Unity Software Inc. 10-K

Item 9A. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act"), as of the end of the period covered by this report. In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure 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 its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on management’s evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. (b) Management’s Report on Internal Control Over Financial Reporting Under the supervision and with the participation of our management, including our principle executive officer and principle financial officer, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission. 135 Table of Contents Unity Software Inc. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2021. Management reviewed the results of its assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which appears in this Item under the heading "Report of Independent Registered Public Accounting Firm." (c) Changes in Internal Control Over Financial Reporting Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any material change in our internal control over financial reporting during the quarter covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, despite the fact that the majority of our employees are continuing to work remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to understand the potential impact on their design and operating effectiveness. (d) Limitations on Effectiveness of Controls and Procedures and Internal Control Over Financial Reporting Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. 136 Table of Contents Unity Software Inc. Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Unity Software Inc. Opinion on Internal Control over Financial Reporting We have audited Unity Software Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Unity Software Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2021 consolidated financial statements of the Company and our report dated February 22, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 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. /s/ Ernst & Young LLP San Jose, California February 22, 2022 137 Table of Contents Unity Software Inc. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections Not applicable. 138 Table of Contents Unity Software Inc. PART III Certain information required by Part III is incorporated herein by reference to our definitive proxy statement for our 2022 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after the year ended December 31, 2021 (the “Proxy Statement”). Item 10. Directors, Executive Officers, and Corporate Governance We maintain a Code of Business Conduct and Ethics that incorporates our code of ethics applicable to all employees, including all directors and executive officers. Our Code of Business Conduct and Ethics is published on our Investor Relations website at investors.unity.com under “Governance.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such information on the website address and location specified above. The remaining information required by this item is incorporated herein by reference to the Proxy Statement. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to information contained in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated herein by reference to information contained in the Proxy Statement, including “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management.” Item 13. Certain Relationships and Related Transactions and Director Independence The information required by this item is incorporated herein by reference to information contained in the Proxy Statement. Item 14. Principal Accountant Fees and Services The information required by this item is incorporated herein by reference to information contained in the Proxy Statement. 139 Table of Contents Unity Software Inc. PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as a part of this Annual Report on Form 10-K: (1) Consolidated Financial Statements. Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K. (2) Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes herein. (3) Exhibits. EXHIBIT INDEX Incorporated by Reference Exhibit Number Description of Exhibit Form File Number Exhibit Filing Date 2.1 Asset Purchase Agreement, dated November 7, 2021, by and among Unity Software Inc., Weta Digital Limited, Film Property Trust, Weta holdings LLC, Joseph Letteri, and Weta Principal Fund LLC 8-K 001-39497 10.1 November 9, 2021 3.1 Amended and Restated Certificate of Incorporation of the Registrant 8-K 001-39497 3.1 September 22, 2020 3.2 Amended and Restated Bylaws of the Registrant S-1/A 333-248255 3.4 September 9, 2020 4.1 Specimen common stock certificate of the Registrant S-1/A 333-248255 4.1 September 9, 2020 4.2 Amended and Restated Investor Rights Agreement by and among the Registrant and certain of its stockholders, dated May 7, 2019 S-1 333-248255 4.2 August 24, 2020 4.3 Description of the Registrant's Securities 10-K 011-39497 4.3 March 5, 2021 4.4 Indenture, dated as of November 19, 2021, by and between Unity Software Inc. And U.S. Bank National Association, as Trustee 8-K 011-39497 4.1 November 19, 2021 4.5 Form of Global Note, representing Unity Software Inc.’s 0% Convertible Senior Notes due 2026 (included as Exhibit A to the Indenture filed as Exhibit 4. 