-01 · 49 added, 51 removed, 115 unchanged (47% of the section changed)

1 unchanged sentence

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, 2022, our disclosure controls and procedures were not effective at the reasonable assurance level.

Notwithstanding such material weaknesses in internal control over financial reporting, our principal executive officer and principal financial officer have concluded that our consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows at and for the periods presented in conformity with generally accepted accounting principles in the United States, or GAAP.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2023.

Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on such evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP.

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the framework in “Internal Control – Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2022 due to the material weaknesses described below.

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.

As of December 31, 2022, we identified the following material weaknesses:

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, our management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States, or GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023.

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).

Based on this assessment, our management concluded that, as of December 31, 2023, our internal control over financial reporting was effective based on those criteria.

The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 8 of this Annual Report on Form 10-K.

Remediation of Previously Reported Material Weaknesses

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022, our management identified material weaknesses in our internal control over financial reporting as of December 31, 2022.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses we previously reported were as follows:

• We did not maintain an effective control environment.

4 unchanged sentences

Specifically, we did not design and maintain effective controls over the income tax provision and certain account analyses and account reconciliations.

The material weakness related to the income tax provision resulted in the restatement of our unaudited condensed consolidated financial statements for the quarters and year-to-date periods ended March 31, 2022, June 30, 2022 and September 30, 2022.

The material weaknesses related to the control environment, the initial application of complex accounting standards and accounting of non-routine, unusual or complex events and transactions and certain account reconciliations and account analyses resulted in adjustments to our 2018 financial statements primarily related to debt extinguishment costs, goodwill, revenue, accounts receivable, foreign exchange expense and deferred revenue.

Additionally, these material weaknesses 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.

The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their report, which is included in Part II, Item 8 of this Annual Report on Form 10-K.

Remediation Plan

Management is committed to taking the necessary steps to remediate the above identified material weaknesses.

We are implementing a plan to remediate the material weaknesses as follows:

• We have hired and are planning to continue to hire additional experienced accounting, financial reporting and internal control personnel and refined our key control roles and responsibilities;

• We provided and are planning to provide additional internal control training programs to all accounting personnel;

• We continue to design and implement controls to address the identification, accounting for, and review of non-routine, unusual or complex and initial applications of complex accounting standards, including the continued engagement of external consultants to provide support and to assist us in our evaluation of such transactions;

• We continue to design and implement the relevant controls to enable effective and timely review of the income tax provision and certain account analyses and account reconciliations, including the identification of relevant supporting documentation, assessment of the reliability of reports and spreadsheets used, and retention of sufficient detailed evidence of review procedures performed.

We have made progress to remediate the material weaknesses and we believe our remediation plan to be sufficient to remediate the identified material weaknesses.

However, the implementation of these remediation measures requires validation and testing of the design and operating effectiveness of internal control over a sustained period of financial reporting prior to reaching a determination that the material weaknesses have been remediated.

As we continue to validate and test our internal control over financial reporting, we may determine that additional measures or modifications to the remediation plan are necessary or appropriate.

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 could result in a material misstatement of account balances or disclosures that 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.

Management, with the participation of the Audit Committee and the Board of Directors, began the implementation of certain remediation measures in 2022 and continued to develop remediation plans and implemented additional measures throughout 2023.

The actions we took to remediate the material weaknesses included the following:

• We hired several experienced accounting, financial reporting and internal control personnel and refined our key control roles and responsibilities;

• We provided additional internal control training programs to all accounting personnel;

• We designed and implemented controls to address the identification, accounting for, and review of non-routine, unusual or complex events and transactions and initial applications of complex accounting standards, including the continued engagement of external consultants to provide support and to assist us in our evaluation of such transactions;

• We designed and implemented relevant controls to enable effective and timely review of the income tax provision and certain account analyses and account reconciliations, including the identification of relevant supporting documentation, assessment of the reliability of reports and spreadsheets used, and retention of sufficient detailed evidence of review procedures performed.

Through testing of our internal controls completed during the quarter ended December 31, 2023, our management determined that the controls related to the remediation actions discussed above were effectively designed and operated effectively for a sufficient period of time to enable us to conclude that the material weaknesses have been remediated as of December 31, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures and internal control over financial reporting, 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 and internal control over financial reporting 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.

Other than the remediation of the material weaknesses described above, there have been no changes in our internal control over financial reporting during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

5 unchanged sentences

Our Code of Business Conduct and Ethics is published on our Investor Relations website at https://investors.legalzoom.com.

To the extent required by rules adopted by the SEC and The Nasdaq Stock Market LLC, we intend to promptly disclose amendments to our Code of Business Conduct and Ethics, or waivers of such provisions granted to executive officers and directors, on this website.