1 ) 8-K 011-39497 4.2 November 19, 2021 10.1† Unity Software Inc. 2009 Stock Plan and related form agreements 10-Q 001-39497 10.1 November 13, 2020 10.2† Unity Software Inc. 2019 Stock Plan and related form agreements 10-Q 001-39497 10.2 November 13, 2020 10.3*† Unity Software Inc. 2020 Equity Incentive Plan and related form agreements 10.4† Unity Software Inc. 2020 Employee Stock Purchase Plan S-1/A 333-248255 10.5 September 9, 2020 10.5† Form of Indemnification Agreement between the Registrant and each of its directors and executive officers S-1/A 333-248255 10.1 September 9, 2020 10.6 Non-Employee Director Compensation Policy 10-K 011-39497 10.6 March 5, 2021 10.7† Form of Confirmatory Offer Letter between Unity Technologies SF and each of Clive Downie, Ralph Hauwert , Ruth Ann Keene , Ingrid Lestiyo S-1 333-248255 10.12 August 24, 2020 10.8† Unity Software Inc. Cash Incentive Bonus Plan S-1 333-248255 10.16 August 24, 2020 140 Table of Contents Unity Software Inc. Incorporated by Reference Exhibit Number Description of Exhibit Form File Number Exhibit Filing Date 10.9 Office Lease, dated November 25, 2015, by and between 26 Third Street (SF) Owner, LLC, and Unity Technologies SF, as amended by (i) the First Amendment to Office Lease, dated January 23, 2017, by and between 26 Third Street (SF) Owner, LLC, and Unity Technologies SF, and (ii) the Second Amendment to Office Lease, dated August 1, 2018, by and between 26 Third Street (SF) Owner, LLC, and Unity Technologies SF S-1 333-248255 10.7 August 24, 2020 10.10 Commercial Lease Agreement, dated September 1, 2015, by and between PFA Ejendomme A/S and Unity Technologies ApS S-1 333-248255 10.8 August 24, 2020 10.11 Form of Capped Call Transactions 8-K 001-39497 10.1 November 19, 2021 10.12† Offer Letter Agreement, dated October 21, 2014, by and between Unity Software Inc. and John Riccitiello S-1 333-248255 10.10 August 24, 2020 10.13† Unity Software Inc. G&A Executive Severance Plan S-1 333-248255 10.14 August 24, 2020 10.14† Unity Software Inc. Senior Executive Severance Plan S-1 333-248255 10.15 August 24, 2020 10.15 Offer letter and addendum, dated January 8, 2021, by and between Unity Technologies SF and Marc Whitten 10-Q 001-39497 10.1 May 12, 2021 10.16 Offer Letter, dated March 15, 2021, by and between Unity Technologies SF and Luis Felipe Visoso 8-K 001-39497 10.1 March 17, 2021 10.17 Separation Agreement, dated March 24, 2021, by and between the Unity Technologies SF and Kimberly Jabal 8-K 001-39497 10.1 March 30, 2021 21.1* Subsidiaries of the Registrant 23.1* Consent of Independent Registered Public Accounting Firm 24.1* Power of Attorney (incorporated by reference to the signatures page of this Annual Report on Form 10-K) 31.1* Section 302 Certification of Principal Executive Officer 31.2* Section 302 Certification of Principal Financial Officer 32.1*# Section 906 Certification of Principal Executive Officer and Principal Financial Officer 101.INS Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) * Filed herewith. † Indicates management contract or compensatory plan. 141 Table of Contents Unity Software Inc. Incorporated by Reference Exhibit Number Description of Exhibit Form File Number Exhibit Filing Date # The certifications attached as Exhibit 32.1 accompany this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any of the Registrant’s filings under the Securities Act of 1933, as amended, irrespective of any general incorporation language contained in any such filing. (b) Exhibits. See Exhibit Index included in Item 15(a) of this Annual Report on Form 10-K. (c) Financial Statement Schedules. All schedules have been omitted because they are not required, not applicable, or not present in amounts sufficient to require submission of the schedule. Item 16. Form 10-K Summary None. 142 Table of Contents Unity Software Inc. 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. UNITY SOFTWARE INC. Date: February 22, 2022 By: /s/ Luis Visoso Luis Visoso Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 143 Table of Contents Unity Software Inc. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John Riccitiello, Luis Visoso, and Nora Go, and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report on Form 10-K, 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, 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 connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-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 and in the capacities and on the dates indicated. Signature Title Date /s/ John Riccitiello President, Chief Executive Officer, and Executive Chairman of the Board of Directors February 22, 2022 John Riccitiello (Principal Executive Officer) /s/ Luis Visoso Senior Vice President and Chief Financial Officer February 22, 2022 Luis Visoso (Principal Financial and Accounting Officer) /s/ Roelof Botha Director February 22, 2022 Roelof Botha /s/ Mary Schmidt Campbell Director February 22, 2022 Mary Schmidt Campbell, Ph.D. /s/ Egon Durban Director February 22, 2022 Egon Durban /s/ David Helgason Director February 22, 2022 David Helgason /s/ Alyssa Henry Director February 22, 2022 Alyssa Henry /s/ Barry Schuler Director February 22, 2022 Barry Schuler /s/ Robynne Sisco Director February 22, 2022 Robynne Sisco /s/ Keisha Smith-Jeremie Director February 22, 2022 Keisha Smith-Jeremie 144