To the extent that disclosure is required by rules adopted by the SEC and The Nasdaq Stock Market LLC, we intend to promptly disclose amendments to our Code of Business Conduct and Ethics, or waivers of such provisions granted to executive officers and directors, on our Investor Relations website.

All other information required by this Item 10 is incorporated herein by reference from the information contained in our Proxy Statement for our 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the end of our fiscal year ended December 31, 2023.

27 unchanged sentences

1 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 21, 2021) .

Description of our Common Stock .

4.3 Description of our Common Stock (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2023).

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 SEC on June 4, 2021) .

3 unchanged sentences

1 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 21, 2021) .

10.4+ Form of RSU Grant Notice (C-Team) ( incorporated by reference to Exhibit 1 0 .2 to the Company ’ s Quarterly Report on Form 10-Q filed with the SEC on May 9, 2023 ).

10.5+ Form of Option Grant Notice (C-Team) ( incorporated by reference to Exhibit 10.

3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 9, 2023 ).

10.6+ Form of Indemnification Agreement, by and between LegalZoom.com, Inc.

15 unchanged sentences

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 SEC on November 10, 2021) .

Number Description of Exhibit

10.13+ Second Amendment to Employment Agreement, by and between LegalZoom.com, Inc.

3 unchanged sentences

10.15+ Amendment to Employment Agreement, by and between LegalZoom.com, Inc.

and Rich Preece dated October 27, 2021 (incorporated by reference to Exhibit 10.

3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2022) .

and Rich Preece dated October 27, 2021 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2022) .

10.16+ Second Amendment to Employment Agreement, by and between LegalZoom.com, Inc.

and Rich Preece dated March 12, 2022 (incorporated by reference to Exhibit 10.

4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2022) .

and Rich Preece dated March 12, 2022 (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 11, 2022) .

10.17+ Employment Agreement, by and between LegalZoom.com, Inc.

and Nicole Miller dated June 16, 2021.

and Nicole Miller dated June 16, 2021 (incorporated by reference to Exhibit 10.15 to the Company ’ s Annual Report on Form 10-K filed with the SEC on March 1, 2023) .

10.18+ Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 10, 2022) .

3 unchanged sentences

10.20 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 Company’s Quarterly Report on Form 10-Q filed with the SEC on November 10, 2021).

10.21 Amendment No.

1, dated as of May 5, 2023, by and between LegalZoom.com, Inc., as borrower, the guarantors party thereto and JPMorgan Chase Bank, N.A., as administrative agent, relating to the Amended and Restated Credit and Guaranty Agreement, dated as of July 2, 2021, among LegalZoom.com, Inc., the guarantors party thereto, the lenders and issuing lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent ( incorporated by reference to Exhibit 10.1 to the Company ’ s Quarter ly Report on Form 10-Q filed with the SEC on May 9, 2023 ).

10.22 Stock Purchase Agreement, dated September 5, 2023, between LegalZoom.com, Inc.

and LucasZoom, LLC ( incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 11, 2023 ).

10.23 Property Purchase Agreement and Escrow Instructions, dated October 11, 2023, by and among 9900 Spectrum LLC and Trinity Foundation RE Venture, LLC ( incorporated by reference to Exhibit 10.2 to the Company ’ s Quarterly Report on Form 10-Q filed with the SEC on November 7, 2023 ).

Subsidiaries of LegalZoom.com, Inc.

3 unchanged sentences

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .

LegalZoom.com, Inc.

Mandatory Clawback Policy.

101 The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 were formatted in Inline XBRL:

(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive (Loss) Income, (iv) Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit), (v) Consolidated Statements of Cash Flows.

(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity, (v) Consolidated Statements of Cash Flows.

104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

15 unchanged sentences

Chief Executive Officer and Director

March 1, 2023

February 29, 2024

Dan Wernikoff (Principal Executive Officer)

1 unchanged sentence

Chief Financial Officer

March 1, 2023

February 29, 2024

Noel Watson (Principal Financial and Accounting Officer)

/s/ Dipanjan Deb

Director March 1, 2023

/s/ Elizabeth Hamren

Director March 1, 2023

Director February 29, 2024

Elizabeth Hamren

/s/ John Murphy

Director March 1, 2023

/s/ Dipan Patel

Director March 1, 2023

/s/ Brian Ruder

Director March 1, 2023

Director February 29, 2024

/s/ Jeffrey Stibel

Director March 1, 2023

Director February 29, 2024

Jeffrey Stibel

/s/ Neil Tolaney Director March 1, 2023

/s/ Christine Wang Director March 1, 2023

/s/ Neil Tolaney Director February 29, 2024

/s/ Christine Wang Director February 29, 2024

Christine Wang

/s/ Sivan Whiteley

Director March 1, 2023

Director February 29, 2024

Sivan Whiteley

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures